<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
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 15, 1998
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 15,
1998 at 3:00 p.m. M.D.T., at the Hotel Boulderado, 2115 Thirteenth 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 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, 1998.
3. To transact any other business as may properly come before
the Annual Meeting or any adjournment thereof.
The close of business on March 13, 1998, 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 15, 1998
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 15, 1998
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 15, 1998 at 3:00 p.m. M.D.T. at
the Hotel Boulderado, 2115 13th 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 15, 1998.
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
March 13, 1998. At the close of business on that day, there were 3,397,635
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 of the Company, (ii) FOR the selection of
Price Waterhouse LLP, independent public accountants, as the auditors of the
Company for the fiscal year ending December 31, 1998; and (iii) at the
discretion of the proxy holders, on any other matter that may properly come
before the meeting or any adjournment thereof.
Where shareholders appropriately specify how their proxies are to be voted,
they will be voted accordingly. If any other matter of business is brought
before the meeting or any adjournment thereof, 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 27, 1998, by
each person known by the Company to own beneficially more than five percent (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. 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 in
the footnotes and subject to applicable community property laws.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- --------------------- -------------------- ----------------
<S> <C> <C>
Gregg K. Hobbs 576,935(1) 16.6%
10218 Osceola Ct.
Westminster, CO 80030
The Roser Partnership II, Ltd. 332,636(2) 9.8%
1105 Spruce Street
Boulder, CO 80302
CVM Equity Fund IV, Ltd. 244,747 7.2%
4845 Pearl East
Circle, Suite 300
Boulder, CO 80301
W. Preston Wilson 196,525(3) 5.5%
1329 W. 121st Avenue
Denver, CO 80234
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<PAGE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- --------------------- -------------------- ----------------
<S> <C> <C>
Philip A. Gordon 50,947(4) 1.5%
1329 W. 121st Avenue
Denver, CO 80234
Vernon W. Settle 27,909(5) *
1329 W. 121st Street
Denver, CO 80234
Ann Marie Doolittle 22,852(6) *
1329 W. 121st Avenue
Denver, CO 80234
H. Robert Gill 17,222(7) *
1329 W. 121st Avenue
Denver, CO 80234
Norman J. Mottram 13,313(8) *
1329 W. 121st Avenue
Denver, CO 80234
Charles A. French 17,667(9) *
1329 W. 121st Avenue
Denver, CO 80234
William B. Phillips 4,333(10) *
1329 W. 121st Avenue
Denver, CO 80234
Harry D. Walls 10,000(11) *
1329 W. 121st Avenue
Denver, CO 80234
William Sanko -- *
1329 W. 121st Avenue
Denver, CO 80234
All Directors and Executive 360,768(12) 9.8%
Officers as a group (10 persons)
- ----------------------------------
</TABLE>
* Less than one percent.
(1) Includes warrants to purchase 72,000 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(2) Includes warrants to purchase 10,001 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(3) Includes options to purchase 181,525 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(4) Includes options to purchase 4,333 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(5) Includes options to purchase 27,609 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(6) Includes options to purchase 22,852 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
-3-
<PAGE>
(7) Includes options to purchase 14,334 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(8) Includes options to purchase 13,313 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(9) Includes options to purchase 7,667 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(10) Includes options to purchase 4,333 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(11) Includes options to purchase 10,000 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(12) Includes options to purchase 285,966 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
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 ten percent
(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, 1997 and Form 5 and amendments
thereto furnished to the Company with respect to the fiscal year ended December
31, 1997, to the best of the Company's knowledge, the Company's directors,
officers and holders of more than ten percent (10%) of its Common Stock complied
with all Section 16(a) filing requirements. William Sanko, 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 October 1997.
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
Pursuant to the Bylaws, the authorized number of directors of the Company
is six, but effective immediately after the Annual Meeting, will be reset at
five. 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 OF ITS
NOMINEES FOR THE BOARD OF DIRECTORS.
The Board of Directors' nominees for the office of director are as follows:
<TABLE>
<CAPTION>
NAME AGE YEAR FIRST BECAME A DIRECTOR
- ----- ---- ----------------------------
<S> <C> <C>
W. Preston Wilson, Ph.D. 49 1992
Charles A. French(A) 55 1996
-4-
<PAGE>
<CAPTION>
NAME AGE YEAR FIRST BECAME A DIRECTOR
- ----- ---- ----------------------------
<S> <C> <C>
H. Robert Gill(A) 61 1994
Philip A. Gordon(C) 51 1993
William Sanko(C) 58 1997
</TABLE>
- ---------------
(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 May 1997, Mr. Gill has
been chairman and chief executive officer of Mobile Force Technologies, Inc., a
systems and software company. 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 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, Inc., 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 SANKO. Mr. Sanko has been a director of the Company since October
1997. From 1984 to 1996, Mr. Sanko was President and CEO of XEL Communications,
Inc., a manufacturer of voice and data products used by telephone companies to
provide private line services to businesses. In 1995, XEL was purchased by
Gilbert Associates, Inc., now Salient 3 Communications, Inc., and Mr. Sanko
continues to
-5-
<PAGE>
advise the President and CEO of Salient 3 Communications, Inc. on matters
concerning long term business planning and acquisitions.
BOARD OF DIRECTORS
The current members of the Board of Directors are: W. Preston Wilson, H.
Robert Gill, Phillip A. Gordon, Charles A. French, William B. Phillips, and
William Sanko.
WILLIAM B. PHILLIPS, 62. Mr. Phillips has been a director of the Company
since July 1996 and served on the Compensation Committee for fiscal year ended
1997. He is not seeking reelection to the Board for the upcoming fiscal year.
Mr. Phillips has been Vice President of Engineering with Storage Technology
Corporation since 1987.
Information concerning the other members of the Board is provided under the
Section entitled "Election of Directors."
During the fiscal year ended December 31, 1997, 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.
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. Except as disclosed above in the Section entitled
"Election of Directors," none of the directors hold directorships on other
Boards of Directors of other companies required to report under the
Securities Exchange Act of 1934.
DIRECTOR COMPENSATION
Directors of the Company who are not also employees of the Company are
reimbursed for 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 March 1997, non-employee directors William French, Robert Gill,
Philip Gordon, and William Phillips were each granted non-qualified stock
options to purchase 3,000 shares each of Common Stock at $3.25 per share. In
October, 1997, non-employee director William Sanko was granted a non-qualified
stock option to purchase 10,000 shares of Common Stock at $5.75 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 at a rate of
33% of such shares on each anniversary of the grant date, so that the options
are fully exercisable on the third anniversary of the grant date, conditioned
upon continued board service. All director options have a ten-year term from
their grant date.
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 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, 1997. The
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<PAGE>
Compensation Committee determines the compensation of the officers of the
Company and performs other similar functions. The Compensation Committee met
two times in the fiscal year ended December 31, 1997.
EXECUTIVE OFFICERS
The following persons are the executive officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION
- ------ --------
<S> <C>
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
</TABLE>
Information concerning the business experience of Mr. Wilson is provided
under the section entitled "Proposal I - Election of Directors."
VERNON W. SETTLE, 37. 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, 34. 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 of Array Technology Corporation, a subsidiary of Tandem Computers, Inc.
NORMAN J. MOTTRAM, 38. 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, 50. 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.
-7-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid for the fiscal years
ended December 31, 1997, 1996, and 1995 to the Chief Executive Officer of the
Company and its four executive officers who were paid more than $100,000 in
salary and bonus during the year ended December 31, 1997 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------------- --------------------------------
Restricted
Stock Options/ All Other
Name and Salary Bonus Awards SARs Compensation
Principal Position Year ($) ($) ($) (#) ($)
- -------------------- ---- ---------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Preston Wilson, 1997 166,849 51,069 - 40,000 -
Ph.D., Chief Executive 1996 159,784 6,500 - 5,000 -
Officer and President 1995 138,916 - - 7,500 -
Harry D. Walls, 1997 118,600 46,172 - 15,000 -
Vice President - 1996 17,500 - - 40,000 -
Corporate Sales and
Marketing (1)
Norman J. Mottram, 1997 89,381 17,626 - 16,000 -
Vice President - 1996 82,705 3,250 - 10,000 -
Technology (2) 1995 76,116 - - 6,000 -
Ann Marie Doolittle, 1997 84,625 16,874 - 15,000 -
Vice President - 1996 74,720 5,000 - 10,000 -
General Manager 1995 70,616 - - 19,500 -
ARTC Services (3)
Vernon W. Settle, Vice 1997 83,199 16,903 - 20,000 -
President - 1996 77,772 3,500 - 10,000 -
Administration (4) 1995 59,806 - - 16,145 -
</TABLE>
- ---------------
(1) Mr. Walls has been Vice President of Corporate Sales and Marketing since
joining the Company in November 1996.
(2) Mr. Mottram has been Vice President of Technology for the Company since
October 1996.
(3) Ms. Doolittle has been Vice President of Accelerated Reliability Test Center
Services for the Company since October 1996.
(4) Mr. Settle has been Vice President of Administration for the Company since
February 1997.
-8-
<PAGE>
The following table presents information concerning individual grants of
options to purchase Common Stock of the Company made during the fiscal year
ended December 31, 1997 to the Chief Executive Officer and the Named Executive
Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
Securities Percent of Total
Underlying Options/SARs Granted Exercise or
Options/SARs to Employees Base Price
Name Granted (#) in Fiscal Year ($/Sh.) Expiration Date
- ----- ----------- -------------- ----- ---------------
<S> <C> <C> <C> <C>
W. Preston Wilson 40,000 (1) 17% $4.56 7/18/04
Harry D. Walls 15,000 (2) 6% $4.56 7/18/04
Norman J. Mottram 16,000 (3) 7% $4.53 7/11/04
Ann Marie Doolittle 15,000 (4) 6% $4.53 7/18/04
Vernon W. Settle 20,000 (5) 8% $4.53 7/18/04
- -------------------
</TABLE>
(1) Options become exercisable at a rate of 25% per year beginning July 18,
1998.
(2) Options become exercisable at a rate of 25% per year beginning July 18,
1998.
(3) Options become exercisable at a rate of 25% per year beginning July 11,
1998.
(4) Options become exercisable at a rate of 25% per year beginning July 18,
1998.
(5) Options become exercisable at a rate of 25% per year beginning July 18,
1998.
-9-
<PAGE>
The following table sets forth the year-end value of unexercised options to
purchase Common Stock of the Company for the Chief Executive Officer and the
Named Executive Officers. No options were exercised by the Chief Executive
Officer and the Named Executive Officers during the fiscal year ended December
31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($) (1)
-------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
W. Preston Wilson, Ph.D. 172,925 62,863 833,898 167,451
Harry D. Walls 10,000 45,000 26,850 107,775
Norman J. Mottram 11,125 36,875 44,295 64,746
Ann Marie Doolittle 20,102 32,625 82,691 91,104
Vernon W. Settle 17,286 43,859 71,117 131,744
- -----------------------
</TABLE>
(1) Based upon the difference between the fair market value of Company Common
Stock on December 31, 1997 and the exercise price. The fair market value of
Company Common Stock on December 31, 1997, measured as the mean of the closing
bid and asked prices of the Common Stock on such date, was $6.375 per share.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
AGREEMENTS
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 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 vested 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. Pursuant to an employment agreement with Mr.
Farlow, the Company was required to pay Mr. Farlow a severance payment in the
aggregate amount of $120,000, equal to twelve months' salary. The Company
satisfied this severance payment obligation in November 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 1, 1994, the Company paid $250,000 for all of the assets of
Hobbs Engineering Corporation (HEC), a seminar and consulting business (the
"Purchase") owned by Dr. Gregg K. Hobbs. As
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<PAGE>
a part of the Purchase, the Company received all residual intellectual property
rights to HEC's then 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, HEC had profits of $24,709 on
revenues of $228,621, and for the nine months during 1995 that the Company owned
HEC, 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 HEC 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 quarterly royalty 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. In the fiscal years ended December 31,1997 and 1996,
the Company paid $324,000 and $114,000, respectively, in such royalty fees.
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. 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.
In January 1995, CVM Equity Fund IV, Ltd. ("CVM"), a shareholder of the
Company, loaned $50,000 to the Company in exchange for convertible promissory
notes bearing an annual rate of interest of 8%. The loan was due and payable
April 1, 1995. The loan was paid in full with the proceeds of the IPO. 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 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. 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.
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<PAGE>
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) and
the Roser Partnership II, Ltd. (37,755 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 - 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, 1998, 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 1998 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.
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 1999 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, 1998.
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 five percent (5%) of
the Company's Common Stock is based upon information contained in reports filed
by such owner with the Securities and Exchange Commission.
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<PAGE>
The Company's independent public accountants for the fiscal year 1997 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, 1997, 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, 1997, 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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<PAGE>
QUALMARK CORPORATION PROXY
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD MAY 15, 1998
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 15, 1998, at the Hotel Boulderado 2115
Thirteenth Street, Boulder, Colorado, at 3:00 p.m. M.D.T., 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 15, 1998 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.
<TABLE>
<S> <C>
For all nominees listed below WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE CONTRARY BELOW) / / to vote for all listed below / /
</TABLE>
(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 Sanko
2. Approval of the selection of Price Waterhouse LLP, independent public
accounts, as auditors of the Company for the fiscal year ending December
31, 1998.
/ / FOR / / AGAINST
3. The Proxy is authorized to vote upon any other business as may properly
come before the Annual Meeting or any adjournments thereof.
- ----------------------------------------------
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 AND 2. 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: , 1998
-----------------
- ------------------------------------
Signature(s) of Shareholder(s)
- ------------------------------------
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.
