SCHEDULE 14(A) INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
PACIFIC RESEARCH & ENGINEERING CORPORATION
(Name of Registrant as Specified In Its Charter)
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:
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2) Aggregate number of securities to which transaction
applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total Fee Paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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Page <ii>
PACIFIC RESEARCH & ENGINEERING CORPORATION
2070 LAS PALMAS DRIVE
CARLSBAD, CALIFORNIA 92009
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 25, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
the Shareholders of Pacific Research & Engineering Corporation,
a California corporation (the "Company"), which will be held on
June 25, 1998, at 9:00 a.m., local time, at the Olympic Resort,
6111 El Camino Real, Carlsbad, California for the following
purposes:
1. To elect six (6) directors to hold office for one-
year terms and until each of their successors are elected
and qualified.
2. To consider and vote on a proposal to amend the
Company's 1996 Omnibus Stock Plan to increase the maximum
aggregate number of shares Common Stock reserved for
issuance thereunder from 1,200,000 to 1,400,000.
3. To consider a proposal to ratify the appointment of
Harlan & Boettger as the Company's independent public
accountants for the fiscal year ending December 31, 1998.
4. To transact such other business as may properly come
before the meeting.
Only shareholders of record at the close of business on
May 11, 1998 are entitled to notice of, and to vote at, this
meeting and any adjournments thereof.
By order of the Board of Directors,
LARRY EYLER,
Secretary
Carlsbad, California
May 18, 1998
- --------------------------------------------------------------------
IT IS IMPORTANT THAT ALL SHAREHOLDERS VOTE. WE URGE YOU TO
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, EVEN
IF YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO ATTEND
THE MEETING, YOU THEN MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE EITHER
IN PERSON OR BY EXECUTING AND GRANTING A LATER-DATED PROXY. SO
THAT THE COMPANY CAN FINALIZE ARRANGEMENTS FOR THE SHAREHOLDERS'
MEETING, PLEASE INDICATE ON THE PROXY WHETHER YOU PLAN TO ATTEND
THE MEETING.
- --------------------------------------------------------------------
Page <1>
PACIFIC RESEARCH & ENGINEERING CORPORATION
2070 LAS PALMAS DRIVE
CARLSBAD, CALIFORNIA 92009
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The accompanying proxy is solicited by the Board of Directors
of Pacific Research & Engineering Corporation, a California
corporation (the "Company") for use at the Annual Meeting of
Shareholders to be held June 25, 1998 at 9:00 a.m. local time, or
any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting. This meeting will be held
at the Olympic Resort, 6111 El Camino Real, Carlsbad, California.
The date of this Proxy Statement is May 18, 1998, the approximate
date on which this Proxy Statement and the accompanying form of
proxy were first sent or given to shareholders.
GENERAL INFORMATION
ANNUAL REPORT. An annual report for the fiscal year ended
December 31, 1997, is enclosed with this Proxy Statement.
VOTING SECURITIES. Only shareholders of record as of the
close of business on May 11, 1998, will be entitled to vote at
the meeting and any adjournment thereof. As of that date, there
were 2,305,500 shares of Common Stock of the Company, issued and
outstanding. Shareholders may vote in person or in proxy. Each
holder of shares of Common Stock is entitled to one (1) vote for
each share of stock held on the proposals presented in this
Proxy Statement, except that in the election of directors each
shareholder has cumulative voting rights and is entitled to as
many votes as equal the number of votes to which he is entitled
multiplied by the number of directors to be elected, which votes
may be cast for a single candidate or distributed among any or
all of the candidates. However, no shareholder shall be entitled
to cumulate votes unless the candidate's name has been placed in
nomination prior to the voting and the shareholder, or any other
shareholder, has given notice at the meeting, prior to the
voting, of his intention to cumulate his votes. The Company's
bylaws provide that a majority of all of the shares of the stock
entitled to vote, whether present in person or represented by
proxy, shall constitute a quorum for the transaction of business
at the meeting. Abstentions and broker non-votes will each be
counted as present for purposes of determining the presence of a
quorum.
SOLICITATION OF PROXIES. The cost of soliciting proxies
will be borne by the Company. The Company will solicit
shareholders by mail through its regular employees, and will
request banks and brokers, and other custodians, nominees and
fiduciaries, to solicit their customers who have stock of the
Company registered in the names of such persons and will
reimburse them for their reasonable, out-of-pocket costs. In
addition, the Company may use the services of its officers,
directors, and others to solicit proxies, personally or by
telephone, without additional compensation.
VOTING OF PROXIES. All valid proxies received prior to
the meeting will be voted. All shares represented by a proxy
will be voted, and where a shareholder specifies by means of the
proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with the specification so
made. If no choice is indicated on the proxy, the shares will be
voted in favor of the proposal. A shareholder giving a proxy has
the power to revoke his or her proxy, at any time prior to the
time it is voted, by delivery to the Secretary of the Company of
a written instrument revoking the proxy or a duly executed proxy
with a later date, or by attending the meeting and voting in
person.
In the event that cumulative voting is invoked, a proxy
authorizing a vote for management's nominees for directors may
be voted cumulatively for less than all of such nominees. If no
instructions are given on the executed proxy, the proxy will be
voted in favor of the proposals described, but votes may be
cumulated for less than all of the nominees for director.
Page <2>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. The following table sets forth certain
information, as of April 15, 1998, with respect to the
beneficial ownership of the Company's Common Stock by (i) all
persons known by the Company to be the beneficial owners of more
than 5% of the outstanding Common Stock of the Company, (ii)
each director and director-nominee of the Company, (iii) the
executive officers of the Company named in the Summary
Compensation Table, and (iv) all current executive officers and
directors of the Company as a group:
Shares Owned (1)
---------------------
Number Percentage
Name and Address of Shares of Class
---------------- --------- ----------
Jack Williams (2)(3)..................... 1,057,000 45.8%
Michael Dosch (2)........................ 70,000 3.0
Larry Eyler (2)......................... 70,000 3.0
Dave Pollard (2)......................... 70,000 3.0
Michael Bosworth (2)(4).................. 10,000 *
John Lane (5)(6)......................... 17,000 *
John Robbins (2)(7)...................... 22,500 *
Herbert McCord (2)....................... 15,000 *
Randy Jackson (2)(8)..................... 25,750 1.1
Susan Dingethal (2)(9)................... 12,000 *
All Directors and Executive Officers as
a Group (10 persons)(3)(4)(6)(7)(8)(9). 1,369,250 59.4%
_______________________
* less than one percent
(1) Except as indicated in the footnotes to this table, the persons
named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially
owned by such persons, subject to applicable community property
laws.
(2) Each of such persons may be reached through the Company at 2070
Las Palmas Drive, Carlsbad, California 92009.
(3) Includes 1,052,000 shares held by The Williams Family Trust,
U/A DTD 3/12/81 and 1,000 shares owned by Mr. Williams'
children.
(4) Includes 10,000 shares subject to options exercisable within
sixty (60) days of April 15, 1998.
(5) Mr. Lane may be reached at Westport Resources, 315 Post Road
West, Westport, Connecticut 06880.
(6) Includes 5,000 shares subject to options exercisable within
sixty (60) days of April 15, 1998.
(7) Includes 12,500 shares held by The Robbins Family Trust, U/A
DTD 6/1/87 and 10,000 shares subject to options exercisable
within sixty (60) days of April 15, 1998.
(8) Includes 3,000 shares subject to options exercisable within
sixty (60) days of April 15, 1998.
(9) Includes 12,000 shares subject to options exercisable within
sixty (60) days of April 15, 1998.
Page <3>
PROPOSAL ONE:
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of
eight authorized directors. The number of authorized directors
has been reduced by the Board of Directors to six to be
effective upon the completion of the 1998 Annual Meeting of
Shareholders. Six of the current directors have been nominated
by Management for election at the Annual Meeting of the
Shareholders. If elected, each nominee will serve as a director
until the Company's Annual Meeting of Shareholders in 1999, and
until his successor is elected and qualified. If the nominee
declines to serve or becomes unavailable for any reason, or if a
vacancy occurs before the election (although Management knows of
no reason to anticipate that this will occur), the proxies may
be voted for a substitute nominee as the Board of Directors may
designate.
The following table sets forth the name, age and position
of each director and nominee of the Company:
Director
Name Age Position Since
- ---- --- -------- --------
Jack Williams 56 Chairman of the Board, Chief 1969
Executive Officer and President
Michael Dosch 35 Vice President, Chief Operating 1995
Officer and Director
John Lane 51 Director 1996
Michael Bosworth 51 Director 1996
Herbert McCord 55 Director 1997
John Robbins 51 Director 1996
JACK WILLIAMS has served as Chief Executive Officer,
President and Chairman of the Board of Directors since October
1969. Prior to founding the Company, Mr. Williams was a
professional recording engineer and an audio and video systems
designer at the University of California, San Diego.
MICHAEL DOSCH has been a Director of the Company since
December 1995. Mr. Dosch has served in a number of positions
since he joined the Company in July 1984. Mr. Dosch was promoted
to General Manager in June of 1992 to oversee the Company's day-
to-day operations and was promoted to Vice President, Chief
Operating Officer in 1995.
MICHAEL BOSWORTH became a Director of the Company on
February 14, 1996. Mr. Bosworth has over 20 years of experience
in the information technology industry. Mr. Bosworth is the
founder and author of Solution Selling, and since 1983 has
operated his own sales training and consulting company focusing
on buyer oriented sales methodology.
JOHN LANE became a Director of the Company on March 15,
1996. During January 1997 Mr. Lane joined the investment banking
firm of Westport Resources Investment Services as its Managing
Director, Vice President of Capital Markets. Prior to that, Mr.
Lane was Executive Vice President, Syndicate with Nutmeg
Securities. Mr. Lane joined Nutmeg Securities as a 30% partner
in 1989 and served Nutmeg Securities in several capacities. He
has been an active member of the Security Industry Association
("SIA") since 1986 and twice chairman of the Membership
Committee. He has served for many years on the SIA Local Firms
Committee and served as a chairman of the committee in 1994. He
has also served as a director of the Regional Investment Brokers
Association since 1991.
JOHN ROBBINS became a Director of the Company in May 1996.
Mr. Robbins is also a director of Garden Fresh Restaurant Corp.
and American Residential Investment Trust, Inc. both publicly
held companies. From February 1997 through the present Mr.
Robbins has served as Chairman of the Board and Chief Executive
Officer of American Residential Investment Trust. From January
1988 through November 1994 Mr. Robbins served as Chairman of the
Board, President and Chief Executive Officer of American
Residential Mortgage Corporation.
Page <4>
HERBERT MCCORD became a Director of the Company in
September 1997. From May 1980 through the present Mr. McCord has
served as Chairman of the Board, President and Chief Executive
Officer of Granum Communications Corporation (formerly Granum
Communications, Inc.), a consulting company to the radio
broadcasting industry.
During the year ended December 31, 1997, the Board held four
(4) meetings. Each director serving on the Board in fiscal year
1997 attended at least 75% of the meetings of the Board and the
Committees on which he serves during his tenure on the Board or
such committees.
The Company does not have a standing Nominating Committee,
but does have an Audit Committee and a Compensation Committee.
The Audit Committee's function is to review with the
Company's independent public accountants and management the
annual financial statements and independent public accountants'
opinion, review the scope and results of the examination of the
Company's financial statements by the independent public
accountants, approve all professional services and related fees
performed by the independent public accountants, recommend the
retention of the independent public accountants to the Board,
subject to ratification by the shareholders, and periodically
review the Company's accounting policies and internal accounting
and financial controls. The members of the Audit Committee are
Messrs. Lane and Robbins. During the year ended December 31,
1997, the Audit Committee did not hold any meetings.
The Compensation Committee's function is to review and
approve executive salaries, bonuses, stock option grants and
compensation plans. The members of the Compensation Committee
are Messrs. Williams, Bosworth and Robbins. During the year
ended December 31, 1997, the Compensation Committee held one (1)
meeting.
INCUMBENT DIRECTORS
The following individuals are directors of the Company who
have resigned from the Board of Directors effective as of the
Shareholders Meeting.
LARRY EYLER joined the Company in July of 1992 as the Chief
Financial Officer, and was elected a Director in December 1995.
Prior to joining the Company, Mr. Eyler was Director of Finance,
Real Estate, for the Price Company from October 1987 to July
1989, and Chief Financial Officer for Club Merchandising from
July 1989 to July 1992. Mr. Eyler also has experience with Peat,
Marwick, Mitchell & Co. and Dixieline Lumber Company.
DAVID POLLARD has been a Director of the Company since May
1996. Mr. Pollard has served as Vice President, Engineering of
the Company since December 1995, and as manager of various
operating functions since September 1985, including product
engineering, systems engineering/manufacturing as well as sales.
Mr. Pollard now oversees the technical staff responsible for
research & development, product design, and documentation.
REQUIRED VOTE
The affirmative vote of a majority of the votes cast at the
Annual Meeting of Shareholders, at which a quorum is present and
voting, either in person or by proxy, is required for approval
of this proposal. Neither abstentions nor broker non-votes shall
have any effect on the outcome of this vote. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF
NOMINES SET FORTH ABOVE.
Page <5>
PROPOSAL TWO:
PROPOSAL TO AMEND 1996 OMNIBUS STOCK PLAN
The Company's 1996 Omnibus Stock Plan (the "Plan") became
effective on January 1, 1996 and permits the discretionary grant
of stock options to eligible employees, consultants and directors.
The Plan consists of two components: "Plan A", which provides for
the grant of incentive stock options and "Plan B", which provides
for the grant of nonstatutory stock options.
The shareholders are now being asked to approve an
amendment to increase by 200,000 shares the maximum aggregate
number of shares issuable under the Plan. The Board of
Directors believes that the amendment of the Plan is in the best
interests of the Company and its shareholders because the
availability of an adequate stock option program is an important
factor in attracting and retaining qualified officers, employees
and consultants essential to the success of the Company and in
aligning their long-term interests with those of the
shareholders.
SUMMARY OF THE PROVISIONS OF THE PLAN
The following summary of the Plan is qualified in its
entirety by the specific language of the Plan, a copy of which
is available to any shareholder upon request.
GENERAL. The Plan provides for the grant of incentive
stock options within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and nonstatutory
stock options. As of April 15, 1998, none of the options to
purchase shares granted under the Plan had been exercised,
options to purchase an aggregate of approximately 1,066,000
shares remained outstanding and approximately 135,000 shares
remained available for future grant under the Plan.
SHARES SUBJECT TO PLAN. Currently, the maximum number of
authorized but unissued or reacquired shares of the Company's
Common Stock available for issuance under the Plan is 1,200,000
shares. In April 1998, the Board of Directors amended the Plan,
subject to shareholder approval, to increase the number of
shares issuable under the Plan by 200,000, from 1,200,000 shares
to 1,400,000 shares. Appropriate adjustments will be made to
the shares subject to the Plan and to outstanding options upon
any reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split. To the extent
that any outstanding option under the Plan expires or terminates
prior to exercise in full or if shares issued upon exercise of
an option are repurchased by the Company, the shares of Common
Stock for which such option is not exercised or repurchased are
returned to the Plan and become available for future grant.
ADMINISTRATION. The Plan is administered by the
Compensation Committee of the Board of Directors (the
"Committee"). Subject to the provisions of the Plan, the
Committee determines the persons to whom options are to be
granted and when such options are to be granted, the number of
shares to be covered by each option, and all other terms and
conditions of the options. All determinations of the Committee
will be final and binding on all optionees.
ELIGIBILITY. Options may be granted under the Plan to key
employees, directors and consultants of the Company or of any
"Affiliated Company". An "Affiliated Company" means any member
of a controlled group of corporations (as defined in Section
1563 of the Code) which includes the Company. As of April 15,
1998, the Company had approximately 145 employees, including
6 executive officers, and 4 non-employee directors. While any
person eligible under the Plan may be granted a nonstatutory
stock option under Plan B, only key employees may be granted
incentive stock options under Plan A. The Plan imposes a grant
limit under which no employee may receive in any calendar year
options to purchase in excess of 1,200,000 shares. In addition,
750,000 shares will be available for grant to certain key
employees, with vesting of such shares occurring upon the
achievement of certain levels of (a) the price of the Company's
Common Stock, or (b) the Company's earnings per share of Common
Stock, although such shares will vest on December 31, 2003
regardless of whether the performance targets are met.
Page <6>
TERMS AND CONDITIONS OF OPTIONS. Each option granted
under the Plan is evidenced by a written agreement between the
Company and the optionee specifying the number of shares subject
to the option and the other terms and conditions of the option,
consistent with the requirements of the Plan. The exercise
price per share of each option granted under the Plan must equal
at least the fair market value of a share of the Company's
Common Stock on the date of grant. However, any incentive stock
option granted to a person who at the time of grant 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 must have an exercise price equal to
at least 110% of the fair market value of a share of Common
Stock on the date of grant. As of April 15, 1998, the closing
price of a share of the Company's Common Stock as reported on
the American Stock Exchange was $5.50.
The option exercise price may be paid in cash or cash
equivalents. The Committee may also cause the Company to
provide an optionee with financial assistance (e.g. though
direct loans or guarantees of third party loans) for the purpose
of acquiring funds to pay the option exercise price, to the
extent that such assistance is in the bests interests of the
Company and is consistent with applicable law, the Company's
articles of incorporation and the Company's bylaws. In
addition, the Committee may allow an optionee to pay the option
exercise price by tender of previously-owned shares of the
Company's Common Stock having a fair market value not less than
the exercise price.
Options granted under the Plan become exercisable and
vested at such times and subject to such conditions as specified
by the Board. Generally, options granted under the Plan may not
be exercised within 6 months after the date of option grant and
become exercisable in installments over a period of time
specified by the Board at the time of grant, subject to the
optionee's continued service with the Company. The Plan
provides that the maximum term of an incentive stock option
granted under Plan A is five years and the maximum term of a
nonstatutory stock option granted under Plan B is 10 years.
Options are nontransferable by the optionee other than by will
or by the laws of descent and distribution, and are exercisable
during the optionee's lifetime only by the optionee.
CERTAIN DISPOSITIONS. The Plan provides that, in the
event that the shareholders of the Company enter into an
agreement to dispose of substantially all of the assets or stock
of the Company by means of a sale, merger, consolidation,
reorganization or liquidation, each outstanding option will
become fully exercisable and vested in full during the period
commencing on the later of (i) the date of execution of such
agreement or (ii) the date 6 months after the date of option
grant. The options will remain exercisable until the earlier to
occur of the original option expiration date or the date the
corporate transaction is consummated. Any acceleration of the
exercise of such options will be contingent upon the
consummation of the corporate transaction. In addition, the
Board of Directors or the Committee may arrange with the
acquiring corporation to assume or substitute for options
outstanding under the Plan.
TERMINATION OR AMENDMENT. The Plan will continue in
effect until the earlier of its termination by the Board or
January 2006. No options may be granted under the Plan after
January 2006. The Board may terminate or amend the Plan at any
time, although no amendment may be adopted which would change
the manner of determining the option exercise price, change the
classes of persons eligible under the Plan or extend the
duration of the Plan (or an option granted thereunder). In
addition, without shareholder approval, the Board may not adopt
an amendment to the Plan which would increase the total number
of shares of Common Stock issuable thereunder. No termination
or amendment may affect an outstanding option without the
written consent of the optionee.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following summary is intended only as a general guide
as to the United States federal income tax consequences under
current law of participation in the Plan and does not attempt to
describe all possible federal or other tax consequences of such
participation or tax consequences based on particular
circumstances.
Page <7>
INCENTIVE STOCK OPTIONS. An optionee recognizes no
taxable income for regular income tax purposes as the result of
the grant or exercise of an incentive stock option qualifying
under section 422 of the Code. Optionees who do not dispose of
their shares for two years following the date the option was
granted nor within one year following the exercise of the option
will normally recognize a long-term or mid-term capital gain or
loss equal to the difference, if any, between the sale price and
the purchase price of the shares. If an optionee satisfies such
holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes.
If an optionee disposes of shares within two years after the
date of grant or within one year from the date of exercise (a
"disqualifying disposition"), the difference between the fair
market value of the shares on the exercise date and the option
exercise price (not to exceed the gain realized on the sale if
the disposition is a transaction with respect to which a loss,
if sustained, would be recognized) will be taxed as ordinary
income at the time of disposition. Any gain in excess of that
amount will be a capital gain. If a loss is recognized, there
will be no ordinary income, and such loss will be a capital
loss. A capital gain or loss will be long-term or mid-term if
the optionee's holding period is more than 12 months. Any
ordinary income recognized by the optionee upon the
disqualifying disposition of the shares generally should be
deductible by the Company for federal income tax purposes,
except to the extent such deduction is limited by applicable
provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the
fair market value of the shares on the exercise date of an
incentive stock option is an adjustment in computing the
optionee's alternative minimum taxable income and may be subject
Pan alternative minimum tax which is paid if such tax exceeds
the regular tax for the year. Special rules may apply with
respect to certain subsequent sales of the shares in a
disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on
a subsequent sale of the shares and certain tax credits which
may arise with respect to optionees subject to the alternative
minimum tax.
NONSTATUTORY STOCK OPTIONS. Options not designated or
qualifying as incentive stock options will be nonstatutory stock
options. Nonstatutory stock options have no special tax status.
An optionee generally recognizes no taxable income as the result
of the grant of such an option. Upon exercise of a nonstatutory
stock option, the optionee normally recognizes ordinary income
in the amount of the difference between the option exercise
price and the fair market value of the shares on the exercise
date. If the optionee is an employee, such ordinary income
generally is subject to withholding of income and employment
taxes. Upon the sale of stock acquired by the exercise of a
nonstatutory stock option, any gain or loss, based on the
difference between the sale price and the fair market value on
the exercise date, will be taxed as capital gain or loss. A
capital gain or loss will be long-term or mid-term if the
optionee's holding period is more than 12 months. No tax
deduction is available to the Company with respect to the grant
of a nonstatutory stock option or the sale of the stock acquired
pursuant to such grant. The Company generally should be
entitled to a deduction equal to the amount of ordinary income
recognized by the optionee as a result of the exercise of a
nonstatutory stock option, except to the extent such deduction
is limited by applicable provisions of the Code or the
regulations thereunder.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes cast at the
Annual Meeting of Shareholders, at which a quorum representing a
majority of all outstanding shares of Common Stock of the
Company is present and voting, either in person or by proxy, is
required for approval of this proposal. Abstentions and broker
non-votes will each be counted as present for purposes of
determining the presence of a quorum. Abstentions will have the
same effect as a negative vote. Broker non-votes, on the other
hand, will have no effect on the outcome of the vote.
The Board of Directors believes that the increase in the
share reserve of the Plan is in the best interests of the
shareholders and the Company for the reasons stated above.
THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" APPROVAL OF THE INCREASE IN THE SHARE RESERVE OF THE PLAN.
Page <7>
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the
compensation of the Chief Executive Officer of the Company and
each of the other executive officers whose salary and bonus
exceeded $100,000 in 1997, for services in all capacities to the
Company during the years ended December 31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
Long-Term
Annual Compensation Compensation
----------------------- ------------
Awards
------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- -------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Jack Williams 1997 $170,000 --- --- $3,000(2)
President, Chief Executive 1996 $147,654 --- 603,217 $1,500(2)
Officer and Chairman 1995 $125,000 $6,500 --- ---
Larry Eyler 1997 $114,997 --- --- $3,000(2)
Chief Financial Officer 1996 $ 99,520 --- 40,214 $1,500(2)
and Secretary 1995 $ 87,024 $6,500 --- ---
Michael Dosch 1997 $124,998 --- --- $3,000(2)
Chief Operating Officer 1996 $ 99,520 --- 40,214 $1,500(2)
and Director 1995 $ 80,544 $6,500 --- ---
Dave Pollard 1997 $105,837 --- --- $3,000(2)
Vice President, and 1996 $ 99,520 --- 40,214 $1,500(2)
Director 1995 $ 81,270 $6,500 --- ---
___________________________________________________________________________________
</TABLE>
(1) Includes 401(k) matching contributions made by the Company.
(2) Includes automobile allowance.
No stock option grants were made to the persons named in the
Summary Compensation Table during the year ended December 31, 1997.
Page <9>
None of the persons named in the summary compensation table
exercised options during the year ended December 31, 1997. The
following table provides the information concerning unexercised
options held as of December 31, 1997, by the persons named in the
Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
Number of Securities
Underlying Unexercised Options
at 12/31/97
------------------------------
Name Unexercisable (2)
---- ------------------------------
Jack Williams......................... 603,217
Larry Eyler........................... 40,214
Michael Dosch......................... 40,214
Dave Pollard.......................... 40,214
________________
(1) Based on a fair market value of $3.75, the closing price of
the Company's Common Stock on December 31, 1997, none of the
named executives officer's options were in-the-money as of such
date.
(2) None of the options held by the persons in the above table
are currently exercisable.
CHANGES TO BENEFIT PLANS
1996 OMNIBUS STOCK PLAN. The Board of Directors of the
Company has adopted, subject to shareholder approval, an amendment
to the Plan to increase the maximum number of shares issuable
thereunder by 200,000 shares. See "PROPOSAL TWO: AMENDMENT TO THE
1996 OMNIBUS STOCK PLAN." As of April 15, 1998 no grant of options
had been made to any person conditioned upon shareholder approval
of the increase in the share reserve of the Plan.
No stock option grants were made to the persons named in the
Summary Compensation Table during the year ended December 31, 1997.
Susan Dingethal, Vice President of Sales & Marketing was granted
60,000 options at an exercise price of $3.00 per option. The
executive officers, the current directors who are not executive
officers and the non-executive officer employees, each as a group,
were granted an aggregate of 67,500, 12,500 and 172,500 options at a
weighted average exercise price of $2.84, $2.25 and $2.50 per option,
respectively.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Williams serves as Chairman, President and Chief Executive
Officer pursuant to the terms of an employment agreement entered into
in 1996 which continues in effect until April 1999. Under the terms
of the agreement, Mr. Williams receives an annual salary of not less
than $156,000 and a bonus to be determined by the Board of Directors.
In addition, Mr. Williams receives an automobile allowance of $250
per month.
Mr. Dosch serves as Vice President and Chief Operating Officer
pursuant to the terms of an employment agreement entered into in 1996
which continues in effect until April 1999. Under the terms of the
agreement, Mr. Dosch receives an annual salary of not less than
$104,000 and a bonus to be determined by the Board of Directors. In
addition, Mr. Dosch receives an automobile allowance of $250 per
month.
Mr. Eyler serves as Vice President, Finance, Chief Financial
Officer and Corporate Secretary pursuant to an employment agreement
entered into in 1996 which continues in effect until April 1999.
Under the terms of the agreement, Mr. Eyler receives an annual salary
of not less than $104,000 and a bonus to be determined by the Board
of Directors. In addition, Mr. Eyler receives an automobile allowance
of $250 per month.
Page <10>
Mr. Pollard serves as Vice President, Engineering pursuant to an
employment agreement entered into in 1996 which continues in effect
until April 1999. Under the terms of the agreement, Mr. Pollard
receives an annual salary of not less than $104,000 and a bonus to be
determined by the Board of Directors. In addition, Mr. Pollard
receives an automobile allowance of $250 per month.
In the event an executive officer's employment with the Company
is terminated without cause, he will receive a lump sum payment of
his salary at the level stated above for the balance of the term of
the Agreement.
Effective January 1997 the Compensation Committee increased
annual executive salaries as follows: Mr. Williams-$170,000; Mr.
Dosch-$125,000; Mr. Eyler-$115,000; and Mr. Pollard-$115,000. No
changes were made to annual salaries for the year ending December 31,
1998. No bonuses were paid for the years ending December 31, 1997
and 1996.
In the event the Company enters into an agreement to dispose of
substantially all of the assets or stock of the Company, options
outstanding under the 1996 Omnibus Stock Plan ("the Plan") will vest
in full and become exercisable as of the date of such agreement. Any
outstanding options which are not exercised or assumed will terminate
as of the date of such disposition.
COMPENSATION OF DIRECTORS
Mr. Bosworth, Mr. Robbins, and Mr. McCord have each received
$1,000 per month as a retainer and $750 per directors' meeting and
committee meeting attended. Mr. Lane will receive comparable
compensation for 1998. In addition, at the time Messrs. Bosworth and
Robbins each initially became a director of the Company, they were
each granted an option to purchase 5,000 shares of Common Stock,
exercisable at $5.50 per share until May 23, 2006. Mr. Bosworth, Mr.
Robbins, Mr. McCord and Mr. Lane each receive ten year options to
purchase 2,500 shares of Common Stock at the then-market price on the
date of the grant on the first three anniversaries of their
respective elections as a director. These grants are conditioned upon
Messrs. Bosworth, Robbins and Lane being a director at the time of
the grant. As of May 29, 1997 an option to purchase 2,500 shares of
the Company's Common Stock had been granted to each of Messrs.
Bosworth, Robbins, McCord and Lane. Messrs. Bosworth, Robbins, McCord
and Lane may also receive additional reimbursement for expenses, as
determined by the Board of Directors, as directors' fees.
Mr. Lane receives $750 per directors' meeting and committee
meeting attended, and may receive such additional reimbursement for
expenses, as determined by the Board of Directors, as directors'
fees. See also "-- Certain Transactions."
CERTAIN TRANSACTIONS
Mr. Williams personally guaranteed a credit facility with
Grossmont Bank comprised of two term loans and a line of credit in
the amount of $150,000, $250,000 and $500,000, respectively. Proceeds
of the Company's public offering in 1996 were used in part to pay off
these loans.
At the time of the Company's public offering in 1996, Mr. Lane
was an executive officer and controlling person of Nutmeg Securities,
the principal underwriter of such offering. The total underwriting
discounts and commissions paid by the Company with respect to such
offering were $550,000. In addition, Nutmeg Securities received (i) a
non-accountable expense allowance of $165,000 and (ii) warrants to
purchase up to 50,000 units at $17.05 per unit exercisable over four
(4) years commencing May 28, 1997, with each unit consisting of two
shares of the Company's Common Stock and one redeemable Common Stock
Purchase Warrant of the Company, and (iii) a consulting fee of
$72,000.
Page <11>
During the year ending December 31, 1997 the Company paid to
Granum Communications Corporation a fee for services in the amount of
$46,000. Mr. McCord, a director of the Company, has a beneficial
interest in the fee payment from the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially
own more than 10% of the Company's Common Stock to file initial
reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission ("SEC"). Such persons are required
by SEC regulations to furnish the Company with copies of all Section
16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to
the Company and written representations from certain reporting
persons, the Company believes that all filing requirements applicable
to the Company's executive officers, directors and more than 10%
shareholders were complied with.
Page <12>
PROPOSAL THREE:
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected Harlan &
Boettger, LLP independent accountants for the Company since 1993, as
independent accountants to audit the financial statements of the
Company for the year ending December 31, 1998. A representative of
Harlan & Boettger is expected to be present at the Annual Meeting
with the opportunity to make a statement if the representative
desires to do so, and is expected to be available to respond to
appropriate questions.
The affirmative vote of a majority of the votes cast at the
Annual Meeting of Shareholders, at which a quorum is present and
voting, either in person or by proxy, is required for approval of
this proposal. Neither abstentions nor broker non-votes shall have
any effect on the outcome of this vote. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF HARLAN &
BOETTGER AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 1998.
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented at the next
Annual Meeting of the Shareholders of the Company must be received by
the Company at its offices at 2070 Las Palmas Drive, Carlsbad, CA
92009 not later than December 30, 1998, and satisfy the conditions
established by the Securities and Exchange Commission for shareholder
proposals to be included in the Company's proxy statement for that
meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the
Board of Directors intends to present or knows that others will
present at the meeting is as set forth above. If any other matter or
matters are properly brought before the meeting, or any adjournment
thereof, it is the intention of the persons named in the accompanying
form of proxy to vote the proxy on such matters in accordance with
their best judgment.
By Order of the Board of Directors
LARRY EYLER,
Secretary
May 18, 1998
Page <13>
AMENDMENT OF THE
PACIFIC RESEARCH & ENGINEERING CORPORATION
1996 OMNIBUS STOCK PLAN
Section 4(a) shall be amended in its entirety to read as follows:
"(a) The maximum aggregate number of shares which may be optioned
and sold under Plan A and Plan B is one million four hundred thousand
(1,400,000) shares of authorized Common Stock of the Company. The
foregoing constitutes an absolute cumulative limitation on the total
number of shares that may be optioned under both Plan A and B.
Therefore, at any particular date the maximum aggregate number of shares
which may be optioned under Plan A is equal to 1,400,000 minus the number
of shares previously optioned under both Plan A and Plan B and the
maximum aggregate number of shares which may be optioned under Plan B
is equal to 1,400,000 minus the number of shares which have been
previously optioned under both Plan A or Plan B. All shares to be
optioned and sold under either Plan A or Plan B may be either authorized
but unissued shares or shares held in the treasury. Of the 1,400,000
shares covered under Plan A, 750,000 shares shall be categorized as
performance plan shares and shall be subject to the provisions set
forth in section (c) below."
IN WITNESS WHEREOF, the undersigned Secretary of Pacific Research &
Engineering Corporation certifies that the foregoing amendment to the
1996 Omnibus Stock Plan was duly adopted by the Board of Directors on
the 5th of April, 1998.
LARRY EYLER,
Secretary
Page <14>
PACIFIC RESEARCH & ENGINEERING CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 25, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby acknowledges receipt of the Notice of
Annual Meeting of Shareholders and Proxy Statement, and hereby
appoints Jack Williams and Larry Eyler, or either of them, proxies
and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the
undersigned at the Annual Meeting of Shareholders of Pacific Research
& Engineering Corporation to be held on June 25, 1998, at 9:00 a.m.,
local time and at any adjournment or adjournments thereof, and to
vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters
set forth below.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
GIVEN, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND
"FOR" THE PROPOSALS SET FORTH ON THE REVERSE SIDE.
Please fill in, date, sign and mail this proxy in the enclosed
postage-paid return envelope.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN ON THE
REVERSE SIDE AND PROMPTLY.
/X/ Please mark votes as in this example.
1. To elect directors to serve for the ensuing year and until
their successors are duly elected.
NOMINEES: Jack Williams, Michael Dosch, Michael Bosworth, John Lane,
John Robbins, Herbert McCord
FOR WITHHELD
/ / / /
/ /___________________________
For all nominees except as noted above
2. To approve the amendment of the Company's 1996 Omnibus Stock
Plan to increase the shares reserved for issuance thereunder by
200,000 shares.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify the appointment of Harlan & Boettger, LLP as the
independent accountants of the Company for fiscal year ending
December 31, 1998.
FOR AGAINST ABSTAIN
/ / / / / /
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
/ / MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
Please sign exactly as name appears hereto. If stock is held jointly,
each holder should sign. If signing as attorney, trustee, executor,
administrator, custodian, guardian or corporate officer, please give
full title.
Signature:_________________________ Date________________
Signature:_________________________ Date________________