<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Qualmark Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF QUALMARK CORPORATION
TO BE HELD MAY 8, 1997
To the Shareholders of QualMark Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of QualMark
Corporation, a Colorado corporation (the "Company"), will be held on May 8,
1997 at 3:00 p.m. at the offices of Chrisman, Bynum & Johnson, P.C., 1900
Fifteenth Street, Boulder, Colorado for the following purposes:
1. To elect five directors to serve until the next Annual Meeting of
Shareholders or until their respective successors are elected and
qualified.
2. To approve the amendment of the QualMark Corporation 1996 Stock Option
Plan to increase the number of shares reserved to 415,000 from 165,000
shares of the Company's Common Stock for issuance thereunder.
3. To consider and vote upon a proposal to ratify the appointment of
Price Waterhouse LLP as the Company's independent public accountants
for the fiscal year ending December 31, 1997.
4. To transact any other business as may properly come before the Annual
Meeting or any adjournment thereof.
The close of business on April 14, 1997, has been fixed as the record date
for the determination of holders of QualMark Corporation Common Stock
entitled to notice of, and to vote at, the Annual Meeting, and only
shareholders of record at such time will be so entitled to vote.
In order for the proposals listed above to be approved, each proposal must be
approved by the affirmative vote of holders of a majority of shares, voting
as a group.
Whether or not you expect to attend the Annual Meeting, holders of QualMark
Corporation Common Stock should complete, date, and sign the enclosed form of
proxy card and mail it promptly in the enclosed envelope.
By Order of the Board of Directors
Philip A. Gordon
Secretary of the Corporation
Date: April 16, 1997
PLEASE SIGN AND RETURN THE ENCLOSED FORM OF PROXY PROMPTLY WHETHER OR NOT YOU
INTEND TO BE PRESENT AT THE ANNUAL MEETING. THE GIVING OF A PROXY WILL NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE>
QUALMARK CORPORATION
1329 West 121st Avenue
Denver, CO 80234
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 8, 1997
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of QualMark Corporation, a Colorado
corporation ("QualMark" or the "Company"), for use at the Annual Meeting of
Shareholders of the Company to be held on May 8, 1997 at 3:00 p.m. at the
offices of Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder,
Colorado, and at any and all adjournments of such meeting.
If the enclosed Proxy Card is properly executed and returned in time to
be voted at the meeting, the shares of Common Stock represented will be voted
in accordance with the instructions contained therein. Executed proxies that
contain no instructions will be voted FOR each of the proposals described
herein. Abstentions (proxies not returned) and broker non-votes will be
treated as shareholders absent from the Annual Meeting. The proxies will be
tabulated and votes counted by American Securities Transfer & Trust, Inc. It
is anticipated that this Proxy Statement and the accompanying Proxy Card will
be mailed to the Company's shareholders on or about April 16, 1997.
SHAREHOLDERS WHO EXECUTE PROXIES FOR THE ANNUAL MEETING MAY REVOKE THEIR
PROXIES AT ANY TIME PRIOR TO THEIR EXERCISE BY DELIVERING WRITTEN NOTICE OF
REVOCATION TO THE COMPANY, BY DELIVERING A DULY EXECUTED PROXY CARD BEARING A
LATER DATE, OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
The costs of the meeting, including the costs of preparing and mailing
the Proxy Statement and Proxy, will be borne by the Company. Additionally,
the Company may use the services of its Directors, officers and employees to
solicit proxies, personally or by telephone, but at no additional salary or
compensation. The Company will also request banks, brokers, and others who
hold shares of Common Stock of the Company in nominee names to distribute
proxy soliciting materials to beneficial owners, and will reimburse such
banks and brokers for reasonable out-of-pocket expenses which they may incur
in so doing.
OUTSTANDING CAPITAL STOCK
The record date for shareholders entitled to vote at the Annual Meeting
is April 14, 1997. At the close of business on that day, there were
3,330,484 shares of no par value Common Stock (the "Common Stock") of the
Company outstanding and entitled to vote at the meeting.
<PAGE>
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding Common Stock is necessary to constitute a quorum for each matter
voted upon at the Annual Meeting. In deciding all questions, a holder of
Common Stock is entitled to one vote, in person or by proxy, for each share
held in his or her name on the record date. Abstentions and broker
non-votes, if any, will not be included in vote totals and, as such, will
have no effect on any proposal.
ACTION TO BE TAKEN AT THE MEETING
The accompanying proxy, unless the shareholder otherwise specifies in the
proxy, will be voted (i) FOR the election of each of the five nominees named
herein for the office of director, (ii) FOR approval of an amendment to the
QualMark Corporation 1996 Stock Option Plan to increase the number of shares
of common stock reserved for issuance thereunder from 165,000 to 415,000,
(iii) FOR the selection of Price Waterhouse LLP, independent public
accountants, as the auditors of the Company for the fiscal year ending
December 31, 1997; and (iv) at the discretion of the proxy holders, on any
other matter that may properly come before the meeting or any adjournment
thereof.
Where shareholders have appropriately specified how their proxies are to
be voted, they will be voted accordingly. If any other matter of business is
brought before the meeting, the proxy holders may vote the proxies at their
discretion. The directors do not know of any such other matter or business.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock, as of February 28, 1997,
by each person known by the Company to own beneficially more than 5% of the
outstanding Common Stock, certain executive officers, each director and
director nominee of the Company, and all directors and executive officers as
a group. Except as may be indicated in the footnotes to the table and subject
to applicable community property laws, the Company believes that each of such
persons has the sole voting and dispositive power over the shares held by him
except as otherwise indicated.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------- ----------------- --------
Gregg K. Hobbs 604,935(1) 18.1%
10218 Osceola Ct.
Westminster, CO 80030
The Roser Partnership II, Ltd. 322,635(2) 9.7%
1105 Spruce Street
Boulder, CO 80302
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CVM Equity Fund IV, Ltd. 244,747 7.3%
4845 Pearl East Circle, Suite 300
Boulder, CO 80301
W. Preston Wilson 201,413(3) 5.7%
1329 W. 121st Avenue
Denver, CO 80234
Philip A. Gordon 49,947(4) *
1329 W. 121st Avenue
Denver, CO 80234
Vernon W. Settle 13,836(5) *
1329 W. 121st Street
Denver, CO 80234
Ann Marie Doolittle 13,421(6) *
1329 W. 121st Avenue
Denver, CO 80234
H. Robert Gill 9,554(7) *
1329 W. 121st Avenue
Denver, CO 80234
Norman J. Mottram 7,812(8) *
1329 W. 121st Avenue
Denver, CO 80234
Charles A. French 3,333(9) *
1329 W. 121st Avenue
Denver, CO 80234
William B. Phillips -0- --
1329 W. 121st Avenue
Denver, CO 80234
Harry D. Walls -0- --
1329 W. 121st Avenue
Denver, CO 80234
All Directors and Executive 299,316(10) 8.4%
Officers as a group (9 persons)
- -----------------
* Less than one percent.
(1) Includes warrants to purchase 18,000 shares which are currently exercisable
or become exercisable within 60 days.
(2) Includes warrants to acquire 10,001 shares, which are currently exercisable
or become exercisable within 60 days.
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<PAGE>
(3) Includes options to purchase 186,413 shares which are currently exercisable
or become exercisable within 60 days.
(4) Includes options to acquire 3,333 shares, which are currently exercisable
or become exercisable within 60 days.
(5) Includes options to acquire 13,536 shares, which are currently exercisable
or become exercisable within 60 days.
(6) Includes options to acquire 13,421 shares, which are currently exercisable
or become exercisable within 60 days.
(7) Includes options to acquire 6,666 shares, which are currently exercisable
or become exercisable within 60 days.
(8) Includes options to purchase 7,812 shares, which are currently exercisable
or become exercisable within 60 days.
(9) Includes options to purchase 3,333 shares, which are currently exercisable
or become exercisable within 60 days.
(10) Includes options to purchase 234,514 shares, which are currently
exercisable or become exercisable within 60 days.
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
Pursuant to the Bylaws, the authorized number of directors of the Company
has been set at five and five directors are to be elected at the meeting.
Each nominee will be elected to hold office until the next annual meeting of
shareholders or until his successor is elected and qualified. Proxy holders
will not be able to vote the proxies held by them for more than five persons.
If a quorum is present, the five nominees having the highest number of votes
cast in favor of their election will be elected. Should any nominee become
unable or unwilling to accept nomination or election, the proxy holders may
vote the proxies for the election, in his stead, of any other person the
Board of Directors may recommend. Each nominee has expressed his intention
to serve the entire term for which election is sought.
THE BOARD OF DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR EACH NOMINEE
FOR THE BOARD OF DIRECTORS.
The Board of Directors' nominees for the office of director are as
follows:
Year First
Became a
Name Age Director
- ---- --- ----------
W. Preston Wilson, Ph.D. 48 1992
Charles A. French 54 1996
(A)
H. Robert Gill 60 1994
(A)
Philip A. Gordon 50 1993
(C)
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<PAGE>
William B. Phillips 61 1996
(C)
- --------------------
(A) Member of the Audit Committee
(C) Member of the Compensation Committee
W. PRESTON WILSON. Mr. Wilson has served as the President and Chief
Executive Officer of the Company since March 1993, and as a director since
March 1992. From February 1992 through February 1993, Mr. Wilson was
President and Chief Executive Officer of Vital Choice, Inc., a Portland,
Oregon home intravenous therapy services company which was acquired. From
August 1987 through February 1992, Mr. Wilson was a management consultant and
partner at BPI and Associates, a Dana Point, California management consulting
firm.
H. ROBERT GILL. Mr. Gill has served as a director of the Company since
July 1994 and was elected Chairman in April 1996. Since April 1996, Mr. Gill
has been a principal of The Topaz Group, a management consulting firm. From
March 1995 to March 1996, Mr. Gill was Senior Vice-President of Frontier
Corporation, a telecommunications company. From 1989 to March 1995, Mr. Gill
was President and Chief Executive Officer of ConferTech International, Inc.,
a teleconferencing services and equipment provider. ConferTech International,
Inc., became a subsidiary of Frontier Corporation in 1995. Mr. Gill is a
director of TOPRO, Inc., a systems integration company, MOSAIX, Inc., a
provider of systems and software for call centers, Online System Services,
Inc., a World Wide Web site development and service company, and Spatial
Technologies, a CAD software company.
PHILIP A. GORDON. Mr. Gordon has served as a director of the Company
since July 1993. Since 1985, Mr. Gordon has been an attorney in private
practice. From 1991 through 1994, he was of counsel to Chrisman, Bynum &
Johnson, P.C., counsel to the Company. From 1992 through 1996, Mr. Gordon
was a business consultant and managing director of Alliance Network, Inc.; in
1997 he became manager of Dealworks, LLC, offering similar services. From
1994 to 1997, Mr. Gordon served as general counsel for International Language
Engineering Corp., a software localization company. Mr. Gordon provides
legal services to the Company on an independent contractor basis.
CHARLES A. FRENCH. Mr. French has been a director of the Company since
April 1996. Since 1988, Mr. French has been a private investor and
consultant in Denver, Colorado, providing business development and merger and
acquisition consulting for companies in the health care industry. From 1986
through 1988, Mr. French was the Chief Operating Officer of Spectramed, Inc.,
a manufacturer of disposable medical devices.
WILLIAM B. PHILLIPS. Mr. Phillips has been a director of the Company
since July 1996. Mr. Phillips has been Vice President of Engineering with
Storage Technology Corporation since 1987.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and a Compensation Committee. The
Audit Committee is responsible for (i) reviewing the scope of, and the fees for,
the annual audit, (ii) reviewing with the
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<PAGE>
independent auditors the corporate accounting practices and policies, (iii)
reviewing with the independent auditors their final report, and (iv) being
available to the independent auditors during the year for consultation
purposes. The Audit Committee met one time in the fiscal year ended December
31, 1996. The Compensation Committee determines the compensation of the
officers of the Company and performs other similar functions. The
Compensation Committee met one time in the fiscal year ended December 31,
1996.
Directors are reimbursed for expenses incurred for attending any Board
or committee meeting. There is no family relationship between any current or
prospective director of the Company and any other current or prospective
executive officer of the Company.
During the fiscal year ended December 31, 1996, there were five meetings
of the Board of Directors. With the exception of director William Phillips,
all directors attended at least 75% of the meetings of the Board and
committees of the Board on which they were members.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and holders of more than
10% of the Company's Common Stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership
of Common Stock of the Company. Except as stated below in this paragraph,
based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company during the fiscal year ended December 31, 1996 and Forms 5 and
amendments thereto furnished to the Company with respect to the fiscal year
ended December 31, 1996, to the best of the Company's knowledge, the
Company's directors, officers and holders of more than 10% of its Common
Stock complied with all Section 16(a) filing requirements. William
Phillips, a director of the Company, filed one late initial statement of
beneficial ownership on Form 3 in connection with his election to the Board
of Directors in July 1996.
EXECUTIVE OFFICERS
The following persons are the executive officers of the Company:
Name Position
- ---- --------
W. Preston Wilson, Ph. D. Chief Executive Officer and President
Vernon W. Settle Vice President - Administration
Ann Marie Doolittle Vice President - Accelerated Reliability Test Center
Services
Norman J. Mottram Vice President - Technology
Harry D. Walls Vice President - Corporate Sales and Marketing
Information concerning the business experience of Mr. Wilson is provided
under the section entitled "Election of Directors."
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<PAGE>
VERNON W. SETTLE, AGE 36. Mr. Settle has been Vice President
- -Administration of the Company since February 1997. Mr. Settle was Director
of Finance and Administration of the Company from 1995 to February 1997, and
controller of the Company from 1994 until 1995. From 1987 through 1994, Mr.
Settle was controller of Medical Materials Corporation, a materials
manufacturing company in Camarillo, California.
ANN MARIE DOOLITTLE, AGE 33. Ms. Doolittle has been Vice President
- -Accelerated Reliability Test Center Services since October 1996. Ms.
Doolittle was Manager of the Accelerated Reliability Test Centers from
November 1993 to October 1996. From 1989 to November 1993, she was
co-founder and Engineering Manager with Array Technology Corporation, a
subsidiary of Tandem Computers, Inc.
NORMAN J. MOTTRAM, AGE 37 . Mr. Mottram has been Vice President
- -Technology since October 1996. Mr. Mottram was Director of Manufacturing of
the Company from May 1993 to October 1996. From April 1992 to May 1993 Mr.
Mottram was Research and Development Manager for Puritan Bennett Corporation,
Portable Ventilator division. From 1988 to 1992, Mr. Mottram was
Manufacturing Operations Manager at Puritan Bennett Corporation.
HARRY D. WALLS, AGE 49. Mr. Walls has been Vice President - Corporate
Sales and Marketing since joining the company in November 1996. From 1995 to
1996, Mr. Walls was President of ACT Teleconferencing Services, Inc, a
teleconferencing services provider. From 1987 to 1995 he was Vice President
of Sales and Marketing of ConferTech International, Inc., a teleconferencing
services and equipment provider.
All executive officers are appointed by the Board of Directors and serve
at the Board's discretion.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the cash compensation
earned for the fiscal years ended December 31, 1996 and 1995 by the Company's
Chief Executive Officer. There were no other executive officers who were
serving as executive officers at the end of 1996 whose individual total cash
compensation for 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
Long Term Compensation
Annual Compensation Awards
------------------- ---------------------
Restricted
Stock Options/ All Other
Name and Principal Salary Bonus Awards SARS Compensation(2)
Position Year ($) ($) ($) (#) ($)
- ------------------ ---- --- --- --- --- --------------
<S> <C> <C> <C> <C> <C> <C>
W. Preston Wilson, Ph. D. 1996 156,576 6,500 -- 5,000 --
Chief Executive Officer 1995 138,917 -- -- 7,500 --
and President
</TABLE>
- ---------------
The following table presents information concerning individual grants of
options to purchase Common Stock of the Company made during the fiscal year
ended December 31, 1996 to the Chief Executive Officer.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Number of
Securities Percent of Total Exercise
Underlying Options/SARs or
Options/SARs Granted to Employees Base Price
Name Granted (#) in Fiscal Year ($/Sh.) Expiration Date
- ---- ----------- -------------------- --------- ---------------
W. Preston Wilson 5,000(1) 4.2% 3.25 1/1/03
- --------------
(1) Options become exercisable at the rate of 25% of such option per year
beginning January 1, 1996.
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<PAGE>
The following table sets forth the year-end value of unexercised options
to purchase Common Stock of the Company for the Chief Executive Officer. No
options were exercised by the Chief Executive Officer during the fiscal year
ended December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($)(1)
-------------------------- ----------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
W. Preston Wilson, Ph.D. 152,391 43,397 $213,261 $33,058
- ---------------
(1) Based upon the difference between the fair market value of Company Common
Stock at December 31, 1996 and the exercise price. The fair market value of
Company Common Stock at December 31, 1996, measured as the mean of the
closing bid and asked prices of the Common Stock on such date, was $2.88 per
share.
DIRECTOR COMPENSATION
Directors of the Company who are not also employees of the Company are
reimbursed all out-of-pocket expenses incurred in attending each meeting or
committee meeting of the Board of Directors. In consideration of their
service as directors, each non-employee director has been granted a
non-qualified stock option to purchase up to 10,000 shares of Common Stock
under the 1996 Stock Option Plan. In January 1996, non-employee directors
H. Robert Gill, Charles A. French and Philip A. Gordon were each granted
non-qualified stock options to purchase 10,000 shares of Common Stock at
$3.25 per share. In April 1996, in connection with his appointment as
Chairman of the Board of Directors, non-employee director H. Robert Gill was
granted a non-qualified stock option to purchase 10,000 shares of Common
Stock at $4.19 per share. In July 1996, at the time he was elected to the
Board of Directors, non-employee director William Phillips was granted a
non-qualified stock option to purchase 10,000 shares of Common Stock at $3.81
per share. The exercise price of all such options was equal to the fair
market value of the Common Stock on the date of grant. The options become
exercisable as to one-third (1/3) of such shares over a three-year period
conditioned upon continued board service. All director options have a
ten-year term from their grant date. Options to purchase 30,000 shares
expire in January 2006, options to purchase 10,000 shares expire in April
2006, and options to purchase 10,000 shares expire in July 2006.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In March 1993 the Company entered into an employment agreement with W.
Preston Wilson, Chief Executive Officer and President of the Company. Mr.
Wilson is currently paid a salary under the agreement of $168,000 per year.
The agreement has no fixed term and may be terminated by either party at any
time. If termination is by the Company and is for any reason other than
cause or if Mr. Wilson resigns subsequent to a material reduction in his
compensation or a material change in his duties, the agreement provides for a
severance payment equal to twelve months' salary. The agreement provides
that Mr. Wilson will not engage in activities competitive with the Company
during his employment and for a period of two years after his employment with
the Company terminates, whether voluntarily or involuntarily. Pursuant to
the
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<PAGE>
agreement, the Company granted to Mr. Wilson a non-statutory stock option to
purchase up to 116,088 shares of Common Stock, at an exercise price of $2.00
per share. The option vests on a monthly basis over a four year period
beginning on the date of the agreement, and expires seven years from such
date. In the event of the sale or merger of the Company, all shares subject
to such option will become fully exercisable.
J. Wayne Farlow, former Vice President - Marketing and Sales, resigned from
the Company in November 1996. At the time of his resignation, the Company
had an employment agreement with Mr. Farlow which fixed Mr. Farlow's
compensation at $120,000 per year. Pursuant to the agreement, if
termination was by the Company for any reason other than cause or if Mr.
Farlow resigned subsequent to a material reduction in his compensation or a
material change in his duties, the Company was required to pay Mr. Farlow a
severance payment equal to twelve months' salary. Pursuant to such
agreement, over the twelve months following his resignation the Company will
pay to Mr. Farlow severance in the aggregate amount of $120,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 1, 1994, the Company paid $250,000 for all of the assets of a
seminar and consulting business (the "Purchase") owned by Dr. Gregg K. Hobbs.
As a part of the Purchase, the Company received all residual intellectual
property rights to the Company's present technology, and all applications for
all patents then pending were assigned to the Company. Due to the common
control of the two companies, the Company treated the excess of the amount
paid over the book value of the assets received as a dividend. In 1994, the
seminar and consulting business had profits of $24,709 on revenues of
$228,621, and for the nine months during 1995 that the Company owned that
business, had profits of $9,928 on revenues of $262,588. In September 1995,
the Company sold the assets, excluding any patents or other intellectual
property, of its seminar and consulting business back to Dr. Hobbs for $1,500
(the "Sale"). In connection with the Sale, for the period from January 1,
1996 until December 31, 1999, the Company agreed to make payments to Dr.
Hobbs equal to 2% of the Company's revenues in exchange for Dr. Hobbs being
available to actively promote the Company's products and services. In each
year the royalty rate may increase, to a maximum of 3% of total revenues, if
in such years the Company's revenues exceed certain thresholds. The Company
also issued to Dr. Hobbs a warrant to purchase up to 72,000 shares of Common
Stock, at an exercise price of $2.13 per share which becomes exercisable as
to 25% of such shares per year over four years beginning December 31, 1996,
and expires five years after the grant date. The Company also agreed to
convert his existing options to purchase Common Stock, whether or not then
currently exercisable, into warrants to purchase a like number of shares of
Common Stock, exercisable for five years, at an exercise price of $2.13 per
share. The Company and Dr. Hobbs agreed to certain mutual non-competition
provisions, and agreed to recommend each other's products and services
exclusively. Pursuant to the agreement entered into in connection with the
Sale, Dr. Hobbs is prohibited from competing with the Company through
December 31, 1999.
In September 1994, CVM Equity Fund IV, Ltd. ("CVM") and The Roser Partnership
II, Ltd., shareholders of the Company (the "1994 Lenders"), each made $75,000
loans to the Company in exchange for convertible promissory notes bearing an
annual rate of interest of 8%. Mr. Lefkoff, a director of the Company, was
at the time an officer of the general partner of CVM. The loans were due and
payable April 1, 1995 ("Maturity Date") and were paid in full with the
proceeds of the Company's April 1996 initial public offering (the "IPO"). In
connection with these loans, the Company granted warrants to the 1994 Lenders
for the purchase of 10,547 shares of Series A Preferred Stock, at an exercise
price of $2.13 per share, exercisable for a period of five years, which
warrants were converted into an equal number of shares of Common Stock at the
time of the IPO.
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<PAGE>
In January 1995, CVM loaned an additional $50,000 to the Company, under the
same terms as applied to the 1994 bridge loans. The loan was due and payable
April 1, 1995. The loan was paid in full with the proceeds of the IPO. See
"Use of Proceeds." In connection with such loan, the Company granted to CVM
a warrant to purchase 3,516 shares of Series A Preferred Stock, at an
exercise price of $2.13 per share, exercisable for a period of five years.
In March 1995, the Company borrowed an aggregate of $250,000 from David O.
Wolf, James M. Wolf and the Melvin H. Schlesinger Trust, each of which
subsequently transferred the convertible promissory notes issued therefor
(the "Wolf Note") to Wolf Capital Partners Co., LLP. The Wolf Note was
fully converted into 117,188 shares of Common Stock on March 25, 1996.
In December 1995, the Company borrowed an aggregate of $500,000, and in
consideration therefor issued secured 10% notes (the "Bridge Notes") of the
Company in the aggregate principal amount of $500,000 and warrants to
purchase 50,009 shares of Common Stock at $3.375 per share. The Bridge Notes
were paid in full with the proceeds of the IPO. Bridge Notes in the
principal amount of $100,000 and warrants to purchase 10,001 shares of Common
Stock were issued to the Roser Partnership II, Ltd., and Bridge Notes in the
principal amount of $50,000 and warrants to Purchase 5,001 shares of Common
Stock were issued to Wolf Capital Partners Co., LLP. Such parties still hold
the warrants issued to them in connection with the Bridge Notes. Bridge
Notes in the aggregate principal amount of $100,000 and warrants to purchase
10,001 shares of Common Stock were issued to the Summit Capital Appreciation
Fund, Ltd., some of the partners of which may be deemed affiliates of Summit
Investment Corporation, the underwriter of the IPO. The remaining Bridge
Notes and warrants were sold to various unaffiliated parties.
In March 1996, a corporation wholly owned by Dr. Hobbs sold 150,000 shares of
Common Stock owned by it to existing shareholders of the Company at $2.45 per
share. Among the purchasers were CVM Equity Fund IV, Ltd. (51,020 shares),
the Roser Partnership II, Ltd. (37,755 shares) and Boulder Ventures LP, a
limited partnership of which Mr. Lefkoff is a general partner (29,696
shares).
The Company pays director H. Robert Gill $3,000 per month for management
consulting services. The Company pays director Philip Gordon a monthly
retainer for legal services in the base amount of $2,500 per month.
PROPOSAL 2 - AMENDMENT OF 1996 STOCK OPTION PLAN
On March 6, 1997, the Board of Directors amended, subject to shareholder
approval, the QualMark Corporation 1996 Stock Option Plan (the "Plan"). The
number of common shares available for issuance under the Plan was increased
to 415,000 from 165,000 shares of Common Stock subject to adjustment for
dividend, stock split or other relevant changes in the Company's
capitalization. The Plan, as proposed to be amended, is set forth as Exhibit
A to this Proxy Statement.
The Board of Directors believes that the Plan has been of material
benefit to the Company by assisting the Company and its subsidiaries in
attracting, retaining and motivating key employees of proven ability. The
Board of Directors also believes that the best interests of the Company and
its shareholders require that the Company continue to be in a position to
offer options to present and prospective key personnel and expand its ability
to offer options to present and prospective consultants and to present and
prospective directors who are not employees of the Company or any subsidiary
of the Company.
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The purpose of the Plan is to promote the interests of the Company and
its shareholders by helping the Company and its subsidiaries attract, retain,
and motivate key employees and consultants, including officers and directors
who are employees of or consultants to the Company or any of its
subsidiaries, and nonemployee directors of the Company.
The Board of Directors and shareholders of the Company adopted the Plan
on January 22, 1996.
As of February 28, 1997, options to purchase an aggregate of 159,250
shares of Common Stock (net of options canceled) had been granted pursuant to
the Plan and no options had been exercised. In addition to options
outstanding under the Plan, there are 159,746 shares subject to outstanding
options under the QualMark Corporation 1993 Stock Option Plan (the "1993
Plan"). The Company no longer issues options pursuant to the 1993 Plan. As
of February 28, 1997, the market value of all shares of Common Stock subject
to outstanding options was $1,016,800 (based upon the average bid and asked
prices as reported on the NASDAQ System on such date).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE PLAN
INCREASING THE NUMBER OF COMMON SHARES AVAILABLE FOR ISSUANCE THEREUNDER TO
415,000 FROM 165,000.
The amendment to the Plan will be approved if the number of votes cast
favoring the action exceed the number of votes cast opposing the action.
Unless otherwise specified, proxies solicited by the Board of Directors will
be voted FOR the adoption of the amendment to increase the number of shares
reserved to 415,000 from 165,000 shares for issuance thereunder. The
following description of the Plan, as amended, is qualified in its entirety
by reference to the Plan included herewith as Exhibit A.
SUMMARY OF THE PLAN
ADMINISTRATION. The Board of Directors is responsible for administering
the Plan. The Board of Directors has full authority, subject to the terms of
the Plan, to make all determinations under the Plan. The Board of Directors
may delegate administration of the Plan to a committee composed of two or
more directors, each of whom is a "non-employee director" as such term is
defined in Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"). The Company will indemnify each member of the Board of
Directors for actions taken under the Plan.
INCENTIVE AND NONSTATUTORY STOCK OPTIONS. The Board of Directors may
grant incentive stock options under the Plan and options which do not qualify
as incentive stock options ("nonstatutory stock options").
ELIGIBILITY. Employees of the Company and its subsidiaries, including
officers and directors who are employees of the Company or any subsidiary of
the Company, will be eligible to receive incentive stock options and
nonstatutory stock options under the Plan. As of February 28, 1997, the
Company had approximately 45 total employees. Members of the Company's Board
of Directors who are not employees of the Company or any of its subsidiaries
will be eligible to receive nonstatutory stock options under the Plan. There
are currently four (4) non-employee directors of the Company. The benefits
or amounts that will be received by or allocated to persons eligible to
receive options under the Plan are not determinable.
EXERCISE PRICE. The Plan provides that the exercise price under each
incentive stock option shall be no less than 100% of the fair market value (110%
of the fair market value for employees owning more than 10% of the Company's
Common Stock) of the Common Stock on the day the option is granted. The
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exercise price for each nonstatutory stock option granted under the Plan will
be the price established by the Board of Directors which normally is expected
to be no less than 100% of the fair market value on the date the option is
granted. The exercise price of an option is to be paid in cash or in such
other consideration as the Board deems acceptable, including the optionee's
promissory note. The Board may also permit a participant to surrender
previously owned shares to the Company, the fair market value of which would
be applied to the option exercise price.
NON-TRANSFERABILITY. All options granted under the Plan may be exercised
during the optionee's lifetime only by the optionee and are non-transferable
except by will or the laws of descent and distribution. Notwithstanding the
above, the Board may, at its discretion, permit the transfer of a
nonstatutory option.
EXERCISE. The duration of each option will be as specified by the Board
but will not exceed ten years from the date of grant (five years for
incentive stock options granted to holders of more than 10% of the Company's
Common Stock). The Board, at its discretion, may establish a vesting
schedule for any option granted under the Plan.
EFFECT OF TERMINATION OF SERVICES. If an optionee's employment is
terminated because of the optionee's death or for a reason other than
disability or death, exercisable options held by the optionee may be
exercised no later than three months following the optionee's termination.
If the optionee is an employee of the Company or a subsidiary of the Company
and the termination is due to the optionee's death or permanent and total
disability, exercisable options held by the optionee may be exercised for a
period of twelve months following the termination. In each case, the options
may be exercised only to the extent exercisable on the date of termination of
employment and in no event is an option exercisable after the termination
date specified in the option grant.
STOCK DIVIDENDS AND STOCK SPLITS. The number, kind and price of the
shares subject to each outstanding option will be proportionately and
appropriately adjusted in the event of any stock dividend, stock split,
recapitalization, reclassification, or other similar change in the Company's
outstanding securities. The number of the shares of Common Stock of the
Company reserved for issuance pursuant to options granted under the Plan will
be adjusted by the Board of Directors for any such changes.
CORPORATE TRANSACTIONS. If within the duration of the stock option there
is a corporate merger or consolidation of which the Company is not the
survivor, sale of assets, or transfer of shares of Company stock representing
more than 50% of the total voting stock of the Company ("Transaction"), all
options, to the extent not previously exercised, shall terminate upon the
consummation of such Transaction and cease to be exercisable unless expressly
assumed by the successor corporation or parent thereof. If the Company or
its shareholders enter into an agreement providing for a Transaction, the
vesting schedule of some or all options may, at the sole discretion of the
Board of Directors, be accelerated so that all or any portion of options
outstanding under the Plan as of the day before the consummation of such
Transaction, to the extent not exercised, shall for all purposes under the
Plan become exercisable as of such date
TERM OF PLAN; AMENDMENT. The Plan will terminate on January 22, 2006,
ten years from the date the Plan was adopted by the Board of Directors, or,
if earlier, upon the purchase of all Common Stock subject to the Plan
pursuant to the exercise of options granted under the Plan. Any options
outstanding after the termination of the Plan will remain in effect in
accordance with their terms. The Board of Directors may terminate or amend
the Plan, except that the Board may not, without shareholder approval,
increase the number of shares of Common Stock as to which options may be
granted, materially increase the benefits accruing to participants or
materially modify the eligibility requirements.
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FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee will not realize taxable income
upon the grant of an incentive stock option under the Plan. In addition, an
optionee will not realize taxable income upon the exercise of an incentive
stock option if the optionee holds the shares acquired until at least one
year after exercise and, if later, until two years after the date of grant of
option. The amount by which the fair market value of the shares exceeds the
option price at the time of exercise generally is an item of tax preference
for purposes of the alternative minimum tax. If an optionee acquires stock
through the exercise of an incentive stock option under the Plan and
subsequently sells the stock after holding the stock for the period described
above, the gain which is the difference between the sale price of the stock
and the option exercise price will be taxed as capital gain. The gain will
not be treated as ordinary income except when the holding period requirements
discussed above are not satisfied.
An incentive stock option does not entitle the Company to an income tax
deduction except to the extent that an optionee realizes ordinary income
therefrom.
NONSTATUTORY OPTIONS. An optionee generally will not realize taxable
income upon the grant of a nonstatutory stock option. When an optionee
exercises a nonstatutory stock option, the optionee will realize taxable
ordinary income at that time equal to the difference between the option price
and the fair market value of the stock on the date of exercise.
An optionee will generally have a basis in stock acquired through the
exercise of a nonstatutory stock option under the Plan equal to the fair
market value of the stock on the date of exercise. If the optionee
subsequently sells the stock, the gain which is the difference between the
sale price and the basis will be taxed as capital gain.
Any ordinary income realized by an optionee upon exercise of a
nonstatutory stock option will be allowable to the Company as a deduction at
the time it is realized by the optionee.
Participants in the Plan should consult their own tax advisors to
determine the specific tax consequences of the Plan for them.
PROPOSAL 3 - APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Price Waterhouse LLP,
independent public accountants, as the auditors of the Company for the fiscal
year ending December 31, 1997, subject to the approval of such appointment by
shareholders at the Annual Meeting. Price Waterhouse LLP has audited the
Company's financial statements since the Company's 1993 fiscal year.
The ratification of the appointment of Price Waterhouse LLP will be
determined by the vote of the holders of a majority of the shares present in
person or represented by proxy at the Annual Meeting. If the foregoing
appointment of Price Waterhouse LLP is not ratified by shareholders, the
Board of Directors will appoint other independent accountants whose
appointment for any period subsequent to the 1997 Annual Meeting of
Shareholders will be subject to the approval of shareholders at that meeting.
A representative of Price Waterhouse LLP is expected to be present at the
Annual Meeting and will have an opportunity to make a statement should he so
desire and to respond to appropriate questions.
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THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE TO RATIFY THE
APPOINTMENT OF THE FIRM OF PRICE WATERHOUSE LLP.
SHAREHOLDER PROPOSALS
Any proposals from shareholders to be presented for consideration for
inclusion in the proxy material in connection with the 1998 annual meeting of
shareholders of the Company must be submitted in accordance with the rules of
the Securities and Exchange Commission and received by the Secretary of the
Company at the Company's principal executive offices no later than the close
of business on November 13, 1997.
OTHER MATTERS
All information contained in this Proxy Statement relating to the
occupations, affiliations and securities holdings of directors and officers
of the Company and their relationship and transactions with the Company is
based upon information received from the individual directors and officers.
All information relating to any beneficial owner of more than 5% of the
Company's Common Stock is based upon information contained in reports filed
by such owner with the Securities and Exchange Commission.
The Company's independent public accountants for the fiscal year 1996 are
Price Waterhouse LLP. Representatives of such firm are expected to be
present at the annual meeting, will have the opportunity to make a statement
if they desire to do so and are expected to be available to respond to
appropriate questions.
The Annual Report to Shareholders of the Company for the fiscal year
ended December 31, 1996, which includes financial statements and accompanies
this Proxy Statement, does not form any part of the material for the
solicitation of proxies.
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-KSB, INCLUDING THE FINANCIAL STATEMENTS, FOR THE FISCAL YEAR ENDED DECEMBER
31, 1996, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 TO ANY SHAREHOLDER (INCLUDING
ANY BENEFICIAL OWNER) UPON WRITTEN REQUEST TO VERNON W. SETTLE, VICE PRESIDENT -
ADMINISTRATION, 1329 WEST 121ST AVENUE, DENVER, COLORADO 80234. A COPY OF THE
EXHIBITS TO SUCH REPORT WILL BE FURNISHED TO ANY SHAREHOLDER UPON WRITTEN
REQUEST THEREFOR AND PAYMENT OF A NOMINAL FEE.
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QUALMARK CORPORATION EXHIBIT A
1996 STOCK OPTION PLAN
(AMENDED AS OF MARCH 6, 1997)
I. PURPOSE
The QUALMARK CORPORATION 1996 STOCK OPTION PLAN ("Plan") provides for the
grant of Stock Options to employees, directors and consultants of QUALMARK
Corporation (the "Company"), and such of its subsidiaries (as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code")
as the Board of Directors of the Company (the "Board") shall from time to
time designate ("Participating Subsidiaries") in order to advance the
interests of the Company and its Participating Subsidiaries through the
motivation, attraction and retention of key personnel.
II. INCENTIVE STOCK OPTIONS AND NON-INCENTIVE STOCK OPTIONS
The Stock Options granted under the Plan may be either:
a) Incentive Stock Options ("ISOs") which are intended to be
"Incentive Stock Options" as that term is defined in Section 422 of the
Code; or
b) Nonstatutory Stock Options ("NSOs") which are intended to be
options that do not qualify as "Incentive Stock Options" under Section 422
of the Code.
All Stock Options shall be ISOs unless the Option Agreement clearly
designates the Stock Options granted thereunder, or a specified portion
thereof, as NSOs. Subject to the other provisions of the Plan, a Participant
may receive ISOs and NSOs at the same time, provided that the ISOs and NSOs
are clearly designated as such, and the exercise of one does not affect the
exercise of the other.
Except as otherwise expressly provided herein, all of the provisions and
requirements of the Plan relating to Stock Options shall apply to ISOs and
NSOs.
III. ADMINISTRATION
This Plan shall be administered by the Board or by a committee composed
solely of two or more directors ("Committee") each of whom is a Non-Employee
Director. The Committee or the Board of Directors, as the case may be, shall
have full authority to administer this Plan, including authority to interpret
and construe any provision of this Plan and any Stock Options granted
hereunder, and to adopt such rules and regulations for administering this
Plan as it may deem necessary in order to comply with the requirements of the
Code or in order that Stock Options that are intended to be ISOs will be
classified as
<PAGE>
incentive stock options under the Code, or in order to conform to any
regulation or to any change in any law or regulation applicable thereto. The
Board of Directors may reserve to itself any of the authority granted to the
Committee as set forth herein, and it may perform and discharge all of the
functions and responsibilities of the Committee at any time that a duly
constituted Committee is not appointed and serving. All references in this
Plan to the "Committee" shall be deemed to refer to the Board of Directors
whenever the Board is discharging the powers and responsibilities of the
Committee, and to any special committee appointed by the Board to administer
particular aspects of this Plan.
All actions taken and all interpretations and determinations made by the
Board or Committee in good faith (including determinations of Fair Market
Value) shall be final and binding upon all Participants, the Company and all
other interested persons. No member of the Board or Committee shall be
personally liable for any action, determination or interpretation made in
good faith with respect to the Plan, and all members of the Board and
Committee shall, in addition to their rights as directors, be fully protected
by the Company with respect to any such action, determination or
interpretation. Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") provides that the grant of a stock option to a director or
officer of a company will be exempt from the provisions of Section 16(b) of
the Act if the conditions set forth in said Rule are satisfied. Unless
otherwise specified by the Board or Committee, grants of Stock Options
hereunder to individuals who are officers or directors of the Company shall
be made in a manner that satisfies the conditions of said Rule.
IV. DEFINITIONS
4.1. "STOCK OPTION." A Stock Option is the right granted under the Plan
to an Employee, director, or consultant to purchase, at such time or times
and at such price or prices ("Option Price") as are determined by the Board
or Committee, the number of shares of Common Stock determined by the Board or
Committee.
4.2. "COMMON STOCK." A share of Common Stock means a share of authorized
but unissued or reacquired common stock of the Company.
4.3. "FAIR MARKET VALUE." If the Common Stock is traded publicly, the
Fair Market Value of a share of Common Stock on any date shall be the average
of the representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers through NASDAQ (its automated system for
reporting quotes), for the date in question, or, if the Common Stock is
listed on the NASDAQ National Market System or is listed on a national stock
exchange, the officially quoted closing price on NASDAQ or such exchange, as
the case may be, on the date in question. If the Common Stock is not traded
publicly, the Fair Market Value of a share of Common Stock on any date shall
be determined in good faith by the Board of Directors or the Board or
Committee after such consultations with outside legal, accounting and other
experts as the Board of Directors or the Committee may deem advisable, and
the
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Board of Directors or the Committee shall maintain a written record of its
method of determining such value.
4.4. "EMPLOYEE." An Employee is an employee of the Company or any
Participating Subsidiary.
4.5. "PARTICIPANT." A Participant is an Employee, director or consultant
to whom a Stock Option is granted.
4.6. "NON-EMPLOYEE DIRECTOR." A Non-Employee Director is a person who
satisfies the definition of a "non-employee director" set forth in Rule 16b-3
under the Exchange Act or any successor rule or regulation, as it may be
amended from time to time.
4.7 "CORPORATE TRANSACTION." "Corporate Transaction" shall mean one or
more of the following transactions: (i) a merger or acquisition in which the
Company is not the surviving entity, except for a transaction the principal
purpose of which is to change the State of the Company's incorporation and
except for merger of the Company into any of its wholly owned subsidiaries;
(ii) the sale, transfer or other disposition of all or substantially all of
the Company's assets; or (iii) the transfer of shares of the Company
representing more than 50% of the total combined voting power of all Company
shares in one or more related transactions to a person or persons acting as a
group for voting purposes.
V. ELIGIBILITY AND PARTICIPATION
Grants of ISOs and NSOs may be made to Employees of the Company or any
Participating Subsidiary. Grants of NSOs may be made to directors of or
consultants to the Company or any Participating Subsidiary. Any director of
the Company or of a Participating Subsidiary who is also an Employee shall
also be eligible to receive ISOs. The Committee shall from time to time
determine the Participants to whom Stock Options shall be granted, the number
of shares of Common Stock subject to each Stock Option to be granted to each
such Participant, the Option Price of such Stock Options, all as provided in
this Plan. The Option Price of an NSO shall be determined by the Committee,
but shall be at least 85% of the Fair Market Value on the date the NSO is
granted. The Option Price of any ISO shall be not less than the Fair Market
Value of a share of Common Stock on the date on which the Stock Option is
granted. If an ISO is granted to an Employee who then owns stock possessing
more than 10% of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary corporation of the Company, the
Option Price of such ISO shall be at least 110% of the Fair Market Value of
the Common Stock subject to the ISO at the time such ISOs are granted, and
such ISO shall not be exercisable after five years after the date on which it
was granted. Each Stock Option shall be evidenced by a written agreement
("Option Agreement") containing such terms and provisions as the Committee
may determine, subject to the provisions of this Plan.
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VI. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
6.1. MAXIMUM NUMBER. The maximum aggregate number of shares of Common
Stock that may be made subject to Stock Options shall be 415,000 authorized
but unissued shares (post 3 for 2 stock split). The aggregate Fair Market
Value (determined as of the time the ISO is granted) of the stock as to all
ISOs granted to an individual which may first become exercisable in a
particular calendar year may not exceed $100,000. If any shares of Common
Stock subject to Stock Options are not purchased or otherwise paid for before
such Stock Options expire, such shares may again be made subject to Stock
Options.
6.2. CAPITAL CHANGES. In the event any changes are made to the shares of
Common Stock (whether by reason of reorganization, recapitalization, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or otherwise), appropriate adjustments shall be made in:
(i) the number of shares of Common Stock theretofore made subject to Stock
Options, and in the Option Price of said shares; and (ii) the aggregate
number of shares which may be made subject to Stock Options in the future.
If any of the foregoing adjustments shall result in a fractional share, the
fraction shall be disregarded, and the Company shall have no obligation to
make any cash or other payment with respect to such a fractional share.
VII. EXERCISE OF STOCK OPTIONS
7.1 TIME OF EXERCISE. Subject to the provisions of the Plan, the
Committee, in its discretion, shall determine the time when a Stock Option,
or a portion of a Stock Option, shall become exercisable, and the time when a
Stock Option, or a portion of a Stock Option, shall expire. Such time or
times shall be set forth in the Option Agreement evidencing such Stock
Options. A Stock Option shall expire, to the extent not exercised, no later
than the tenth anniversary of the date on which it was granted. The
Committee may accelerate the vesting of any Participant's Stock Option by
giving written notice to the Participant. Upon receipt of such notice, the
Participant and the Company shall amend the Option Agreement to reflect the
new vesting schedule. The acceleration of the exercise period of a Stock
Option shall not affect the expiration date of that Stock Option.
7.2 EXCHANGE OF OUTSTANDING STOCK. The Committee, in its sole
discretion, may permit a Participant to surrender to the Company shares of
the Common Stock previously acquired by the Participant as part of full
payment for the exercise of a Stock Option. Such surrendered shares shall be
valued at their Fair Market Value on the date of exercise.
7.3. USE OF PROMISSORY NOTE; EXERCISE LOANS. The Committee may, in its
sole discretion, impose terms and conditions, including conditions relating to
the manner and timing of payments, on the exercise of Stock Options. Such terms
and conditions may include, but are not limited to, permitting a Participant to
deliver to the Company his promissory note as full or partial payment for the
exercise of a Stock Option. The Committee, in its sole
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discretion, may authorize the Company to make a loan to a Participant in
connection with the exercise of Stock Options, or authorize the Company to
arrange or guarantee loans to a Participant by a third party.
7.4. TERMINATION OF EMPLOYMENT BEFORE EXERCISE. If the employment of a
Participant who was an employee of the Company or a Participating Subsidiary
when the Stock Option was granted shall terminate for any reason other than
the Participant's death or disability, any Stock Options granted to the
Participant, to the extent then exercisable under the applicable Option
Agreement(s), shall remain exercisable after the termination of his
employment for a period of three months (but not later than the specified
expiration date). If the Participant's employment is terminated because the
Participant is disabled within the meaning of Section 22(e)(3) of the Code,
any Stock Option granted to the Participant, to the extent then exercisable
under the applicable Option Agreement(s), shall remain exercisable after the
termination of his employment for a period of twelve months (but not later
than the specified expiration date). If the Participant dies while employed
by the Company or a Participating Subsidiary, or during the three-month or
twelve-month periods referred to above, his Stock Options may be exercised to
the extent that they were exercisable on the date of cessation of his
employment by his estate, or duly appointed representative, or beneficiary
who acquires the Stock Options by will or by the laws of descent and
distribution, but no further installments of his Stock Options will become
exercisable and each of his Stock Options shall terminate on the first
anniversary of the date of his death (but not later than the specified
expiration dates). If a Stock Option is not exercised during the applicable
period, it shall be deemed to have been forfeited and of no further force or
effect.
7.5. DISPOSITION OF FORFEITED STOCK OPTIONS. Any shares of Common Stock
subject to Stock Options forfeited by a Participant shall not thereafter be
eligible for purchase by the Participant, but may be made subject to Stock
Options granted to other Participants.
VIII. NO CONTRACT OF EMPLOYMENT
Nothing in this Plan shall confer upon the Participant the right to
continue in the employ of the Company, or any Participating Subsidiary, nor
shall it interfere in any way with the right of the Company, or any such
Participating Subsidiary, to discharge the Participant at any time for any
reason whatsoever, with or without cause. Nothing in this Article VIII shall
affect any rights or obligations of the Company or any Participant under any
written contract of employment.
IX. NO RIGHTS AS A STOCKHOLDER
A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock subject to a Stock Option. Except as provided in Section
6.2, no adjustment shall be made in the number of shares of Common Stock issued
to a Participant, or in any other rights of the Participant upon exercise of a
Stock Option by reason of any dividend,
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distribution or other right granted to stockholders for which the record date
is prior to the date of exercise of the Participant's Stock Option.
X. ASSIGNABILITY
No Stock Option granted under this Plan, nor any other rights acquired by
Participant under this Plan, shall be assignable or transferable by a
Participant, other than by will or the laws of descent and distribution, and
Stock Options issued to a Participant are exercisable during his lifetime
only by him. Notwithstanding the preceding sentence, the Committee may, in
its sole discretion, permit the assignment or transfer of an NSO and the
exercise thereof by a person other than a Participant, on such terms and
conditions as the Committee in its sole discretion may determine. Any such
terms shall be set forth in the Option Agreement. In the event of a
Participant's death, the Stock Option may be exercised by the Personal
Representative of the Participant's estate or by the successor or successors
in interest determined under the Participant's will or under the applicable
laws of descent and distribution. The terms of any rights under this Plan in
the hands of a transferee or assignee shall be determined as if held by the
Participant and shall be of no greater extent or term than if the transfer or
assignment had not taken place.
XI. SPECIFIC CORPORATE TRANSACTIONS
11.1. At least twenty (20) days prior to the consummation of a
Corporate Transaction, the Company shall give Participants written notice of
the proposed Corporate Transaction. All Stock Options, to the extent not
previously exercised, shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable unless expressly assumed by the
successor corporation or parent thereof.
11.2. If the Company or its stockholders enter into an agreement
providing for a Corporate Transaction the vesting schedule of some or all
Stock Options may, at the sole discretion of the Committee, be accelerated so
that all or any portion of Stock Options outstanding under the Plan as of the
day before the consummation of such Corporate Transaction to the extent not
exercised, shall for all purposes under this Plan become exercisable as of
such date.
XII. AMENDMENT
The Board of Directors may from time to time alter, amend, suspend or
discontinue the Plan, including, where applicable, any modifications or
amendments as it shall deem advisable in order that ISOs will be classified
as incentive stock options under the Code, or in order to conform to any
regulation or to any change in any law or regulation applicable thereto;
provided, however, that no such action shall adversely affect the rights and
obligations with respect to Stock Options at any time outstanding under the
Plan; and provided further that no such action shall, without the approval of
the stockholders of the Company, (i) increase the
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maximum number of shares of Common Stock that may be made subject to Stock
Options (unless necessary to effect the adjustments required by Section 6.2),
(ii) materially modify the requirements as to eligibility for participation
in the Plan.
XIII. REGISTRATION OF OPTIONED SHARES
The Stock Options shall not be exercisable unless the purchase of such
optioned shares is pursuant to an applicable effective registration statement
under the Securities Act of 1933, as amended, or unless, in the opinion of
counsel to the Company, the proposed purchase of such optioned shares would
be exempt from the registration requirements of the Securities Act of 1933,
as amended, and from the registration or qualification requirements of
applicable state securities laws.
XIV. WITHHOLDING TAXES
The Company or Participating Subsidiary may take such steps as it may
deem necessary or appropriate for the withholding of any taxes (including the
withholding of shares of Common Stock otherwise issuable which have
appropriate Fair Market Value) which the Company or the Participating
Subsidiary is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign to withhold
in connection with any Stock Options.
XV. BROKERAGE ARRANGEMENTS
The Committee, in its discretion, may enter into arrangements with one or
more banks, brokers, or other financial institutions to facilitate the
disposition of shares acquired upon exercise of Stock Options including,
without limitation, arrangements for the simultaneous exercise of Stock
Options and the sale of shares acquired upon exercise.
XVI. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of this Plan to stockholders of the Company for approval shall be
construed as creating any limitations on the power or authority of the Board
of Directors to adopt such other or additional incentive or other
compensation arrangements of whatever nature as the Board of Directors may
deem necessary or desirable or preclude or limit the continuation of any
other plan, practice or arrangement for the payment of compensation or fringe
benefits to employees generally, or to any class or group of employees, which
the Company or any Participating Subsidiary now has lawfully put into effect,
including, without limitation, any retirement, pension, savings and stock
purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
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<PAGE>
XVII. EFFECTIVE DATE
This Plan was adopted by the Board of Directors and shareholders of the
Company on January 22, 1996 and became effective on January 22, 1996. No
Stock Options shall be granted subsequent to ten years after the effective
date of this Plan. Stock Options outstanding subsequent to ten years after
the effective date of this Plan shall continue to be governed by the
provisions of this Plan.
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<PAGE>
QUALMARK CORPORATION PROXY
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD MAY 8, 1997
The undersigned hereby constitutes, appoints, and authorizes W. Preston
Wilson and Vernon W. Settle, and each of them, as the true and lawful
attorney and Proxy of the undersigned, with full power of substitution and
appointment, for and in the name, place and stead of the undersigned to act
for and vote as designated below, all of the undersigned's shares of the no
par value Common Stock of QualMark Corporation, a Colorado corporation, at
the Annual Meeting of the Shareholders to be held May 8, 1997, at the offices
of Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder, Colorado,
at 3:00 p.m., and at any and all adjournments thereof, with respect to the
matters set forth below and described in the Notice of Annual Meeting dated
April 16, 1997 receipt of which is hereby acknowledged.
1. Approval of the election of each of the five nominees named herein for the
office of director to serve until the next Annual Meeting of Shareholders
or until their respective successors are elected and qualified.
For all nominees listed below WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE CONTRARY BELOW) to vote for all listed below
/ / / /
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
W. Preston Wilson, Philip A. Gordon, H. Robert Gill, Charles A. French
and William B. Phillips
2. Approval of an amendment to the QualMark Corporation 1996 Stock Option Plan
to increase the number of shares of the Company's Common Stock reserved for
issuance thereunder to 415,000 from 165,000 shares.
/ / FOR / / AGAINST
3. Approval of the selection of Price Waterhouse LLP, independent public
accounts, as auditors of the Company for the fiscal year ending December
31, 1997.
/ / FOR / / AGAINST
4. The Proxy is authorized to vote upon any other business as may properly
come before the Annual Meeting or any adjournments thereof.
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The undersigned hereby revokes any Proxies as to said shares heretofore given
by the undersigned, and ratifies and confirms all that said attorney and
Proxy may lawfully do by virtue hereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3. THIS PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE TIME OF THE
MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
DATED: , 1997
------------------------
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Signature(s) of Shareholder(s)
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Signature(s) of Shareholder(s)
Signature(s) should agree with the name(s) shown hereon. Executors,
administrators, trustees, guardians and attorneys should indicate their
capacity when signing. Attorneys should submit powers of attorney. When
shares are held by joint tenants, both should sign. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF QUALMARK CORPORATION
PLEASE SIGN AND RETURN THIS PROXY USING THE ENCLOSED
PRE-PAID ENVELOPE.
THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON
IF YOU ATTEND THE MEETING.
