<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 APRIL 23, 1999
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 April 23,
1999 at 2:00 p.m. M.D.T., at the Hotel Boulderado, 2115 13th 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 the recommendation of the Board of
Directors to increase the number of shares reserved for
issuance under the Qualmark 1996 Stock Option Plan from
415,000 shares to 665,000 shares.
3. To consider and vote upon a proposal to ratify the appointment
of PricewaterhouseCoopers LLP as the Company's independent
public accountants for the fiscal year ending December 31,
1999.
4. To transact any other business as may properly come before the
Annual Meeting or any adjournment thereof.
The close of business on March 9, 1999, 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, present in person or by proxy at the Annual Meeting.
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
/s/ Philip A. Gordon
Philip A. Gordon
Secretary of the Corporation
Date: March 23, 1999
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
TO BE HELD APRIL 23, 1999
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 April 23, 1999 at 2:00 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 March 23, 1999.
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 9, 1999. At the close of business on that day, there were 3,539,015
shares of no par value common stock (the "Common Stock") of the Company
outstanding. The Company has authorized 2,000,000 shares of Preferred Stock, no
par value and no shares were outstanding as of the record date.
<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 proposal to increase the
number of shares in the QualMark 1996 Stock Option Plan from 415,000 shares to
665,000 shares, (iii) FOR the selection of PricewaterhouseCoopers LLP,
independent public accountants, as the auditors of the Company for the fiscal
year ending December 31, 1999; 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 appropriately specify how their proxies are to be
voted, they will be voted accordingly. If any other matter of business is
properly brought before the meeting or any adjournment thereof, the proxy
holders may vote the proxies at their discretion on such matters. The directors
do not know of any such other matter or business which may come before the
meeting.
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 March 9, 1999, 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>
CVM Equity Fund IV, Ltd. 246,667 7.0%
4845 Pearl East Circle, Suite 300
Boulder, CO 80301
W. Preston Wilson 203,538(1) 5.5%
1329 W. 121st Avenue
Denver, CO 80234
Philip A. Gordon 56,864(2) 1.6%
1329 W. 121st Avenue
Denver, CO 80234
-2-
<PAGE>
Vernon W. Settle 40,658(3) 1.1%
1329 W. 121st Street
Denver, CO 80234
Ann Marie Doolittle 33,976(4) 1.0%
1329 W. 121st Avenue
Denver, CO 80234
H. Robert Gill 20,638(5) *
1329 W. 121st Avenue
Denver, CO 80234
Norman J. Mottram 26,563(6) *
1329 W. 121st Avenue
Denver, CO 80234
Charles A. French 20,250(7) *
1329 W. 121st Avenue
Denver, CO 80234
Harry D. Walls 23,750(8) *
1329 W. 121st Avenue
Denver, CO 80234
William Sanko 3,750(9) *
1329 W. 121st Avenue
Denver, CO 80234
All Directors and Executive 429,987(10) 11.2%
Officers as a group (10 persons)
</TABLE>
- --------------------------------------------
* Less than one percent.
(1) Includes options to purchase 144,838 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(2) Includes options to purchase 10,250 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(3) Includes options to purchase 40,358 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(4) Includes options to purchase 33,976 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(5) Includes options to purchase 17,750 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(6) Includes options to purchase 26,563 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(7) Includes options to purchase 10,250 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(8) Includes options to purchase 23,750 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(9) Includes options to purchase 3,750 shares of the Common Stock which are
currently exercisable or become exercisable within 60 days.
(10) Includes options to purchase 311,485 shares of the Common Stock which
are currently exercisable or become exercisable within 60 days.
-3-
<PAGE>
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, 1998 and Form
5 and amendments thereto furnished to the Company with respect to the fiscal
year ended December 31, 1998, 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. Charles
French, a director of the Company, filed one late initial statement of
beneficial ownership on Form 5 in connection with a grant of stock options to
him in December 1998.
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
Pursuant to the Bylaws, the authorized number of directors of the
Company is five. Five directors are to be elected at the Annual 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. 50 1992
Charles A. French(A) 56 1996
H. Robert Gill(A) 62 1994
Philip A. Gordon(C) 52 1993
William Sanko(C) 59 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
-4-
<PAGE>
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. Mr. Wilson is a director of ENSCO, Inc., an
engineering services provider based in Springfield, Virginia.
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 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, and William Sanko.
Information concerning the members of the Board is provided above under the
Section entitled "Election of Directors."
During the fiscal year ended December 31, 1998, there were five
meetings of the Board of Directors. 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
-5-
<PAGE>
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 1998, non-employee directors William French, Robert Gill,
Philip Gordon, and William Sanko were each granted non-qualified stock options
to purchase 5,000 shares each of Common Stock at $6.44 per share. In December
1998, Messrs. French, Gill, Gordon and Sanko were each granted non-qualified
stock options to purchase 5,000 shares each of Common Stock at $5.69 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. The Company paid Robert Gill $36,000 as remuneration for his
services as Chairman of the Board in 1998.
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, 1998. The 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, 1998. All directors attended at least 75% of the meetings held by
committees of the Board on which each director served.
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
Harry D. Walls Vice President - Chief Operating Officer
Vernon W. Settle Vice President - Finance and Administration
Ann Marie Doolittle Vice President - Corporate Development
Norman J. Mottram Vice President - Research and Development
</TABLE>
Information concerning the business experience of Mr. Wilson is
provided under the section entitled "Proposal I - Election of Directors."
-6-
<PAGE>
VERNON W. SETTLE, 38. Mr. Settle has been Vice President - Finance and
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, 35. In December 1998, Ms. Doolittle was promoted
to Vice President of Corporate Development. Previously, Ms. Doolittle had been
Vice President - Accelerated Reliability Test Center Services since October
1996. From November 1993 to October 1996, Ms. Doolittle was Manager of the
Accelerated Reliability Test Centers.
NORMAN J. MOTTRAM, 39. Mr. Mottram has been Vice President - Research
and Development since December 1998. From October 1996 to December 1998, Mr.
Mottram was Vice President - Technology. Mr. Mottram was Director of
Manufacturing of the Company from May 1993 to October 1996.
HARRY D. WALLS, 51. Mr. Walls was promoted to Chief Operating Officer
in December 1998. Previously, Mr. Walls was 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.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid for the fiscal
years ended December 31, 1998, 1997, and 1996 to the Chief Executive Officer of
the Company and its four executive officers who were paid more than $100,000 in
salary and bonus during the year ended December 31, 1998 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
Compensation Awards
Restricted
Stock Options/ All Other
Name and Salary Bonus Awards SARs Compensation
Principal Position Year ($) ($) ($) (#) ($)
- ------------------ ---- ------ ----- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
W. Preston Wilson, Ph.D., 1998 168,000 65,629 - - -
Chief Executive Officer 1997 166,849 51,069 - 40,000 -
and President 1996 159,784 6,500 - 5,000 -
Harry D. Walls, 1998 111,300 90,027 - 4,000 -
Chief Operating Officer (1) 1997 118,600 46,172 - 15,000 -
1996 17,500 - - 40,000 -
-7-
<PAGE>
Norman J. Mottram, Vice 1998 90,000 28,884 - 3,000 -
President - Research and 1997 89,381 17,626 - 16,000 -
Development (2) 1996 82,705 3,250 - 10,000 -
Ann Marie Doolittle, Vice 1998 84,525 32,278 - 3,000 -
President - Corporate 1997 84,525 16,874 - 15,000 -
Development (3) 1996 74,720 5,000 - 10,000 -
Vernon W. Settle, 1998 82,023 24,425 - 3,000 -
Vice President - Finance 1997 82,023 16,903 - 20,000 -
and Administration (4) 1996 77,772 3,500 - 10,000 -
</TABLE>
- ----------------------------
(1) Mr. Walls has been Chief Operating Officer since December 1998.
(2) Mr. Mottram has been Vice President of Research and Development for the
Company since December 1998.
(3) Ms. Doolittle has been Vice President of Corporate Development for the
Company since December, 1998.
(4) Mr. Settle has been Vice President of Finance and Administration for the
Company since February 1997.
The following table presents information concerning individual grants
of options to purchase Common Stock of the Company made during the fiscal year
ended December 31, 1998 to each of the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
Securities Percent of Total
Underlying Options/ SARs Granted Exercise or
Options/ SARs to Employees Base Price
Name Granted (#) in Fiscal Year ($/Sh.) Expiration Date
- ---- ----------- -------------- ------- ---------------
<S> <C> <C> <C> <C>
W. Preston Wilson, Ph.D. - - - -
Harry D. Walls 4,000 (1) 5.3% $7.00 June 23, 2008
Norman J. Mottram 3,000 (2) 4.0% $7.00 June 23, 2008
Ann Marie Doolittle 3,000 (3) 4.0% $7.00 June 23, 2008
Vernon W. Settle 3,000 (4) 4.0% $7.00 June 23, 2008
</TABLE>
----------------------------------------
(1) Options become exercisable at a rate of 25% per year beginning June 25,
1998.
(2) Options become exercisable at a rate of 25% per year beginning June 25,
1998.
(3) Options become exercisable at a rate of 25% per year beginning June 25,
1998.
(4) Options become exercisable at a rate of 25% per year beginning June 25,
1998.
-8-
<PAGE>
The following table sets forth the stock options exercised by each
of the Named Executive Officers and the year-end value of unexercised options
to purchase Common Stock of the Company for each of the Named Executive
Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-the-Money Options/SARs
Exercise (#) Realized ($)(1) Options/SARs at FY-End (#) at FY-End ($)(2)
------------ --------------- -------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Preston Wilson, 59,700 407,751 144,838 31,250 466,618 29,059
Ph.D.
Harry D. Walls -- -- 23,750 35,250 38,241 191,672
Norman J. Mottram -- -- 21,313 19,687 52,952 107,051
Ann Marie Doolittle -- -- 33,976 21,750 95,613 118,266
Vernon W. Settle -- -- 39,108 25,037 110,113 136,134
</TABLE>
- ------------------------------------------------------
(1) Based upon the difference between the fair market value of the Common
Stock on June 5, 1998 and the exercise price. The fair market value of
the Common Stock on June 5, 1998, measured as the mean of the closing
bid and asked prices of the Common Stock on such date, was $7.50 per
share.
(2) Based upon the difference between the fair market value of the Common
Stock on December 31, 1998 and the exercise price. The fair market
value of the Common Stock on December 31, 1998, measured as the mean of
the closing bid and asked prices of the Common Stock on such date, was
$5.4375per 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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
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<PAGE>
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 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.
In March 1996, a corporation wholly owned by Dr. Gregg K. 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.
On June 5, 1998, the Board of Directors approved a loan from the
Company to Preston Wilson of $110,000, plus interest at a rate of 10% per year,
which will be payable annually on each anniversary date of the loan until June
5, 2003, at which time the entire unpaid principal and accrued interest will be
due and payable. Mr. Wilson also executed a security agreement in favor of the
Company to secure his obligations under the loan with collateral having a value
in excess of the principal amount of the loan.
PROPOSAL 2 - AMENDMENT OF STOCK OPTION PLAN
On January 29, 1999, the Board amended, subject to shareholder
approval, the QualMark Corporation 1996 Stock Option Plan (the "Plan"). Pursuant
to the amendment, the number of shares of Common Stock available for issuance
under the Plan was increased from 415,000 shares to 665,000 shares, subject to
adjustment for dividends, stock splits or other changes in the Company's
capitalization. The Plan, as proposed to be amended, is attached as Exhibit A to
this Proxy Statement.
The Board believes that the Plan is a material benefit to the Company
by assisting the Company and its subsidiaries to attract, retain and motivate
directors, consultants and key employees of proven ability. In order to provide
incentives to these individuals and more closely align their interests with
those of the shareholders, the Board believes that an equity plan such as the
Plan is necessary and in the best interests of the Company and its shareholders.
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The Company is seeking shareholder approval of the Plan in order to
comply with the requirements of the Plan and with Sections 162(m) and 422 of the
Code and the requirements of the NASDAQ National Market System ("NASDAQ").
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR
THE AMENDMENT TO THE PLAN
The Plan will be approved upon the affirmative vote of the holders of a
majority of the shares present in person or by proxy at the Annual Meeting.
Unless otherwise specified, proxies solicited by the Board will be voted FOR the
proposed amendment to increase the number of shares of Common Stock reserved for
issuance under the Plan. The following summary of the Plan is qualified in its
entirety by express reference to the text of the Plan, included herewith as
Exhibit A.
EFFECTIVE DATE; DURATION
The Plan became effective upon approval by the shareholders of the
Company on January 22, 1996. The expiration date of the Plan, after which no
further awards may be granted, is January 22, 2006. The proposed amendment to
the Plan will become effective upon approval by the requisite number of
shareholders of the Company.
ELIGIBILITY
Key employees, directors and consultants of the Company and its
subsidiaries are eligible to receive discretionary stock-based awards under the
Plan. Options to purchase Common Stock ("Options") may be granted to all
eligible individuals. Options granted to employees (or directors who are also
employees) of the Company or a participating subsidiary may be qualified as
"incentive stock options" within the meaning of Section 422 of the Code
("ISOs"). All eligible employees, directors or consultants may be granted
Options which are not so qualified ("NQSOs"). As of March 9, 1999, approximately
70 employees, one consultant and five directors were eligible to participate in
the Plan. The benefits or amounts to be allocated to eligible persons under the
Plan is not determinable.
ADMINISTRATION
The Board is responsible for administering the Plan and may delegate
administration of the Plan to a committee of at least two non-employee directors
appointed by the Board (the entity administering the Plan is hereafter referred
to as the "Committee"). The Board or Committee, in its sole discretion,
determines eligibility under the Plan and the number and exercise price of the
stock-based awards to be granted, and may reprice and accelerate vesting
schedules with respect to outstanding Options. In addition, the Committee has
full authority to make all interpretations under the Plan, subject to the terms
of the Plan, and to make all other determinations with respect to the
administration of the Plan, which determinations are binding on all Plan
participants.
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EXERCISE PRICE
The Plan provides that the Committee shall determine the exercise price
of Options granted under the Plan. The exercise price for NSO's, however, may
not be less than 85% of the fair market value of the Common Stock on the date of
grant. The exercise price of ISO's may no be less than the fair market value of
the Common Stock on the date of grant. However, ISO's which are granted to an
employee who owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company shall have an exercise price of at
least 110% of the fair market value of the Common Stock on the date of grant and
shall not be exercisable after five years after the date of grant. The exercise
price must be paid in cash, unless the Committee, in its sole discretion,
permits a participant to surrender previously owned shares to the Company or to
accept a promissory note or such other form of consideration as the Committee
deems appropriate.
EXERCISE
The Committee determines the terms and conditions of each Option, which
are contained in written agreements between the Company and the participant,
including the vesting schedules and expiration dates of the Options. The
duration of each Option will not exceed ten years from the date of grant (or
five years for ISO's granted to holders of more than 10% of the Company's Common
Stock). The Committee may accelerate the vesting of any Options upon written
notice to the participant.
SHARES SUBJECT TO THE PLAN
The total number of shares of Common Stock reserved for issuance under
the Plan is currently 415,000 shares. Upon shareholder approval of the amendment
to the Plan, the total number of shares available for issuance under the Plan
will be 665,000 shares. The aggregate value of stock as to ISO's granted to a
participant which may first be exercisable in a calendar year may not exceed
$100,000.
CAPITAL CHANGES OF THE COMPANY
In the event of any change in the outstanding shares of Common Stock or
capital structure of the Company resulting from any reorganization,
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other similar corporate change, or a change in the law or any
other event which interferes with the intended operation of the Plan, the
Committee will make such substitution or adjustment, if any, as to (i) the
number of shares of Common Stock reserved for issuance pursuant to the Plan, and
the exercise price of such shares, and (ii) the aggregate number of shares of
Common Stock available for issuance under the Plan in the future.
CORPORATE TRANSACTIONS
In the event (i) the Company is merged with another corporation or
entity and the Company is not the surviving corporation; (ii) all or
substantially all of the assets of the Company are acquired by another person,
or (iii) shares representing more than 50% of the total combined voting power of
the Company are transferred to a person in one or more related transactions,
then all Options, to the extent not previously exercised, will terminate upon
consummation of such a transaction. The Committee may, in its sole discretion,
with notice accelerate the vesting of all or any portion of any unexercised
Options so that such Options become exercisable on the day before the
consummation of such transactions.
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EFFECT OF TERMINATION OF EMPLOYMENT
If a participant's employment is terminated other than for reason of
death or disability, any Options the exercisable shall remain exercisable after
termination for a period of three months. If a participant's employment is
terminated due to death or disability, any Options to the extent then
exercisable shall remain exercisable for a period of twelve months after
termination. In neither case, however, shall the Options remain exercisable for
a period later than the specified expiration date.
MARKET VALUE
The market value of the Common Stock on NASDAQ on March 9, 1999 was
$4.50 per share.
AMENDMENT AND TERMINATION
The Board may at any time alter, amend, suspend or terminate the Plan
prior to the termination date of the Plan, including to make any modifications
or amendments as it shall deem advisable to ensure compliance of ISO's under the
Code; provided, however that no such action shall adversely affect the rights
and obligations of Options outstanding under the Plan. In addition, no such
action shall, without the approval of the shareholders of the Company, (i)
increase the maximum number of shares of Common Stock reserved for issuance
under the Plan (unless necessary to reflect changes in the Company's capital
structure), or (ii) materially modify the requirements as to eligibility for
participation in the Plan.
FEDERAL TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. A participant will not realize taxable income
upon the grant of an ISO which qualifies under Section 422 of the Code under the
Plan. In addition, a participant will not realize taxable income upon the
exercise of an incentive stock option if the participant 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 a participant
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 ISO does not entitle The Company to an income tax deduction except
to the extent that a participant realizes ordinary income therefrom.
NONSTATUTORY OPTIONS. A participant generally will not realize taxable
income upon the grant of a NSO. When a participant exercises a NSO, the
participant 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. A participant will generally have a basis in stock
acquired through the exercise of a NSO under the Plan equal to the fair market
value of the stock on the date of exercise. If the participant subsequently
sells the stock, the gain which is the difference between the sale price and the
basis will be taxed as capital gain.
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The Company will be allowed to take as a deduction any ordinary income
realized by a participant upon exercise of a NSO at the time it is realized by
the participant.
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 PricewaterhouseCoopers
LLP, independent public accountants, as the auditors of the Company for the
fiscal year ending December 31, 1999, subject to the approval of such
appointment by shareholders at the Annual Meeting. PricewaterhouseCoopers LLP
has audited the Company's financial statements since the Company's 1993 fiscal
year.
The ratification of the appointment of PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP is not
ratified by shareholders, the Board of Directors will appoint other independent
accountants whose appointment for any period subsequent to the 1999 Annual
Meeting of Shareholders will be subject to the approval of shareholders at that
meeting. A representative of PricewaterhouseCoopers 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 UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF THE FIRM OF PRICEWATERHOUSECOOPERS LLP.
SHAREHOLDER PROPOSALS
Any proposals from shareholders to be presented for consideration for
inclusion in the proxy material in connection with the 2000 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 25, 1999.
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<PAGE>
Under the rules promulgated by the Securities and Exchange Commission,
stockholder proposals not included in the Company's proxy materials for its 2000
Annual Meeting of Stockholders in accordance with Rule 14a-8 of the Exchange Act
of 1934, as amended, will be considered untimely if notice thereof is received
by the Company after February 4, 2000. Management will be authorized to exercise
discretionary voting authority with respect to any stockholder proposal not
included in the Company's proxy materials for the 2000 Annual Meeting of
Stockholders unless the Company receives notice thereof by February 4, 2000 and
the conditions set forth in Rule 14a-4(c)(2)(i) - (iii) under the Exchange Act
of 1934 are met.
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.
The Company's independent public accountants for the fiscal year 1998 are
PricewaterhouseCoopers 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, 1998, 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, 1998, 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 - FINANCE AND 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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PROXY PROXY
QUALMARK CORPORATION PROXY
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD APRIL 23, 1999
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 April 23, 1999, at the Hotel Boulderado, 2115 13th
Street, Boulder Colorado, at 2:00 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 March 23, 1999 receipt of which is hereby acknowledged.
<TABLE>
<S> <C>
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 (except as marked to the contrary below) / / WITHHOLD AUTHORITY 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 Sanko
2. APPROVAL OF THE RECOMMENDATION OF THE BOARD OF DIRECTORS TO INCREASE THE NUMBER OF SHARES IN THE QUALMARK 1996 STOCK
OPTION PLAN FROM 415,000 SHARES TO 665,000 SHARES.
/ / FOR / / AGAINST
3. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 1999.
/ / 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.
</TABLE>
(CONTINUED ON REVERSE SIDE)
<PAGE>
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: _____________________ , 1999
___________________________________
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.
