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As filed with the Securities and Exchange Commission on February 7, 1997
Registration No. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PMC INTERNATIONAL, INC.
(Name of small business issuer in its charter)
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<S> <C> <C>
Colorado 6282 84-0627374
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
555 17th Street 555 17th Street
Denver, Colorado 80202 Denver, Colorado 80202
(303) 292-1177 (Address of principal place of business or
(Address and telephone number of principal executive offices) intended principal place of business)
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Kenneth S. Phillips
President and Chief Executive Officer
PMC International Inc.
555 17th Street
Denver, Colorado 80202
(303) 292-1177
(Name, address, and telephone number of agent for service)
Copies to:
Francis R. Wheeler, Esq.
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
(303) 861-7000
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered(1) per share (2) offering price (2) fee
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Common Stock, par value $.01 per share 12,914,706 shares $2.46876 $31,883,309 $9,662.00
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Common Stock, par value $.01 per share(3) 1,279,500 shares $2.46876 $3,158,778 $957.00
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Total Registration Fee $10,619.00
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(1) All shares are being sold by Selling Shareholders.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act based on the average of
the bid and the asked price of the Common Stock in the over-the-counter
market as of the close of business on February 4, 1997.
(3) Represents shares of Common Stock issuable upon exercise of certain
options and warrants held by the Selling Shareholders.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED FEBRUARY 7, 1997
PROSPECTUS 14,194,206 SHARES
PMC INTERNATIONAL, INC.
COMMON STOCK
This Prospectus relates to the offer and sale by certain persons (and
the transferees, pledgees, donees and successors thereof)(collectively the
"Selling Shareholders") of up to 12,914,706 shares (the "Shares") of Common
Stock, par value $.01 (the "Common Stock"), of PMC International, Inc. (the
"Company") currently held by the Selling Shareholders and up to 1,279,500 Shares
issuable upon the exercise of certain options and warrants currently held by the
Selling Shareholders. The Selling Shareholders may sell the Shares from time to
time in one or more transactions, including one or more underwritten offerings.
The Selling Shareholders may effect such transactions directly to or through
securities broker-dealers in the over-the-counter market or otherwise, and such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agent or to whom the Selling Shareholder
might sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). The Shares may also be
offered in one or more underwritten offerings, on a firm commitment or best
efforts basis. The underwriters in any underwritten offering and the terms and
conditions of any such offering will be described in a supplement to this
Prospectus. See "Selling Shareholders" and "Plan of Distribution."
All Shares offered hereby are shares currently held by the Selling
Shareholders or issuable upon the exercise of certain options and warrants
currently held by the Selling Shareholders. The Company will not receive any of
the proceeds from the sale of the Shares offered hereby. The Company has agreed
to bear all expenses in connection with the registration and sale of the Shares
being offered by the Selling Shareholders other than compensation payable to
securities broker-dealers by the Selling Shareholders and/or the purchasers of
the Shares, any securities broker/dealer expense allowances and transfer taxes.
The offering expenses to be paid by the Company are estimated to be
approximately $ . The Company has agreed to indemnify the Selling Shareholders
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Plan of Distribution."
The Common Stock is traded in the over-the-counter market. The last
reported sale price for Common Stock on February 4, 1997 was $2.50, as reported
to the Company by the principal market maker in the Common Stock. See "Market
for Common Stock."
No dealer, salesperson or individual has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or in a Prospectus Supplement in connection with the offer made by
this Prospectus and any Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Selling Shareholders. Neither the delivery of
this Prospectus or any Prospectus Supplement nor any sale made hereunder or
thereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date hereof or thereof
or that the information contained herein is correct as of any time subsequent
to the date hereof or thereof. This Prospectus and any Prospectus Supplement
shall not constitute an offer to sell or a solicitation of an offer to buy any
of the Shares in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
--------------------------
A PURCHASE OF THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGES 2 TO 4 FOR A DISCUSSION OF CERTAIN RISK FACTORS TO
BE CONSIDERED BY PROSPECTIVE INVESTORS.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
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AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected without charge at, and copies
thereof may be obtained at prescribed rates from, the public reference
facilities of the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. In addition, the Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
The Company has filed with the Commission a registration statement on
Form SB-2 under the Securities Act with respect to the securities offered
hereby (the "Registration Statement"). This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the securities
offered hereby reference is made to the Registration Statement, including the
exhibits thereto, which may be inspected at, and copies thereof may be obtained
at prescribed rates from, the public reference facilities of the Commission at
the addresses set forth above.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus. Investors should carefully consider the information under the
heading "Risk Factors." The information set forth below contains "forward
looking statements" within the meaning of the federal securities laws,
including statements regarding opportunities for growth from expanded use of
existing distribution channels and expanded use by existing distribution
channels of the Company's products and services and similar expressions
concerning matters that are not historical facts. These statements are subject
to risks and uncertainties that could cause actual results to differ materially
from those expressed in the statements.
THE COMPANY
PMC International, Inc. (the "Company") develops, markets, and manages
sophisticated investment management products and services. Not a money manager
itself, the Company's products and services facilitate the selection and/or
monitoring of unaffiliated money managers or mutual funds for customers of the
Company's distribution channels depending upon the size, sophistication and
requirements of such customers. The Company's products and services address
investment suitability and diversification, asset allocation recommendations,
portfolio modeling and rebalancing, comprehensive accounting and portfolio
performance reporting. The Company's revenues are realized primarily from fee
sharing agreements for its products based on a percentage of managed assets as
well as consulting fees for certain advisory services and licensing fees from
its software products. As of September 30, 1996, assets of approximately $900
million were managed or administered using the Company's products and services.
Founded in 1986, the Company is an independent sponsor of privately
managed accounts and wrap programs. The majority of the Company's revenues are
derived from its individually managed wrap program, which the Company developed
and has administered since 1987. In addition to its traditional wrap program,
since 1994 the Company has invested in developing related technology-based
services and has added staff to develop and support the Company's new products.
The Company's products and services are designed to assist professional
financial consultants in their efforts to market high quality, fully
diversified portfolio management products. Through the use of technology, the
Company assists third party financial advisors such as banks, insurance
companies and brokerage firms (collectively, "Institutional Channels") and
independent financial planners ("Independent Channels") in allocating and
diversifying a customer's investment portfolio across multiple asset classes
and investments. In respect to Institutional Channels, the Company's products
allow for a repeatable sales process which helps increase sales productivity
while ensuring compliance with the Institutional Channels' corporate and
regulatory policies.
The Company has a staff of approximately 50 people, including more than
30 professionals, and conducts business in eight countries. The Company owns
three subsidiaries: (i) Portfolio Management Consultants, Inc. ("PMC"), an
investment advisory firm; (ii) Portfolio Brokerage Services, Inc. ("PBS"), a
broker/dealer; and (iii) Portfolio Technology Services, Inc. ("PTS"), which
specializes in developing proprietary software for use in the financial services
industry. Unless the context otherwise requires, references herein to the
Company include subsidiaries and predecessors of the Company. The Company's
principal executive office is located at 555 17th Street, 14th Floor, Denver,
Colorado 80202 and its telephone number is (303) 292-1177.
THE OFFERING
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Common Stock offered by the Selling Shareholders............ 14,194,206 shares(1)
Common Stock outstanding before the Offering................ 14,522,614 shares(2)
Common Stock outstanding after the Offering................. 15,802,114 shares(3)
Use of Proceeds............................................. The Company will receive none of the proceeds of the
sale of the Shares. See "Use of Proceeds."
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(1) Includes 1,279,500 shares of Common Stock issuable upon exercise of
certain outstanding options and warrants held by Selling Shareholders.
(2) Does not include 3,586,500 shares of Common Stock reserved for issuance
upon exercise of outstanding options and warrants issued by the Company.
(3) Does not include 2,307,000 shares of Common Stock reserved for issuance
upon exercise of options granted under the Stock Option Plan for Employees
and other options granted to employees and directors.
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RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS ARE ADVISED THAT THEY MAY LOSE ALL OR PART OF THEIR
INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE FOLLOWING RISK
FACTORS.
Operating Losses, Possible Need for Additional Capital. The Company
has incurred losses since its inception. The Company suffered a loss of
$2,444,000 for the year ended December 31, 1995, and has had an estimated loss
of approximately $3,700,000 for the year ended December 31, 1996. Historically,
the Company has not generated sufficient cash for its operations and has
suffered cash flow shortages. The Company has heretofore derived working
capital principally from borrowings. In December 1996, the Company closed a
private placement of its equity securities that generated approximately
$7,500,000 of net proceeds, after payment of expenses of the offering and the
repayment of approximately $2,500,000 of indebtedness. While the Company
believes that such proceeds will be sufficient to support its working capital
needs for the foreseeable future, there can be no such assurance. If the
proceeds are not sufficient for the Company's working capital requirements, the
Company's future liquidity needs may be dependent upon the Company's ability to
borrow funds and complete additional equity offerings. There can be no
assurance that financing will be available to the Company if and when needed.
Acceptance of the Company's Products and Services. The revenues of the
Company are directly dependent upon the amount of assets managed or
administered using the Company's products and services. A decline in the market
value of assets managed through the Company or a downturn in general economic
conditions which causes investors to cease using the products and services of
the Company or its distribution channels could materially and adversely affect
the revenues of the Company.
Competition. In offering services through its Independent Channels,
the Company competes with other firms that offer wrap and managed account
programs. The Company's customers in turn compete with banks, insurance
companies, large securities brokers and other financial institutions which
offer wrap account programs to the public. The Company believes that firms
compete in this market primarily on the basis of service, since the wrap fees
charged by others are similar to those charged by the Company. Firms that
compete with the Company in providing services to its Independent Channels and
Institutional Channels have more financial resources and greater recognition in
the financial community than the Company. Competitors may reduce the fees
charged for wrap account programs or pursue other competitive strategies that
could have an adverse impact on the Company. There are many alternatives to
wrap programs that are being offered to the public, such as life cycle funds,
asset allocation funds, portfolio strategies and third party asset allocation
services, and these services are competitive with those offered by the Company.
As financial institutions continue to grow and build in-house asset
administration service capabilities, some will be able to provide these
services internally rather than using outsourcing providers. Competitors may
succeed in developing products and services that are more effective than those
that have been or may be developed by the Company and may also prove to be more
successful than the Company in developing these products and marketing these
services to third party asset managers. See "Business--Competition."
Dependence on Significant Relationships. Most of the Company's gross
revenues are generated by fees from the Company's Private Wealth Management
investment advisory programs. The programs are provided by Institutional
Channels and Independent Channels either under the Company's name or under the
"private label" of such channel. The Company's private label relationships with
Chase Manhattan Investment Services ("CMIS") accounted for approximately 18% of
the Company's gross revenues at year end 1996. CMIS has restructured its
business, which restructuring has materially and adversely affected the gross
revenues derived from that relationship during 1996. While the Company has no
reason to believe that its current investment advisory programs will not
continue or, other than the restructuring of the CMIS program discussed above,
that they will not continue to generate revenues for the Company consistent
with prior years, there can be no assurance that such will be the case.
Management of Growth. The Company has added staff over the last year
to support the anticipated growth in assets managed using the Company's
products and services. A continuing period of rapid growth could place a strain
on the Company's management, operations, financial and other resources. The
Company's ability to manage its growth effectively will require it to continue
to invest in its operational and other internal systems, and to retain,
motivate and manage its employees. If the Company's management is unable to
manage growth effectively and new employees are
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unable to achieve anticipated performance levels, the Company's results of
operations could be adversely affected. Potential investors should consider the
risks, expenses and difficulties frequently encountered in connection with the
operation and development of an expanding business. There can be no assurance
that the Company will be able to manage effectively any future growth.
Software Development. The Company has spent substantial funds on
research and development of software products, principally Allocation
Manager(TM), an asset allocation software program that supports the selling and
servicing of assets allocation investment products. While management believes
there is a strong market for its software products, there can be no assurance
that the products will be successful or that changes to or interpretations of
existing federal and state laws, rules and regulations will not adversely
affect the market for such products. The Company's products are dependent upon
the delivery of timely data updates, typically on a quarterly basis, from
third-party providers. To the extent such updates are not made available to the
Company on a timely basis, it would materially and adversely affect the
Company's ability to deliver its products and related services.
Dependence on Key Personnel. The success of the Company is dependent
upon the abilities of its executive officers. The loss of the Company's
executive officers may have a material adverse effect on the Company. See
"Management."
Effect of Government Regulation. The Company's business falls entirely
within the securities industry, an industry which is heavily regulated by the
federal and state governments. The Company is subject to regulatory changes
which could adversely affect its business. For example, in the event the
federal government imposes a tax on securities transactions, as has been
proposed from time to time by the executive branch of the federal government,
the increased cost associated therewith could have a material adverse effect on
the business of the Company. In addition, as an investment adviser and a
broker/dealer, the Company's subsidiaries are subject to regulation by the
Commission, the National Association of Securities Dealers, Inc. (the "NASD")
and state regulatory agencies. Consequently, the Company could become subject
to restrictions or sanctions from the SEC, the NASD or such state regulatory
agencies. It is impossible to predict the direction future regulations will
take or the effect of such regulations on the Company's business.
Principal Shareholders. As of the date of this Prospectus, the
Company's executive officers, directors and affiliates of such persons
beneficially own approximately 46% of the outstanding shares of Common Stock.
This group of shareholders therefore is in a position to exercise a substantial
influence over matters submitted to the vote of the Company's shareholders. See
"Description of Capital Stock."
Market for Common Stock. The Common Stock is not listed on an exchange
or included on The Nasdaq Stock Market, but is quoted in the OTC Bulletin
Board. Transaction is the Common Stock are subject to Rule 15c2-6 under the
Exchange Act, which imposes certain requirements on broker/dealers who sell
such securities to persons other than established customers and accredited
investors. For transactions covered by the rule, broker/dealers must make a
special suitability determination for purchasers of the securities and receive
the purchaser's written agreement to the transaction prior to sale. Thus, Rule
15c2-6 may affect the ability of broker/dealers to sell Common Stock and
thereby the ability of investors to sell their Shares in the secondary market.
In addition, securities traded in the OTC Bulletin Board may be subject to more
price volatility than securities listed on an exchange or Nasdaq. Due to the
fact that the Common Stock is not listed on an exchange or on Nasdaq and the
application of Rule 15c2-6, the trading volume of the Common Stock is extremely
low. Consequently, there may be only a limited market for the Shares. In
addition, the lack of trading volume may have an adverse effect on the price at
which the Shares may be sold.
The Common Stock was delisted from The Nasdaq Small Cap Market in
February 1995 because the Company failed to satisfy the requirements for
continued listing. Under listing requirements recently adopted by the NASD and
submitted to the Commission, to be included in The Nasdaq Small Cap Market,
among other requirements, (i) an issuer must have net tangible assets of
$4,000,000 and (ii) its common stock must have a minimum bid of at least $4.00
per share. While the Company currently satisfies the net tangible assets
requirement for inclusion on The Nasdaq Small Cap Market, it may not satisfy
the minimum per share bid price within the foreseeable future. The Company
will, however, consider effecting a reverse stock split if necessary to satisfy
the listing requirements for The Nasdaq Small Cap Market. The Company will also
consider alternative markets for the listing of its Common Stock.
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Dividends. Payment of dividends is contingent upon, among other
things, future earnings, if any, the financial condition of the Company,
capital requirements, general business conditions, and other factors which
cannot now be predicted and, subject to the limitations described below, is in
the discretion of the Board of Directors of the Company. In addition, no
dividends may be paid on Common Stock unless dividends payable on Series A
Preferred Stock are current. See "Description of Capital Stock--Preferred
Stock." As of January 31, 1997 the Company was in default in the payment of
dividends on the Preferred Stock in the amount of $253,503. The Company has
never paid dividends on the Common Stock and it is highly unlikely that
dividends on the Common Stock will be paid by the Company in the foreseeable
future.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Shareholders. To the extent Shares sold hereunder were acquired
by the Selling Shareholders upon the exercise of currently outstanding options
or warrants, the Company will realize proceeds in an amount equal to the
exercise price of such warrants or options. The Company currently intends to
use any such proceeds for general working capital purposes.
MARKET FOR THE COMMON STOCK
Prior to February 1995, the Common Stock was traded on The Nasdaq
Small Cap Market. See "Risk Factors-- Market for Common Stock." The Common
Stock currently trades in the over-the-counter market under the symbol "PMCI."
The following table shows the high and low bid prices and trading volume of the
Common Stock for the periods indicated as reported by the principal market
maker in the Common Stock. These quotations reflect inter-dealer prices without
retail markup, markdown, or commissions and may not necessarily represent
actual transactions.
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HIGH BID LOW BID
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1995
First Quarter $1.25 $0.6875
Second Quarter $0.6875 $0.50
Third Quarter $1.3125 $0.5625
Fourth Quarter $1.625 $0.75
1996
First Quarter $1.00 $0.625
Second Quarter $1.8125 $0.9375
Third Quarter $2.0625 $1.375
Fourth Quarter (1) $2.00 $1.375
1997
First Quarter $2.50 $2.00
(through February 4)
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(1) Does not reflect the private placement of 5,177,000 shares of Common Stock
by the Company in December 1996 at a price of $2.125 per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information set forth below contains "forward looking statements"
within the meaning of the federal securities laws, including statements
regarding opportunities for growth from expanded use of existing distribution
channels and expanded use by existing distribution channels of the Company's
products and services and similar expressions concerning matters that are not
historical facts. These statements are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in the
statements. See "Risk Factors."
GENERAL
PMC International, Inc. develops, markets, and manages sophisticated
investment management products and services. Not a money manager itself, the
Company's products facilitate the selection of unaffiliated money managers or
mutual funds depending upon the size, sophistication and requirements of the
investor. The Company's products and services address investment suitability
and diversification, asset allocation recommendations, portfolio modeling and
rebalancing, comprehensive accounting and portfolio performance reporting. The
Company's revenues are realized primarily from fee sharing agreements for its
products based on a percentage of managed assets as well as consulting fees for
certain advisory services and licensing fees from its software products. As of
September 30, 1996, assets of approximately $900 million were managed or
administered using the Company's products and services.
The Company's consolidated revenues are generated through its three
operating subsidiaries PMC, PBS, and PTS. Currently, the Company's revenues are
primarily derived from fees charged to customers for certain investment
advisory, broker-dealer, portfolio administration and reporting services
("Investment Management Fees") which generally are collected in advance on a
quarterly basis from each of its customers. PMC's Investment Management Fees
are determined and collected as a percentage of managed assets. Those fees are
affected by the extent to which the Company attracts new, or loses existing
customers, the appreciation or depreciation of the U.S. and international
equity and fixed income markets, and the type and size of accounts and the
corresponding difference in fee schedules.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
During the first nine months of 1996, the Company's subsidiary PTS
began contributing revenues as institutional distribution channels began
entering into agreements for customized versions of Allocation Manager(TM), the
Company's new software based mutual fund asset allocation program. Also during
this period, the Company's new performance reporting service, MARS, began
signing new distribution channels and generating revenue. For the nine months
ended September 30, 1996 the above products generated $175,000 in revenues.
These products represent a customer base of approximately 400, 900 and 1,150
accounts for the periods ended March 31, June 30 and September 30, 1996,
respectively.
The Company's Investment Management Fees increased by 3.7% and 12%,
respectively, for the three months and nine months ended September 30, 1996,
when compared with the three months and nine months ended September 30, 1995.
Total revenues for the three and nine-month periods increased by 5.6% and 14%,
respectively, over the same time periods in the previous year. Increased
revenues were primarily attributable to an increase in managed assets which
utilize the Company's products and services.
Total expenses for the three months and nine months ended September
30, 1996, on a consolidated basis, increased by 15% and 25%, respectively, over
the same time periods in 1995. The largest percentage increases were
experienced in salaries, interest and depreciation expenses. These three line
items, in aggregate, accounted for approximately 31% and 30% of total expenses
for the three months and nine months ended September 30, 1996, as compared to
22% and 23% through the corresponding periods in 1995, and are directly
attributable to the costs and staffing requirements associated with the
development and start-up phase of the Company's new products and services.
Salaries, for example, were $807,531 during the third quarter of 1996, compared
with $599,012 for the same period in 1995. For the first nine months of 1996,
salaries were $2,342,487, compared with $1,661,892 for the same nine-month
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period in 1995. Similarly, the Company's financing activities and its increase
in capital lease payments and interest expense were $115,941 and $232,528,
respectively, for the three and nine months ended September 30, 1996, compared
with $27,541 and $62,560 for the same periods in 1995.
Depreciation on the previously capitalized costs of developing the
Company's new software products, other fixed assets, and amortization of
goodwill for the three months and nine months ended September 30, 1996 were
$136,335 and $393,505, respectively. Depreciation and amortization for the
comparable periods in 1995 were $38,835 and $96,505.
Increased staffing and costs associated with the development, release
and support of the Company's new products and services have resulted in higher
overall costs across a number of expense categories. At September 30, 1996 the
Company employed 50 full time employees as compared with 37 full time employees
at September 30, 1995. New staff has been added in the areas of marketing,
sales, software programming and systems support. Other areas of substantially
increased expense were telecommunications, printing, reference materials and
publications. Occupancy and equipment costs rose by 13% and 26% for the three
months and nine months ended September 30, 1996 over the same periods in the
previous year, with approximately half of this increase attributable to the
addition of non-capitalized hardware and software. For example, the Company
recently completed the installation of a proprietary, multi-currency portfolio
accounting and reporting system which will eliminate the Company's past
reliance upon third party "service bureau" providers who charge the Company on
a "per-portfolio" basis for data processing. The new in-house system will lower
the Company's costs, per customer, and improve margins as the Company continues
to grow. The Company's expenses also reflect increased equipment leases and an
annual adjustment to the Company's office lease for common operating costs.
The completion and release of the Company's new products, the
development of new sales and marketing agreements, and the regulatory and
compliance issues associated with these new products and relationships
contributed to an overall increase of professional fees by 35% and 31%,
respectively, over the first three and nine month periods of 1996. Although the
legal fees related to the Company's defense and final settlement with the SEC
investigation have decreased, the Company continues to incur expenses in
connection with the implementation of the final settlement, including the cost
of an independent accounting firm to determine net trading profits and the cost
of the defense of the Company's former Chief Executive Officer. See
"Business--Corporate History--SEC Investigation and Settlement." Legal expenses
were also incurred in connection with ensuring regulatory compliance by the
Allocation Manager(TM) mutual fund software program and in the establishment of
complex relationships with several new distribution channels.
1995 Compared to 1994
Investment Management Fees for the year 1995 increased to $8,632,888
from $8,556,518 in 1994. The Company's consolidated revenues for the same
period were $9,172,479 versus $9,280,650 for 1994, a decline of 1.2%. This
decrease is largely the result of discontinuation of principal trading
activities in April of 1994. Revenues generated from principal trading in the
first quarter of that year were approximately $200,000. The portion of the
Investment Management Fees paid to investment advisers who make specific
investment decisions on a discretionary basis ("Portfolio Manager") for the
client and broker-dealer, investment adviser agents who service the client
("Financial Adviser") and custodial fees for these periods accounted for
$5,139,613 versus $4,967,557 for 1994, representing an increase of 3.5%. PMC's
lower margins were a result of several factors including 1) a shift in asset
growth from higher margin sales channels to lower margin channels, and 2)
larger average new client relationships which pay lower gross fees to PMC.
Management has taken steps to increase its marketing efforts relative to its
higher margin sales channels. It is also making adjustments to the pricing of
larger relationships to increase margins on these accounts.
In April 1994, the Company issued a public announcement regarding an
SEC investigation that began in late 1993. The investigation focused on the
firm's principal trading activities. During 1994 the Company expended
approximately $800,000 in legal fees and other expenses in connection with this
matter. During 1995, legal fees relating to this matter represented an
additional $260,000. The Company accrued $465,000 in 1995 as a reserve against
estimated settlement expense related to this investigation.
Interest expense, resulting from a bridge loan completed in March
1995, and subordinated debt amounted to $83,000 while depreciation and
amortization expenses totaled $171,907 for the period. Non-recurring costs
relating to the restructuring of the Company in July 1995, including investment
banking and legal fees, were $190,000; and
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severance costs in connection with the departure of Mr. Marc Geman, the
Company's former Chief Executive Officer, totaled $180,000. To summarize,
$255,000 went towards interest, depreciation and amortization while
approximately $1,000,000 went towards non-recurring expenses.
Significant changes in the Company's balance sheet, which impacted the
Company's cash flow requirements, included the capitalization of $419,617 in
connection with the development of the Allocation Manager(TM) software program
and $316,176 of newly acquired fixed assets in connection with hardware and
software requirements for PTS and PMC's operations department. The acquisition
of these fixed assets was expected to significantly lower operating costs in
connection with the management and administration of the Company's managed
account products, although the cost reductions were not expected to be fully
realized until the third quarter of 1996. Additionally, $179,955 of other fixed
assets and leasehold improvements was capitalized.
Liabilities increased substantially over the prior period. Much of the
increase was the result of the Company's cash flow difficulties. Accrued
expenses, not requiring current cash payment, totaled $794,000, including
$465,000 reserved for the estimated expense of a settlement with the SEC. Notes
payable increased by $1,600,000 as a result of the Company's financing efforts
during 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating losses incurred over the last several years
have resulted in the need for substantial funding. During the first three
quarters of 1996, the Company borrowed an aggregate of $1.8 million from
Bedford Capital Financial Corporation ("Bedford") and received an additional
$1.0 million from the private placement of debt securities. These financings
were in addition to $1.2 million borrowed by the Company from Bedford in July
1995 and $482,500 received by the Company from the private placement of debt
securities in late 1995 and early 1996. In November 1996 the Company borrowed
an additional $250,000 as bridge financing to fund working capital shortfalls
through the completion of a private placement of Common Stock. See
"Business--Corporate History." The Bedford loans, the private placements and
the bridge financing each involved the issuance of warrants to purchase Common
Stock.
In December 1996 the Company completed a private placement of
5,177,000 shares of Common Stock at a price of $2.125 per share. Also in
December 1996, the Company completed a restructuring of its debt and preferred
stock. The restructuring involved (i) the payment of all outstanding interest
on the Bedford loans, the repayment to Bedford of $1,976,250 of outstanding
principal on the Bedford loans, the exercise by Bedford of warrants to purchase
1,023,750 shares of Common Stock and the delivery by Bedford of canceled
promissory notes in the amount of $1,023,750 in satisfaction of the exercise
price of the warrants, the cancellation of Bedford's remaining warrants, and
the issuance to Bedford of new warrants to purchase up to 150,000 shares of
Common Stock at an exercise price of $2.125 per share; (ii) the exercise of
warrants to purchase 1,500,000 shares of Common Stock issued to investors in
connection with the Company's private placement of promissory notes and
warrants in December 1995/January 1996 and May/June 1996 and the delivery of
canceled promissory notes in the aggregate principal amount of $1,500,000 in
satisfaction of the exercise price of such warrants, payment by the Company of
all outstanding interest due and owing on such notes as of the exercise date,
and the issuance of new warrants to purchase an aggregate of 150,000 shares of
Common Stock to such investors; (iii) the repayment of the November 1996 bridge
loan, and (iv) the conversion of 210,835 shares of the Company's Preferred
Stock into 289,902 shares of Common Stock, resulting in a reduction in the
Company's cumulative dividend obligation to the holders of Preferred Stock from
$583,576 as of September 30, 1996 to $253,503 as of as of January 31, 1997. A
portion of the conversion of shares of the Company's Preferred Stock into
Common Stock was effected in January 1997. See "Business--Corporate History."
The Company believes that the proceeds of the December 1996 offering
and restructuring have resulted in sufficient capital resources to meet the
Company's substantial additional funding requirements until its new and
existing products and services can generate sufficient revenues to offset its
costs. The Company's intention is to use the additional equity capital to (i)
finance any future operating losses the Company may incur, (ii) strengthen the
Company's balance sheet with the goal of relisting of the Common Stock on The
Nasdaq Small Cap Market, and (iii) provide adequate working capital to meet the
Company's long term requirements.
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BUSINESS
INDUSTRY OVERVIEW
The financial services industry has been one of the fastest growing
sectors in recent years. As the industry has grown, a substantial shift from
commission and transaction-based products to advisory and fee-based products
has occurred. Evidenced most clearly in the popularity of mutual funds,
consumer demand for investment advice and services in connection with managed
asset products has increased enormously over the past 10 years. The mutual fund
industry has grown from 1,528 funds encompassing $495 billion of assets in 1985
to 5,761 funds encompassing $2.8 trillion of assets in 1995. Increasingly,
investors are looking for expertise to assist them in understanding the range
of investment products that are currently marketed. As such, managed account
programs, such as asset allocation and wrap-fee accounts which assist investors
in developing and implementing appropriate investment strategies, have grown
significantly to service this segment of the marketplace. Wrap programs, which
offer a highly-personalized, fee-based (as opposed to commission-based)
platform for financial management, have grown to more than $100 billion in
assets at year-end 1995.
In recent years, there have been two principal objectives in the
development and marketing of wrap programs. First, to improve customer service,
programs were developed offering asset allocation and professional money
management services that would better position a customer's investment
portfolio. Asset allocation is a significant determinant of successful
long-term investment performance. In addition, by consolidating the numerous
investment services, costs of portfolio management can often be reduced as
compared to purchasing individual services in traditional a la carte fashion.
The second reason for developing these programs was to shift customer assets
from dormant custody accounts, which traded periodically and without
predictability, into predictable revenue producing assets for the sponsoring
firm. In developing a "trust building" product, wrap program sponsors provide
the following four basic functions for a customer in addition to money
management, brokerage and custody services; (i) customer evaluation, (ii) asset
allocation and investment policy development; (iii) investment management
evaluation and selection, and (iv) quarterly monitoring and reporting services.
As wrap programs have grown in size and popularity, investment
portfolio managers (those that manage individual accounts consisting of stocks
and bonds) and mutual fund distributors are increasing their involvement within
these programs. These programs give money managers and mutual funds the ability
to market themselves and participate in distribution channels of financial
planners, which in turn provide them with the opportunity to increase their
assets under management. With attention rapidly shifting to long-term asset
allocation strategies, consultant wrap assets, assets managed by professional
money managers, have grown from $60 billion in 1993 to $80 billion in 1994 to
$110 billion in 1995, while mutual fund wrap assets have grown from $8 billion
in 1993 to $12 billion in 1994 to $19 billion in 1995. In 1988, assets in these
wrap programs were estimated at less than $2 billion.
BACKGROUND OF THE COMPANY
Founded in 1986, the Company is an independent sponsor of privately
managed accounts and wrap programs. The majority of the Company's revenues are
derived from its individually managed wrap fee program, which the Company
created and has administered since 1987. In addition to its traditional wrap
fee program, since 1994 the Company has invested in developing a menu of
related technology-based services and has added staff to develop and support
the Company's new products. The Company's products and services are designed to
assist professional financial consultants in their efforts to market high
quality, fully diversified portfolio management products. Through the use of
technology, the Company assists financial advisors such as banks, insurance
companies and brokerage firms, as Institutional Channels, and independent
financial planners, as Independent Channels, in allocating and diversifying a
customer's investment portfolio across multiple asset classes and investments.
In respect to Institutional Channels, the Company's products allow for a
repeatable sales process which helps increase sales productivity while ensuring
compliance with the Institutional Channels' corporate and regulatory policies.
The Company has a staff of approximately 50 people, including more
than 30 professionals, and conduct business in 8 countries. The Company owns
three subsidiaries: (i) Portfolio Management Consultants, Inc., an
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investment advisory firm that is registered with the SEC and is registered or
exempt from such registration in all U.S. jurisdictions; (ii) Portfolio
Brokerage Services, Inc., a broker/dealer registered with the NASD and all U.S.
jurisdictions; and (iii) Portfolio Technology Services, Inc., which specializes
in developing proprietary software for use in the financial services industry.
PRODUCTS AND SERVICES
Portfolio Management Consultants, Inc.
PMC currently has four discrete but vertically integrated product
lines. Each product offered by PMC is designed to assist professional financial
consultants in various aspects of their business. The four services are (i)
Private Wealth Management(TM), PMC's individually managed account wrap program,
(ii) Allocation Manager(TM), a mutual fund asset allocation program available
both on paper and through the Company's proprietary software that provides
comprehensive and detailed investment suitability analysis, recommended
allocation of assets, portfolio modeling and rebalancing, and comprehensive
portfolio performance reporting, (iii) Managed Account Reporting Services, a
portfolio accounting and reporting service that operates as a service bureau,
and (iv) Style Manager(TM), a discretionary money management program, using
style index funds and mutual funds, that offers equity style rotation. In
addition, PMC provides consulting services to Institutional Channels and high
net worth customers.
Private Wealth Management
Private Wealth Management, PMC's multi-manager institutional wrap
program, has historically been PMC's largest revenue producer. Targeted toward
customers with high net worth (typically having a portfolio larger than one
million dollars), Private Wealth Management assists financial planners in
assembling a custom-selected team of professional money managers which
precisely matches an individual investor's personal investment goals, risk
tolerance, and objectives.
Each portion of an individual's portfolio (allocated into asset
classes such as equity, fixed income and cash, and asset sub-classes such as
value, growth, large cap, small cap, and emerging markets) is managed by a
carefully selected institutional money management firm that has been chosen
from PMC's list of recommended managers as best suited to match an investor's
investment philosophy within a specific discipline. An important and
proprietary component of the Private Wealth Management program involves the
basis of selection of these money managers. PMC currently recommends a number
of independent money managers for its Private Wealth Management multi-manager
program, representing a diverse range of philosophies and styles. These
managers are chosen based largely on quantitative analysis emphasizing
return-based, multi-factor style benchmarking. High correlation to benchmark
indices, supported by positive alpha, are necessary to meet the "Preferred"
standard for manager recommendations. Also considered in manager evaluations
are historical performance, investment philosophy and style, disciplines,
employee turnover, rate of growth, accounts gained or lost, and industry
reputation. To help a customer choose and understand investment options, PMC
provides detailed profiles on money managers in the context of style and
methodology to achieve maximum investment diversification. Additionally, PMC
will provide guidance on the termination of existing managers and the
rebalancing of the customer's assets. The Company considers periodic portfolio
rebalancing decisions to be an extremely important determinant of long-term
performance. Thus, several rebalancing options are offered within both PMC's
private account programs.
Private Wealth Management is marketed under both the PMC label and
private labels. Institutional Channels currently using private-label versions
of Private Wealth Management include CMIS, National Financial Correspondent
Services ("NFCS"), the wholly-owned brokerage and securities clearing
subsidiary of Fidelity Management and Research, and Israel Discount Bank of New
York. Additionally, PMC distributes Private Wealth Management under its own
name through thirty financial planning broker-dealers and investment advisors
representing more than 10,000 registered sales professionals. To support the
sales process, the Company employs a staff of marketing representatives. The
Company has a joint marketing agreement with Schwab Institutional Management,
pursuant to which a specialized version of the Private Wealth Management
program is marketed to independent investment advisors who utilize the services
of Schwab. Currently, PMC is servicing Institutional Channels in the U.S. and
seven Latin American countries with several institutional money managers
participating in the Company's wrap programs.
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Allocation Manager(TM)
Allocation Manager(TM), introduced in late 1995 and as an operating
product during the third quarter of 1996, is a Windows-based software program.
The program is designed to aid in the solicitation, sale, and servicing of
mutual funds, variable annuities, offshore investments and other selected
financial products. A highly-flexible program based upon theories of mass
customization, Allocation Manager(TM) has the capability of being tailored for
use by specific financial distribution channels having their own proprietary
product mix. This product assists in guiding a wide range of investors through
the complex process of choosing an appropriate combination of mutual funds.
Allocation Manager(TM) was built with the intention of being
customized by PMC's existing and prospective clients, many of whom have
proprietary families of mutual funds. As a result, Allocation Manager(TM)
supports a broad range of financial products and programs, both domestically
and globally, and can be customized to the individual requirements of
Institutional Channels.
A version of Allocation Manager(TM), called Fund CounselorSM, is being
marketed by NFCS. Under the Fund CounselorSM Program, NFCS will provide
brokerage, clearing and custodial services and will make the program available
to its more than 225 bank, insurance and financial planning broker/dealers. In
addition, PMC is currently pursuing similar relationships with other
substantial distributors and securities clearing firms and will market the
Allocation Manager(TM) platform within the Schwab Institutional Management
system.
Based upon (i) the substantial growth in the mutual funds industry
over the last 15 years, (ii) investor trends in mutual fund investment and
(iii) industry expectations, management believes PMC's existing expertise and
operations will permit a smooth integration of this new program with existing
products and services offered by the Company while expanding and diversifying
the distribution channels for such products and services. Because the program
also provides educational tutorials, training modules and dynamic portfolio
modeling, Allocation Manager(TM) is much more than simply a "front-end" sales
tool. It can be positioned as a technology sale with licensing revenues to PTS
or it can be positioned, subject to applicable regulatory guidelines and
restrictions, as an investment management tool, allowing PMC to receive
asset-based pricing.
Managed Account Reporting Services
Management believes that as a result of the growth within the
fee-based financial advisory segment of the industry over the past ten years,
many institutions have been seeking ways to improve their reporting
capabilities. The Company's Managed Account Reporting Service ("MARS") is used
by financial professionals in providing customers with the increasingly
important value-added services of portfolio performance reporting and
cost-based tax accounting. Essentially a service bureau/data processing
service, MARS leverages a PMC core competency, allowing PMC to sell, on a stand
alone basis, its attractive monthly and quarterly reports.
MARS provides detailed statements that include comprehensive
management reporting, account reconciliation and cost-based accounting on a
full-accrual basis. In addition, PMC provides full color, quarterly performance
reports detailing the investor's objectives and performance of each investment
strategy, money manager or mutual fund, as well as the entire portfolio.
During 1996 PMC entered into an agreement with National Financial
Services Corporation, an affiliate of Fidelity Management and Research
("NFSC"), to manage NFSC's newly created performance reporting service called
MAPS Tool Box ("MAPS"). MAPS provides NFSC's correspondents with access to high
quality, quarterly performance reports and tax lot, cost basis and fully
accrued account statements. This service is targeted at high net worth
investors managed by financial planners and financial consultants who use the
securities clearing services of NFSC. MARS is also being marketed within the
Schwab Institutional Management system to the many investment advisors that use
Schwab's custodial services.
Style Manager(sm) Asset Management Products
Style Manager(sm) is a family of discretionary asset management
products which recommend strategies for the periodic rebalancing of both
institutional and retail investor portfolios. Through the use of Style
Manager(sm), clients'
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portfolios are periodically rebalanced through the rotation of U.S. equity
styles (i.e., growth and value companies and large, mid and small
capitalization companies), with the intention of capturing superior performance
that results from taking advantage of certain cyclical sector inefficiencies in
the U.S. equity markets. Recommended shifts in equity allocations are designed
to move assets away from under-performing sectors into those likely to perform
best. Although Style Manager(sm) recommends shifts within the U.S. equity
markets, it does not recommend shifts between macro asset classes such as
stocks, bonds and cash, thus the program is not a market timing program as the
term is generally used. Currently, three Style Manager(sm) versions have been
developed.
Portfolio Brokerage Services, Inc.
Portfolio Brokerage Services, Inc. ("PBS"), a wholly owned subsidiary
of the Company, is registered as a broker/dealer with the NASD and in all U.S.
jurisdictions. PBS executes security transactions for certain of PMC's
privately managed account programs on behalf of its customers through the
customer's custodian bank on a delivery vs. payment basis. A self-clearing
broker/dealer, substantially all trading activity of PBS is unsolicited and
initiated by the independent money managers used in PMC's private wealth
management program. Managers make all buy and sell decisions and place most
orders with PBS for execution. PBS executes substantially all trades through
third party market makers. All transactions are effected on an agency basis.
Portfolio Technology Services, Inc.
Portfolio Technology Services, Inc. ("PTS"), a wholly owned subsidiary
of the Company, is a technology company dedicated to providing innovative
software products to the financial services industry. PTS leverages the product
knowledge of PMC to design and build integrated product solutions to meet the
challenge of consolidating products and pricing in multiple segments of the
financial services industry. As its primary contribution to the Company, PTS
has developed the sales workstation platform used for Allocation Manager(TM)
and communication interfaces to multiple custodial systems. PTS licenses its
technology, and provides customization services to its strategic partners.
SIGNIFICANT RELATIONSHIPS
Most of the Company's gross revenues are generated by fees from the
Company's Private Wealth Management investment advisory programs. The programs
are marketed and sold by Institutional Channels and Independent Channels either
under the Company's name or under the "private label" of such channel. The
Company's private label relationships with CMIS accounted for approximately 18%
of the Company's gross revenues at year end 1996. CMIS has restructured its
business, which restructuring has materially and adversely affected the gross
revenues derived from that relationship during 1996. While the Company has no
reason to believe that its current investment advisory programs will not
continue or, other than the restructuring of the CMIS program discussed above,
that they will not continue to generate revenues for the Company consistent
with prior years, there can be no assurance that such will be the case.
Pursuant to a joint marketing agreement between the Company and Schwab
Institutional Management, a specialized version of the Private Wealth Management
program is being marketed to independent investment advisors who utilize the
services of Schwab Institutional Management. The Company's agreement with Schwab
potentially represents one of the Company's most significant new relationships.
Schwab provides custody and clearing services for independent RIAs. With respect
to Schwab Institutional Management's RIA customers who determine to use the
Company's products and services, Schwab Institutional Management will provide
brokerage, custody and securities clearing services while PMC will provide asset
allocation, money manager due diligence, monthly and quarterly reporting, sales
support and training.
The Company is continuing to target other means of distribution, and
has executed selling agreements with new Institutional Channels for its
products. Examples of the new relationships include MONY Securities Corporation
and Farwest Advisory Services, Inc., the investment advisory affiliate of
Investment Centers of America . MONY Securities
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Corporation will use Allocation Manager(TM) to sell its proprietary fund
family, The Enterprise Funds, while Farwest will market PMC's "off-the-shelf"
program to sell mutual funds selected by PMC.
COMPETITION
In offering services through its Independent Channels, the Company
competes with other firms that offer wrap and managed account programs. The
Company's customers in turn compete with banks, insurance companies, large
securities brokers and other financial institutions which offer wrap account
programs to the public. The Company believes that firms compete in this market
primarily on the basis of service, since the wrap fees charged by others are
similar to those charged by the Company. While a number of firms each provide a
portion of the services provided by the Company through its Institutional
Channels, the Company believes it is one of a few firms offering integrated
services to customers. Firms that compete with the Company in providing
services to its Independent Channels and Institutional Channels have more
financial resources and greater recognition in the financial community than the
Company. Competitors may reduce the fees charged for wrap account programs or
pursue other competitive strategies that could have an adverse impact on the
Company.
The Company's success is in large part a function of the Independent
Channels and Institutional Channels through which its services are offered to
others. There are many alternatives to wrap programs that are being offered to
the public, such as life cycle funds, asset allocation funds, portfolio
strategies and third party asset allocation services, and these services are
competitive with those offered by the Company. As financial institutions
continue to grow and build in-house asset administration service capabilities,
some will be able to provide these services internally rather than using
outsourcing providers. Competitors may succeed in developing products and
services that are more effective than those that have been or may be developed
by the Company and may also prove to be more successful than the Company in
developing these products and marketing these services to third party asset
managers.
GOVERNMENT REGULATION
The Company's business falls entirely within the securities industry,
an industry which is heavily regulated by the federal and state governments.
The Company is subject to regulatory changes which could adversely affect its
business. For example, in the event the federal government imposes a tax on
securities transactions, as has been proposed from time to time by the
executive branch of the federal government, the increased cost associated
therewith could have a material adverse effect on the business of the Company.
In addition, as an investment adviser and a broker/dealer, the Company's
subsidiaries are subject to regulation by the Commission, the NASD and state
regulatory agencies. Consequently, the Company could become subject to
restrictions or sanctions from the Commission, the NASD or such state
regulatory agencies. It is impossible to predict the direction future
regulations will take or the effect of such regulations on the Company's
business.
CORPORATE HISTORY
Acquisition of Schield Management Company
In September 1993 Portfolio Management Consultants, Inc. ("PMC")
merged with Schield Management Company ("Schield"), a publicly traded market
timing firm, in a share exchange. In that transaction, all operating assets of
Schield were divested prior to the merger and it was treated as a reverse
acquisition of Schield by PMC. Schield's name was changed to PMC International,
Inc. and PMC became a wholly owned subsidiary of the Company, with PMC's
shareholders receiving shares in the publicly held company.
SEC Investigation and Settlement
During November 1993, representatives of the staff of the SEC began an
examination of PMC and in January 1994, the Commission issued a "Formal Order
of Investigation." In April 1994, the staff of the Commission made a formal
enforcement recommendation against PMC, its President Mr. Kenneth S. Phillips
and its former Chief Executive
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Officer, Mr. Marc Geman, who subsequently terminated his association with the
Company and its subsidiaries in July, 1995. The recommendation alleged that PMC
and such officers had violated anti-fraud provisions of the Securities Act, the
Exchange Act and the Investment Adviser's Act of 1940 and the record keeping
requirements of the Exchange Act.
Over the course of the following two years the Company committed
significant resources to its defense and the defense of its officers. The case
addressed issues associated with disclosures and standards of "best execution"
in advisory and wrap programs. The investigation adversely affected the
Company's new business development activities during the period, as very few
firms were willing to develop relationships with the Company while an
enforcement recommendation was pending.
On June 27, 1996, PMC and Mr. Phillips announced that they had reached
a settlement agreement with the Commission. Pursuant to the settlement
agreement, PMC and Mr. Phillips, without admitting or denying the Commission's
allegations, consented to an Order whereby PMC agreed to engage a compliance
executive and to refund net principal trading profits together with prejudgment
interest thereon, in an amount to be determined by an independent accountant.
The Company has preliminarily estimated the amount of the net trading profits
to be $465,000. This amount was reserved in the fourth quarter of 1995 and cash
in an amount approximating that number has been escrowed for exclusive use in
the settlement. In addition, Mr. Phillips agreed to a censure and payment of a
$25,000 fine. The Company currently estimates that the final amount of the
refund will be approximately $510,000.
Bedford
In July 1995, the Company entered into a transaction with Bedford
pursuant to which Bedford loaned $1.2 million to the Company and received an
option to loan up to an additional $1.8 million to the Company for a specified
period of time and pursuant to certain call provisions. Each dollar loaned
carried a ten-year warrant to purchase one share of the Common Stock at an
exercise price of $1.00 per share. In connection with this funding and the
related shareholder and investment agreements, Bedford received certain rights
including, but not limited to, the right to elect two of the Company's five
directors, the right to receive options that mirrored certain issuances or
option grants by the Company, and a security interest in all assets of the
Company and its subsidiaries. Contemporaneously with the closing of the July
1995 transaction with the Company, Bedford also purchased 1.0 million shares of
the Common Stock from Mr. Geman, the former chief executive officer of the
Company who was a subject of the investigation by the staff of the Commission.
Between July 1995 and July 1996, the Company obtained the full $3.0 million
financing from Bedford and certain assignees of Bedford (the "Bedford Loans").
In addition, the Company granted to Bedford certain other rights in
connection with future debt and equity financings which included a right of
first negotiation regarding future fundings, a 30-day exclusive negotiation
period, and a right of first refusal to match unsolicited offers for financing.
The Company also agreed to pay a $100,000 annual monitoring fee to Nevcorp
Inc., which is owned by J.W. Nevil Thomas, who has been designated by Bedford
to serve on the Company's Board of Directors.
The Company's relationship with Bedford was restructured in December
1996. See "--December 1996 Restructuring."
December 1995 and June 1996 Offerings
In December 1995 and January 1996, the Company issued a total of 482.5
units through a private offering (the "December 1995 Offering"), with each unit
consisting of a convertible promissory note with a principal amount of $1,000
and a warrant to purchase 1,000 shares of common stock at an exercise price of
$1.00 per share. During June 1996 the Company issued an additional 1,017.5
units through another private offering (the "June 1996 Offering") under
substantially the same terms. These private offerings were issued primarily to
employees, business associates and affiliates of the Company or Bedford. The
purchasers of units in the December 1995 and June 1996 Offerings received
registration rights with respect to the shares of Common Stock underlying the
warrants.
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Phillips & Andrus, LLC; KP3, LLC
Phillips & Andrus LLC, a Colorado limited liability company ("P&A")
was formed in July 1995 to acquire 1,643,845 shares of Common Stock from Mr.
Geman in exchange for a promissory note issued to Mr. Geman in the amount of
$2,015,000. The promissory note was secured by the Common Stock acquired. While
Mr. Phillips, President and Chief Executive Officer of the Company, and David
L. Andrus, Executive Vice President of the Company, were the members of P&A,
substantially all of the membership interests in P&A were owned by Mr.
Phillips. In October 1996, affiliates of Bedford loaned the LLC funds to make
the initial interest payments on the note owed to Mr. Geman. In December 1996,
after notifying its shareholders of the proposal to do so, the Company loaned a
total of $250,000 to P&A to repay principal owed under the promissory note to
Mr. Geman.
In January 1997 P&A was liquidated and the assets of P&A, consisting
of the 1,643,945 shares of Common Stock, were transferred, subject to certain
liabilities, to KP3, LLC, a Colorado limited company ("KP3"), the members of
which are Mr. Phillips and a custodian for Mr. Phillips' son. Mr. Phillips owns
substantially all of the membership interests in KP3. Also in January 1997, KP3
obtained a bank loan in the amount of $1,750,000 for a term of approximately 12
months (the "KP3 Loan"), the proceeds of which were used (i) to repay the loans
made to P&A by the Company and certain affiliates of Bedford, and (ii) to
prepay the balance of the principal and all interest owing under the promissory
note to Mr. Geman. The Company pledged certain collateral for the KP3 Loan,
currently valued at approximately $1,900,000, and KP3 agreed to reimburse the
Company for any amount paid by it toward the KP3 Loan. KP3's reimbursement
obligation is secured by a pledge of all 1,643,845 shares of Common Stock held
by KP3.
Bedford and certain of its affiliates have an option, exercisable
through July 26, 2000, to acquire a total of 335,000 shares of Common Stock
currently owned by KP3 for an aggregate purchase price of $410,637.85,
increasing at a rate of 9% per annum subsequent to July 27, 1995.
November 1996 Bridge Loan
In November 1996, the Company borrowed $250,000 (the "November 1996
Loan") to fund its working capital requirements pending closing of the December
1996 Offering (as defined below). Half of the loan was provided by Keefe,
Bruyette & Woods, Inc. ("KBW"), placement agent in the December 1996 Offering,
and the balance by certain members of management of the Company and a
subsidiary of Bedford. The lenders received five-year warrants to purchase an
aggregate of 25,000 shares of the Common Stock. The warrants have an exercise
price of $1.625 per share. The lenders received registration rights with
respect to the Common Stock to be issued upon exercise of the warrants. The
November 1996 Loan was repaid in December 1996 from the proceeds of the
December 1996 Offering.
December 1996 Offering
In December 1996 the Company completed a private placement of
5,177,000 shares of Common Stock at a price of $2.125 per share (the "December
1996 Offering"). A portion of the proceeds of the December 1996 Offering were
used (i) to repay interest due and owing on the promissory notes issued in
connection with the December 1995 and June 1996 Offerings, including the notes
held by Mr. Andrus, the Company's Executive Vice President, the father and
brother of Mr. Phillips, the Company's Chief Executive Officer, and certain
employees of the Company, (ii) to repay interest due and owing under the
Bedford Loans, (iii) to repay a portion of the principal on the Bedford Loans
and (iv) to repay the November 1996 Bridge Loan (including the notes held by
Mr. Phillips, Mr. Andrus and certain other members of the Company's
management).
December 1996 Restructuring
Simultaneous with the closing of the December 1996 Offering, the
Company completed a restructuring of its debt and certain of its preferred
stock. The restructuring involved (i) the payment of all outstanding interest
on the Bedford Loans, the repayment to Bedford and its assignees of $1,976,250
of outstanding principal on the Bedford Loans, the exercise by Bedford and its
assignees of warrants to purchase 1,023,750 shares of Common Stock and the
delivery by Bedford and its assignees of canceled promissory notes in the
amount of $1,023,750 in satisfaction of the exercise price of the warrants, the
cancellation of the remaining warrants to Bedford and its assignees, and the
issuance to Bedford and its assignees of new warrants to purchase up to 150,000
shares of Common Stock; (ii) the exercise by
14
<PAGE> 18
others of warrants to purchase 1,500,000 shares of Common Stock issued in
connection with the Company's private placement of promissory notes and
warrants in the December 1995 and June 1996 Offerings, the delivery of canceled
promissory notes in the aggregate principal amount of $1,500,000 in
satisfaction of the exercise price of such warrants, the payment by the Company
of all outstanding interest due and owing on such notes as of the exercise date
and the issuance to the holders of such warrants of new warrants to purchase up
to 150,000 shares of Common Stock; (iii) the repayment of the November 1996
Bridge Loan, and (iv) the conversion of 210,835 shares of the Company's
Preferred Stock into 289,902 shares of Common Stock, resulting in a reduction
in the Company's cumulative dividend obligation to the holders of Preferred
Stock from $210,835 as of September 30, 1996 to $253,503 as of as of January
31, 1997. A portion of the conversion of shares of the Company's Preferred
Stock into Common Stock was effected in January 1997. The new warrants issued
by the Company to Bedford and others pursuant to clauses (i) and (ii) are
referred to hereafter as the "New Warrants."
The New Warrants are exercisable over a period of five years, at an
exercise price of $2.125 per share. Registration rights were granted with
respect to the Common Stock received upon the exercise of the old warrants and
the shares of Common Stock underlying the New Warrants. The New Warrants
contain adjustment provisions relating to the exercise price per share and the
number of shares of Common Stock to be issued upon their exercise in the event
of issuances of additional shares of Common Stock (including through the
issuance of options, rights or warrants to purchase Common Stock or securities
convertible into Common Stock) by the Company at a price below market price,
certain extraordinary dividends and distributions on the Common Stock, stock
splits or other reclassifications of the outstanding shares of Common Stock,
and any merger, consolidation or reorganization involving the Company or a
transfer by the Company of substantially all of its assets or properties.
PROPERTIES
The Company leases approximately 20,000 square feet of office space
for its corporate headquarters in the Anaconda Tower at 555 17th Street,
Denver, Colorado pursuant to a lease which expires in 2001. The Company pays
approximately $20,000 per month for this office space. The Company also leases
approximately 1800 square feet of office space in Boulder, Colorado, primarily
for its subsidiary PTS. The Company pays approximately $2,500 per month for
this office space. The lease for the Company's Boulder office expires in 1998.
EMPLOYEES
The Company and its subsidiaries have a staff of approximately 50
people, including more than 30 professionals. None of the Company's employees
are subject to a collective bargaining agreement. The Company's management
believes that the Company's relationship with its employees is good.
LEGAL PROCEEDINGS
In June 1996, the Company reached a settlement with the Commission in
connection with an investigation of certain trading practices of PMC. See
"Business--Corporate History--SEC Investigation and Settlement." The Company is
not aware of any material legal proceedings or investigations pending or
threatened against the Company.
15
<PAGE> 19
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
Company's directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Kenneth S. Phillips 45 President, Chief Executive Officer and Director
David L. Andrus 44 Executive Vice President and Director
Vali Nasr 42 Chief Financial Officer and Treasurer
J. W. Nevil Thomas 58 Chairman of the Board of Directors
D. Porter Bibb 59 Director
</TABLE>
Kenneth S. Phillips --- President and CEO, Director. Mr. Phillips
founded PMC in 1986 and serves as the President and Chief Executive Officer of
the Company. Mr. Phillips is responsible for corporate direction, product
development and strategic planning. He was co-founding participant in the
Wilshire cooperative in 1986 (associated with the institutional consulting firm
Wilshire Associates). He served as Chairman of the Publications Committee of
the Investment Management Consultants Association ("IMCA") in 1994 and 1995, as
a member of IMCA's officer and director Nominating Committee in 1994 and 1996,
and has recently been elected to serve as a member of IMCA's Advisory Council.
IMCA is the investment consulting industry's principal trade organization with
more than 1,200 members, representing virtually all the major national,
regional and independent consulting firms. Additionally, Mr. Phillips has been
a guest speaker for the International Association of Financial Planners, the
Investment Management Institute and the Institute for International Research.
Mr. Phillips received his education at Colorado State University and holds
numerous NASD license designations.
David L. Andrus --- Executive Vice President, Director. Mr. Andrus
joined PMC in September, 1995 as a Director and Executive Vice President of the
Company and as President of PTS, the Company's technology and software
applications development subsidiary. For the twelve years prior to joining PMC,
Mr. Andrus was chairman of Netwise, Inc., an international software firm that
featured distributed processing products for local area networks. Netwise's
clients included Fortune 500 international firms which sought to exploit
enterprise-wide processing systems seamlessly, through the integration of P.C.
based technology with legacy systems. At Netwise, Mr. Andrus was responsible
for all business development, strategic relationships, international sales
channels and for establishing the general technical direction of the firm and
its products. Netwise was sold to Microsoft Corp. in 1995. With more than 17
years of experience in product development, computer engineering and
consulting, Mr. Andrus served as Director of Systems Architecture for the
Advanced Systems Group at Burroughs Corporation. He was responsible for the
design of a state-of-the-art distributed processing system consisting of
integrated voice and data, distributed databases, printer servers and
communication servers on high-speed fiber optic LANs. Mr. Andrus also served as
Manager of the Advanced Development Group at NBI, Inc. where he was responsible
for systems and software development and testing. Mr. Andrus holds a B.S. in
Electrical Engineering from the University of Colorado.
Vali Nasr --- Chief Financial Officer, Treasurer. Mr. Nasr joined PMC
in 1992 as the Company's Chief Financial Officer, financial Principal and
Treasurer. Since September, 1995, Mr. Nasr has been President of PBS, the
Company's wholly owned subsidiary. Prior to joining the Company, Mr. Nasr was
Vice President of Finance for a large, retail broker/dealer. Prior to holding
this position for four years, Mr. Nasr spent four years as vice President of
Accounting with Sutro & Company, Inc., in San Francisco. Prior to joining
Sutro, Mr. Nasr spent four years with Charles Schwab and Company as Accounting
Manager. Mr. Nasr began his career with Merrill, Lynch in their accounting
department. He received his B.A. in Accounting from the University of
California, Berkeley and M.B.A. in finance from Golden Gate University.
J. W. Nevil Thomas --- Chairman of the Board of Directors. Mr. Thomas
has been a Director of the Company since July 1995. Since 1970 Mr. Thomas has
served as President of Nevcorp, Inc., an investment and a financial and
management consulting firm. In addition, Mr. Thomas is a Director of Bedford
Capital Financial Corporation ("Bedford") and is Chairman of Bedford Capital
Corporation, a subsidiary of Bedford, whose principal business is merchant
banking. In addition to being a Director of the Company, Mr. Thomas is a
Director of Simcoe Erie Investors
16
<PAGE> 20
Limited, Reliable Life Insurance Company, Pet Valu Inc., French Fragrances,
Inc., Old Republic Insurance and several other private Canadian and American
companies. Mr. Thomas holds an M.A. in Economics from Queens University and is
a Certified Financial Analyst.
D. Porter Bibb --- Director. Mr. Bibb became a Director of the Company
in September 1995. Mr. Bibb is a Principal and Co-Director of Corporate Finance
of Ladenburg, Thalmann & Co., Inc., an investment banking firm. Prior to
joining Ladenburg in 1984, Mr. Bibb was a Managing Director of Bankers Trust
Company, involved in the start-up of their investment banking operations. Prior
to that time, he was Director of Corporate Development for the New York Times.
Mr. Bibb has a B.A. in History, Economics and Political Science from Yale
University and engaged in graduate studies at New York University, London
School of Economics and Harvard Business School.
The Bylaws of the Company were amended in December 1996 to set the
number of members of the Board of Directors at seven. Under subscription
agreements with investors in the December 1996 Offering, those investors are
entitled to designate one director and one additional director is to be
mutually acceptable to the Company and such investors. The mutually acceptable
director initially will be Emmett J. Daly, a Senior Vice President of KBW. It
is anticipated that D. Porter Bibb will continue to serve as a member of the
Board of Directors until the earlier of such time as both the director
designated by the investors and the mutually acceptable director have been
appointed as such or Mr. Bibb's voluntary resignation from the Board.
Under a Shareholders Agreement among Bedford, the Company, Mr.
Phillips, Mr. Andrus and P&A, (i) Bedford is entitled to designate one director
and one additional director is to be reasonably acceptable to Bedford and
Messrs. Phillips and Andrus and (ii) Messrs Phillips and Andrus are entitled to
designate three directors, including one member of senior management designated
after the date of the agreement. Mr. Thomas is currently the director
designated by Bedford and Messrs. Phillips and Andrus are two of the three
directors they are entitled to designate. The remaining two positions entitled
to be designated under the agreement are currently vacant.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid by the Company and its subsidiaries to the Company's Chief
Executive Officer and to each of its other executive officers at the end of
1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPEN-
ANNUAL COMPENSATION SATION
- --------------------------------------------------------------------------------------------------------------------------
Other Annual Options All Other
Name and Principal Position Fiscal Year Salary Compensation Granted(1) Compensation(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kenneth S. Phillips 1996 $252,000 $13,329(2) 50,000 $
President, Chief Executive Officer 1995 228,124 8,396(2)
1994 241,774 8,047(2)
- --------------------------------------------------------------------------------------------------------------------------
David L. Andrus(3) 1996 $240,000 1,050,000
Executive Vice President 1995 40,000
- --------------------------------------------------------------------------------------------------------------------------
Vali Nasr 1996 $139,015 50,000
Chief Financial Officer & 1995 126,475
Treasurer 1994 128,262
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 21
- -----------------------
(1) The shares of Common Stock to be received upon the exercise of all stock
options granted during the period covered by the Table.
(2) This amount represents an automobile allowance.
(3) Mr. Andrus joined the Company in 1995.
During the year ended December 31, 1996, the Company granted to its Chief
Executive Officer and the other executive officers listed in the Summary
Compensation Table options to acquire a total of 1,150,000 shares of Common
Stock as set forth in the following table.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPTION GRANTS IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------------------------------
Percentage of
Total Options
Number of Shares Granted to
Underlying Options Employees in
Name Granted Fiscal Year Exercise Price Expiration Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth S. Phillips 50,000 4.2% $1.00 6/7/2001
- ----------------------------------------------------------------------------------------------------------------------
David L. Andrus 800,000 87.5% $1.5625 (1)
200,000 $2.125 12/17/2002
50,000 $1.00 6/7/2001
- ----------------------------------------------------------------------------------------------------------------------
Vali Nasr 50,000 4.2% $1.00 3/31/2001
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
(1) Options expire 24 months after Mr. Andrus leaves the employ of the
Company.
The following table sets forth certain information with respect to
options exercised during the year ended December 31, 1996 by those officers
listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
- -------------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Acquired on Options at FY End Money Options at FY End
Name Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth S. Phillips 0 0 20,000/30,000 $22,500/$33,750
- -------------------------------------------------------------------------------------------------------------------------
David L. Andrus 0 0 295,000/755,000 $168,830/$513,750
- -------------------------------------------------------------------------------------------------------------------------
Vali Nasr 0 0 50,000/0 $56,250/$0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION OF DIRECTORS
During 1996, the Company did not pay its employee directors for
attending board meetings. Each of the three outside directors received a $5,000
annual retainer and a $500 fee for each meeting attended. The Company
reimburses all of its directors for travel and out-of-pocket expenses in
connection with their attendance at meetings of the Board of Directors. On June
7, 1996, each member of the Board of Directors was granted options to purchase
50,000 shares of Common Stock at an exercise price of $1.00 per share. Such
options expire five years from the date of grant and vest 20% at such time as
the average bid and offer price for the Common Stock equals $1.00, $2.00,
$3.00, $4.00 and $5.00, respectively, for twenty consecutive trading days.
18
<PAGE> 22
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Mr. Phillips, its President
and Chief Executive Officer, and Mr. Andrus, its Executive Vice President. The
Agreement with Mr. Phillips is dated July 26, 1995 and is for a three
year-term. Either party may terminate the agreement upon 90 days' prior notice.
The agreement provides for a minimum salary of $240,000 ($300,000 if the
Company has pre-tax profits of at least $1,000,000), 40% of the annual bonus
pool (equal to 10% of the Company's pre-tax profits), a car allowance, and
participation in the Company's other benefit plans. If the Company terminates
the agreement without cause, it will be obligated to make severance payments to
Mr. Phillips in an amount equal to two-years' compensation. In addition, the
agreement provides that any options granted to Mr. Phillips vest immediately
upon his death or upon a change in control of the Company.
The Agreement with Mr. Andrus is dated July 26, 1995 and was amended
in December 1996. It provides for a three year-term ending November 1998.
Either party may terminate the agreement upon 90 days' prior notice. The
agreement provides for a minimum salary of $240,000, options to acquire
1,000,000 shares of Common Stock, and participation in the Company's other
benefit plans. If the Company terminates the agreement without cause, it will
be obligated to make severance payments to Mr. Andrus in an amount up to
one-years' compensation. In addition, the agreement provides that all options
granted to Mr. Andrus vest immediately upon a change in control of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and related notes contain information concerning
beneficial ownership of the Company's Common Stock as of December 31, 1996 by
(i) each person known by the Company to own beneficially more than five percent
of the Common Stock, (ii) each director of the Company, (iii) each executive
officer of the Company named in the Summary Compensation Table, and (iv) all
directors and executive officers of the Company as a group. The share amounts
in this table reflect shares of Common Stock issuable upon the exercise of
options and warrants exercisable within the next 60 days. All parties listed
below are also Selling Shareholders. See "Selling Shareholders."
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Class
---------------- ---------------- ----------------
<S> <C> <C>
Kenneth S. Phillips(1).................................... 3,074,267(6)(7) 21.1%
David L. Andrus(1)........................................ 687,000(7)(8) 4.5
J.W. Nevil Thomas(2)...................................... 20,000(7)(9) *
D. Porter Bibb(3)........................................ 20,000(7)(10) *
Vali Nasr(1).............................................. 120,497(11) *
Bedford Capital Financial Corporation(4).................. 2,971,250(12) 20.5
KP3, LLC(1)............................................... 1,643,845(13) 11.3
Wheatley Partners, L.P.(5)................................ 941,000 6.5
All Officers and Directors as a group (6 persons)......... 3,922,264 25.6
</TABLE>
- -----------------------
* Less than 1%.
(1) The address of Mr. Phillips, Mr. Andrus, Mr. Nasr and KP3, LLC is 555
Seventeenth Street, 14th Floor, Denver, Colorado 80202.
(2) The address of Mr. Thomas is Scotia Plaza, Suite 4712, 40 King Street
West, Toronto, Ontario M5H 3Y2.
(3) The address of Mr. Bibb is 540 Madison Avenue, New York, New York 10022.
(4) The address of Bedford is 2nd Floor, Charlotte Hs., Shirly Street, Box
N964, Nassau, Bahamas.
(5) The address of Wheatley Partners, L.P. is 80 Cutter Mill Road, Suite 311,
Great Neck, New York 11021.
(6) Includes 1,643,845 shares owned by KP3, of which Mr. Phillips is the
managing member and has the controlling ownership interest; also includes
5,500 shares underlying presently exercisable warrants.
(7) Includes 20,000 shares underlying presently exercisable options.
(8) Includes 567,000 shares underlying presently exercisable options.
(9) Does not include shares owned by Bedford of which Mr. Thomas is a director
and a 5.77% shareholder.
(10) Does not include 200,000 shares underlying presently exercisable options
granted to Ladenburg, Thalmann & Co., Inc., of which Mr. Bibb is a
managing director.
(11) Includes 50,000 shares underlying presently exercisable option.
(12) Includes 136,250 shares underlying presently exercisable options or
warrants issued by the Company and 235,000 shares owned by KP3 and
included in the beneficial ownership of Mr. Phillips that Bedford may
acquire pursuant to a presently exercisable option.
19
<PAGE> 23
(13) Shares beneficially owned by KP3 are also included in shares beneficially
owned by Mr. Phillips; and 235,000 of such shares also have been included
in the beneficial ownership of Bedford.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into an agreement with Ladenburg, Thalmann & Co.
Inc., investment bankers, in January 1995, pursuant to which Ladenburg would
assist the Company in financing efforts. Ladenburg was involved in the
Company's transactions with Bedford. Mr. Porter Bibb, a principal of Ladenburg,
was named to the Company's Board of Directors in September 1995.
In July 1995, the Company borrowed $1.2 million from Bedford. As a
result of this transaction and a simultaneous transaction wherein Bedford
purchased 1 million shares of outstanding Common Stock of the Company from a
former principal of the Company, Bedford became a greater than 10% shareholder
of the Company, with the right to acquire in excess of 50% of the Company's
Common Stock. Mr. J.W. Nevil Thomas and another affiliate of Bedford were
appointed to the Company's Board of Directors in connection with that
transaction. See "Business-- Corporate History--Bedford."
Also in July 1995, the Company's then Chief Executive Officer and a
director, Marc Geman, resigned. In connection with his resignation, Mr. Geman
was entitled to severance payments totaling $180,000, due in monthly payments
of $15,000. As of December 31, 1996, Mr. Geman had received all of the
severance payments to which he was entitled. The Company also entered into an
Indemnification Agreement with Mr. Geman whereby the Company agreed to hold him
harmless, in an amount not to exceed $100,000, for expenses incurred in defense
of the pending investigation by the Commission. As of December 31, 1996, a
total of $50,786 in indemnification payments had been made by the Company under
that agreement.
David L. Andrus, Executive Vice President of the Company, participated
in the June, 1996 offering of debt securities and warrants. See
"Business--Corporate History." Mr. Andrus purchased $100,000 of subordinated
debt and received a promissory note and warrants to purchase 100,000 shares of
Common Stock. In addition, certain employees of PMC participated in the
offering, purchasing a total of $162,500 of subordinated debt and receiving
warrants to purchase 162,500 shares of Common Stock. Mr. Andrus and the other
Company employees participated in the offering on the same terms as all other
investors.
In November 1996 the Company borrowed $250,000 (the "November 1996
Bridge Loan") to fund working capital requirements pending the closing of a
private placement of Common Stock in December 1996. The lenders included Mr.
Phillips and Mr. Andrus, the Company's President and CEO and Executive Vice
President, respectively, and certain other employees of the Company. Bedford, a
shareholder affiliate of the Company, and Keefe, Bruyette & Woods, Inc., the
placement agent for the December 1996 Offering, were also lenders. The loans
were evidenced by 12% notes to be repaid on the earlier of the closing of the
December 1996 Offering or March 31, 1997. The lenders also received warrants to
purchase a total of 25,000 shares of Common Stock at a price of $1.625 per
share and registration rights with respect to the shares of Common Stock
underlying the warrants.
In December 1996, the Company completed a restructuring of its
outstanding debt. As part of the restructuring, Bedford and certain of its
assignees were repaid certain of the subordinated debt held by it, exercised
certain of the warrants held by it, was issued certain shares of Common Stock
by the Company in cancellation of its other warrants and was issued new
five-year warrants to purchase 150,000 shares of the Common Stock with an
exercise price equal to the price to investors in the Offering. As a result of
these transactions, all $3 million in outstanding debt previously owed by the
Company to Bedford and its assignees has been eliminated and Bedford now
beneficially owns Common Stock representing approximately 26% of the
outstanding Common Stock. Bedford has also relinquished certain rights held by
it and its right to elect directors of the Company has been modified such that
Bedford now has the right to designate one director so long as it holds at
least 10% of the outstanding Common Stock. In addition, at least one additional
director must be acceptable to Bedford and the Company so long as Bedford owns
at least 5% of the outstanding Common Stock. Bedford also retained demand and
piggyback registration rights with respect to restricted securities acquired by
it from the Company. In connection with the restructuring, the Company's
consulting agreement with Nevcorp, Inc., was terminated. See
"Business--Corporate History--December 1996 Restructuring."
20
<PAGE> 24
In connection with the December 1996 restructuring, the investors in
the December 1995 and June 1996 Offerings exercised their warrants to purchase
an aggregate of 1,500,000 shares of Common Stock and surrendered canceled
promissory notes in the aggregate principal amount of $1,500,000 in
satisfaction of the exercise price for the warrants. In connection with the
exercise of warrants and cancellation of debt, the investors also received, pro
rata, five-year warrants to purchase an aggregate of 150,000 shares of Common
Stock at an exercise price of $2.125 per share. Mr. Andrus, Executive Vice
President of the Company, the brother and father of Mr. Phillips, the Company's
President and Chief Executive Officer, and certain other employees of the
Company, participated in the restructuring on the same terms as the other
parties.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock,
$0.01 par value. As of January 31, 1997, the Company had 14,552,614 shares of
Common Stock issued and outstanding with rights, options and warrants
outstanding which could require the Company to issue 3,586,500 additional
shares of Common Stock.
COMMON STOCK
Holders of Common Stock are each entitled to cast one vote for each
share held of record on all matters presented to the shareholders. Cumulative
voting is not allowed; hence, the holders of a majority of the outstanding
Common Stock can elect all directors. Holders of Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
funds legally available therefor and, in the event of liquidation, and subject
to the rights of the holders of preferred stock, to share pro-rata in any
distribution of the Company's assets after payment of liabilities. No dividends
may be paid on the Common Stock unless dividends payable on the Preferred Stock
are current and the Company obtains the consent of Bedford. The Board of
Directors is not obligated to declare a dividend and it is not anticipated that
dividends will be paid in the foreseeable future.
Holders of Common Stock do not have preemptive rights to subscribe to
additional shares of capital stock if issued by the Company. There are no
conversion, redemption, sinking fund or similar provisions regarding the Common
Stock. All of the outstanding shares of Common Stock are fully paid and
non-assessable.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred
stock. Under Colorado law, the rights, preferences and limitations of the
preferred stock may be established from time to time by the Company's Board of
Directors. The Company's Articles of Incorporation provide that the Board of
Directors has the authority to divide the preferred stock into series and,
within the limitations provided by Colorado statute, to fix by resolution the
voting power, designation preferences, and relative participation, optional or
other special rights, and the qualifications, limitations or restrictions of
the shares of any series so established.
As of the date of this Prospectus, the only series of preferred stock
to be designated and issued were shares of Series A Preferred Stock, of which
138,182 shares are issued and outstanding.
Holders of the Preferred Stock are entitled to receive dividends at a
rate of $.325 per share per annum. Dividends are payable semi-annually on
January 15 and July 15 in each year, but only when and as authorized by the
Board of Directors of the Company out of assets legally available for
dividends. Dividends accrue from the date of issuance of the shares and are
cumulative. The first dividend due on July 15, 1991, was paid. The preferred
dividends due subsequently have not been paid by the Company, and as a result,
the dividends have cumulated.
Upon liquidation or dissolution of the Company, holders of the
Preferred Stock are entitled to a preference over the holders of Common Stock
in an amount per share equal to the original purchase price attributed to a
share of Preferred Stock ($2.50), plus all unpaid cumulative dividends. As of
January 31, 1997, unpaid cumulative dividends
21
<PAGE> 25
in arrears with respect to the Preferred Stock amounted to $253,503. The
Preferred Stock is non-participating and the holders of the Preferred Stock
have no preemptive rights and no voting rights except as may be required by
Colorado law.
At the option of the Company, the Preferred Stock may be redeemed in
whole or in part, at any time at a price of $2.75 per share, plus unpaid
cumulative dividends, upon 45 days prior written notice. Redemption can only
occur if certain conditions, which have not occurred as of the date of this
Prospectus, are satisfied
The Company may, in the future, issue other series of preferred stock
having terms established by the Company's board of directors without requiring
the approval of holders of the Common Stock. Any such issuance of preferred
stock could make removal of the Company's management more difficult than at
present. The provisions relating to preferred stock will make the removal of
management more difficult even if such removal would be considered beneficial
to shareholders generally, and may have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers whether
or not such transactions are favored by incumbent management. Because the Board
of Directors has authority to establish the terms of the preferred stock, such
stock could be issued to defend against an attempted takeover of the Company.
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
Selling Shareholders and the Shares offered by the Selling Shareholders
pursuant to this Prospectus. Of the 14,194,206 Shares offered hereby for resale
by the Selling Shareholders, 1,279,500 Shares represent shares of Common Stock
to be issued upon the exercise of presently issued and exercisable warrants and
options. See "Description of Capital Stock." As more fully disclosed in the
footnotes to this table, certain of the Selling Shareholders are currently, or
have been within the past three years, officers or directors of the Company or
have had other material relationships with the Company. Because the Selling
Shareholders may offer all or some portion of the Shares pursuant to this
Prospectus, no estimate can be given as to the amount of the Shares that will
be held by the Selling Shareholders upon termination of any such offering.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Ownership of Ownership of
Ownership of Common Stock Common Stock
shares of after sale of the after sale of the
Common Shares Shares
Stock Prior to Amount of
Selling Shareholders Sale of Shares Shares Offered Number Percent
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bay Pond Partners, L.P..................... 1,082,000 1,082,000 0 0
- ----------------------------------------------------------------------------------------------------------------------
Bay Pond Investors (Bermuda), L.P........... 941,000 941,000 0 0
- ----------------------------------------------------------------------------------------------------------------------
Wheatley Partners L.P....................... 886,000 886,000 0 0
- ----------------------------------------------------------------------------------------------------------------------
Keefe, Bruyette & Woods, Inc................ 588,500 588,500 0 0
- ----------------------------------------------------------------------------------------------------------------------
Financial Services Hedge Fund, L.P.......... 141,000 141,000 0 0
- ----------------------------------------------------------------------------------------------------------------------
Wheatley Foreign Partners L.P............... 55,000 55,000 0 0
- ----------------------------------------------------------------------------------------------------------------------
The Common Fund............................. 188,000 188,000 0 0
- ----------------------------------------------------------------------------------------------------------------------
[Other Selling Shareholders]
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 26
PLAN OF DISTRIBUTION
The Selling Shareholders' Shares may be offered and sold from time to
time in the discretion of the Selling Shareholders in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then-current market price, or in negotiated transactions. The Selling
Shareholders will act independently of the Company in making decisions with
respect to the timing, manner and size of each sale hereunder. The Selling
Shareholders' Shares may be sold by one or more of the following methods,
without limitation: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the Shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchases; and (d) face-to-face
transactions between sellers and purchasers without a broker/dealer. In
effecting sales, brokers or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. Such brokers or dealers
may receive commissions or discounts from Selling Shareholders in amounts to be
negotiated. Such brokers and dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act, in connection with such sales.
Sales of Selling Shareholders' Shares may also be made pursuant to
Rule 144 under the Securities Act, where applicable. The Shares may also be
offered in one or more underwritten offerings, on a firm commitment or best
efforts basis. The Company will receive no proceeds from the sale of the Shares
by the Selling Shareholders. The Shares may be sold from time to time in one or
more transactions at a fixed offering price, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices. Such
prices will be determined by the Selling Shareholders or by agreement between a
Selling Stockholder and its underwriters, dealers, brokers or agents.
To the extent required under the Securities Act, the aggregate amount
of Shares being offered and the terms of the offering, the names of any such
agents, brokers, dealers or underwriters and any applicable commission with
respect to a particular offer will be set forth in an accompanying Prospectus
supplement. Any underwriters, dealers, brokers or agents participating in the
distribution of the Shares may receive compensation in the form of underwriting
discounts, concessions, commissions or fees from a Selling Shareholder and/or
purchasers of Shares, for whom they may act. In addition, sellers of Shares may
be deemed to be underwriters under the Securities Act and any profits on the
sale of Shares by them may be deemed to be discount commissions under the
Securities Act. Selling Shareholders may have other business relationships with
the Company and its subsidiaries or affiliates in the ordinary course of
business.
From time to time one or more of the Selling Shareholders may
transfer, pledge, donate or assign Shares to lenders, family members and others
and each of such persons will be deemed to be a "Selling Shareholder" for
purposes of this Prospectus. The number of Shares beneficially owned by those
Selling Shareholders who so transfer, pledge, donate or assign Shares will
decrease as and when they take such actions. The plan of distribution for
Shares sold hereunder will otherwise remain unchanged, except that the
transferees, pledgees, donees or other successors will be Selling Shareholders
hereunder.
LEGAL MATTERS
Certain legal matters in connection with the Shares offered hereby
will be passed upon for the Company by Holme Roberts & Owen LLP, Denver,
Colorado.
EXPERTS
The financial statements of PMC International, Inc. as of December 31,
1995 and 1994, and for the years then ended included herein have been included
herein in reliance upon the report of Spicer Jeffries & Co., independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
23
<PAGE> 27
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial statements for the years ended December 31, 1995 and 1994
and the Nine Months ended September 30, 1996
Independent Auditors' Report ....................................... F-2
Consolidated Balance Sheets ........................................ F-3
Consolidated Statements of Operations .............................. F-4
Consolidated Statements of Changes in Shareholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows .............................. F-6
Notes to Consolidated Financial Statements ......................... F-8
</TABLE>
F-1
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To the Shareholders
PMC International, Inc.
We have audited the accompanying consolidated balance sheets of PMC
International, Inc. and its subsidiaries (the "Company") as of December 31,
1995 and 1994, and the related consolidated statements of operations,
shareholders' equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and 1994, and the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered significant losses from
operations and has a working capital deficiency that raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ SPICER, JEFFRIES & CO.
Denver, Colorado
April 12, 1996
F-2
<PAGE> 29
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31, December 31,
ASSETS 1996 1995 1994
------ ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CASH $ 701,160 $ 313,885 $ 139,918
RECEIVABLES
Investment management fees (34,441) 39,733 71,818
Other receivables 114,860 63,210 85,406
SECURED DEMAND NOTE (Note 1) -- -- 225,000
FURNITURE AND EQUIPMENT, at cost, net of accumulated
depreciation of $355,231 and $206,664 818,829 688,233 340,669
SOFTWARE DEVELOPMENT COSTS (Note 1) 529,616 419,617 --
PREPAID EXPENSES AND OTHER ASSETS 421,914 220,605 230,114
LONG TERM NOTE RECEIVABLE (Note 3) 649,356 897,167 1,166,181
GOODWILL (net of amortization of $70,018, $52,513 and
$29,173) 279,982 297,487 320,827
----------- ----------- -----------
TOTAL ASSETS $ 3,481,276 $ 2,939,937 $ 2,579,933
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 958,350 $ 1,442,694 $ 712,857
Accrued expenses 791,106 707,897 604,092
Other liabilities (Note 8) 581,518 571,389 106,990
Deferred revenue 510,717 411,347 374,001
Notes payable (Note 7) 4,516,697 1,647,470 45,000
Obligations under capital leases (Note 8) 170,570 75 490 --
Liabilities subordinated to claims of general creditors
(Note 2) -- -- 225 000
----------- ----------- -----------
TOTAL LIABILITIES 7,528,958 4,856,287 2,067,940
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (DEFICIT) (Note 4)
Preferred stock - no par value - authorized 5,000,000 shares;
issued and outstanding, 349,017 shares 872,543 872,543 872,543
Common stock, $.01 par value - authorized, 50,000,000
shares, issued and outstanding, 5,555,713 shares
and 5,540,501 276,716 276,716 276,564
Additional paid-in capital 3,652,749 3,652,749 3,637,689
Deficit (8,849,690) (6,718,358) (4,274,803)
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (4,047,682) (1,916,350) 511,993
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,481,276 $ 2,939,937 $ 2,579,933
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 30
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, December 31, December 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Investment management fees (Note 1) $ 7,079,558 $ 6,335,516 $ 8,632,888 $ 8,556,518
Trading income 33,279 77,518 94,948 287,583
Other income 579,580 354,086 444,643 436,549
------------ ------------ ------------ ------------
Total revenue 7,692,417 6,767,120 9,172,479 9,280,650
------------ ------------ ------------ ------------
EXPENSES:
Investment manager and other fees 4,228,162 3,693,525 5,139,613 4,967,557
Salaries and benefits 2,342,487 1,661,892 2,524,936 2,348,819
Clearing charges and user fees 599,518 575,063 766,515 681,328
Advertising and promotion 525,436 442,404 629,476 559,723
General and administrative 642,235 544,447 743,901 728,329
Office supplies and expenses 183,011 128,211 174,100 163,964
Occupancy and equipment costs 432,860 344,069 630,833 418,252
Professional fees 476,535 363,873 541,660 643,261
Reserve for settlement expense 465,000 --
Depreciation and amortization 393,505 96,505 -- --
Total expenses 9,823,749 7,849,989 11,616,034 10,511,233
------------ ------------ ------------ ------------
NET LOSS $ (2,131,332) $ (1,082,869) $ (2,443,555) $ (1,230,583)
============ ============ ============ ============
NET LOSS PER COMMON SHARE
(Note 1) $ (0.49) $ (0.21) $ (.46) $ (.24)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (Note 1) 5,555,713 5,543,902 5,546,522 5,538,649
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 31
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1995 AND 1994 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Total
Additional Shareholders'
Common Stock Paid-In Preferred Stock Equity
Shares Amount Capital Shares Amount Deficit (Deficit)
--------- ----------- ----------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1993 5,535,314 $ 276,512 $ 3,587,866 368,967 $ 922,418 $(3,044,220) $ 1,742,576
Conversion of preferred stock 5,187 52 49,823 (19,950) (49,875) -- --
Net loss -- -- -- -- -- (1,230,583) (1,230,583)
--------- ----------- ----------- ------- ----------- ----------- -----------
BALANCES, December 31, 1994 5,540,501 276,564 3,637,689 349,017 872,543 (4,274,803) 511,993
Issuance of stock to 401k plan 15,212 152 15,060 -- -- -- 15,212
Net loss -- -- -- -- -- (2,443,555) (2,443,555)
--------- ----------- ----------- ------- ----------- ----------- -----------
BALANCES, December 31, 1995 5,555,713 276,716 3,652,749 349,017 872,543 (6,718,358) (1,916,350)
--------- ----------- ----------- ------- ----------- ----------- -----------
Net loss -- -- -- -- -- (2,131,332) (2,131,332)
--------- ----------- ----------- ------- ----------- ----------- -----------
BALANCES, September 30, 1996
(unaudited) 5,555,713 $ 276,716 $ 3,652,749 349,017 $ 872,543 $(8,849,690) $(4,047,682)
========= =========== =========== ======= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 32
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING (unaudited)
<S> <C> <C> <C> <C>
ACTIVITIES:
Net loss $(2,131,332) $(1,082,869) $(2,443,555) $(1,230,583)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 393,505 (63,968) 171,907 97,133
Accretion of discount on note receivable (52,507) 96,505 (69,053) (67,821)
Stock issued as compensation under
401k plan -- -- 15,212 --
Changes in operating assets and
liabilities:
Investment management fees
receivable 74,174 49,066 32,085 130,616
Other receivables (51,650) (79,668) 22,196 55,430
Prepaid expenses and other assets (201,308) (47,881) 9,509 53,306
Accrued expenses 83,209 78,469 103,805 194,132
Accounts payable (484,344) 128,167 729,837 307,945
Other liabilities 10,129 (18,635) 464,399 344
Deferred revenue 99,370 17,443 37,346 50,022
----------- ----------- ----------- -----------
Net cash used in operating
activities (2,260,754) (923,371) (926,312) (409,476)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of furniture, equipment and
software development cost (479,456) (471,511) (825,549) (198,479)
Reduction of long-term note receivable 300,318 286,076 338,067 287,966
Reduction of secured demand note -- -- 225,000 52,463
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (179,138) (185,435) (262,482) 141,950
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from notes payable 2,875,000 1,200,000 1,925,000 --
Principal payments on notes payable (5,773) (21,415) (322,530) --
Principal payments on obligations under
capital lease (42,060) -- (14,709) --
Principal payments on subordinated note
payable -- -- (225,000) --
----------- ----------- ----------- -----------
Net cash provided by financing
activities 2,827,167 1,178,585 1,362,761 --
----------- ----------- ----------- -----------
</TABLE>
F-6
<PAGE> 33
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH 387,275 69,779 173,967 (267,526)
CASH, at beginning of year 313,885 139,918 139,918 407,444
----------- ----------- ----------- -----------
CASH, at end of year $ 701,160 $ 209,697 $ 313,885 $ 139,918
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 67,990 $ 44,310 $ 96,969 $ 28,441
=========== =========== =========== ===========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Purchase of equipment via capital lease
obligation 137,139 90,199 90,199 --
Common stock issued as compensation
under 401k plan -- 15,212 15,212 --
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 34
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
On September 23, 1993, the shareholders of Schield Management Company
("Schield") approved an exchange of common stock of Schield for all of the
outstanding common stock of Portfolio Management Consultants, Inc. ("PMC") and
a name change from Schield to PMC International, Inc. ("PMCI"). The stock
exchange was completed on September 30, 1993 and as a result of this
transaction, PMC is a wholly owned subsidiary of PMCI. The stock exchange
between Schield and PMC has been considered a reverse acquisition and accounted
for under the purchase method of accounting. Under reverse acquisition
accounting, PMC was considered the acquiror for accounting and financial
reporting purposes, and acquired the assets and assumed the liabilities of
Schield. The Schield assets acquired and liabilities assumed were recorded at
their fair values. The cost of the acquisition of Schield of $1,741,018 was
based on the NASDAQ publicly traded price of the outstanding Schield common
stock prior to the announcement of the transaction. The excess of the cost of
the acquisition over the fair value of the assets acquired and liabilities
assumed was recorded as goodwill.
PMC was organized in 1986 and its principal business activity is the
administration of private and institutional managed account programs with its
customers located substantially in the United States. Its services include
investment suitability analysis, portfolio modeling and asset allocation, money
manager selection, portfolio accounting and performance reporting. PMC's
revenues are primarily derived from a percentage of the assets under
management. Assets under management are impacted by both the extent to which
PMC attracts new, or loses existing clients and the appreciation or
depreciation of the U.S. and international equity and fixed income markets.
Assets of customers of two unrelated organizations constitute approximately 42%
and 9% of the total customer assets in PMC's managed account programs as of
December 31, 1995. Assets of customers of three unrelated organizations
constitute approximately 23%, 9% and 8% of total customer assets as of
September 30, 1996 (unaudited). PMC is registered as an investment advisor
under the Investment Advisors Act of 1940.
In June, 1994, Portfolio Brokerage Services, Inc. ("PBS) was capitalized
through a series of transactions with PMCI and PMC, whereby PBS became a wholly
owned subsidiary of PMCI by issuing 1,000 shares of its common stock in
exchange for certain assets and liabilities with a book value of $1,532,332.
PBS is engaged in business as a securities broker-dealer. As a broker-dealer it
executes security transactions for PMC's privately managed account programs, on
behalf of its customers through the customer's custodian bank on a delivery vs.
payment basis.
Portfolio Technology Services, Inc. ("PTS"), a wholly owned subsidiary of PMCI,
was organized in June, 1994 but had no operations until 1995. PTS was formed
for the purpose of developing proprietary software for use in the financial
services industry.
F-8
<PAGE> 35
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
The September 30, 1996 and September 1995 amounts included herein are
unaudited. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations, cash flows and changes in stockholders equity
at September 30, 1996 and 1995 have been made.
Significant Accounting Policies
Revenue from investment management services is recorded as such revenues accrue
under the terms of the related investment management contracts.
Securities transactions and related commission income are recorded on a trade
date basis. In the normal course of business, PBS executes, as agent,
transactions on behalf of customers. If the agency transactions do not settle
because of failure to perform by either the customer or the counter-party, PBS
may be obligated to discharge the obligation of the non-performing party and,
as a result, may incur a loss if the market value of the security is different
from the contract amount of the transactions.
The majority of costs incurred to establish the technological feasibility of
the Company's software products intended to be sold or otherwise marketed were
borne by unrelated individuals prior to the products being introduced to the
Company. The Company incurred approximately $50,000 in research and development
costs after receiving the products from the unrelated individuals. These costs
were expensed in 1995. All subsequent costs incurred after technological
feasibility was achieved were capitalized and are being amortized over a period
of three years.
The Company provides for depreciation of furniture and equipment on the
straight line and declining balance methods based on estimated lives of three
to seven years.
Cash and cash equivalents for purposes of the statement of cash flows includes
highly liquid investments with a maturity of three months or less at date of
acquisition.
Net loss per share of common stock is based on the weighted average number of
shares of common stock outstanding, giving effect to the reverse stock split
discussed in Note 4 and preferred dividend requirements. Common stock
equivalents are not included in the weighted average calculation since their
effect would be anti-dilutive.
Goodwill is amortized using the straight line method over 15 years.
F-9
<PAGE> 36
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(Continued)
NOTE 2 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
At December 31, 1994, the borrowings under a 9-1/2% subordination agreement
were pursuant to a secured demand note collateral agreement due November 30,
1995. The subordinated borrowings were covered by an agreement approved by the
National Association of Securities Dealers, Inc. and were thus available in
computing net capital under the Securities and Exchange Commission's uniform
net capital rule. Such borrowings could not be repaid to the extent that such
borrowings were required for PBS's continued compliance with minimum net
capital requirements. The agreement required PBS to make monthly payments of
interest. In July 1995, this subordination agreement was repaid.
NOTE 3 - LONG TERM NOTE RECEIVABLE
In connection with the Schield reverse acquisition, the Company acquired a long
term note receivable related to the sale of Schield's market timing operations
to an entity controlled by a founder of Schield. The note is payable in monthly
installments of $32,000, including interest through August, 1998. The note was
recorded at its estimated fair value as of September 30, 1993. The discount
from the face amount of the note receivable is accreted to interest income over
the life of the note using the interest method. The principal balance of the
note as of December 31, 1995 is $1,028,452 compared to its carrying amount of
$897,167. The principal balance of the note as of September 30, 1996 is
$728,133 compared to its carrying amount of $649,356 (unaudited).
NOTE 4 - SHAREHOLDERS' EQUITY
Reverse Stock Split
All shares and per share amounts in the accompanying financial statements have
been restated to give effect to a one for five reverse stock split of the
Company's common stock which was effective November 12, 1993.
Preferred Stock
Holders of preferred stock are entitled to receive dividends at a rate of
$0.325 per share per annum (equal to 13% of the purchase price per share
attributable to the preferred stock). Dividends are payable semi-annually on
January 15 and July 15 in each year. Dividends accrue from the date of the
preferred stock issuance and are cumulative. Upon liquidation or dissolution of
the Company, holders of preferred stock are entitled to a preference over the
holders of common stock in an amount per share equal to the original purchase
price attributed to a share of preferred stock ($2.50) plus all unpaid
cumulative dividends. The preferred stock is non-participating and the holders
of preferred stock have no preemptive rights and no voting rights except as may
be required by Colorado law. At the option of the Company, the preferred stock
may be redeemed in whole, or in part, at a price of $2.75 per share, plus
unpaid cumulative dividends. Redemption can only occur if certain conditions
regarding the bid prices of the Company's common stock and the Company's
after-tax earnings are met. As of September 30, 1996, cumulative dividends in
arrears totalled $583,576 (unaudited).
Stock Options and Warrants
During 1994, the Company adopted a Stock Option Plan. Under this plan, the
Company may grant stock options to officers and employees. The Stock Option
Plan was intended as an Incentive Stock Option Plan, however shareholder
approval of the Plan was not sought or obtained within one year of Board
adoption and consequently options granted thereunder will not receive incentive
stock option treatment. Outside of this plan, the Company has granted options
to officers, employees, shareholders and certain other individuals and entities
which would allow them to purchase common
F-10
<PAGE> 37
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(Continued)
NOTE 4 - SHAREHOLDERS' EQUITY (continued)
stock of the Company. In addition common stock warrants have been issued in
connection with certain private offerings of debt. At December 31, 1995,
options and warrants to purchase common stock at various prices were
outstanding with expiration as follows:
<TABLE>
<CAPTION>
Expiration Exercise
Date Options Warrants Price
----------------- ------- --------- --------
<S> <C> <C> <C>
January, 96 1,000 -- 1.375
April, 96 100,000 -- 3.750
July, Sept. 96 39,000 -- 3.100
Nov. 96, Jan. 97 20,000 -- 2.500
June, 97, Oct. 97 50,500 -- 2.500
February, 98 52,000 -- 3.100
February, 98 150,000 -- 1.300
December, 98 -- 300,000 1.620
September, 99 300,000 -- 1.370
December, 98 215,500 -- 1.375
December, 2000 -- 425,000 1.000
May, 2005 10,000 .844
July, 2005 -- 1,200,000 1.000
------- ---------
938,000 1,925,000
------- ---------
</TABLE>
At December 31, 1995 there were also 200,000 options granted but not issued
under an employment agreement, subject to performance and vesting requirements,
exercisable at $1.00. In addition, the shareholder with a $1,200,000 note
payable referred to in note 7, has an option to acquire 1,800,000 warrants
exercisable at $1.00.
F-11
<PAGE> 38
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(Continued)
NOTE 4 - SHAREHOLDERS' EQUITY (continued)
At September 30, 1996, options and warrants to purchase common stock at various
prices were outstanding with expiration as follows (unaudited):
<TABLE>
<CAPTION>
Expiration Exercise
Date Options Warrants Price
---------------- ------- --------- ----------
<S> <C> <C> <C>
November, 96 5,000 -- $ 1.375
Nov. 96, Jan. 97 20,000 -- 2.500
June 97, Oct. 97 50,500 -- 2.500
February 98 52,000 -- 3.100
February 98 150,000 -- 1.300
December 98 -- 300,000 1.620
September 99 250,000 -- 1.120
September 99 50,000 -- 1.370
December 99 204,500 -- 1.375
December 2000 -- 482,500 1.000
March 2001 125,000 -- 1.000
May 2001 -- 1,017,500 1.000
June 2001 250,000 -- 1.000
September 2001 80,000 -- 1.500
September 2002 97,500 -- 1.500
July 2005 -- 3,000,000 1.000
Other* 200,000 300,000 1.000
--------- ---------
1,534,500 5,100,000
--------- ---------
</TABLE>
* At September 30, 1996 there were also 200,000 options granted but not
issued under an employment agreement, subject to performance and vesting
requirements, exercisable at $1.00. Also, there were 300,000 warrants
granted pursuant to an Investment Banking Agreement which became
exercisable at such time that Bedford exercises any portion of its
3,000,000 warrants in an amount in direct proportion to 10% of the
warrants exercised by Bedford at an exercise price of $1.00 for 4 years
from the date(s) of Bedford's exercise.
NOTE 5 - INCOME TAXES
As of December 31, 1995 the Company has an unused net operating loss
carryforward of approximately $3,000,000 for income tax purposes, $1,200,000
expiring in 2009 and the remainder expiring in 2010. This net operating loss
carryforward may result in future income tax benefits; however, because
realization is uncertain at this time, a valuation reserve in the same amount
has been established. Temporary differences arise from the deduction of certain
accrued expenses for financial statement purposes and not for income tax
reporting purposes and the recording of depreciation.
NOTE 6 - REGULATORY REQUIREMENTS
PBS is subject to the Securities and Exchange Commission's Uniform Net Capital
Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. At
December 31, 1995, PBS had net capital and net capital requirements of $219,860
and $100,000, respectively, and the Company's net capital ratio (aggregate
indebtedness to net capital) was .29 to 1. At September 30, 1996, PBS had net
capital and net capital requirements of $158,220 and $100,000, respectively,
and the Company's net capital ratio was .77 to 1 (unaudited). According to Rule
15c3-1, PBS's net capital
F-12
<PAGE> 39
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(Continued)
NOTE 6 - REGULATORY REQUIREMENTS (continued)
ratio shall not exceed 15 to 1. On a consolidated basis, as a result of the
requirement, net assets of $120,000 are unavailable for any purpose other than
meeting PBS's net capital requirements at December 31, 1995.
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
September 30,
1996 December 31, 1995 December 31, 1994
----------- ----------------- -----------------
(unaudited)
<S> <C> <C> <C>
8-1/2% note payable to shareholder, due $3,000,000 $1,200,000 $ --
July 26, 2000 interest payable monthly
beginning August 10, 1996, principal and all
accrued and unpaid interest is due at maturity,
secured by all assets of PMCI and its
subsidiaries (except PBS which security
interest is only to its outstanding common
stock owned by PMCI)
11.5% note payable to shareholder(s), 16,697 22,470 45,000
unsecured, due August 1, 1998, payable in
monthly installments of $832 including interest
9% notes payable to employees and unrelated 482,500 425,000 --
individuals, due December 29, 1996, principal
and interest payable on or before maturity date,
secured by a second lien on Company assets
---------- ---------- ----------
9% notes payable to employees and unrelated 1,017,500
individuals, due December 31, 1997, principal
and interest payable on or before maturity date,
secured by a second lien on Company assets
---------- ---------- ----------
$4,516,697 $1,647,470 $ 45,000
========== ========== ==========
</TABLE>
The above $1,200,000 shareholder note payable is related to a financing and
stock purchase agreement which encompasses a series of transactions, none of
which are considered binding until certain criteria are met. The shareholder
acquired 1,000,000 shares of the Company's common stock in a private
transaction with another individual and loaned the Company $1,200,000. In
connection with this loan, a warrant to purchase 1,200,000 shares of common
stock (see note 4) was also received. In addition, the shareholder obtained an
option to lend the Company an additional $1,800,000 and received option rights
similar to the initial loan. In December, 1995 the Company accepted an offer
from this shareholder to partially exercise its $1,800,000 option above, in the
amount of $440,000 to fund the expected settlement costs with the Securities
and Exchange Commission as mentioned in note 8. In January 1996 the shareholder
partially
F-13
<PAGE> 40
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(Continued)
NOTE 7 - NOTES PAYABLE (continued)
exercised its $1,800,000 option above and loaned the Company $241,000, and
received a warrant to purchase 241,000 shares of common stock at $1.00 per
share.
On December 14, 1995 the Company commenced a private offering of units. Each
unit consists of a convertible promissory note with a principal amount of
$1,000 and a warrant to purchase 1,000 shares of common stock. Each warrant
entitles the holder to purchase one share of common stock at a per share price
equal to the greater of $1.00 or the market price on the initial closing date
of the offering (see note 4). As of December 31, 1995, 425 units were sold
pursuant to this offering.
The above $3,000,000 shareholder note payable is related to a financing and
stock purchase agreement which encompasses a series of transactions. In 1995
the shareholder acquired 1,000,000 shares of the Company's common stock in a
private transaction with another individual and loaned the Company $1,200,000.
In connection with this loan, a warrant to purchase 1,200,000 shares of common
stock (see Note 3) was also received. In addition, the shareholder obtained an
option to lend the Company an additional $1,800,000 and received option rights
similar to the initial loan.
As of December 31, 1995, maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
<S> <C>
1996 $ 431,003
1997 8,535
1998 7,932
1999 -
2000 1,200,000
--------------
$ 1,647,470
</TABLE>
During March, 1995, through a private offering, PMCI issued $300,000 of
convertible promissory notes bearing 15% interest per annum. These notes were
repaid in July 1995. Noteholders also received warrants.
In January 1996 the shareholder partially exercised its $1,800,000 option and
loaned the Company $241,169, and received a warrant to purchase 241,169 shares
of common stock at $1.00 per share. In April, 1996 the Company accepted
$440,000 from this shareholder as partial exercise of its $1,800,000 option to
fund the expected settlement costs with the Securities and Exchange Commission
as mentioned in Note 7. The shareholder received a warrant to purchase 440,000
shares of common stock at $1.00 per share. In May, 1996 the Company accepted
$500,000 from this shareholder as a further partial exercise of its loan
option, and the shareholder received a warrant to purchase 500,000 shares of
common stock at $1.00 per share. On June 30, 1996 the Company received a firm
commitment from the shareholder to exercise the remainder of its option and
loan the Company $618,831. The funds were received by the Company on July 9,
1996 and Shareholder received a warrant to purchase 618,831 shares of common
stock at $1.00 per share (unaudited).
On December 14, 1995 the Company commenced a private offering of units. Each
unit consists of a convertible promissory note with a principal amount of
$1,000 and a warrant to purchase 1,000 shares of common stock. Each warrant
entitles the holder to purchase one share of common stock at a per share price
equal to the greater of $1.00 or the market price on the initial closing date
of the offering. A total of 482.5 units were sold pursuant to this offering. On
May 7, 1996 the Company commenced a further private offering of units of
securities. Each unit consists of a convertible promissory note with a
principal amount of $1,000 and a warrant to purchase 1,000 shares of common
stock. Each warrant entitles the holder to purchase one share of common stock
at a per share price equal to the greater of $1.00 or the market price on the
initial closing date of the offering. A total of 1,017.5 units were sold
pursuant to this offering (unaudited). (See Note 3).
F-14
<PAGE> 41
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(Continued)
NOTE 7 - NOTES PAYABLE (continued)
As of September 30, 1996, maturities of notes payable are as follows
(unaudited):
<TABLE>
<CAPTION>
Year ending
December 31,
<S> <C>
1996 $ 482,730
1997 1,026,035
1998 7,932
1999 -
2000 3,000,000
--------------
$ 4,516,697
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has leases for office space and equipment under various operating
and capital leases. Included in furniture and equipment is $90,119 of equipment
under capital leases at December 31, 1995 and accumulated depreciation relating
to these leases of $6,588. Future minimum lease payments under noncancelable
leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Principal
Year Ending due
December 31, Operating Capital Capital Lease
- ------------ --------- ------- -------------
<S> <C> <C> <C>
1996 $ 374,419 $ 40,206 $ 28,883
1997 343,847 35,605 27,271
1998 351,672 24,752 19,336
1999 298,658 -- --
2000 293,567 -- --
Thereafter 24,000 -- --
---------- ---------- ----------
$1,686,163 100,563 $ 75,490
========== ==========
Less amount representing interest 24,943
Present value of net minimum lease
payments $ 75,570
==========
</TABLE>
The Company also leases certain equipment from a shareholder and a prior
shareholder on a month-to-month basis. During the year ended December 31, 1995,
PMC paid $6,117 under this lease. Total rent expense for facilities and
equipment for the years ended December 31, 1995 and 1994, was $410,263 and
$301,964, respectively.
F-15
<PAGE> 42
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(Concluded)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)
The Company has leases for office space and equipment under various operating
and capital leases. Included in furniture and equipment is $227,258 of
equipment under capital leases at September 30, 1996 and accumulated
depreciation relating to these leases of approximately $37,862 (unaudited).
Future minimum lease payments under noncancelable leases as of September 30,
1996 are as follows (unaudited):
<TABLE>
<CAPTION>
Principal
Year Ending due
December 31, Operating Capital Capital Lease
- ------------ --------- ------- -------------
<S> <C> <C> <C>
1996 101,599 23,454 18,518
1997 375,824 88,456 74,364
1998 351,672 77,100 71,457
1999 298,658 6,232 5,958
2000 293,567 - -
Thereafter 24,000 - -
---------- --------- ---------
$1,445,320 $ 195,242 $ 170,297
---------- --------- ---------
Less amount representing interest 24,945
---------
Present value of net minimum lease
payments $ 170,297
---------
</TABLE>
The Company also leases certain equipment from a shareholder and a prior
shareholder on a month-to-month basis. During each of the nine month periods
ended September 30, 1996 and September 30, 1995, PMC paid $7,488 under this
lease. Total rent expense for facilities and equipment for the nine months
ended September 30, 1996 and 1995, was $362,626 and $326,780 respectively
(unaudited).
As of December 31, 1995, PMC was under a formal order of private investigation
by the Securities and Exchange Commission relating to certain aspects of PMC's
practices with respect to the purchase and sale of securities for its customer
accounts. PMC discontinued this practice in April, 1994 and submitted a written
statement to the staff of the Commission. As of December 31, 1995, the Company
had submitted settlement proposals to the Commission, without admitting or
denying liability, on behalf of PMC under a plan which PMC would disgorge its
trading profits realized from principal trading together with prejudgment
interest in the amount of $465,000. This amount has been included in other
liabilities in the accompanying financial statements for December 31, 1995. As
of December 31, 1995, management and its legal counsel are unable to determine
if the proposal will be accepted by the Commission, or what action, if any, the
Commission will take in regards to this matter. Therefore the $465,000 is only
an estimate of the settlement amount; the actual settlement amount could be in
excess of the amount recorded in the accompanying financial statements. In
addition, the Company has agreed to indemnify a prior officer and shareholder
for expenses incurred in his defense of this investigation.
On June 27, 1996, PMC and its President entered into a settlement with
Commission concerning the SEC investigation. Under the terms of the settlement,
without admitting or denying various findings of the SEC, PMC agreed to
disgorge certain net trading profits realized from principal trading together
with prejudgment interest thereon in an amount to be determined by an
independent accountant. As of September 30, 1996, the Company has preliminarily
estimated the
F-16
<PAGE> 43
PMC INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(Concluded)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)
amount of the net trading profits to be $465,000. This amount is only an
estimate and the actual amount of the disgorgement may materially differ.
The Company is involved in certain litigation arising in the normal course of
business, which is in the preliminary or early stages. Management, after review
and discussion with counsel, believes the resolution of the matters will not
have a material effect on the Company.
The Company has suffered significant losses from operations and has a working
capital deficiency of approximately $2,800,000 and $2,231,000 as of December
31, 1995 and September 30, 1996, respectively, which losses raise substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recovery and
classification of recorded asset amounts or the amount and classification of
liabilities that might be necessary should the Company discontinue operations.
NOTE 9 - EMPLOYEE BENEFIT PLAN
Salary deferral "401(k)" plan
The plan allows employees, who have completed one year of employment and at
least 1,000 hours service, to defer up to 15% of their salary. The Company
intends to match employee contributions by an amount determined annually by the
board of directors. Only contributions up to the first 6% of an employee's
salary will be considered for the match. On February 15, 1995 PMCI's Board of
Directors approved the issuance of 15,212 shares of PMCI common stock (valued
at the market price at the date of grant of $1.00 per share) to match
participant's contributions for the year ended December 31, 1994.
F-17
<PAGE> 44
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article V of the Company's Articles of Incorporation requires the
Company to indemnify any person who is or is threatened to be made a party to
any civil, criminal, administrative, arbitrative or investigative proceeding
instituted or threatened by reason of the fact that he is or was a director or
officer of the Company or is or was serving at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan if the claim is based on actions
taken by such person in good faith with the reasonable belief that such action
was in the best interest of the Company.
Article V of the Company's Articles of Incorporation further requires
the Company to indemnify any person who is or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the Company by reason of the fact that he is or was a director or officer of
the Company or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan if the claim is based on actions taken by
such person in good faith with the reasonable belief that such action was in
the best interest of the Company, provided, however, that such person generally
shall not be indemnified for negligent or wilful misconduct.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the Commission registration fee, are estimated:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..... $7,009
Printing expenses ...................................... *
Legal fees and expenses ................................ *
Accounting fees and expenses* .......................... *
Blue Sky fees and expenses ............................. *
Miscellaneous* ......................................... *
------
Total ................................ $ *
</TABLE>
* To be supplied by amendment
All of the above expenses will be borne by the Company.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
February 1995 Private Placement
In February 1995, the Company sold debt securities in an aggregate
principal amount of $300,000. Each dollar loaned carried with it a warrant to
purchase one share of Common Stock at an exercise price of $1.00 per share.
Purchasers received registration rights with respect to shares of Common Stock
issued upon exercise of the warrants. The purchasers were primarily employees,
business associates and affiliates of the Company.
II-1
<PAGE> 45
Bedford Loans
In July 1995, the Company entered into a transaction with Bedford
pursuant to which Bedford loaned $1.2 million to the Company and received an
option to loan up to an additional $1.8 million to the Company for a specified
period of time and pursuant to certain call provisions. Between July 1995 and
July 1996, the Company obtained the full $3.0 million financing from Bedford.
Each dollar loaned carried a ten-year warrant to purchase one share of the
Common Stock at an exercise price of $1.00 per share.
December 1995 and June 1996 Private Placements
In December 1995 and January 1996, the Company issued a total of 482.5
units through a private placement, with each unit consisting of a convertible
promissory note with a principal amount of $1,000 and a warrant to purchase
1,000 shares of Common Stock at an exercise price of $1.00 per share. During
June 1996 the Company issued an additional 1,017.5 units through another
private placement under substantially the same terms. The purchasers of these
units were primarily employees, business associates and affiliates of the
Company. Each purchaser received registration rights with respect to the shares
of Common Stock underlying the warrants.
November 1996 Bridge Loan
In November 1996, the Company borrowed $250,000 to fund its working
capital requirements pending closing of a private placement of Common Stock in
December 1996. Fifty percent of the loan was provided by Keefe, Bruyette &
Woods, Inc., the Placement Agent in the December 1996 private placement, and
the balance equally by certain members of management of the Company, Bedford,
and certain affiliates of Bedford. The lenders received five-year warrants to
purchase an aggregate of 25,000 shares of the Common Stock. The warrants have
an exercise price of $1.625 per share. The lenders received registration rights
with respect to the Common Stock to be issued upon exercise of the warrants.
December 1996 Private Placement
On December 24, 1996 the Company completed a private placement of
5,177,000 shares of Common Stock at a price of $2.125 per share. The purchasers
of the Shares were all accredited investors.
December 1996 Restructuring
On December 24, 1996, the Company completed a restructuring of its
debt. The restructuring involved the repayment of interest owing under the
notes issued in connection with the December 1996/January 1996 and May/June
1996 private placements and the Bedford loans. In connection with the
restructuring, Bedford exercised warrants to purchase a total of 1,023,750
shares of Common Stock, and received new warrants to purchase 150,000 shares of
Common Stock at an exercise price of $2.125 per share. The holders of warrants
issued in connection with the December 1995 and June 1996 private placements
exercised warrants to purchase an aggregate of 1,500,000 shares of Common
Stock, and received, pro rata, new warrants to purchase an aggregate of 150,000
shares of Common Stock at an exercise price of $2.125 per share.
In each of the cases listed above, the Company claimed an exemption
from the registration requirements of the Securities Act under Section 4(2) of
the Securities Act.
ITEM 27. EXHIBITS
(a) Exhibits
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company
4.1* Specimen Common Stock certificate of the Company
II-2
<PAGE> 46
4.2 The Articles of Incorporation and Bylaws of the
Company are included as Exhibits 3.1 and 3.2
5.1* Opinion of Holme Roberts & Owen LLP as to the legality
of the issuance of the shares
10.1 Employment Agreement between the Company and Kenneth
S. Phillips dated as of July 26, 1995
10.2 Amended and Restated Employment Agreement between the
Company and David L. Andrus dated as of December 17,
1996
10.3 Form of Subscription Agreement between the Company and
each of the lenders in the November 1996 bridge
financing
10.4 Form of warrant issued to each of the lenders in the
November 1996 bridge financing.
10.5 Form of Registration Rights Agreement between the
Company, each of the lenders in the November 1996
bridge financing, each of the investors in the
December 1996 private placement, and the placement
agent in the December 1996 private placement
10.6 Form of Subscription Agreement between the Company and
each of the investors in the December 1996 private
placement
10.7 Warrant dated December 24, 1996 issued to Keefe,
Bruyette & Woods, Inc.
10.8 Form of warrant issued to investors in connection with
the December 1996 restructuring
10.9 Restructuring Agreement dated as of December 24, 1996
among the Company, Bedford Capital Financial
Corporation ("Bedford"),Portfolio Management
Consultants, Inc.("PMC"), Portfolio Brokerage
Services, Inc.("PBS") and Portfolio Technology
Services ("PTS")
10.10 Amended and Restated Registration Rights Agreement
dated as of December 24, 1996 among the Company and
Bedford
10.11 Shareholders Agreement dated as of December 24, 1996
among the Company, Bedford, Kenneth S. Phillips, David
L. Andrus and Phillips & Andrus LLC
10.12 Form of Warrant dated December 24, 1996 issued to
Bedford and certain of its associates
10.13 Advisory Agreement effective as of July 26, 1995,
between Nevcorp Inc. and the Company
10.14 Termination of Nevcorp Consulting Agreement
10.15 Stock Option Plan of the Company
10.16 Reimbursement and Pledge Agreement dated January 8,
1997 among the Company, KP3, LLC, and Kenneth S.
Phillips
10.17 Term Loan Agreement dated as of January 8, 1997 among
the Company, KP3, LLC and Norwest Bank Colorado N.A.
10.18 Investment Agreement dated as of July 26, 1995 among
the Company, PMC, PBS, PTS, and Bedford (2)
21.1 List of Subsidiaries (2)
23.1 Consent of Spicer Jeffries & Co., Certified Public
Accountants
23.2 Consent of Holme Roberts & Owen LLP is to be included
in Exhibit 5.1
24.1 Powers of Attorney
* To be filed by amendment.
(1) Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 33-37800) dated November 15, 1990.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB
(File No. 0-14937) for the year ended December 31, 1994.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes that it will:
(1) file, during any period in which it offers to sell securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
II-3
<PAGE> 47
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) include any additional or changed material information on
the plan of distribution required in a post-effective
amendment is incorporated by reference from periodic reports
filed by the small business issuer under the Exchange Act.
(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant, pursuant to the provisions described in Item 24 or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by a controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by a final adjudication of such issue.
II-4
<PAGE> 48
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado, on this 6th day of
February, 1997.
PMC International, Inc.
a Colorado corporation
By: /s/ Kenneth S. Phillips
-------------------------------------
Kenneth S. Phillips
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Title Position Held
Signature With the Registrant Date
--------- ------------------- ----
<S> <C> <C>
/s/ Kenneth S. Phillips President, Chief Executive February 6, 1997
- ------------------------------- Officer and Director
Kenneth S. Phillips
* Executive Vice President and February 6, 1997
- ------------------------------- Director
David L. Andrus
* Treasurer and Chief Financial February 6, 1997
- ------------------------------- Officer (principal accounting and
Vali Nasr financial officer)
* Chairman of the Board and Director February 6, 1997
- -------------------------------
J. M. Nevil Thomas
* Director February 6, 1997
- -------------------------------
D. Porter Bibb
By: /s/ Kenneth S. Phillips
-------------------------------------
Kenneth S. Phillips, attorney-in-fact
</TABLE>
II-5
<PAGE> 49
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company
4.1* Specimen Common Stock certificate of the Company
4.2 The Articles of Incorporation and Bylaws of the
Company are included as Exhibits 3.1 and 3.2
5.1* Opinion of Holme Roberts & Owen LLP as to the legality
of the issuance of the shares
10.1 Employment Agreement between the Company and Kenneth
S. Phillips dated as of July 26, 1995
10.2 Amended and Restated Employment Agreement between the
Company and David L. Andrus dated as of December 17,
1996
10.3 Form of Subscription Agreement between the Company and
each of the lenders in the November 1996 bridge
financing
10.4 Form of warrant issued to each of the lenders in the
November 1996 bridge financing.
10.5 Form of Registration Rights Agreement between the
Company, each of the lenders in the November 1996
bridge financing, each of the investors in the
December 1996 private placement, and the placement
agent in the December 1996 private placement
10.6 Form of Subscription Agreement between the Company and
each of the investors in the December 1996 private
placement
10.7 Warrant dated December 24, 1996 issued to Keefe,
Bruyette & Woods, Inc.
10.8 Form of warrant issued to investors in connection with
the December 1996 restructuring
10.9 Restructuring Agreement dated as of December 24, 1996
among the Company, Bedford Capital Financial
Corporation ("Bedford"),Portfolio Management
Consultants, Inc.("PMC"), Portfolio Brokerage
Services, Inc.("PBS") and Portfolio Technology
Services ("PTS")
10.10 Amended and Restated Registration Rights Agreement
dated as of December 24, 1996 among the Company and
Bedford
10.11 Shareholders Agreement dated as of December 24, 1996
among the Company, Bedford, Kenneth S. Phillips, David
L. Andrus and Phillips & Andrus LLC
10.12 Form of Warrant dated December 24, 1996 issued to
Bedford and certain of its associates
10.13 Advisory Agreement effective as of July 26, 1995,
between Nevcorp Inc. and the Company
10.14 Termination of Nevcorp Consulting Agreement
10.15 Stock Option Plan of the Company
10.16 Reimbursement and Pledge Agreement dated January 8,
1997 among the Company, KP3, LLC, and Kenneth S.
Phillips
10.17 Term Loan Agreement dated as of January 8, 1997 among
the Company, KP3, LLC and Norwest Bank Colorado N.A.
10.18 Investment Agreement dated as of July 26, 1995 among
the Company, PMC, PBS, PTS, and Bedford (2)
21.1 List of Subsidiaries (2)
23.1 Consent of Spicer Jeffries & Co., Certified Public
Accountants
23.2 Consent of Holme Roberts & Owen LLP is to be included
in Exhibit 5.1
24.1 Powers of Attorney
* To be filed by amendment.
(1) Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 33-37800) dated November 15, 1990.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB
(File No. 0-14937) for the year ended December 31, 1994.
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
SCHIELD MANAGEMENT COMPANY
_________
ARTICLE I
Offices
The principal offices of the corporation shall be in Arvada, Colorado,
but the Board of Directors, in its discretion, may keep and maintain
offices wherever the business of the corporation may require.
ARTICLE II
Meeting of Shareholders
(1) Time and Place: Any meeting of the shareholders may be held at
such time and such place, within or without the State of Colorado, as
may be fixed by the Board of Directors or as shall be specified in the
notice of the meeting or in the waiver of notice thereof.
(2) Annual Meeting: The annual meeting of the shareholders shall be
held on the 2nd Friday in May of each year or at such other date
during said month as the Board of Directors may determine.
(3) Special Meetings: Special meetings of the shareholders, for any
purpose or purposes, may be called by the President, the Board of
Directors, or the holders of not less than one tenth of all of the
shares entitled to vote at the meeting.
(4) Record Date: For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend,
or in order to make a determination of shareholders for any proper
purpose, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in
any case to be not more than fifty days and, in the case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to
be taken.
(5) Voting List: The Secretary of the corporation shall make, at
least ten days before each meeting of shareholders, a complete list of
the shareholders entitled to vote at such meeting, arranged in
alphabetical order, with the address and number of shares held by
each. Said list shall be kept on file at the principal office of the
corporation for a period of ten days prior to such meeting, shall be
produced and kept open at the meeting and shall be subject to
inspection by any shareholder during the course of the meeting.
(6) Notices: Written or printed notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less
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than ten nor more than fifty days before the date of the meeting,
either personally or by mail, by or at the direction of the President,
the Secretary, or the officer of persons calling the meeting, to each
shareholder of record entitled to vote at such meeting, except that if
it is proposed that the authorized shares be increased at least thirty
days' notice shall be given. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, postage
prepaid, addressed to the shareholder at his address as it appears on
the stock transfer books of the corporation.
(7) Quorum: Except as otherwise provided by law, a majority of the
shares entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of the shareholders. If, however,
a quorum shall not be present or represented, the shareholders present
in person or by proxy may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until the
requisite number of shares to constitute a quorum shall be present.
At any such adjourned meeting at which a quorum is represented, any
business may be transacted which might have been transacted at the
meeting of which notice originally was given. The shareholders
present or represented at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
(8) Voting: Each outstanding share shall be entitled to one vote on
each matter submitted to a vote at any meeting of the shareholders. A
shareholder may vote either in person or by proxy executed in writing
by the shareholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the Secretary of the corporation before or
at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in
the proxy. Voting shall be oral, except as otherwise provided by law,
but shall be by written ballot if such written vote is demanded by any
shareholder present in person or by proxy and entitled to vote.
Except as otherwise provided by law, all matters shall be decided by a
vote of the majority in interest of the shares present or represented.
(9) Waiver: Attendance of a shareholder of the corporation, either
in person or by proxy, at any meeting, either annual or special, shall
constitute waiver of notice of such meeting, except where a
shareholder attends a meeting for the express purpose of objecting to
the transaction of any business because the meeting is not lawfully
called or convened. A written waiver of notice or manner of calling
any such meeting signed by a shareholder or shareholders entitled to
such notice, whether before, at or after the time stated therein,
shall be equivalent to the giving of such notice. The signatures of
the shareholders in person or by proxy subscribed to the minutes of
any meeting shall be deemed to be a written waiver of notice
hereinabove provided for.
(10) Action Without Meeting: Any action which is required to or
which may be taken at a meeting of the shareholders may be taken
without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders entitled to vote
with respect to the subject matter thereof.
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<PAGE> 3
ARTICLE III
Directors
(1) Number: The number of Directors of this corporation shall be
three.
(2) Election: The Board of Directors shall be elected at the annual
meeting of the shareholders or at a special meeting called for that
purpose.
(3) Term: Each director shall be elected to hold office until the
next annual meeting of shareholders and until his successor shall have
been elected and qualified.
(4) Removal and Resignation: Any Director may be removed at any
time, with or without cause, by a vote of the holders of the majority
of shares entitled to vote at a meeting expressly called for that
purpose. Any Director may resign at any time by giving written notice
to the President or to the Secretary, and acceptance of such
resignation shall not be necessary to make it effective.
(5) Vacancies: Any vacancy occurring on the Board of Directors and
any directorship to be filled by reason of an increase in the size of
the Board of Directors shall be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the
Board of Directors. A director elected to fill a vacancy shall hold
office during the unexpired term of his predecessor in office. A
director elected to fill a position resulting from an increase in the
Board of Directors shall hold office until the next annual meeting of
shareholders and until his successor shall have been elected and
qualified.
(6) Meetings: A regular meeting of the Board of Directors shall be
held without other notice than this bylaw immediately after, and at
the same place as, the annual meeting of shareholders. The Board of
Directors may, by resolution, establish a time and place for
additional regular meetings which may thereafter be held without
further notice. Special meetings of the Board of Directors may be
called by the President or any two members of the Board of Directors.
(7) Notices: Two days' notice of special meetings shall be given to
each member of the Board of Directors by the Secretary, the President
or the members of the Board calling any meeting thereof. Such notice
may be given by mail, by depositing the same in the United States mail
addressed to the Director at his address as it may appear on the books
of the corporation, or as known to the person giving such notice, or,
if his address is unknown, to such Director at the general post office
in Denver, Colorado; and any notice so mailed shall be deemed to have
been given at the time when the same shall be thus mailed. In lieu of
notice by mail as aforesaid, notice may be given by telephone, prepaid
telegram, cablegram or radiogram addressed as aforesaid; and such
notice shall be deemed to have been given at the time when such
telegram, cablegram or radiogram is delivered to the transmitting
company for transmittal or when such telephone conversation occurs.
(8) Quorum: A majority of the number of directors fixed by these
Bylaws shall constitute a quorum for the transaction of business, and
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<PAGE> 4
the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board of Directors, except
as otherwise specifically required by law. If less than such majority
is present, the director or directors present may adjourn the meeting
from time to time without further notice.
(9) Waiver: Attendance of a Director at a meeting shall constitute a
waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. A
written waiver of notice or manner of calling any such meeting signed
by the Director or Directors entitled to such notice, whether before,
at or after the time stated therein, shall be equivalent to the giving
of such notice. The signatures of the Directors subscribed to the
minutes of any meeting shall constitute such a written waiver of
notice.
(10) Action Without Meeting: Any action which is required to or
which may be taken at a meeting of the Board of Directors may be taken
without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the Directors.
ARTICLE IV
Officers
(1) Number and Election: The officers of the corporation shall be a
President, a Vice President, a Secretary and a Treasurer, who shall be
elected by the Board of Directors to serve at the pleasure of the
Board. Such other officers and assistant officers as may be deemed
necessary may also be elected or appointed by the Board of Directors.
Any two or more offices may be held by the same person, except the
offices of President and Secretary.
(2) President and Vice President: The President shall be the
principal executive officer of the corporation and subject to the
control of the Board of Directors, shall have general supervision of
the affairs of the corporation. When present, he shall preside at all
shareholders' and Directors' meetings. The Vice President may act in
his stead in case of the absence, inability to act or disability of
the President.
(3) Secretary: The Secretary shall keep the minutes of all meetings,
have charge of the corporate seal and stock certificate book, and in
general perform all duties incident to the office of secretary and
such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
(4) Treasurer: The Treasurer shall have custody of all moneys and
securities of the corporation, shall keep regular books of account,
and in general perform all of the other duties incident to the office
of treasurer and such other duties as may from time to time be
assigned to him by the President or by the Board of Directors.
(5) Removal and Resignation: Any officer may be removed by the Board
of Directors whenever in its judgment the best interests of the
corporation will be served thereby. Any officer may resign at any
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time by giving written notice thereof to the President or to the
Secretary; and acceptance of such resignation shall not be necessary
to make it effective.
(6) Compensation: Officers shall receive such compensation for their
services as may be authorized or ratified by the Board of Directors.
Election of an officer shall not of itself create contract rights to
compensation for services performed as such officer.
ARTICLE V
Loans to Directors and Officers
Loans to Directors and officers, guarantees of their obligations, or
other similar assistance to these persons, shall be contracted on
behalf of the corporation only upon the specific authorization of the
Board of Directors and the affirmative vote of the holders of two-
thirds of the outstanding shares of the corporation.
ARTICLE VI
Stock
(1) Certificates: Certificates representing shares of the capital
stock of the corporation shall be in such form as may be approved by
the Board of Directors and shall be signed by the President, or the
Vice President, and by the Secretary or an assistant Secretary. All
certificates shall be consecutively numbered and the names of the
owners, the number of the shares and the date of issue shall be
entered on the books of the corporation. Each certificate
representing shares shall state upon the face thereof (a) that the
corporation is organized under the laws of the State of Colorado, (b)
the name of the person to whom issued, (c) the number of shares which
such certificate represents and (d) a statement that the shares have a
par value of one dollar per share.
(2) Transfers of Stock: The capital stock of the corporation shall
be subject to such valid restrictions on the transfer thereof as the
Board of Directors may by resolution determine prior to the issuance
of the stock subject to such restriction, to such restrictions as
shall be agreed upon in writing by all of the persons owning or having
subscribed for any shares of stock in the corporation at the time of
such written agreement, and to such restrictions as the corporation
and the person owning stock subject to such restrictions may agree
upon in writing. Any certificate representing shares of stock subject
to any such restriction on transfer shall have typed or printed on the
face thereof a statement that the shares of stock represented by such
certificate are subject to restrictions on their transfer and shall
make reference to the provisions of the restrictions and designate the
agreement or minutes of the Board of Directors in which all of the
terms of the restrictions may be found. A copy of such agreement or
of the minutes of the meeting of the Board of Directors shall be kept
at the principal office of the corporation and shall be open for the
inspection of any shareholder at all reasonable times. Subject to any
restrictions which may be established as hereinbefore provided, the
shares of the capital stock of the corporation shall be transferable
on the books of the corporation only by the person named in the
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certificate, or his attorney or legal representative, lawfully
constituted and appointed in writing, and upon surrender of the
certificate therefor, in accordance with the laws of the State of
Colorado, now or hereafter in effect.
ARTICLE VII
Seal
The Board of Directors may adopt a seal which shall have inscribed
thereon the name of the corporation and the words "SEAL" and
"COLORADO" which, when adopted, shall constitute the corporate seal of
the corporation.
ARTICLE VIII
Fiscal Year
The Board of Directors, by resolution, may adopt a fiscal year for
this corporation.
ARTICLE IX
Amendment
These Bylaws may at any time and from time to time be amended, altered
or repealed by the Board of Directors or by the shareholders at any
annual or special meeting.
AMENDMENT TO BYLAWS
OF
SCHIELD MANAGEMENT COMPANY
RESOLVED that Article III - Section 1 of the Corporation laws be
amended to read as follows:
The number of Directors of this corporation shall be not less than
three nor more than nine. The number of Directors is subject to
change by amendment to these Bylaws.
/s/ Marshall L. Schield
- -------------------------------------
Marshall L. Schield Date
/s/ Wilbur Schield
- -------------------------------------
Wilbur Schield Date
/s/ [Illegible]
- -------------------------------------
[Illegible] Date
/s/ Bernard L. Koyen
- -------------------------------------
Bernard L. Koyen Date
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<PAGE> 7
AMENDMENT TO BYLAWS
OF
SCHIELD MANAGEMENT COMPANY
KNOW ALL MEN BY THESE PRESENTS that the following amendment was
adopted by the Directors of the Corporation on the 13th day of
February, 1987, in the manner prescribed by the Colorado Corporation
Code and the Articles of Incorporation:
ARTICLE II (2) of the Bylaws shall be amended to read as follows:
The annual meeting of the shareholders shall be held the second Friday
in October of each year, or at such other date during said month as
the Board of Directors may determine.
Schield Management Company
By: /s/
-------------------------------------
By: /s/
-------------------------------------
AMENDMENTS TO BYLAWS
OF
SCHIELD MANAGEMENT COMPANY
KNOW ALL MEN BY THESE PRESENTS that the following amendments were
adopted by the Directors of the Corporation on the 15th day of May,
1986, in the manner prescribed by the Colorado Corporation Code and
the Articles of Incorporation:
ARTICLE II (2) of the Bylaws shall be amended to read as follows:
The annual meeting of the shareholders shall be held the second Friday
in September of each year or at such other date during said month as
the Board of Directors may determine.
ARTICLE V of the Bylaws shall be amended to read as follows:
Loans to Officers and Directors, guarantees of their obligations, or
other similar assistance to these persons, shall be contracted on
behalf of the corporation only upon the specific authorization of the
Board of Directors.
Schield Management Company
By: /s/
-------------------------------------
By: /s/
-------------------------------------
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CERTIFICATION
I, as Secretary of Schield Management Company, CERTIFY that on the 5th
day of February, 1985, the bylaws were amended as follows:
WHEREAS, the Directors believe it to be in the best interests of the
Corporation to increase the number of members of the Board of
Directors, it is therefore,
RESOLVE, that the Corporation is hereby authorized to elect a maximum
of five (5) Directors by the affirmative vote of the majority of the
Directors then in office, though less than a quorum of the Board of
Directors. The number of directors may be increased or decreased from
time to time by amendment to the bylaws of the Corporation as stated
in Article VI of the Articles of Incorporation and as otherwise stated
in Article III of the Bylaws. Article III, Item (1) has been amended
to authorize a maximum of five (5) Directors.
IN WITNESS WHEREOF, the Directors have evidenced their approval of the
above proceedings as of the date last mentioned above.
Karen Oliver, Secretary
AMENDMENT TO BYLAWS
OF
PMC INTERNATIONAL, INC.
KNOW ALL MEN BY THESE PRESENTS that the following amendments were
adopted by the Directors of the Company on the 25th day of July, 1995,
in the manner prescribed by the Colorado Corporation Code and the
Articles of Incorporation:
ARTICLE III(1) is hereby amended by replacing the word "three" with
the word "five."
ARTICLE III(8) is hereby amended by deleting the first sentence of
such section and inserting in lieu thereof the following:
A majority of the number of directors fixed by these Bylaws shall
constitute a quorum for the transaction of business, and the act of a
majority of directors entitled to vote at any meeting, whether present
or not, shall be the act of the Board of Directors, except as follows:
(a) Any vote that would affect the status of the corporation as a
publicly traded company shall require the unanimous approval of all
directors then in office; and
(b) the following matters shall require the approval of at least 80%
of the directors: (i) approval of an incentive stock option plan and
grants of stock options thereunder; (ii) approval of an employee cash
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bonus pool and allocations of bonuses granted thereunder; and (iii)
approval of any underwritten offering of capital stock or debt of the
Company.
ARTICLE IX is hereby amended by deleting such Article in its entirety
and inserting in lieu thereof the following:
These Bylaws may at any time and from time to time be amended, altered
or repealed by the Board of Directors, except that Section 8 of
Article III may not be amended, except by a vote of that number of the
directors designated in the provision to be amended, or by the
shareholders at any annual or special meeting.
Secretary
PMC International, Inc.
Dated: July 15, 1996
AMENDMENT TO BYLAWS
OF
PMC INTERNATIONAL, INC.
KNOW ALL MEN BY THESE PRESENTS that the following amendments were
adopted by the Directors of the Company on the 17th day of December,
1996, in the manner prescribed by the Colorado Corporation Code and
the Articles of Incorporation:
RESOLVED, that the Bylaws of the Company shall be amended as follows
to be effective only upon the simultaneous occurrence of the Closing
of the Offering and the completion of the Bedford Restructuring:
Section 1 of Article III is hereby amended to read as follows:
"Number: The number of Directors of this corporation shall be seven."
Section 8 of Article III is hereby amended to read as follows:
"Quorum: A majority of the number of directors fixed by these Bylaws
shall constitute a quorum for the transaction of business, and the act
of a majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors, except
as otherwise specifically required by law. If less than such majority
is present, the director or directors present may adjourn the meeting
from time to time without further notice."
Article IX is hereby amended to read as follows:
"These Bylaws may at any time and from time to time be amended,
altered or repealed by the Board of Directors or by the shareholders
at any annual or special meeting."
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of July 26, 1995, between PMC International, Inc., a Colorado
corporation (the "Company"), and Kenneth S. Phillips (the
"Executive").
RECITALS
A. The Company has employed the Executive as its President from
December 1985, and Executive, in such capacity has rendered, and will
continue to render, faithful and valuable service to the Company.
B. The Company desires to continue to receive the services of
Executive and to more fully identify his interest with the future and
success of the Company by setting forth more formally the terms and
conditions upon which the Executive will continue to be employed by
the Company as President and, as of the date of this Agreement, its
Chief Executive Officer, and receive compensation therefor.
In consideration of the mutual promises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
AGREEMENT
1. Employment; Position; Term. The Company hereby employs the
Executive, and the Executive hereby accepts employment with the
Company, in the capacity of President and Chief Executive Officer.
Subject to Section 4, the term of the Executive Officer. Subject to
Section 4, the term of the Executive's employment under this Agreement
shall be for three (3) years, beginning July 26, 1995. The term of
this Agreement shall be extended for successive one-year periods on
July 26 of each year beginning July 26, 1998, unless on or before
April 26, prior to any such renewal date the Company or the Executive
provides written notice to the other of its intention not to renew.
2. Duties, Responsibilities and Authority. In his capacity as
President and Chief Executive Officer, the Executive shall have
primary responsibility for overall management of the business affairs
of the Company and shall perform such other duties as are prescribed
by applicable law and the Company's bylaws for the offices which the
Executive shall hold pursuant to this Agreement, all of which duties
shall be conducted in accordance with policies established by the
Company's board of directors (the "Board"). In his capacity as
President and Chief Executive Officer, the Executive shall be subject
to the direction and control of the Board. The Executive shall devote
his full professional and managerial time and effort to the
performance of his duties as President and Chief Executive Officer of
the Company and he shall not engage in any other business activity or
activities which, in the judgment of the Board, do, in fact, conflict
with the performance of his duties under this Agreement.
3. Compensation.
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(a) Salary. For services rendered under this Agreement, the Company
shall pay the Executive a base salary of $240,000 per annum beginning
July 26, 1995 or at such time as the Executive requests that his
salary be increased to that level. The Company acknowledges that, in
1994, Executive's base salary was reduced from $240,000 per annum
pursuant to a general salary reduction adopted by the Company with
respect to all of the Company's employees. Notwithstanding the
provisions of subsection 3(b), Executive's base salary shall be
increased to $300,000 per annum at such time as the Company shall
first achieve pre-tax earnings of $1,000,000 annually, excluding from
the calculation thereof any extraordinary non-recurring expenses or
income.
(b) Annual Review. The Executive's salary will not be reviewed
during the first year of the initial three-year term of this
Agreement. The Executive's first salary review shall be for the
period ending July 26, 1996, and, as appropriate, his salary may be
adjusted effective July 26, 1996, and shall be reviewed annually
thereafter during the term of this Agreement or any renewal term
hereof. The Executive's base salary shall not be subject to
reduction, however, without the Executive's consent.
(c) Bonuses. The Company shall, beginning with the fiscal year
ending December 31, 1995, and continuing through the next three fiscal
years, establish and fund annually an executive employee bonus pool
(the "Bonus Pool") in a total amount equal to ten percent (10%) of the
Company's pre-tax earnings, excluding from the calculation of such
pre-tax earnings any extraordinary or non-recurring expenses or
income. At the end of each such fiscal year, the total amount of the
Bonus Pool shall be distributed to certain executive employees within
45 days following the closing of the year-end books of the Company.
The executives to whom the Bonus Pool is to be distributed in any
fiscal year, and the relative percentages thereof to be paid to such
executives, shall be within the sole discretion of the Board, except
that it is hereby agreed that Executive shall be entitled to receive
forty per cent (40%) of the Bonus Pool for each fiscal year subject to
the provisions of this subsection 3(c).
(d) Benefits and Vacation. The Executive shall be eligible to
participate in such insurance programs (health, disability, or life)
or such other health, dental, retirement, or similar employee benefits
programs as the Board may approve, on a basis comparable to that
available to other officers and executive employees of the Company.
The Executive shall be entitled to four (4) weeks of paid vacation
during each year of his employment under this Agreement. Vacation
time may be accumulated for one (1) year beyond the year for which it
is accrued and used any time during such year, but any vacation time
not used during such additional year shall be forfeited. The value of
any accrued but unused vacation time shall be paid in cash to the
Executive upon termination of his employment for any reason.
(e) Stock Options. The Executive may participate in stock option
programs of the Company in accordance with the policies applicable to
other officers of the Company, upon such terms as the administrators
of such programs in their discretion determine. Subject to the terms
and conditions of any such option program, any options held by the
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Executive shall become fully vested immediately upon either the death
of the Executive or a Change of Control (as defined herein).
(f) Reimbursement of Expenses. The Company shall, consistent with
past practices, reimburse the Executive for all reasonable out-of-
pocket expenses incurred by the Executive in connection with the
business of the Company and in the performance of his duties under
this Agreement upon the Executive's presentation to the Company of an
itemized accounting of such expenses with reasonable supporting data.
(g) Vehicle Allowance. The Company shall provide the Executive a
vehicle allowance generally necessary for the type of vehicle the
Executive has traditionally driven. The vehicle allowance shall be
reviewed annually at the time the Executive's base salary is reviewed,
but shall not be reduced without the consent of the Executive.
4. Termination. Either party may terminate the Executive's employment under
this Agreement, without cause, upon ninety (90) days' written advance notice to
the other party, but subject to the provisions of Section 7 hereof. The Company
may terminate the Executive's employment for "Cause" (as hereinafter defined)
effective immediately upon the giving written notice stating the basis for such
termination. For purposes of this Agreement, "Cause" shall mean (a) a breach of
this Agreement and either (i) such breach is not cured within 30 days after
notice from the Company specifying the action which constitutes the breach and
demanding its discontinuance, or (ii) such breach is cured and the breach recurs
during or after such 30-day period, (b) exhibited willful disobedience of or
repeated failure to perform reasonable directions of the Board, or committed
gross malfeasance in performance of his duties hereunder or acts resulting in an
indictment charging the Executive with the commission of a felony; engaging in
fraud, misappropriation or embezzlement; disclosure of confidential information
in violation of this Agreement; or willfully engaging in conduct materially
injurious to the Company. A material failure to perform his duties hereunder
that results from the disability of the Executive shall not be considered Cause
for his termination.
5. Disability. If the Executive shall be prevented by illness,
accident, or other incapacity from properly performing his duties
hereunder (and, if required by the Company, upon the furnishing of
evidence satisfactory to the Company of such disability), the Company
shall, during the continuance of his disability, but only for the
remaining term of this Agreement, pay the Executive his compensation
payable under the provisions of Section 3 (other than the bonus
provided for in subsection 3(c) and less the amount of any benefits
paid to Executive under any disability insurance provided by the
Company) and continue to provide the Executive all other benefits
provided hereunder. As used herein, the term "disability" shall mean
the complete and total inability of the Executive, due to illness,
physical or comprehensive mental impairment to substantially perform
all of his duties as described herein for a consecutive period of
thirty (30) days or more.
6. Death. In the event of the death of the Executive, except with
respect to any benefits which have accrued and have not been paid to
the Executive hereunder, the provisions of this Employment Agreement
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shall terminate immediately. However, the Executive's estate shall
have the right to receive compensation due to the Executive as of and
to the date of his death and, furthermore, to receive an additional
amount equal to one-twelfth (1/12) of the Executive's annual
compensation then in effect as specified in Section 3(a), above.
7. Severance Pay. In the event that the Executive's employment is
terminated by the Company other than for Cause, whether during or
after the term of this Agreement, the Executive shall be entitled to
receive his then current compensation as provided for in Section 3(a),
payable at the Company's regular payment intervals, for a period of
two years following the date of termination, so long as Executive
shall not have breached the covenants set forth in Section 8;
provided, that if any of such payments would (i) constitute a
"parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986 (the "Code") and (ii) but for this proviso be
subject to the excise tax imposed by Section 4999 of the Code (the
"Excise Tax"), the amount payable hereunder shall be reduced to the
largest amount which the Executive determines would result in no
portion of the payments hereunder being subject to the Excise Tax. If
the Executive voluntarily resigns his employment hereunder, or if his
employment is terminated for Cause, the Executive shall not be
entitled to any severance pay or other compensation beyond the date of
termination of his employment.
8. Covenant Not to Compete; Trade Secrets. During the continuance of
his employment by the Company and for a period of twenty-four (24)
months after termination of his employment, the Executive shall not
(a) anywhere in the United States, engage in any business which
competes directly or indirectly with the Company or (b) directly or
indirectly, use, disseminate, or disclose for any purpose other than
for the purposes of the Company's business, any of the Company's
confidential information or trade secrets, unless such disclosure is
compelled in a judicial proceeding. Upon termination of his
employment, all documents, records, notebooks, and similar
repositories of records containing information relating to any trade
secrets or confidential information then in the Executive's possession
or control, whether prepared by him or by others, shall be left with
the Company or returned to the Company upon its request.
9. Key Man Life Insurance. The Company may maintain "key man" life
insurance on the Executive in the amount of up to $3,000,000 for the
benefit of the Company or any other beneficiary designated as such by
the Company. Executive shall cooperate with the reasonable
requirements of any insurer with respect to such insurance, including
the submission to physical examination.
10. Change of Control. For purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred on the date on which (a) any
person or entity other than Executive or Bedford Capital Financial
Corporation becomes the record or beneficial owner, directly or
indirectly, of more than fifty percent (50%) of the then outstanding
voting stock of the Company; (b) the shareholders of the Company
approve a merger or consolidation of the Company with any other
entity, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent at least 80% of the combined voting power of
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the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or (c) the
shareholders approve an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
11. Severability. It is the desire and intent of the parties that
the provisions of Section 8 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any
particular sentence or portion of Section 8 shall be adjudicated to be
invalid or unenforceable, the remaining portions of such section
nevertheless shall continue to be valid and enforceable as though the
invalid portions were not a part thereof. In the event that any of
the provisions of Section 8 relating to the geographic areas of
restriction or the period of restriction shall be deemed to exceed the
maximum area or period of time which a court of competent jurisdiction
would deem enforceable, the geographic areas and times shall, for the
purposes of this Agreement, be deemed to be the maximum areas or time
periods which a court of competent jurisdiction would deem valid and
enforceable in any state in which such court of competent jurisdiction
shall be convened.
12. Injunctive Relief. The Executive agrees that any violation by
him of the agreements contained in Section 8 are likely to cause
irreparable damage to the Company, and therefore agrees that if there
is a breach or threatened breach by the Executive of the provisions of
said sections, the Company shall be entitled to an injunction
restraining the Executive from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies
for such breach or threatened breach.
13. Miscellaneous.
(a) Notices. Any notice required or permitted to be given under this
Agreement shall be directed to the appropriate party in writing and
mailed or delivered, if to the Company, to 555 Seventeenth Street,
14th Floor, Denver, Colorado 80202 or to the Company's then principal
office, if different, and if to the Executive, to 555 Seventeenth
Street, 14th Floor, Denver, Colorado 80202, or to the Company's then
principal office, if different.
(b) Binding Effect. This Agreement is a personal service agreement
and may not be assigned by the Company or the Executive, except that
the Company may assign this Agreement to a successor by merger,
consolidation, sale of assets or other reorganization. Subject to the
foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors,
assigns, and legal representatives.
(c) Amendment. This Agreement may not be amended except by an
instrument in writing executed by each of the parties hereto.
(d) Applicable Law. This Agreement is entered into in the State of
Colorado and for all purposes shall be governed by the laws of the
State of Colorado.
(e) Counterparts. This instrument may be executed in one or more
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counterparts, each of which shall be deemed an original.
(f) Entire Agreement. This Agreement supersedes and replaces all
prior agreements or other expressions or understandings between the
parties related to the employment of the Executive by the Company.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date first above written.
PMC INTERNATIONAL, INC.
By: /s/
Title:Vali Nasr, CFO
THE EXECUTIVE:
/s/
Kenneth S. Phillips
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of July 26, 1995, among PMC International, Inc., a Colorado
corporation (the "Company"), Portfolio Technology Services, Inc., a
Colorado corporation ("PTS") and David L. Andrus (the "Executive").
RECITALS
A. The Executive has provided the Company his services as a
consultant with respect to, among other things, developing portfolio
management technologies, from January 1994, and in such capacity
Executive has rendered faithful and valuable service to the Company.
B. The Company desires to employ the Executive as its Executive Vice
President and as president of PTS, the Company's wholly-owned
subsidiary, and to more fully identify his interest with the future
and success of the Company. The Executive desires to be so employed
by, and identified with, the Company, all upon the terms and
conditions set forth in this Agreement.
In consideration of the mutual promises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
AGREEMENT
1. Employment, Positions; Term. The Company hereby employs the
Executive, and the Executive hereby accepts employment with the
Company and PTS, in the capacity of Executive Vice President and
President, respectively. Subject to Section 4, the term of the
Executive's employment under this Agreement shall be for three (3)
years, beginning November 1, 1995. The term of this Agreement shall
be extended for successive one-year periods on November 1 of each year
beginning November 1, 1998, unless on or before August 1, prior to any
such renewal date the Company or the Executive provides written notice
to the other of its intention not to renew.
2. Duties, Responsibilities and Authority. In his capacity as
Executive Vice President, the Executive shall have primary
responsibility for interacting with, and coordinating the executive
management and business activities of, PTS and the other wholly-owned
subsidiaries of the Company. In his capacity as President of PTS, the
Executive shall have primary responsibility for overall management of
the business affairs of PTS. Executive shall perform such other
duties as are prescribed by applicable law and the bylaws of PTS and
the Company for the offices which the Executive shall hold pursuant to
this Agreement, all of which duties shall be conducted in accordance
with policies established by the Company's board of directors (the
"Board") or the President of the Company. The Executive shall be
subject to the direction and control of the President. The Executive
shall devote his full professional and managerial time and effort to
the performance of his duties as Executive Vice President of the
Company and President of PTS and he shall not engage in any other
business activity or activities which, in the judgment of the
President or the Board, do, in fact, conflict with the performance of
his duties under this Agreement.
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3. Compensation.
(a) Salary. For services rendered under this Agreement, the Company
shall pay the Executive a base salary of $240,000 per annum beginning
November 1, 1995.
(b) Annual Review. The Executive's salary will not be reviewed
during the first year of the initial three-year term of this
Agreement. The Executive's first salary review shall be for the
period ending October 31, 1996, and, as appropriate, his salary may be
adjusted effective November 1, 1996, and shall be reviewed annually
thereafter during the term of this Agreement or any renewal term
hereof. The Executive's base salary shall not be subject to
reduction, however, without the Executive's consent.
(c) Benefits and Vacation. The Executive shall be eligible to
participate in such insurance programs (health, disability, or life)
or such other health, dental, retirement, or similar employee benefits
programs as the Board may approve, on a basis comparable to that
available to other officers and executive employees of the Company.
The Executive shall be entitled to four (4) weeks of paid vacation
during each year of his employment under this Agreement. Vacation
time may be accumulated for one (1) year beyond the year for which it
is accrued and used any time during such year, but any vacation time
not used during such additional year shall be forfeited. The value of
any accrued but unused vacation time shall be paid in cash to the
Executive upon termination of his employment for any reason.
(d) Stock Options.
(i) The Company has made arrangements with one or more existing
holders of shares of the Company's Common Stock, for such
shareholder(s) to grant to the Executive an option (the "Option") to
purchase up to 654,422 shares (the "Shares") of the Common Stock at a
purchase price of $1.21 per share, the Option to vest as to forty
percent (40%) of the Shares on the date on which Andrus begins to
render his services hereunder and, as to one-third (1/3) of the
remaining sixty percent (60%) thereof on each of the first, second and
third anniversaries of such date. The Option shall be subject to the
terms and conditions of any agreement between any third party and
either the Company the Executive entered to effectuate the Option.
The Shares are subject to and are entitled to the benefits of that
certain Registration Rights Agreement dated the date hereof among the
Company and certain of its shareholders.
(ii) In addition to the Option provided for in subsection 3(d)(i),
the Executive may participate in stock option programs of the Company
in accordance with the policies applicable to other officers of the
Company, upon such terms as the Board or the administrators of such
programs in their discretion determine. Notwithstanding any of the
provisions of this subsection 3(d), the options provided for hereunder
shall vest immediately as to all of the Andrus Option Shares upon
either a Change in Control (as defined herein) in the Company or the
due authorization of actions to cause the common stock of the Company
to become unregistered and privately traded.
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(e) Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable out-of-pocket expenses incurred by the
Executive in connection with the businesses of the Company and PTS and
in the performance of his duties under this Agreement upon the
Executive's presentation to the Company of an itemized accounting of
such expenses with reasonable supporting data.
4. Termination. Either party may terminate the Executive's
employment under this Agreement, without cause, upon ninety (90) days'
written advance notice to the other party, but subject to the
provisions of Section 7 hereof. The Company may terminate the
Executive's employment for "Cause" (as hereinafter defined) effective
immediately upon the giving [of?] written notice stating the basis for
such termination. For purposes of this Agreement, "Cause" shall mean
(a) breach of this Agreement and either (i) such breach is not cured
within 30 days after notice from the Company specifying the action
which constitutes the breach and demanding its discontinuance, or (ii)
such breach is cured and the breach recurs during or after such 30-day
period, (b) exhibited willful disobedience of or repeated failure to
perform reasonable directions of the Board, or committed gross
malfeasance in performance of his duties hereunder or acts resulting
in an indictment charging the Executive with the commission of a
felony; engaging in fraud, misappropriation or embezzlement;
disclosure of confidential information in violation of this Agreement;
or willfully engaging in conduct materially injurious to the Company.
A material failure to perform his duties hereunder that results from
the disability of the Executive shall not be considered Cause for his
termination.
5. Disability. If the Executive shall be prevented by illness,
accident, or other incapacity from properly performing his duties
hereunder (and, if required by the Company, upon the furnishing of
evidence satisfactory to the Company of such disability), the Company
shall, during the continuance of his disability, but only for the
remaining term of this Agreement, pay the Executive his compensation
payable under the provisions of Section 3 (less the amount of any
benefits paid to Executive under any disability insurance provided by
the Company) and continue to provide the Executive all other benefits
provided hereunder. As used herein, the term "disability" shall mean
the complete and total inability of the Executive, due to illness,
physical or comprehensive mental impairment to substantially perform
all of his duties as described herein for a consecutive period of
thirty (30) days or more.
6. Death. In the event of the death of the Executive, except with
respect to any benefits which have accrued and have not been paid to
the Executive hereunder, the provisions of this Employment Agreement
shall terminate immediately. However, the Executive's estate shall
have the right to receive compensation due to the Executive as of and
to the date of his death and, furthermore, to receive an additional
amount equal to one-twelfth (1/12) of the Executive's annual
compensation then in effect as specified in Section 3, above.
7. Severance Pay. In the event that the Executive's employment is
terminated by the Company other than for Cause, whether during or
after the term of this Agreement, the Executive shall be entitled to
receive his then current compensation as provided for in Section 3,
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payable at the Company's regular payment intervals, for a maximum
period of one year following the date of termination or until the date
on which Executive has successfully gained employment affording
comparable compensation (whichever first occurs) so long as Executive
shall not have breached the covenants set forth in Section 8;
provided, that if any of such payments would (i) constitute a
"parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986 (the "Code") and (ii) but for this proviso be
subject to the excise tax imposed by Section 4999 of the Code (the
"Excise Tax"), the amount payable hereunder shall be reduced to the
largest amount which the Executive determines would result in no
portion of the payments hereunder being subject to the Excise Tax. If
the Executive voluntarily resigns his employment hereunder, or if his
employment is terminated for Cause, the Executive shall not be
entitled to any severance pay or other compensation beyond the date of
termination of his employment. The foregoing provisions shall be
applicable in addition to the provisions of Section 8 hereof.
8. Covenant Not to Compete; Trade Secrets. During the continuance of
his employment by the Company and PTS and for a period of twenty-four
(24) months after termination of his employment, the Executive shall
not (a) anywhere in the United States, engage in any business which
competes directly or indirectly with the Company or PTS or (b)
directly or indirectly, use, disseminate, or disclose for any purpose
other than for the purposes of the Company's business or that of PTS,
any of the Company's or PTS' confidential information or trade
secrets, unless such disclosure is compelled in a judicial proceeding.
Upon termination of his employment, all documents, records, notebooks,
and similar repositories of records containing information relating to
any trade secrets or confidential information then in the Executive's
possession or control, whether prepared by him or by others, shall be
left with the Company or returned to the Company upon its request.
9. Change of Control. For purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred on the date on which (a) any
person or entity other than Executive or Bedford Capital Financial
Corporation or Kenneth S. Phillips becomes the record or beneficial
owner, directly or indirectly, of more than fifty percent (50%) of the
then outstanding voting stock of the Company; (b) the shareholders of
the Company approve a merger or consolidation of the Company with any
other entity, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent at least 80% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or (c) the
shareholders approve an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
10. Severability. It is the desire and intent of the parties that
the provisions of Section 8 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any
particular sentence or portion of Section 8 shall be adjudicated to be
invalid or unenforceable, the remaining portions of such section
nevertheless shall continue to be valid and enforceable as though the
invalid portions were not a part thereof. In the event that any of
the provisions of Section 8 relating to the geographic areas of
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restriction or the period of restriction shall be deemed to exceed the
maximum area or period of time which a court of competent jurisdiction
would deem enforceable, the geographic areas and times shall, for the
purposes of this Agreement, be deemed to be the maximum areas or time
periods which a court of competent jurisdiction would deem valid and
enforceable in any state in which such court of competent jurisdiction
shall be convened.
11. Injunctive Relief. The Executive agrees that any violation by
him of the agreements contained in Section 8 are likely to cause
irreparable damage to the Company, and therefore agrees that if there
is a breach or threatened breach by the Executive of the provisions of
said sections, the Company shall be entitled to an injunction
restraining the Executive from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies
for such breach or threatened breach.
12. Miscellaneous.
(a) Notices. Any notice required or permitted to be given under this
Agreement shall be directed to the appropriate party in writing and
mailed or delivered, if to the Company, to 555 Seventeenth Street,
14th Floor, Denver, Colorado 80202 or to the Company's then principal
office, if different, and if to the Executive, to 2554 Linden Drive,
Boulder, Colorado 80304.
(b) Binding Effect. This Agreement is a personal service agreement
and may not be assigned by the Company or the Executive, except that
the Company may assign this Agreement to a successor by merger,
consolidation, sale of assets or other reorganization. Subject to the
foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors,
assigns, and legal representatives.
(c) Amendment. This Agreement may not be amended except by an
instrument in writing executed by each of the parties hereto.
(d) Applicable Law. This Agreement is entered into in the State of
Colorado and for all purposes shall be governed by the laws of the
State of Colorado.
(e) Counterparts. This instrument may be executed in one or more
counterparts, each of which shall be deemed an original.
(f) Entire Agreement. This Agreement supersedes and replaces all
prior agreements or other expressions or understandings between the
parties related to the employment of the Executive by the Company.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date first above written.
PMC INTERNATIONAL, INC.
By: /s/ Kenneth S. Phillips
Title: President
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PORTFOLIO TECHNOLOGY SERVICES, INC.
By: /s/ Kenneth S. Phillips
Title: President
THE EXECUTIVE:
/s/
David L. Andrus
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<PAGE> 1
Exhibit 10.3
PMC INTERNATIONAL, INC.
PRIVATE OFFERING OF SECURITIES
SUBSCRIPTION AGREEMENT
(New Bridge Loan)
THIS SUBSCRIPTION AGREEMENT (the "Agreement"), dated as of November
22, 1996, is between PMC International, Inc., a Colorado corporation
(the "Company"), and the Subscriber whose name appears on the
signature page hereto (the "Subscriber").
WHEREAS, the Company is offering (the "Offering") Units of Securities
("Units") for up to $250,000, each Unit comprised of a Promissory Note
("Note") with a principal amount of $1,000 (which Note may be issued
in multiple denominations thereof in proportion to the number of Units
subscribed for by the Subscriber) and warrants ("Warrants") to
purchase 100 shares (which Warrant may be issued in multiple
denominations thereof in proportion to the number of Units subscribed
for by the Subscriber) of the Company's common stock, par value $.01
per share (the "Common Stock"), at a price of $1.625 per share.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties hereto hereby agree as follows:
1. Subscription. Subject to the terms and conditions contained
herein, I hereby agree to purchase and the Company agrees to sell
_______ Units offered by the Company in accordance with the terms
described herein and in the Note and Warrant to be executed in
connection herewith. This subscription may be rejected by the Company
in whole or in part in the sole discretion of the Company. Subject to
the terms and conditions of this Agreement, the sales of the Units to
be purchased by the Subscriber (the "Closing") shall take place by
delivery of documents to or for the benefit of the Subscriber on
November 22, 1996, or on such other business day thereafter as may be
agreed upon by the Company and the Subscriber (the "Closing Date").
At the Closing the Company will deliver the Notes and Warrants
registered in the Subscriber's name (or in the name of the
Subscriber's nominee), representing the aggregate number of Units to
be purchased by the Subscriber, against delivery by the Subscriber to
the Company of immediately available funds in the amount of the
purchase price therefor.
2. Representations and Warranties of the Subscriber. The Subscriber
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represents and warrants to the Company that:
a. The Units and underlying securities are being purchased by it for
investment only, for its own account and not with a view to the offer
or sale in connection therewith, or the distribution thereof.
b. The Subscriber will not take, or cause to be taken, any action in
connection with the Offering of the Units that would cause it to be
deemed an underwriter of the Units or underlying securities, as
defined in Section 2(11) of the Securities Act of 1933, as amended
(the "Act").
c. The Subscriber has received and read a copy of the Private
Placement Memorandum, dated November 11, 1996, with respect to the
Company's offering of up to $10 million of Common Stock (the
"Memorandum").
d. The Subscriber has had an opportunity to ask questions of, and
receive answers from the officers of the Company to verify the
accuracy and completeness of the information made available to it.
e. By virtue of the Subscriber's pre-existing relationship with the
Company, the Subscriber's net worth or by reason of the Subscriber's
knowledge and experience in financial and business matters in general,
and investments in particular, the Subscriber is capable of evaluating
the merits and risks of an investment in the Units. The Subscriber's
overall commitment with respect to the Units herein is not
disproportionate to its net worth and will not cause such overall
commitment to become excessive.
f. The Subscriber's present financial condition is such that it is
under no present or contemplated future need to dispose of any portion
of the Units to satisfy any existing or contemplated undertaking, need
or indebtedness.
g. All the representations, warranties and acknowledgments of the
Subscriber contained in this Subscription Agreement are true, accurate
and complete as of the date hereof.
h. The address set forth below is the Subscriber's true and correct
residence and it has no present intention of becoming a resident or
any other state or jurisdiction at this time.
i. The Subscriber acknowledges and is aware of the following:
i) The Units are a speculative investment which involve a high degree
of risk of loss by the Subscriber of its investment in the Units.
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ii) There are substantial restrictions on the transferability of the
Units and underlying securities; the Units and underlying securities
cannot be transferred unless they are registered under the Act and any
applicable state laws and regulations, or an exemption from such
registration is available and established to the satisfaction of the
Company; upon the execution and delivery of the Registration Rights
Agreement (as defined below) as provided for herein, the Subscriber
will have rights to require that the securities comprising the Units
be registered under the Act as set forth in such Registration Rights
Agreement; while a public market currently exists for the Common Stock
of the Company, the Subscriber may have to hold the Units and
underlying securities indefinitely and it may not be possible for the
Subscriber to liquidate its investment in the Company; and there is no
guarantee that a public market will continue to exist for the Common
Stock, or even if it does exist, that the trading volume will be
sufficient.
iii) The Company has experienced operating losses since inception.
There can be no assurance that the Company will achieve profitable
operations in the future.
iv) If the Subscriber is not an individual, the undersigned
represents and warrants that the individual signing on behalf of the
entity has full legal power and authority to purchase the Units
subscribed for herein and execute the documents relating thereto.
Upon request of the Company the undersigned will provide written
documentation thereof.
3. Accredited or Other Special Investors. The Subscriber is (initial
all applicable responses):
____ A member of management of the Company.
____ An affiliate of the Company.
____ A small business investment Company licensed by the U.S. Small
Business Administration under the Small Business Investment Company
Act of 1958.
____ A business development Company as defined in the Investment
Company Act of 1940.
____ A national or state-chartered commercial bank, whether acting in
an individual or fiduciary capacity.
____ A broker or dealer registered pursuant to Section 15 of the
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Securities Exchange Act of 1934.
____ An insurance Company as defined in Section 2(13) of the Act.
____ An investment Company registered under the Investment Company
Act of 1940.
____ An employee benefit plan within the meaning of Title I of the
Employee Retirement Income Security Act of 1974, where the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, insurance Company, or registered
investment advisor, or an employee benefit plan which has total assets
in excess of $5,000,000.
____ A private business development Company as defined in Section
202(1)(22) of the Investment Advisors Act of 1940.
____ An organization described in Section 501(c)(3) of the Internal
Revenue Code, a business trust, a corporation or a partnership with
total assets in excess of $5,000,000.
____ A natural person (as opposed to a corporation, partnership,
trust or other legal entity) whose net worth, or joint net worth
together with his/her spouse, exceed $1,000,000.
____ Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Section
506(b)(2)(ii) of Regulation D.
____ A natural person (as opposed to a corporation, partnership,
trust or other legal entity) whose individual income was in excess of
$200,000 in each of the two most recent years (or whose joint income
with such person's spouse was at least $300,000 during such years) and
who reasonably expects an income in excess of such amount in the
current year.
____ A corporation, partnership, trust or other legal entity (as
opposed to a natural person) and all of such entity's equity owners
fall into one or more of the categories enumerated above.
4. Restrictions on Transferability. The Subscriber hereby agrees
that the Units and underlying securities being purchased by it shall
be stamped or otherwise imprinted with a conspicuous legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
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REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN SECTION 4 OF THE
SUBSCRIPTION AGREEMENT DATED AS OF NOVEMBER 22, 1996, COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF PMC INTERNATIONAL,
INC."
The Subscriber further agrees that the Units and underlying securities
may also be stamped with any other legend(s) required by applicable
state securities laws (the "State Acts").
Prior to any transfer of any Units or underlying securities which is
not registered under an effective registration statement under the
Act, the holder thereof will give written notice to the Company of
such holder's intention to effect such transfer and shall deliver an
opinion of counsel (which may be counsel to the Company), in form and
substance reasonably satisfactory to the Company, to the effect that
the proposed transfer may be effected without registration of such
Units or underlying securities under the Act or applicable State Acts.
Each certificate issued upon or in connection with the transfer of any
Units or underlying securities shall bear the appropriate restrictive
legend set forth above, unless in the opinion of such counsel such
legend is no longer required to insure compliance with the Act. The
Company will pay the reasonable fees and disbursements of counsel
(other than house counsel) in connection with any and all opinions
rendered by such counsel pursuant to this Section.
5. Representations and Warranties of the Company. The Company
represents and warrants to the Subscriber as follows:
a. Organization, Standing and Qualification. Each of the Company and
its Subsidiaries (as hereinafter defined) (i) is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation; (ii) has all requisite corporate power
and authority to own or lease and operate its properties and to carry
on its business as now conducted and as proposed to be conducted; and
(iii) is duly qualified or licensed to do business as a foreign
corporation and is in good standing in all jurisdictions in which it
is required to be so qualified or licensed except where the failure to
be so licensed or qualified would not have a material adverse affect
on the Company and its Subsidiaries taken as a whole. As used in this
Agreement, the term "Subsidiaries" means Portfolio Management
Consultants, Inc., Portfolio Brokerage Services, Inc. and Portfolio
Technology Services, Inc. and the term "Subsidiary" refers to each of
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such entities individually. The Company does not own any capital
stock in any entity other than the Subsidiaries.
b. Capitalization.
i) The issuance and sale of the Units has been duly authorized by the
Company, and upon conversion of the Notes and/or exercise of the
Warrants, as the case may be, in accordance with the terms thereof,
the shares of Common Stock issuable in respect thereof will be validly
issued, fully paid and non-assessable.
ii) The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock, no par value (the Preferred Stock"). As of the date of this
Agreement, there are (x) 5,555,713 shares of Common Stock issued and
outstanding and no shares of Common Stock held in the Company's
treasury, (y) no shares of Common Stock reserved for issuance upon
exercise of outstanding stock options, warrants or otherwise except
for (i) 2,534,000 shares of Common Stock reserved for issuance upon
exercise of options granted by the Company, (ii) 5,100,000 shares of
Common Stock reserved for issuance upon exercise of warrants issued by
the Company, and (iii) 233,750 shares of Common Stock reserved for
issuance upon the exchange of certain Preferred Stock for Common Stock
and (z) 349,017 shares of Preferred Stock issued and outstanding, and
no shares of the Preferred Stock held in the Company's treasury or
reserved for issuance upon exercise of outstanding stock options or
otherwise. All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except (x) for agreements relating to the Offering of
the Units, or (y) as described in the Memorandum, the Company does not
have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling
for the purchase or issuance of any shares of capital stock or any
other equity security of the Company or any securities representing
the right to purchase or otherwise receive any shares of capital stock
or any other equity security of the Company.
iii) All of the outstanding shares of capital stock of the
Subsidiaries have been duly authorized and validly issued and are
fully paid and nonassessable, and all such shares are owned directly
or indirectly by the Company free and clear of any lien, charge,
encumbrance or security interest whatsoever, except for the security
interests of Bedford Capital Financial Corporation ("Bedford") in all
outstanding stock of the Subsidiaries, the security interest of
certain bridge loan lenders to the Company (the "Old Bridge Lenders")
therein and any security interest to be granted to Subscribers in the
Offering. No Subsidiary has or is bound by any outstanding
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<PAGE> 7
subscriptions, options, warrants, calls, commitments or agreements of
any character calling for the purchase or issuance of any shares of
capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such
Subsidiary.
c. Authorization and Validity of Agreements.
i) Each of this Agreement, the Note, the Warrant and the Collateral
Assignment and Security Agreement, dated as of November 22, 1996,
between the Company and the Subscribers for Units in the Offering
(the "Security Agreement") has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or limiting creditors' rights generally or by general
principles of equity. All corporate proceedings on the part of the
Company necessary to approve this Agreement and to consummate the
transactions contemplated hereby have been taken prior to the date of
this Agreement.
ii) The Registration Rights Agreement has been duly authorized and,
when executed and delivered by the Company in accordance with the
terms hereof, will constitute a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
d. No Conflict with Other Instruments; No Approvals Required Except
as Have Been Obtained. Delivery and performance of this Agreement,
the Note, the Warrant and the Security Agreement by the Company and
the consummation by the Company of the transactions contemplated
hereby and thereby will not violate, with or without the giving of
notice or the lapse of time, or both, or require any registration,
qualification, approval or filing under, any provision of law,
statute, ordinance or regulation applicable to the Company, and will
not conflict with, or require any consent or approval under, or result
in the breach or termination of any provision of, or constitute a
default under, or result in the acceleration of the performance of the
obligations of the Company under, or result in the creation of any
claim, lien, charge or encumbrance upon any of the properties, assets
or businesses of the Company or any of the Subsidiaries pursuant to
the Articles of Incorporation or By-Laws of the Company or any of its
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Subsidiaries, as the case may be, or any order, judgment, decree, law,
ordinance or regulation applicable to the Company or any contract,
instrument, agreement or restriction to which the Company or any of
the Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their assets or properties is bound, except for
the approval of Bedford which has been obtained. Neither the Company
nor any of its Subsidiaries nor any of their respective assets or
properties is subject to any charter, by-law, contract or other
instrument or agreement, order, judgment, decree, law, statute,
ordinance or regulation or any other restriction of any kind or
character that would prevent the Company from entering into this
Agreement, the Note, the Warrant or the Security Agreement or from
consummating the transactions contemplated hereby or thereby in
accordance with the terms hereof or thereof.
e. No Material Adverse Change. Since September 30, 1996, except as
described in or contemplated by the Memorandum, there has not been any
material adverse change in the business, prospects, assets,
liabilities, results of operations or financial condition of the
Company or any of its Subsidiaries.
f. Financial Statements.
i) Except as otherwise stated in the notes thereto, the financial
statements of the Company and its Subsidiaries attached to the
Memorandum have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis and
fairly present the financial position, results of operations and
changes in financial position of the Company and its Subsidiaries as
of the dates and for the periods indicated. The selected financial
data relating to the Company and its Subsidiaries included in the
Memorandum have been compiled on a basis consistent with that of the
audited consolidated financial statements of the Company and its
Subsidiaries included in the Company's Form 10-KSB included as an
exhibit to the Memorandum and fairly present the information shown
therein. Except as reflected in such financial statements and the
notes thereto and except as described in the Memorandum under the
caption "The Company--Corporate History--New Bridge Loan," neither the
Company nor any of its Subsidiaries have any liabilities absolute or
contingent, that are, individually or in the aggregate, material to
the Company and its Subsidiaries, other than ordinary course
liabilities incurred since the last date of such financial statements
in connection with the transactions contemplated by the Memorandum or
with conduct of the business of the Company or any of its Subsidiaries
that are not, individually or in the aggregate, material to the
Company and its Subsidiaries.
ii) Nothing has come to the attention of the Company which causes it
to believe that the information contained in the Memorandum under the
caption "Financial Projections" is not reasonably based upon
information available to the management of the Company as of the date
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of the Memorandum and at the time of Closing. The Company believes
that the projections of financial results contained in the Memorandum
were prepared on a reasonable basis and the underlying assumptions
provide a reasonable basis for such forecast.
g. Full Disclosure. None of the Memorandum, this Agreement, the
Note, the Warrant or the Security Agreement or the Schedules hereto
(except for the Subscriber's representations and warranties set forth
herein), contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which
they were made, not misleading except that no representation or
warranty is made with respect to the projections set forth in the
Memorandum under the caption "Financial Projections" other than as set
forth above. There is no fact known to the Company which the Company
has not disclosed to the Subscriber in the Memorandum or herein which
materially adversely affects, or which could reasonably be expected to
materially adversely affect, the business, prospects, assets,
liabilities, results of operations or financial condition of the
Company and its Subsidiaries taken as a whole or the ability of the
Company to perform it obligations under this Agreement, the Note, the
Warrant or the Security Agreement.
h. Litigation.
i) Except as described in the Memorandum, there is no action, suit,
proceeding or investigation pending, or to the best knowledge of the
Company, threatened, against or affecting the Company or any of its
Subsidiaries in any court or before any governmental authority or
arbitration board or tribunal, which could, individually or in the
aggregate, reasonably be expected to have a material adverse effect on
the business, assets, liabilities, results of operations or financial
condition of the Company and its Subsidiaries taken as a whole or that
could adversely affect the consummation of the transactions
contemplated hereby or by the Note, the Warrant, the Security
Agreement or the Registration Rights Agreement.
ii) Except as described in the Memorandum, neither the Company nor
any of its Subsidiaries is subject to, or in any material way affected
by, any judgment, order, decree, rule or regulation of any court,
governmental authority or arbitration board or tribunal which has
materially adversely affected or which could reasonably be expected to
materially adversely affect the business, assets, liabilities, results
of operations or financial condition of the Company and its
Subsidiaries taken as a whole or that could adversely affect the
consummation of the transactions contemplated hereby or by the Note,
the Warrant, the Security Agreement or the Registration Rights
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Agreement.
i. Taxes. The Company and its Subsidiaries have filed all United
States federal income tax returns and all other tax returns that are
required to be filed by it and all such tax returns are true, correct
and complete in all material respects. The Company and its
Subsidiaries have paid all taxes for the periods covered by such
returns, except for such taxes being diligently contested in good
faith and by appropriate proceedings and adequately reserved for in
accordance with GAAP on the Company's balance sheet as of September
30, 1996. No claims for additional taxes (as hereinafter defined),
interest or penalties are now being asserted or threatened against the
Company or any of its Subsidiaries by any taxing authority except for
such claims that, individually or in the aggregate, could not be
reasonably expected to have a material adverse effect on the business,
assets, liabilities, results of operations or financial condition of
the Company and its Subsidiaries taken as a whole or are reserved for
in accordance with GAAP on the Company's balance sheet as of September
30, 1996. For purposes of this Agreement, the term "taxes" shall mean
all taxes, charges, fees, levies or other assessments, including,
without limitation, income, gross receipts, excise, property, sales,
use, occupation, transfer, license, payroll, withholding, social
security and franchise taxes, imposed by the United States, or any
state, local of foreign government or subdivision or agency thereof;
and such term shall include any interest, penalties or additions to
tax attributable to such assessments. For purposes of this Agreement
the term "tax return" shall mean any report, return or other
information required to be supplied to taxing authority in connection
with taxes.
j. Compliance with Laws. Neither the Company nor any of its
Subsidiaries is, or after giving effect to the transactions
contemplated hereby and by the Note, the Warrant, the Security
Agreement or the Registration Rights Agreement and the transactions
described in the Memorandum under the caption "The Restructuring" and
"The Company -- Phillips and Andrus LLC"), will be, in material
violation of any statutes, laws, ordinances, rules or regulations, or
any judgment, order or decree (Federal, state, local or foreign) to
which any of them is, or will be, subject or has failed to obtain any
material licenses, permits, franchises or other governmental
authorizations necessary to the ownership or operation of its
properties or the conduct of its business.
k. Private Offering. Neither the Company, its Subsidiaries nor, to
the best knowledge of the Company, any person authorized to act on
behalf of the Company has taken any action which would require
registration of the offering and sale of the Units pursuant to this
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Agreement or the other agreements relating to the sale of the Units
under the Securities Act or would violate applicable state securities
or "blue sky" laws or any rules, regulations or policies adopted
thereunder. The Company has not taken and agrees that it will not,
and will not authorize anyone to, take any action so as require the
issuance and sale of the Units to be registered under the Securities
Act.
l. SEC Reports. Since January 1, 1992, the Company has filed all
annual, quarterly and other reports required to be filed by it with
the SEC under Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). As of the dates filed, such
reports complied as to form in all material respects with the
requirements of the Exchange Act and did not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
m. Intellectual Property. Each of the Company and its Subsidiaries
owns or possesses all material patents, trademarks, service marks,
trade names, copyrights, licenses, and other rights, in each case free
from burdensome restrictions (excluding the security interests therein
of Bedford and the Old Bridge Lenders), which are necessary for the
ownership, maintenance and operation of its properties and assets, and
neither the Company nor any of its Subsidiaries is in violation of any
provision thereof in any material respect.
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<PAGE> 12
n. Investment Company Act. The Company is not required to register
as an investment company under the Investment Company Act of 1940, as
amended.
6. Conditions to Subscriber's Obligations. The Subscriber's
obligation to purchase and pay for the Units to be sold to such
Subscriber at the Closing shall be subject to the fulfillment, prior
to or at the Closing, of the following conditions:
a. Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall have been
true and correct in all material respects when made and shall be true
and correct in all material respects on and as of the Closing Date, as
if made on and as of the Closing Date.
b. Performance; No Default. The Company shall have performed and
complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by it prior to or
at the Closing.
c. Opinion of Counsel. The Subscribers shall have received an
opinion from Maureen Dobel, Esq, counsel for the Company, as to the
matters set forth in Exhibit A hereto, addressed to the Subscribers
and dated as of the Closing Date.
7. Conditions to the Company's Obligations. The Company's obligation
to issue and sell the Units under this Agreement as to any Subscriber
shall be subject to the fulfillment, prior to or at the Closing, of
the following conditions:
a. Representations and Warranties. The representations and
warranties of such Subscriber contained in this Agreement shall have
been true and correct in all material respects when made and shall be
true and correct in all material respects on and as of the Closing
Date, as if made on and as of the Closing Date.
b. Payment for the Units. Such Subscriber shall have delivered to
the Company and the Company shall have received full payment in
immediately available funds in respect of such Subscriber's purchase
of the Units.
8. Registration Rights Agreement. As soon as practicable after the
date hereof (but, in any event, no earlier than December 15, 1996),
the Company shall enter into a registration rights agreement (the
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<PAGE> 13
"Registration Rights Agreement") for the benefit of the Subscribers in
customary form reasonably acceptable to the Company and the
Subscriber.
9. Survival. All representations, warranties and agreements
contained in this Agreement or made in writing by or on behalf of the
Company or by the Subscriber in connection with the transactions
contemplated by this Agreement shall survive the execution and
delivery of this Agreement, any investigation at any time made by the
Subscriber or any other holder of the Units on the Subscriber's
behalf, the purchase of the Units under this Agreement and any
disposition or payment of the Units. All statements contained in any
certificate or other instrument delivered by or on behalf of either
party hereto pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement shall be deemed
representations and warranties such party under this Agreement.
10. Termination of Agreement. This Agreement may be terminated and
the transactions contemplated herein abandoned by the written
agreement of the Company and the Subscriber.
11. Amendment; Waiver. No provision of this Agreement may be
amended, waived or otherwise modified except by an instrument in
writing executed by the parties hereto.
12. Notices. Any notices or other communications required or
permitted hereby shall be sufficiently given if sent by registered or
certified mail, postage prepaid, return receipt requested, and, if to
the Company, at the address to which this letter Subscription
Agreement is addressed, and, if to the Subscriber, at the address set
forth below the Subscriber's signature hereto, or to such other
addresses as either the Company or the Subscriber shall designate to
the other by notice in writing.
13. Successors and Assigns. This Subscription Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
to the successors and assigns of the Company and the Subscriber.
14. Reliance Upon Representations. Each of the Subscriber and the
Company understand that the other party is relying upon the accuracy
of the representations and warranties which the other party has made
in this Agreement. Each of the Subscriber and the Company agrees to
indemnify the other party and any control persons of such entity, for
any loss they may suffer as the result of any breach of any warranty,
representation or statement of facts which such indemnifying party has
made in connection with the transactions contemplated hereby.
15. Applicable Law. This Subscription Agreement shall be governed by
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and construed in accordance with the laws of the State of Colorado
without regard to the principles of conflict of laws and, to the
extent it involves any United States statute, in accordance with the
laws of the United States.
16. Integration; Severability.
a. This Agreement embodies the entire agreement and understanding
between the Subscriber and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
b. Any provision of this Agreement that is prohibited, unenforceable
or not authorized in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition, unenforceability or
lack of authorization without invalidating the remaining provisions
hereof or effecting the validity, unenforceability or legality of such
provision in any other jurisdiction.
17. Appointment of Agent. The Subscriber understands that in
connection with the purchase of Units, the Agent on behalf of the
Subscriber will be granted a lien together with all other investors in
this Offering, on certain assets of the Company as security for the
Note (the "Lien"). In order to facilitate the creation and perfection
of the Lien, the Subscriber hereby appoints David R. Gloss of
Lakewood, Colorado ("Agent"), to act as Subscriber's attorney-in-fact
for the purpose of perfecting the Lien, enforcing the Lien,
subordinating the Lien and releasing the Lien. The Subscriber
understands and agrees that the Agent will be acting in such capacity
with respect to each such investor ("Investors") in the Offering and
understands and authorizes the Company to compensate the Agent for
Agent's time incurred in connection with agreeing to become Agent, as
well as for filing, releasing and subordinating the Lien following his
appointment as Agent and acceptance thereof. The Subscriber also
understands and agrees that any other matters undertaken by the Agent
must be paid for by the Investors (if not reimbursed by the Company)
and that if such matters are undertaken Subscriber will be required to
enter into a separate written agreement with the Agent. The
Subscriber agrees, authorizes and instructs the Agent to act as
follows in connection with the Lien:
a. Agent shall be empowered to execute, on the Subscriber's behalf,
security documents deemed necessary and appropriate by Agent for the
perfection of the Lien and to execute all documents deemed necessary
or advisable to fulfill Investors' obligations under the security
documents, including, without limitation, executing documents
necessary to effectuate the subordination of Investors' Lien to the
senior lien of Bedford, the junior lien to the Old Bridge Lenders and
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<PAGE> 15
to bank or financial institution operating lines of credit, if any,
provided the consent of each holder of the Notes shall be required for
the Agent to enter into any agreement relating to any subordination or
release of any collateral securing the Notes. All such documents
shall be referred to as "Security Documents". Subscriber hereby
consents and authorizes the Agent to enter into that certain
Subordination Agreement of even date herewith between the Company,
Bedford Capital Financial Corporation the Agent.
b. Should there be an Event of Default under the Notes, then the
Agent, at the direction of the Majority Noteholders, will take actions
deemed necessary or advisable to enforce the Lien and to the extent
feasible, obtain proceeds for the benefit of the Investors; pay such
proceeds to the Investors, based upon the respective percentages of
the Investor's ownership of the total principal balance of the Notes
outstanding. Such efforts of Agent will continue until all amounts
due the Investors pursuant to the terms of the Notes have been paid in
full.
c. When all amounts under the Notes have been paid in full to the
Investors, the Agent shall deliver to the Company a release of the
Investors' Lien and then the Agent shall be discharged.
d. Any right the Investors may have pursuant to the Security
Documents may be exercised by the Agent on behalf of the Investors and
the Subscriber hereby appoints the Agent as its attorney-in-fact, with
power of substitution, and with complete authority to do all things
necessary for the collection of the Notes and the enforcement of the
Lien; to demand and receive of and from any person all property,
debts, and demands belonging and owing to the Investors pursuant to
the Notes and the Security Documents. The Subscriber authorizes the
Agent to perform and act in the manner specified by the Security
Documents, it being understood, however, that the Agent is only acting
on behalf of the Investors. The Agent may execute and exercise any of
the rights or powers vested in him or perform any such duties either
himself or by or through his attorneys, agent or employees.
e. The Agent acts hereunder as agent and in a ministerial capacity
for the Subscriber and the other Investors, and his duties shall be
determined solely by the provisions of this document and the Security
Documents. The Subscriber expressly acknowledges, understands and
agrees that it is not looking to or relying upon Agent for any advice
with respect to an investment in the Offering or any other matter
related thereto, including, without limitation, securities laws
implications or compliance issues. The Agent shall not be deemed to
make any representations as to the validity or value or authorization
of the Notes or the Lien. The Agent shall not be liable for any act
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or omission in connection with this agency except for his own gross
negligence or willful misconduct.
f. The Agent shall be under no obligation to institute any action,
suit or legal proceeding or take any other action likely to involve
expense unless the Investors shall furnish the Agent with reasonable
security and indemnity for any costs and expenses which may be
incurred, but this provision shall not affect the power of the Agent
to take such action as the Agent may consider proper, whether with or
without any such security or indemnity. All rights of action under
this Agency may be enforced by the Agent without the possession of any
of the Notes or the production thereof at any trial or other
proceeding relative thereto, and any such action, suit or proceeding
instituted by the Agent shall be brought in his name as Agent, and any
recovery of judgment shall be for the ratable benefit of the
investors, as their respective rights or interests may appear.
g. The Agent will not incur any liability or responsibility for any
action taken in reliance on any notice, resolution, waiver, consent,
order, certificate, or other paper, document or instrument reasonably
believed by him to be genuine and to have been signed, sent or
presented by the proper party or parties. The Agent may at any time
consult with counsel satisfactory to him and shall incur no liability
or responsibility for any action taken, suffered or omitted by him in
good faith in accordance with the opinion or advice of such counsel.
h. At any time that the Agent requests specific written instructions
from the Investors, or if the Agent requests that oral instructions be
followed by written instructions, the Investors, within three (3) days
of receiving such request for written instructions, shall prepare and
transmit such instructions to the Agent. The failure of the Investors
to so transmit such requested instructions shall relieve the Agent
from any liability pertaining to any action which was the subject of
the requested instruction and which action was taken by the Agent in
good faith. Any notice, statement, instruction, request, direction,
order or demand of the Investors shall be sufficiently evidenced by an
instrument signed by Investors having Notes constituting in the
aggregate more than 50% of the then outstanding aggregate principal
balance of the Notes. Agent shall be entitled to rely upon a
certificate executed by an officer of the Company certifying as to the
outstanding principal balance under the Notes. The Agent shall not be
liable for any action taken, suffered or omitted by him in accordance
with such notice, statement, instruction, request, direction, order or
demand.
i. The Subscriber, jointly and severally with the other Investors,
agrees to reimburse the Agent for his reasonable expenses hereunder;
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and further agrees to indemnify the Agent and save him harmless
against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the
Agent in the execution of his duties hereunder except losses, expenses
and liabilities arising as a result of the Agent's gross negligence or
willful misconduct.
j. The Investors having Notes constituting in the aggregate more than
50% of the then outstanding aggregate principal amount of the Notes,
may, for whatever reason, replace the Agent with a new agent on 10
business days prior written notice to the Agent without however
affecting the liabilities, responsibilities or obligations accruing
hereunder prior to such termination. The new agent will succeed to
all of the rights and obligations of the Agent.
k. The Agent may resign by giving written notice to the Investors.
l. This agency appointment shall be governed and construed under the
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laws of the State of Colorado.
[Signature Page for Entity]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PMC INTERNATIONAL, INC.
By:
Name:
___________________________________
Name of Entity (Print or Type)
By: _______________________________
Name:
Address of Subscriber:
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[Signature Page for Individual]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PMC INTERNATIONAL, INC.
By:
Name:
___________________________________
Signature of Individual Subscriber
___________________________________
Name of Individual Subscriber
Address of Subscriber:
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<PAGE> 1
Exhibit 10.4
This Warrant and any shares acquired upon the exercise of this Warrant have not
been registered under the Securities Act of 1933, as amended, and may not be
transferred, sold or otherwise disposed of except while a registration under
such Act is in effect or pursuant to an exemption therefrom under such Act.
This Warrant and such shares may be transferred only in compliance with the
conditions specified in this Warrant.
PMC INTERNATIONAL, INC.
Common Stock Purchase Warrant
No. N-1 November 22, 1996
PMC International, Inc. (the "Company"), a Colorado corporation, for value
received, hereby certifies that [Holder], or registered assigns, is entitled to
purchase from the Company 12,500 duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company at the purchase price per share of $1.625, at any time
or from time to time prior to 7:00 P.M., New York City time, on November 22,
2001, all subject to the terms, conditions and adjustments set forth below in
this warrant (the "Warrant", such term to include any such warrants issued in
substitution therefor).
Certain capitalized terms used in this Warrant are defined in Section 12;
references to a "Section" are, unless otherwise specified, to one of the
sections of this Warrant.
1. Exercise of Warrant. 1.1 Manner of Exercise. This Warrant may be exercised
by the holder hereof, in whole or in part, during normal business hours on any
Business Day, by surrender of this Warrant to the Company at its principal
office, accompanied by a subscription in substantially the form attached to
this Warrant (or a reasonable facsimile thereof) duly executed by such holder
and accompanied by payment, in cash, by certified or official bank check
payable to the order of the Company, or in the manner provided in Section 1.4
(or by any combination of such methods), in the amount obtained by multiplying
(a) the number of shares of Common Stock (without giving effect to any
adjustment thereof) designated in such subscription by (b) $1.625, and such
holder shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock determined
as provided in
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<PAGE> 2
Sections 2 through 4.
1.2 When Exercise Effective. Each exercise of this Warrant shall be deemed to
have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1, and at such time the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such exercise as provided in Section 1.3 shall be deemed to have
become the holder or holders of record thereof.
1.3 Delivery of Stock Certificates, etc. As soon as practicable after each
exercise of this Warrant, in whole or in part, and in any event within five
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof or, subject to Section 9, as such holder (upon
payment by such holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock to which such
holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share on the Business Day next
preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or Warrants of like
tenor, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment thereof)
to the number of such shares called for on the face of this Warrant minus the
number of such shares designated by the holder upon such exercise as provided
in Section 1.1.
1.4 Payment by Application of Shares Otherwise Issuable. Upon any exercise of
this Warrant, the holder hereof may, at its option, instruct the Company, by
written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company
and the number of shares issuable upon such exercise shall be reduced by such
specified number.
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2. Adjustment of Common Stock Issuable Upon Exercise. 2.1 General; Warrant
Price. The number of shares of Common Stock which the holder of this Warrant
shall be entitled to receive upon each exercise hereof shall be determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of this Section 2) be issuable upon such exercise, as designated
by the holder hereof pursuant to Section 1.1, by the fraction of which (a) the
numerator is $1.625 and (b) the denominator is the Warrant Price in effect on
the date of such exercise. The "Warrant Price" shall initially be $1.625 per
share, shall be adjusted and readjusted from time to time as provided in this
Section 2 and, as so adjusted or readjusted, shall remain in effect until a
further adjustment or readjustment thereof is required by this Section 2.
2.2 Adjustment of Warrant Price.
2.2.1 Issuance of Additional Shares of Common Stock. In case the Company at any
time or from time to time after the date hereof shall issue or sell Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to
be issued pursuant to Section 2.3 or 2.4) without consideration or for a
consideration per share less than the Current Market Price, then, and in each
such case, subject to Section 2.7, such Warrant Price shall be reduced,
concurrently with such issue or sale, to a price (calculated to the nearest
.001 of a cent) determined by multiplying such Warrant Price by a fraction
(a) the numerator of which shall be (i) the number of shares of Common Stock
outstanding immediately prior to such issue or sale plus (ii) the number of
shares of Common Stock which the aggregate consideration received by the
Company for the total number of such Additional Shares of Common Stock so
issued or sold would purchase at such Current Market Price, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 2.2.1, (x) immediately after
any Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding.
2.2.2 Extraordinary Dividends and Distributions. In case the Company at any
time or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property by
way of dividend or spin-off,
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reclassification, recapitalization or similar corporate rearrangement) on the
Common Stock, other than dividends or distributions payable in Additional
Shares of Common Stock and other than cash dividends or other cash
distributions, which do not constitute Extraordinary Cash Dividends, then, and
in each such case, subject to Section 2.7, the Warrant Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of
business on such record date, to a price (calculated to the nearest .001 of a
cent) determined by multiplying such Warrant Price by a fraction
(x) the numerator of which shall be the Current Market Price in effect on such
record date or, if the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading, less an amount equal to the
fair market value of such dividend or distribution as of the payment date of
such dividends or distributions (as determined in good faith by the Board of
Directors of the Company) applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current Market Price.
2.3 Treatment of Options and Convertible Securities. In case the Company at any
time or from time to time after the date hereof shall issue, sell, grant or
assume, or shall fix a record date for the determination of holders of any
class of securities entitled to receive, any Options or Convertible Securities,
then, and in each such case, the maximum number of Additional Shares of Common
Stock (as set forth in the instrument relating thereto, without regard to any
provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as
of the time of such issue, sale, grant or assumption or, in case such a record
date shall have been fixed, as of the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), provided that such Additional Shares
of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Current Market Price immediately prior to such issue,
sale, grant or assumption or immediately prior to the close of business on such
record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), as the case may be, and
provided, further, that in any such case in which Additional Shares of Common
Stock are deemed to be issued
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(a) no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common Stock
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide, with the
passage of time or otherwise, for any increase in the consideration payable to
the Company, or decrease in the number of Additional Shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof (by change of rate
or otherwise), the Warrant Price computed upon the original issue, sale, grant
or assumption thereof (or upon the occurrence of the record date, or date prior
to the commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation or
retirement) of any such Options which shall not have been exercised or the
expiration of any rights of conversion or exchange under any such Convertible
Securities which (or purchase by the Company and cancellation or retirement of
any such Convertible Securities the rights of conversion or exchange under
which) shall not have been exercised, the Warrant Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of
the record date, or date prior to the commencement of ex-dividend trading, as
the case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration (or such cancellation or retirement, as
the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible Securities, the only
Additional Shares of Common Stock issued or sold were the Additional Shares of
Common Stock, if any, actually issued or sold upon the exercise of such Options
or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such Options, whether
or not exercised, plus the consideration actually received by the Company upon
such exercise, or for the issue or sale of all such Convertible Securities
which were actually converted or exchanged, plus the additional consideration,
if any, actually received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only the
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Convertible Securities, if any, actually issued or sold upon the exercise of
such Options were issued at the time of the issue, sale, grant or assumption of
such Options, and the consideration received by the Company for the Additional
Shares of Common Stock deemed to have then been issued was the consideration
actually received by the Company for the issue, sale, grant or assumption of
all such Options, whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall have the
effect of increasing the Warrant Price by an amount in excess of the amount of
the adjustment thereof originally made in respect of the issue, sale, grant or
assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their terms not more than
45 days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Warrant Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the manner
provided in subdivision (c) above.
2.4 Treatment of Stock Dividends, Stock Splits, etc. In case the Company at any
time or from time to time after the date hereof shall declare or pay any
dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action
becomes effective.
2.5 Computation of Consideration. For the purposes of this Section
2,
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the net amount of cash
received by the Company, without deducting any expenses paid or incurred by the
Company or any commissions or compensations paid or
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concessions or discounts allowed to underwriters, dealers or others performing
similar services in connection with such issue or sale,
(ii) insofar as it consists of property (including securities) other than cash,
be computed at the fair value thereof at the time of such issue or sale, as
determined in good faith by the Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued or sold together
with other stock or securities or other assets of the Company for a
consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (i) and (ii) above, allocable to such
Additional Shares of Common Stock, all as determined in good faith by the Board
of Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been issued pursuant to
Section 2.3, relating to Options and Convertible Securities, shall be deemed to
have been issued for a consideration per share determined by dividing
(i) the total amount, if any, received and receivable by the Company as
consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration to protect against dilution) payable to the Company upon
the exercise in full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been issued pursuant to
Section 2.4, relating to stock dividends, stock splits, etc., shall be deemed
to have been issued for no consideration.
2.6 Adjustments for Combinations, etc. In case the outstanding shares of Common
Stock shall be combined or consolidated, by
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reclassification or otherwise, into a lesser number of shares of Common Stock,
the Warrant Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
2.7 Minimum Adjustment of Warrant Price. If the amount of any adjustment of the
Warrant Price required pursuant to this Section 2 would be less than one
percent (1%) of the Warrant Price in effect at the time such adjustment is
otherwise so required to be made, such amount shall be carried forward and
adjustment with respect thereto made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate at least one percent (1%) of such
Warrant Price.
3. Consolidation, Merger, etc. 3.1. Adjustments for Consolidation,
Merger, Sale of Assets, Reorganization, etc. In case the Company
after the date hereof (a) shall consolidate with or merge into any
other Person and shall not be the continuing or surviving corporation
of such consolidation or merger, or (b) shall permit any other Person
to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of
its properties or assets to any other Person in a transaction or
series of transactions in connection with which the Common Stock shall
be changed into or exchanged for stock or other securities of any
other Person or cash or any other property, or (d) shall effect a
capital reorganization or reclassification of the Common Stock (other
than a capital reorganization or reclassification resulting in the
issue of Additional Shares of Common Stock for which adjustment in the
Warrant Price is provided in Section 2.2.1 or 2.2.2), then, and in the
case of each such transaction, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this
Warrant, the holder of this Warrant, upon the exercise hereof at any
time after the consummation of such transaction, shall be entitled to
receive (at the aggregate Warrant Price in effect at the time of such
consummation for all Common Stock issuable upon such exercise
immediately prior to such consummation), in lieu of the Common Stock
issuable upon such exercise prior to such consummation, the highest
amount of securities, cash or other property to which such holder
would actually have been entitled as a shareholder upon such
consummation if such holder had exercised the rights represented by
this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to
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the adjustments provided for in Sections 2 through 4, provided that if
a purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding shares of
Common Stock, and if the holder of such Warrants so designates in a
notice given to the Company on or before the date immediately
preceding the date of the consummation of such transaction, the holder
of such Warrants shall be entitled to receive the highest amount of
securities, cash or other property to which such holder would actually
have been entitled as a shareholder if the holder of such Warrants had
exercised such Warrants prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to
adjustments (from and after the consummation of such purchase, tender
or exchange offer) as nearly equivalent as possible to the adjustments
provided for in Sections 2 through 4.
3.2 Assumption of Obligations. Notwithstanding anything contained in the
Warrants to the contrary, the Company will not effect any of the transactions
described in clauses (a) through (d) of Section 3.1 unless, prior to the
consummation thereof, each Person (other than the Company) which may be
required to deliver any stock, securities, cash or property upon the exercise
of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant, (a)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), (b) the obligations of the Company under
the Registration Rights Agreement and (c) the obligation to deliver to such
holder such shares of stock, securities, cash or property as, in accordance
with the foregoing provisions of this Section 3, such holder may be entitled to
receive, and such Person shall have similarly delivered to such holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such holder, stating that this Warrant shall thereafter
continue in full force and effect and the terms hereof (including, without
limitation, all of the provisions of this Section 3) shall be applicable to the
stock, securities, cash or property which such Person may be required to
deliver upon any exercise of this Warrant or the exercise of any rights
pursuant hereto.
4. Other Dilutive Events. In case any event shall occur as to which the
provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular
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auditors of the Company), which shall give their opinion upon the adjustment,
if any, on a basis consistent with the essential intent and principles
established in Sections 2 and 3, necessary to preserve, without dilution, the
purchase rights represented by this Warrant. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the holder of this Warrant and
shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of its
articles or certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not permit the
par value of any shares of stock receivable upon the exercise of this Warrant
to exceed the amount payable therefor upon such exercise, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
exercise of the Warrants from time to time outstanding, and (c) will not take
any action which results in any adjustment of the Warrant Price if the total
number of shares of Common Stock issuable after the action upon the exercise of
all of the Warrants would exceed the total number of shares of Common Stock
then authorized by the Company's articles or certificate of incorporation and
available for the purpose of issue upon such exercise.
6. Accountants' Report as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock issuable upon the exercise of this
Warrant, the Company at its expense will promptly compute such adjustment or
readjustment in accordance with the terms of this Warrant and cause independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company) selected by the Company to verify such
computation (other than any computation of the fair value of property as
determined in good faith by the Board of Directors of the Company) and prepare
a report setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Warrant Price in effect
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immediately prior to such issue or sale and as adjusted and readjusted (if
required by Section 2) on account thereof. The Company will forthwith mail a
copy of each such report to each holder of a Warrant and will, upon the written
request at any time of any holder of a Warrant, furnish to such holder a like
report setting forth the Warrant Price at the time in effect and showing in
reasonable detail how it was calculated. The Company will also keep copies of
all such reports at its principal office and will cause the same to be
available for inspection at such office during normal business hours by any
holder of a Warrant or any prospective purchaser of a Warrant designated by the
holder thereof.
7. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer of all or
substantially all the properties or assets of the Company to any other Person,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place and
the time, if any such time is to be fixed, as of which the holders of record of
Common Stock shall be entitled to exchange their shares of Common Stock for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 20
days prior to the date therein specified, in the case of any date referred to
in the foregoing subdivision (i), and at least 90 days prior to the date
therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
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8. Registration of Common Stock. The shares of Common Stock issuable upon
exercise of this Warrant shall constitute Registrable Securities (as such term
is defined in the Registration Rights Agreement). Each holder of this Warrant
shall be entitled to all of the benefits afforded to a holder of any such
Registrable Securities under the Registration Rights Agreement and such holder,
by its acceptance of this Warrant, agrees to be bound by and to comply with the
terms and conditions of the Registration Rights Agreement applicable to such
holder as a holder of such Registrable Securities. At any such time as Common
Stock is listed on any national securities exchange, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange, upon official notice of issuance, the shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
9. Restrictions on Transfer. 9.1. Restrictive Legends. Except as
otherwise permitted by this Section 9, each certificate for Common
Stock issued upon the exercise of any Warrant, and each certificate
issued upon the transfer of any such Common Stock, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933 and may not be transferred in the absence of such
registration or an exemption therefrom under such Act. Such shares may be
transferred only in compliance with the conditions specified in the Common
Stock Purchase Warrant issued by PMC International, Inc. A complete and correct
copy of the form of such Warrant is available for inspection at the principal
office of PMC International, Inc. and will be furnished to the holder of such
shares upon written request and without charge."
9.2 Notice of Proposed Transfer; Opinions of Counsel. Prior to any transfer of
any Warrant, the holder thereof will give written notice to the Company of such
holder's intention to effect such transfer and shall deliver an opinion of
counsel (which may be counsel to the Company), in form and substance reasonably
satisfactory to the Company, to the effect that the proposed transfer may be
effected without registration of such Warrant or Common Stock issued upon the
exercise of any Warrant under the Securities Act or applicable state securities
laws. Each certificate issued upon or in connection with the transfer of any
Warrant or Common Stock issued upon the exercise of any Warrant shall bear the
appropriate restrictive legend set forth on the face of this Warrant or in
Section 9.1, unless in the opinion of such counsel such legend is no longer
required to insure compliance with the Securities Act. The Company will pay the
reasonable fees and disbursements of counsel (other than house counsel) in
connection with
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any and all opinions rendered by such counsel pursuant to this Section 9.2.
9.3 Termination of Restrictions. The restrictions imposed by this Section 9
upon the transferability of any Warrant or Common Stock issued upon the
exercise of any Warrant shall cease and terminate as to any particular Warrant
or Common Stock issued upon the exercise of any Warrant (a) when such
securities shall have been effectively registered under the Securities Act, or
(b) when, in the opinion of counsel in form and substance reasonably
satisfactory to the Company, such restrictions are no longer required in order
to insure compliance with the Securities Act. Whenever such restrictions shall
cease and terminate as to any Warrant or Common Stock issued upon the exercise
of any Warrant, the holder thereof shall be entitled to receive from the
Company, without expense (other than applicable transfer taxes, if any), new
securities of like tenor not bearing the applicable legends required by Section
9.1.
10. Reservation of Stock, etc. The Company will at all times reserve and keep
available, solely for issuance and delivery upon exercise of the Warrants, the
number of shares of Common Stock from time to time issuable upon exercise of
all Warrants at the time outstanding. All shares of Common Stock issuable upon
exercise of any Warrants shall be duly authorized and, when issued upon such
exercise, shall be validly issued and, in the case of shares, fully paid and
nonassessable with no liability on the part of the holders thereof.
11. Registration and Transfer of Warrants, etc.
11.1 Warrant Register; Ownership of Warrants. The Company will keep at its
principal office a register in which the Company will provide for the
registration of Warrants and the registration of transfers of Warrants. The
Company may treat the Person in whose name any Warrant is registered on such
register as the owner thereof for all other purposes, and the Company shall not
be affected by any notice to the contrary, except that, if and when any Warrant
is properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer thereof as the owner of such Warrant for all purposes. Subject
to Section 9, a Warrant, if properly assigned, may be exercised by a new holder
without a new Warrant first having been issued.
11.2 Transfer and Exchange of Warrants. Upon surrender of any Warrant for
registration of transfer or for exchange to the Company at its principal
office, the Company at its expense will (subject to compliance with Section 9,
if applicable) execute and deliver in exchange therefor a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any
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applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
11.3. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant
and, in the case of any such loss, theft or destruction of any Warrant, upon
delivery of an indemnity bond in such reasonable amount as the Company may
determine, or, in the case of any such mutilation, upon the surrender of such
Warrant for cancellation to the Company at its principal office, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
12. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury shares) of
Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4, deemed to be
issued) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than
(a) shares issued upon: the exercise of this Warrant; the exercise of any other
Warrants issued by the Company in connection with the New Bridge Loan (as such
term is defined in the Private Placement Memorandum), the Restructuring (as
such term is defined in the Private Placement Memorandum) or as compensation to
[Holder] in connection with the Offering (as such term is defined in the
Private Placement Memorandum); the exercise of Options and warrants issued by
the Company in connection with debt financings of the Company that are
outstanding as of the date hereof; and the exchange of shares of the Company's
Series A Preferred Stock (whether occurring before or after the date hereof);
(b) up to (i) 1,000,000 shares issued upon exercise of Options granted to David
Andrus but only if and to the extent granted as contemplated by the Private
Placement Memorandum (without any amendments or supplements thereto) and (ii)
1,750,000 shares issued upon exercise of Options granted to the Company's
employees, consultants or directors under bona fide benefit plans adopted by
the Board of Directors and approved by the holders of Common Stock when
required by law, but only if and to the extent that the exercise price in
respect of any Option equals or exceeds the Market Price on the date of the
grant of such Option;
(c) shares issued to shareholders of any entity which merges into the
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Company in proportion to their stock holdings in such entity immediately prior
to such merger, upon such merger
(d) shares issued by the Company in the Offering (including any shares that may
be issued as a result of the Company failing to comply with certain provisions
of the Registration Rights Agreement);
(e) shares issued in a bona fide public offering pursuant to a firm commitment
underwriting, but only if and to the extent that the consideration received by
the Company in respect of each share so issued (as determined pursuant to
Section 2.5) equals or exceeds 95% of the Current Market Price;
(f) shares issued in a bona fide private placement through a placement agent
which is a member firm of the NASD or by the Company, but only if and to the
extent that the consideration received by the Company in respect of each share
so issued (as determined pursuant to Section 2.5) equals or exceeds 90% of the
Current Market Price;
(g) such additional number of shares as may become issuable upon the exercise
of any of the securities referred to in the foregoing clauses (a) and (b) by
reason of adjustments required pursuant to anti-dilution provisions applicable
to such securities as in effect on the date hereof.
Business Day: Any day other than a Saturday or a Sunday or a day on which
commercial banking institutions in Denver, Colorado are authorized by law to be
closed. Any reference to "days" (unless Business Days are specified) shall mean
calendar days.
Common Stock: As defined in the introduction to this Warrant, such term to
include any stock into which such Common Stock shall have been changed or any
stock resulting from any reclassification of such Common Stock, and all other
stock of any class or classes (however designated) of the Company the holders
of which have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference.
Company: As defined in the introduction to this Warrant, such term to include
any corporation which shall succeed to or assume the obligations of the Company
hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares of stock (other
than Common Stock) or other securities directly or indirectly convertible into
or exchangeable for Additional Shares of Common Stock.
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Current Market Price: On any date specified herein, the average daily Market
Price during the period of the most recent 20 days, ending on such date, on
which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current
Market Price shall be the Market Price on such date.
Extraordinary Cash Dividend: Any cash dividend or distribution with respect to
the Common Stock the amount of which exceeds, when aggregated with all other
such dividends or distributions paid on the Common Stock over the 365-day
period immediately preceding the record date for such dividend or distribution,
on a per share basis, the lesser of (i) 25% of the consolidated net income of
the Company for the four fiscal quarters immediately preceding the record date
for such dividend or distribution and (ii) 8% of the average of the Market
Prices of the Common Stock on each trading day during the 365-day period
referred to above.
Market Price: On any date specified herein, the amount per share of the Common
Stock, equal to (a) the last sale price of such Common Stock, regular way, on
such date or, if no such sale takes place on such date, the average of the
closing bid and asked prices thereof on such date, in each case as officially
reported on the principal national securities exchange on which such Common
Stock is then listed or admitted to trading, or (b) if such Common Stock is not
then listed or admitted to trading on any national securities exchange but is
designated as a national market system security by the NASD, the last trading
price of the Common Stock on such date, or (c) if there shall have been no
trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown
by the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the higher of (x) the book value thereof as determined
by any firm of independent public accountants of recognized standing selected
by the Board of Directors of the Company as of the last day of any month ending
within 60 days preceding the date as of which the determination is to be made
or (y) the fair value thereof determined in good faith by the Board of
Directors of the Company as of a date which is within 18 days of the date as of
which the determination is to be made.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase or
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otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Person: A corporation, an association, a partnership, an
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Private Placement Memorandum: The Private Placement Memorandum of the
Company, dated as of November 11, 1996, and any amendments or
supplements thereto.
Registration Rights Aqreement: The Registration Rights Agreement to be entered
into by [Holder] and the Company, which agreement shall be satisfactory in form
and substance to each of [Holder] and the Company.
Securities Act: The Securities Act of 1933, as amended, or any similar federal
statute, and the rules and regulations of the Securities and Exchange
Commission thereunder, all as the same shall be in effect at the time.
Warrant Price: As defined in Section 2.1.
Warrant: As defined in the introduction to this Warrant.
13. Remedies. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
14. No Rights or Liabilities as Stockholder. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. Notices. All notices and other communications under this Warrant shall be
in writing and shall be delivered, or mailed by registered or certified mail,
return receipt requested, by a nationally recognized overnight courier, postage
prepaid, addressed (a) if to any holder of any Warrant, at the registered
address of such holder as set forth in
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the register kept at the principal office of the Company, or (b) if to the
Company, to the attention of its President at its principal office, provided
that the exercise of any Warrant shall be effective in the manner provided in
Section 1.
16. Amendments. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
17. Descriptive Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
18. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF COLORADO, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
set forth above.
PMC INTERNATIONAL, INC.
By:
Name:
Title:
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FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To PMC International, Inc.,
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, ______* shares of Common
Stock of PMC International, Inc. and herewith makes payment of $______
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ________________________, whose address is
______________________.
Dated:
(Signature must conform in all respects to
name of holder as specified on the face of
Warrant)
(Street Address)
(City)(State)(Zip Code)
* Insert here the number of shares called for on the face of this Warrant (or,
in the case of a partial exercise, the portion thereof as to which this Warrant
is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of
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the Warrant, to the holder surrendering the Warrant. FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ____________________ the right
represented by such Warrant to purchase ______ shares of Common Stock of PMC
International, Inc. to which such Warrant relates, and appoints
_____________________________ Attorney to make such transfer on the books of
PMC International, Inc. maintained for such purpose, with full power of
substitution in the premises.
Dated:
(Signature must conform in all respects to
name of holder as specified on the face of
Warrant)
(Street Address)
(City)(State)(Zip Code)
Signed in the presence of:
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Exhibit 10.5
PMC International, Inc.
REGISTRATION RIGHTS AGREEMENT
Dated as of December 23, 1996
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TABLE OF CONTENTS
Section Page
1. Definitions 1
2. Registration under Securities Act, etc. 4
2.1 Filing and Maintenance of Shelf Registration 4
(a) Filing 4
(b) Registration Statement Form 4
(c) Expenses 5
(d) Underwritten Offering 5
2.2 Registration on Request 5
(a) Request 5
(b) Registration Statement Form 6
(c) Expenses 6
2.3 Registration Procedures 6
2.4 Underwritten Offerings 12
(a) Requested Underwritten Offerings 12
(b) Priority in Requested Underwritten Offering 12
(c) Holdback Agreement 13
(d) Participation in Underwritten Offerings 13
2.5 Indemnification 14
(a) Indemnification by the Company 14
(b) Indemnification by the Holders 15
(c) Notices of Claims, etc 15
(d) Indemnification Payments 16
(e) Contribution 16
3. Rule 144 17
4. Amendments and Waivers 17
5. Nominees for Beneficial Owners 18
6. Notices 18
7. Assignment 18
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8. Descriptive Headings 19
9. Governing Law 19
10. Counterparts 19
11. Entire Agreement 19
12. Severability 19
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of December 23, 1996, among PMC
International, Inc., a Colorado corporation (the "Company"), Keefe, Bruyette &
Woods, Inc. ("KBW"), certain holders of the Company's warrants issued in
November, 1996 (the "Warrant Holders") and each of the subscribers referred to
below (individually, a "Subscriber" and collectively, the "Subscribers"). The
Warrant Holders and the Subscribers are listed on Schedule A to this Agreement.
WHEREAS, the Company is a party to the separate Subscription Agreements (the
"Subscription Agreements") with each of the Subscribers pursuant to which the
Company has agreed, among other things, to issue shares of its common stock,
par value $.01 per share (the "Common Stock"), to each of the Subscribers;
WHEREAS, in connection with the November 1996 bridge financing by, and the
restructuring of, the Company, the Company has issued warrants (the "Warrants")
to purchase shares of Common Stock to certain parties to this Agreement; and
WHEREAS, as a condition to the closing of the issuance of the Common Stock
under the Subscription Agreements and to the issuance of the Warrants, the
Company has agreed to provide registration rights with respect to the Common
Stock as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
1. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Common Stock: Any and all shares of Common Stock issued to
the Subscribers pursuant to Section 7.1 of the Subscription Agreement.
Closing Date: The date of the closing of the issuance of the Common
Stock pursuant to the Subscription Agreements.
Commission: The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
Common Stock: As defined in the recitals hereto.
Company: As defined in the introductory paragraph of this Agreement.
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Exchange Act: The Securities Exchange Act of 1934, as amended, or any similar
Federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Exchange Act shall include a reference to the comparable
section, if any, of any such similar Federal statute.
Initiating Holders: Any holder or holders of Registrable Securities holding at
least 25% of the Registrable Securities, and initiating a request pursuant to
Section 2.1(d) to effect the underwritten offering of Registrable Securities.
Inspector: As defined in Section 2.3(j).
KBW: As defined in the introductory paragraph of this Agreement.
NASD: National Association of Securities Dealers, Inc.
Person: A corporation, an association, a partnership, an
organization, business, an individual, a governmental or political
subdivision thereof or a governmental agency.
Primary Registrable Securities: Any and all shares of Common Stock issued to
Subscribers pursuant to the Subscription Agreements and any shares of
Additional Common Stock and any securities issued or issuable with respect to
any Common Stock or Additional Common Stock referred to above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
As to any particular Primary Registrable Securities, once issued such
securities shall cease to be Primary Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been distributed to the public pursuant to Rule 144, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, or (d)
they shall have ceased to be outstanding.
Registrable Securities: Any and all Primary Registrable Securities
and Secondary Registrable Securities.
Registration Expenses: All expenses incident to the Company's performance of or
compliance with Section 2, including, without
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limitation, all registration filing and NASD fees, all stock exchange listing
fees, all fees and expenses of complying with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualification of any of the Registrable Securities), all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees
and disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to performance and compliance, the reasonable
fees and disbursements of a single counsel retained by the holder or holders of
a majority (by number of shares) of the Registrable Securities being
registered; the fees and expenses of a "qualified independent underwriter" if
required by Rule 2720 adopted pursuant to Article VII of the ByLaws of the NASD
in connection with the offering of any of the Registrable Securities; premiums
and other costs of policies of insurance against liabilities arising out of the
public offering of the Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any, in respect of the Registrable Securities, which shall be payable
by each holder thereof.
Registration Statement: As defined in Section 2.1.
Rule 10b-6. Rule 10b-6 promulgated under the Exchange Act as shall be in effect
at the time and any successor provision under the Exchange Act.
Rule 144: Rule 144 promulgated under the Securities Act as shall be in effect
at the time and any successor provision under the Securities Act.
Secondary Registrable Securities: Any and all shares of Common Stock issued or
issuable upon exercise of the Warrants or issuable with respect to such Common
Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Secondary Registrable
Securities, once issued such securities shall cease to be Secondary Registrable
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144, (c) they shall have been otherwise transferred, new certificates for them
not bearing a legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require registration
or
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qualification of them under the Securities Act or any similar state law then in
force, or (d) they shall have ceased to be outstanding.
Securities Act: The Securities Act of 1933, as amended, or any similar Federal
statute, and the rules and regulations of the Commission thereunder, all as of
the same shall be in effect at the time. References to a particular section of
the Securities Act shall include a reference to the comparable section, if any,
of any such similar Federal statute.
Subscriber: As defined in the introductory paragraph.
Subscription Agreement: As defined in the recitals hereto.
Warrants: As defined in the recitals hereto.
2. Registration under Securities Act, etc.
2.1 Filing and Maintenance of Shelf Registration.
(a) Filing. The Company shall file within 45 calendar days following the
Closing Date a "shelf registration" statement (the "Registration Statement")
covering the Registrable Securities and all shares of Common Stock which the
Company may elect to register on behalf of other Persons and shall use its best
efforts to have such Registration Statement declared effective by the
Commission. The Company agrees to use its best efforts to keep the Registration
Statement continuously effective for the period commencing on the date of
effectiveness and ending on the earlier to occur of (i) the date when each of
the Primary Registrable Securities ceases to be Primary Registrable Securities
and (ii) the date when each of the Primary Registrable Securities not otherwise
transferred or sold pursuant to the Registration Statement may be sold or
distributed by the holder thereof in reliance upon Rule 144 (giving effect to
all conditions thereof, including, without limitation, the volume limitations
contained in Rule 144(e)).
(b) Registration Statement Form. The Registration Statement under this
Section 2.1 shall be on such appropriate registration form of the Commission as
shall be selected by the Company and as shall permit the disposition of such
Registrable Securities in accordance with the intended method or methods of
disposition (including an underwritten offering).
(c) Expenses. The Company shall pay all Registration Expenses in connection
with the registration contemplated by this Section 2.1. Each holder of
Registrable Securities shall pay all underwriting
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discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such holder's Registrable Securities pursuant to the
Registration Statement.
(d) Underwritten Offering. One or more Initiating Holders may, at any two
times while the Registration Statement is effective, request that the Company
amend or supplement the Registration Statement to effect an underwritten
offering. The Company shall provide prompt notice of such request to the
holders of all Registrable Securities, and shall as promptly as practicable
amend or supplement the Registration Statement to the extent required to permit
the disposition in accordance with such request.
2.2 Registration on Request.
(a) Request. At any time or from time to time after the Registration
Statement is no longer effective and prior to such time as each of the
Secondary Registrable Securities ceases to be Secondary Registrable Securities,
upon the written request of any holder of Secondary Registrable Securities that
cannot be sold or distributed by the holder thereof in reliance upon Rule 144
(giving effect to all conditions thereof, including, without limitation, the
volume limitations contained in Rule 144(e)), requesting that the Company
effect the registration under the Securities Act of such holders' Secondary
Registrable Securities that cannot be so sold or distributed, the Company will
promptly give written notice of such requested registration to all registered
holders of Secondary Registrable Securities, and thereupon the Company will,
subject to the terms of this Agreement, use its best efforts to effect the
registration under the Securities Act of:
(i) the Secondary Registrable Securities which the Company has
been so requested to register by the holder initiating such request
for disposition; and
(ii) all other Secondary Registrable Securities that cannot be sold or
distributed by the holder thereof in reliance upon Rule 144 (giving effect to
all conditions thereof, including, without limitation, the volume limitations
contained in Rule 144(e)) the holders of which shall have made a written
request to the Company for registration thereof within 30 days after the giving
of such written notice by the Company; and
(iii) all shares of Common Stock and other securities which the Company may
elect to register in connection with the offering of Secondary Registrable
Securities pursuant to this Section 2.2,
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all to the extent requisite to permit the disposition of the Secondary
Registrable Securities and the Common Stock and other securities, if any, so to
be registered. The Company agrees to use its best efforts to keep the
registration statement filed pursuant to this Section 2.2 continuously
effective for the period commencing on the date of effectiveness and ending on
the earlier to occur of (i) the date when each of the Secondary Registrable
Securities ceases to be Secondary Registrable Securities and (ii) the date when
each of the Secondary Registrable Securities not otherwise transferred or sold
pursuant to such registration statement may be sold or distributed by the
holder thereof in reliance upon Rule 144 (giving effect to all conditions
thereof, including, without limitation, the volume limitations contained in
Rule 144(e)).
(b) Registration Statement Form. Registration under this Section 2.2 shall
be on such appropriate registration form of the Commission as shall be selected
by the Company and as shall permit the disposition of such Secondary
Registrable Securities in accordance with the intended method or methods of
disposition.
(c) Expenses. The Company will pay all Registration Expenses in
connection with any registration requested pursuant to this Section
2.2.
2.3 Registration Procedures. In connection with the Company's
obligations to effect the registration of any Registrable Securities
under the Securities Act as provided in this Section 2, the Company
shall, as expeditiously as possible:
(a) prepare and file with the Commission, within any applicable time
periods specified in this Section 2, the requisite registration statement to
effect such registration and thereafter use its best efforts to cause such
registration statement to become and remain effective in accordance with
Section 2 hereof; provided, however, that before filing such registration
statement or any amendments thereto, the Company shall furnish to the counsel
selected by the holders of Registrable Securities which are to be included in
such registration copies of all such documents proposed to be filed, which
documents shall be subject to the review of such counsel;
(b) prepare and file with the Commission such amendments and supplements
to such registration statements and prospectuses used in connection therewith
as may be necessary to keep such registration statements effective for the
applicable periods specified in this Section 2 and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statements during such applicable
periods;
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(c) furnish, without charge, to each holder of Registrable Securities
covered by such registration statement and each underwriter, if any, of the
securities being sold by such holder such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, as such holder and underwriter, if any, may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such holder; the Company consents to the
use of the prospectus or any amendment or supplement thereto by any such holder
and underwriter in connection with the offering and sale of Registrable
Securities covered by such prospectus and any amendment or supplement thereto;
(d) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other securities laws or blue sky laws of such jurisdictions as any holder
thereof and any underwriter of the securities being sold by such holder shall
reasonably request, to keep such registrations or qualifications in effect for
so long as such registration statement remains in effect, and take any other
action which may be reasonably necessary or advisable to enable such holder and
underwriter, if any, to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the requirements
of this subdivision (d) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the holder
or holders thereof to consummate the disposition of such Registrable
Securities;
(f) furnish to each holder of Registrable Securities covered by such
registration statement a signed counterpart, addressed to such holder and the
underwriters, if any, of:
(i) an opinion of counsel for the Company, dated the effective date of
such registration statement (or, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the
underwriting agreement),
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reasonably satisfactory in form and substance to such holder, and
(ii) a "comfort" letter (or, in the case of any such Person which does
not satisfy the conditions for receipt of a "comfort" letter specified in
Statement on Auditing Standards No. 72, an "agreed upon procedures" letter),
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter of like kind
dated the date of the closing under the underwriting agreement), signed by the
independent public accountants who have certified the Company's financial
statements included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities (with, in the case of an "agreed
upon procedures" letter, such modifications or deletions as may be required
under Statement on Auditing Standards No. 35) and, in the case of the
accountants' letter, such other financial matters, and, in the case of the
legal opinion, such other legal matters, as such holder (or the underwriters,
if any) may reasonably request;
(g) notify the holders of Registrable Securities covered by such
Registration Statement and the managing underwriter or underwriters, if any,
promptly and confirm such advice in writing promptly thereafter:
(i) when the registration statement, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the registration
statement has been filed, and, with respect to the registration statement or
any post-effective amendment thereto, when the same has become effective;
(ii) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information;
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of the registration statement or the initiation of any
proceedings by any Person for that purpose;
(iv) if at any time the representations and warranties of the
Company made as contemplated by Section 2.4(a) below cease to be true
and correct;
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(v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale
under the securities or blue sky laws of any jurisdiction or the initiation or
threat of any proceeding for such purpose; and
(h) notify each holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon the Company's discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, and at the request of
any such holder promptly prepare and furnish to such holder and each
underwriter, if any, a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein in
the light of the circumstances under which they were made not misleading;
provided, however, that the Company may delay effecting or causing to be
effected a supplement or post-effective amendment to the registration statement
or the related prospectus, for a period not to exceed 90 days in any 365-day
period; provided, further, that (i) the Company shall notify the holders of
Registrable Securities in writing both of its intention to effect such delay
and of the date on which such supplement or post-effective amendment has been
filed with the Commission or declared effective, as the case may be, and (ii)
the period during which the registration statement shall be maintained
effective pursuant to this Agreement shall be extended as described below;
(i) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the
earliest possible moment;
(j) subject to entering into confidentiality arrangements in form and
substance reasonably satisfactory to the Company, make available for inspection
by a representative or representatives of the holders of Registrable Securities
covered by such registration statement, any underwriter participating in any
disposition pursuant to the registration statement and any attorney or
accountant retained by such holders or underwriter (each, an "Inspector"), all
financial
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and other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection with such
registration in order to permit a reasonable investigation within the meaning
of Section 11 of the Securities Act;
(k) use its best efforts to list all Registrable Securities covered by
such registration statement on any securities exchange on which any of the
securities of the same class as the Registrable Securities are then listed;
(l) provide a transfer agent and registrar for all Registrable Securities
covered by such registration statement not later than the effective date of
such registration statement;
(m) cooperate with the holders of Registrable Securities covered by such
registration statement and the underwriter, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
holders or the underwriter, if any, may reasonably request at least three
business days prior to any sale of Registrable Securities;
(n) otherwise use all best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its securityholders,
as soon as reasonably practicable, an earnings statement covering the period of
at least 12 months, but not more than 18 months, beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder.
As a condition to the registration by the Company of a holder's Registrable
Securities, the Company may require such holder to furnish the Company such
information regarding such holder and the distribution of such securities as
the Company may from time to time reasonably request in writing.
The Company shall not file any registration statement or amendment thereto or
any prospectus or any supplement thereto (including such documents incorporated
by reference and proposed to be filed after the initial filing of the
registration statement) to which the holders of at least a majority of the
Registrable Securities covered by such registration statement or the
underwriter or underwriters, if any, shall reasonably object, provided that the
Company may file such document in a form required by law or upon the advice of
its counsel.
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Each holder of Registrable Securities agrees that, upon receipt of any notice
from the Company of the occurrence of any event of the kind described in
subdivision (h) of this Section 2.3, such holder shall forthwith discontinue
such holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by subdivision (h) of this Section 2.3 and, if so directed by the
Company, shall deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the period of time for which the Company shall be required to keep the
applicable registration statement effective shall be extended by the length of
the period from and including the date when each holder of any Registrable
Securities covered by such registration statement shall have received such
notice to the date on which each such holder has received the copies of the
supplemented or amended prospectus contemplated by paragraph (h) of this
Section 2.3. Each holder of Registrable Securities agrees that it will comply
at all times with the requirements of Rule 10b-6.
2.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If the holders of the Registrable
Securities elect to effect an underwritten offering pursuant to Section 2.1(d),
the managing underwriter or underwriters for such underwritten offering shall
be selected by the Company and shall be reasonably acceptable to the holders of
at least a majority (by number of shares) of the Registrable Securities
participating in any such underwritten offering. If requested by the
underwriters for any such underwritten offering, the Company shall enter into
an underwriting agreement with such underwriters for such offering, such
agreement to contain such representations and warranties by the Company and
such other terms as are generally prevailing in agreements of this type,
including, without limitation, indemnities. The holders of the Registrable
Securities shall cooperate with the Company in the negotiation of the
underwriting agreement. The holders of Registrable Securities to be distributed
by such underwriters shall be parties to any such underwriting agreement and
such holders may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders and that any or all of the conditions precedent
to the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders. Any such
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holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations and warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law or by the
underwriters for such underwritten offering.
(b) Priority in Requested Underwritten Offering. If the holders of the
Registrable Securities elect to effect an underwritten offering pursuant to
Section 2.1(d) and, in connection therewith, the managing underwriter advises
each holder of Registrable Securities requesting to participate in such
underwritten offering and the Company in writing that, in its opinion, the
number of securities requested to be included in such underwritten offering
(including securities of the Company which are not Registrable Securities)
exceeds the number which can be sold in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities so
requested to be included in such offering, the Company shall include in such
offering, to the extent of the number which the Company is so advised can be
sold in such offering, (i) first, Registrable Securities requested to be
included in such offering by the holder or holders of Registrable Securities
thereof, pro rata among such holders requesting inclusion in such offering on
the basis of the number of such securities requested to be included by such
holders, subject to any rights of Bedford Capital Financial Corporation
("Bedford") to participate in such underwritten offering pursuant to the
Registration Rights Agreement, dated as of July 26, 1995, between the Company
and Bedford, as amended, and (ii) second, if and only if all Registrable
Securities requested to be included in such underwritten offering by the
holders thereof are so included, other securities of the Company requested to
be included in such offering by the holders thereof, pro rata among such
holders requesting inclusion in such offering on the basis of the number of
such securities requested to be included by such holders.
(c) Holdback Agreement. Except to the extent required by any agreement in
existence as of the date of this Agreement, the Company agrees not to effect
any public sale or distribution of or otherwise dispose of its equity
securities or securities convertible into or exchangeable or exercisable for
any of such securities during the seven days prior to the date any underwritten
registration pursuant to Section 2.1(d) has become effective and during the
period ending on the earlier of (A) 90 days after any underwritten registration
pursuant to Section 2.1(d) has become effective, (B) the day on which the
underwriting syndicate of such offering shall have been disbanded, and (C) such
date as the Company, the managing underwriter and the holders of the
Registrable Securities shall otherwise agree, except as part of such
underwritten registration and except in connection with a
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stock option plan, stock purchase plan, managing directors' plan, savings or
similar plan, or an acquisition of a business, merger or exchange of stock for
stock.
(d) Participation in Underwritten Offerings. No holder of Registrable
Securities may participate in any underwritten offering hereunder unless such
holder (i) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved, subject to the terms and conditions hereof,
by the holders of a majority (by number of shares) of Registrable Securities to
be included in such underwritten offering and (ii) completes and executes all
questionnaires, indemnities, underwriting agreements and other documents (other
than powers of attorney) required under the terms of such underwriting
arrangements. Notwithstanding the foregoing, no underwriting agreement (or
other agreement in connection with such offering) shall require any holder of
Registrable Securities to make any representations or warranties to or
agreements with the Company or the underwriters other than representations and
warranties or agreements regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution and any other
representation required by law or by the underwriters for such underwritten
offering.
2.5 Indemnification.
(a) Indemnification by the Company. The Company shall, and hereby does agree
to, indemnify and hold harmless each holder of any Registrable Securities
covered by any registration statement filed pursuant to Section 2, such
holder's directors and officers, each other Person, if any, who controls such
holder within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which such holder or any such
director or officer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company shall
reimburse such holder and each such director, officer and controlling person
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, liability, action or
proceeding; provided, however,
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that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by such holder specifically stating that it is for use in the
preparation thereof; and; provided further, however, that the Company shall not
be liable in any such case to any Person who sells Registrable Securities
pursuant to a registration statement filed pursuant to Section 2 or to any
other Person, if any, who controls such selling Person, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such selling Person's failure to send
or give a copy of the final prospectus, as the same may be then supplemented or
amended, to the Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or any such director, officer, underwriter
or controlling person and shall survive the transfer of such securities by such
holder.
(b) Indemnification by the Holders. The Company may require, as a condition
to including any Registrable Securities in any registration statement filed
pursuant to this Section 2, that the Company shall have received an undertaking
satisfactory to it from the prospective seller of such Registrable Securities,
to indemnify and hold harmless (in the same manner and to the same extent as
set forth in subdivision (a) of this Section 2.5) the Company, each director of
the Company, each officer of the Company and each other person, if any, who
controls the Company within the meaning of the Securities Act, with respect to
any statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Any such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling
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person and shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party of
notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 2.5, such indemnified
party shall, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 2.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified, to the extent that the indemnifying party may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement of any such action which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
(d) Indemnification Payments. The indemnification required by this Section
2.5 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
(e) Contribution. If the indemnification provided for in the preceding
subdivisions of this Section 2.5 is unavailable to an indemnified party in
respect of any expense, loss, claim, damage or liability referred to therein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such expense,
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loss, claim, damage or liability (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
holder on the other from the distribution of the Registrable Securities or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and of the holder on the other in connection with the
statements or omissions which resulted in such expense, loss, damage or
liability, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the holder on the other in
connection with the distribution of the Registrable Securities shall be deemed
to be in the same proportion as the total net proceeds received by the Company
from the initial sale and issuance of the Registrable Securities by the Company
bear to the gain, if any, realized by the selling holder. The relative fault of
the Company on the one hand and of the holder on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company or by the holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, however, that the foregoing contribution
agreement shall not inure to the benefit of any indemnified party if
indemnification would be unavailable to such indemnified party by reason of the
provisions contained in the first sentence of subdivision (a) of this Section
2.5, and in no event shall the obligation of any indemnifying party to
contribute under this subdivision (e) exceed the amount that such indemnifying
party would have been obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (a) or (b) of this Section 2.5
had been available under the circumstances.
The Company and the holders of Registrable Securities agree that it would not
be just and equitable if contribution pursuant to this subdivision (e) were
determined by pro rata allocation (even if the holders were treated as one
entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in subdivision (c) of this Section 2.5, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
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No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
3. Rule 144. The Company shall timely file the reports required to be filed by
it under the Securities Act and the Exchange Act (including but not limited to
the reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c) of Rule 144) and the rules and regulations adopted by the
Commission thereunder and shall take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities, the Company shall deliver to such holder a written statement as to
whether it has complied with the requirements of this Section 3.
4. Amendments and Waivers. This Agreement may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required
to be performed by it, only if the Company shall have obtained the written
consent to such amendment, action or omission to act, of the holders of a
majority (by number of shares) of the Registrable Securities. Each holder of
any Registrable Securities at the time or thereafter outstanding shall be bound
by any consent authorized by this Section 4, whether or not such Registrable
Securities shall have been marked to indicate such consent.
5. Nominees for Beneficial Owners. In the event that any Registrable Securities
are held by a nominee for the beneficial owner thereof, the beneficial owner
thereof may, at its election, be treated as the holder of such Registrable
Securities for purposes of any request or other action by any holder or holders
of Registrable Securities pursuant to this Agreement or any determination of
any number or percentage of shares of Registrable Securities held by any holder
or holders of Registrable Securities contemplated by this Agreement. If the
beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
6. Notices. Except as otherwise provided in this Agreement, all notices,
requests and other communications to any Person provided for hereunder shall be
in writing and shall be given to such Person (a) in the case of a party hereto
other than the Company, addressed to such party in the manner set forth in the
applicable Subscription Agreement
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or at such other address as such party shall have furnished to the Company in
writing, (b) in the case of KBW, at Two World Trade Center, 85th Floor, New
York, New York 10048, to the attention of Emmett J. Daly, Senior Vice
President, (c) in the case of any other holder of Registrable Securities, at
the address that such holder shall have furnished to the Company in writing,
or, until any such other holder so furnishes to the Company an address, then to
and at the address of the last holder of such Registrable Securities who has
furnished an address to the Company, or (d) in the case of the Company, at
Anaconda Tower, 14th Floor 555 17th Street, Denver, Colorado 80202 to the
attention of Kenneth S. Phillips, President, or at such other address, or to
the attention of such other officer, as the Company shall have furnished to
each holder of Registrable Securities at the time outstanding. Each such
notice, request or other communication shall be effective (i) if given by mail,
72 hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (ii) if given by any other means
(including, without limitation, by air courier), when delivered at the address
specified above, provided that any such notice, request or communication to any
holder of Registrable Securities shall not be effective until received.
7. Assignment. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns. In addition, and whether or not any express assignment shall have been
made, the provisions of this Agreement which are for the benefit of the parties
hereto other than the Company shall also be for the benefit of and enforceable
by any subsequent holder of any Registrable Securities, subject to the
provisions respecting the minimum numbers or percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein.
8. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAWS OF THE STATE OF COLORADO WITHOUT REFERENCE TO THE PRINCIPLES
OF CONFLICTS OF LAWS.
10. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original,
but all such counterparts shall together constitute one and the same
instrument.
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11. Entire Agreement. This Agreement embodies the entire agreement
and understanding between the Company and each other party hereto
relating to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
12. Severability. If any provision of this Agreement, or the application of
such provisions to any Person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their respective officers thereunto duly authorized as of the date
first above written.
PMC INTERNATIONAL, INC.
By:
----------------------------------
Name:
KEEFE, BRUYETTE & WOODS, INC.
By:
Name:
- --------------------------------------
Name of Entity (Print or Type)
By:
----------------------------------
Name:
- -------------------------------------
Signature of Individual Subscriber
- --------------------------------------
Name of Individual Subscriber
Address of Subscriber:
- ------------------------------
- ------------------------------
- ------------------------------
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SCHEDULE A
Warrant Holders and Subscribers
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<PAGE> 1
Exhibit 10.6
PMC International, Inc.
SUBSCRIPTION AGREEMENT
Dated as of December 23, 1996
TABLE OF CONTENTS
Section Page
1. Authorization; Subscription for Shares 1
1.1 Authorization of Shares 1
1.2 Sale and Purchase of Shares 1
1.3 Closing 1
2. Conditions to Subscriber's Obligations 2
2.1 Representations and Warranties 2
2.2 Performance; No Default 2
2.3 Officer's Certificate 2
2.4 Opinion of Counsel 2
2.5 Purchase Permitted by Applicable Laws 2
2.6 Registration Rights Agreement 2
2.7 Proceedings and Documents 3
2.8 Sale of Other Shares 3
2.9 Consummation of Restructuring 3
3. Conditions to the Company's Obligations 3
3.1 Representations and Warranties 3
3.2 Letter from the Placement Agent 3
3.3 Payment for the Shares 3
3.4 Sale Permitted by Applicable Laws 3
4. Representations and Warranties of the Company 3
4.1 Organization, Standing and Qualification 3
4.2 Capitalization 4
4.3 Authorization and Validity of Agreements 5
4.4 No Conflict with Other Instruments; No Approvals
Required Except as Have Been Obtained 5
4.5 No Material Adverse Change 5
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4.6 Full Disclosure 5
4.7 Financial Statements 6
4.8 Use of Proceeds 6
4.9 Litigation 6
4.10 Taxes 7
4.11 Compliance with Laws 7
4.12 Private Offering 7
4.13 SEC Reports 8
4.14 Intellectual Property 8
4.15 Investment Company Act 8
5. Representations and Warranties of the 8
5.1 Due Organization, Good Standing and Authority 8
5.2 Authorization and Validity of Agreement. 8
5.3 Accredited Investor 8
5.4 Investment Intent 9
5.5 Accuracy and Reliance 9
6. Compliance with the Securities Act 10
6.1 Certificates Evidencing the Shares 10
6.2 Notice of Proposed Transfer; Opinion of Counsel 10
7. Miscellaneous 10
7.1 Filing of Registration Statement 10
7.2 Directorships 11
7.3 Survival of Representations and Warranties; Severability 11
7.4 Termination of Agreement 11
7.5 Amendment; Waiver 11
7.6 Notices, etc. 11
7.7 Successors and Assigns 12
7.8 Descriptive Headings 12
7.9 Governing Law 12
7.10 Counterparts 12
7.11 Integration; Severability 12
SCHEDULE A -- Information as to Subscriber
EXHIBIT A -- Form of Opinion of Holme Roberts & Owen LLP, Counsel for the
Company
EXHIBIT B -- Form of Registration Rights Agreement
EXHIBIT C -- Form of Letter of Placement Agent
CONFIDENTIAL INVESTOR QUESTIONNAIRE
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (the "Agreement"), dated as of December 23,
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<PAGE> 3
1996, between PMC International, Inc., a Colorado corporation (the "Company"),
and the Subscriber whose name appears on the signature page hereto (the
"Subscriber").
WHEREAS, the Company desires to sell in a private placement (the "Offering")
shares of its common stock, par value $.01 per share (the "Common Stock"), as
set forth in the Private Placement Memorandum, dated November 11, 1996,
prepared by the Company (together with all exhibits contained therein and any
amendments or supplements thereto, the "Memorandum"), on the terms and
conditions hereinafter set forth, and the Subscriber desires to purchase that
number of shares of Common Stock set forth on Schedule A hereto; and
WHEREAS, this Agreement sets forth the terms and conditions upon which the
Company will sell the shares of Common Stock to the Subscriber and the
Subscriber will purchase the shares of Common Stock from the Company.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
parties hereto hereby agree as follows:
1. Authorization; Subscription for Shares.
1.1 Authorization of Shares. The Company has authorized the issuance and sale
pursuant to the Offering of that number of shares (the "Shares") of the Common
Stock necessary to raise aggregate proceeds of approximately $11,000,000.
1.2 Sale and Purchase of Shares. In reliance upon the representations and
warranties made herein and subject to the satisfaction or waiver of the terms
and conditions of this Agreement, the Company will issue and sell to the
Subscriber and the Subscriber will purchase from the Company, at the Closing
provided for in Section 1.3, the number of Shares set forth opposite such
Subscriber's name in Schedule A at the purchase price set forth on Schedule A.
Contemporaneously with entering into this Agreement, the Company is entering
into separate Subscription Agreements (the "Other Agreements") substantially
identical with this Agreement with each of the other subscribers (the "Other
Subscribers"), providing for the sale to each of the Other Subscribers, at such
Closing, of the number of Shares specified opposite such Other Subscriber's
names in Schedule A of the Other Agreements. The sales of the Shares to the
Subscriber and to each of the Other Subscribers are to be separate sales, and
this Agreement and the Other Agreements are to be separate agreements.
1.3 Closing. Subject to the terms and conditions of this Agreement, the sales
of the Shares to be purchased by the Subscriber and the
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Other Subscribers shall take place at the offices of Holme Roberts & Owen LLP,
1700 Lincoln Street, Suite 4100, Denver, Colordo 80203, at 11:00 a.m., Denver
time, at a closing (the "Closing") on December 23, 1996 or on such other
business day thereafter as may be agreed upon by the Company, the Subscriber
and the Other Subscribers (the "Closing Date"). At the Closing, the Company
will deliver to the Subscriber the certificates registered in the Subscriber's
name (or in the name of the Subscriber's nominee), representing the aggregate
number of Shares to be purchased by the Subscriber, against delivery by the
Subscriber to the Company of immediately available funds in the amount of the
purchase price therefor.
2. Conditions to Subscriber's Obligations. The Subscriber's
obligation to purchase and pay for the Shares to be sold to such
Subscriber at the Closing shall be subject to the fulfillment, prior
to or at the Closing, of the following conditions:
2.1 Representations and Warranties. The representations and warranties of the
Company contained in this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Closing Date, as if made on and as of the Closing
Date.
2.2 Performance; No Default. The Company shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by it prior to or at the Closing.
2.3 Officer's Certificate. The Company shall have delivered to the Subscriber
an officer's certificate, dated as of the Closing Date, certifying that the
conditions specified in Sections 2.1, 2.2, 2.8, and 2.9 have been fulfilled and
setting forth in reasonable detail the capitalization (including the long-term
and short-term debt) and the amount of outstanding warrants and options of the
Company giving effect to the Restructuring (as defined in the Memorandum), the
Offering and the Restructuring of the Phillips Andrus LLC as described in the
Memorandum.
2.4 Opinion of Counsel. The Subscriber shall have received an opinion from
Holme, Roberts & Owen LLP, counsel for the Company, as to the matters set forth
in Exhibit A hereto, addressed to such Subscriber and dated as of the Closing
Date.
2.5 Purchase Permitted by Applicable Laws. The offering, issuance, purchase and
sale of, and payment for, the Shares to be purchased by the Subscriber on the
Closing Date on the terms and conditions herein provided (a) shall not violate
any applicable law, governmental regulation, court order or injunction
(temporary or permanent) and (b) shall not subject the Subscriber to any tax,
penalty, liability or other material adverse effect under or pursuant to any
applicable law or governmental
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regulation, and the Subscriber shall have received such certificates or other
evidence as the Subscriber may request to establish compliance with this
condition.
2.6 Registration Rights Agreement. The registration rights agreement to be
entered into by the Subscriber, the Company and each of the Other Subscribers
providing for, among other things, the registration of the Shares (the
"Registration Rights Agreement") shall have been duly executed and delivered by
the respective parties thereto, shall not have been terminated, shall be in
full force and effect and shall be in substantially the form attached hereto as
Exhibit B. The Subscriber shall have received an original copy of the
Registration Rights Agreement.
2.7 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be satisfactory
to the Subscriber, and the Subscriber shall have received all such counterpart
originals or certified or other copies of such documents as the Subscriber may
reasonably request.
2.8 Sale of Other Shares. Contemporaneously with the Closing, the Company shall
sell to the Other Subscribers and receive payment for that number of Shares
that, when combined with the Shares to be purchased by the Subscriber, will
raise at least $6,000,000 in aggregate gross proceeds to the Company.
2.9 Consummation of Restructuring. The restructuring (as described in
the Memorandum) shall have occurred in all material respects.
3. Conditions to the Company's Obligations. The Company's obligation
to issue and sell the Shares under this Agreement shall be subject to
the fulfillment, prior to or at the Closing, of the following
conditions:
3.1 Representations and Warranties. The representations and warranties of the
Subscriber contained in this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Closing Date, as if made on and as of the Closing
Date.
3.2 Letter from the Placement Agent. The Company shall have received from
Keefe, Bruyette & Woods, Inc. (the "Placement Agent") a letter, dated as of the
Closing Date and addressed to the Company,
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substantially in the form of Exhibit C attached hereto.
3.3 Payment for the Shares. The Subscriber shall have delivered to the Company
and the Company shall have received full payment in immediately available funds
in respect of such Subscriber's purchase of the Shares.
3.4 Sale Permitted by Applicable Laws. The sale of the Shares by the Company on
the terms and conditions herein shall not violate any applicable law,
governmental regulation, court order or injunction (temporary or permanent).
4. Representations and Warranties of the Company. The Company
represents and warrants to the Subscriber as follows:
4.1 Organization, Standing and Qualification. Each of the Company and its
Subsidiaries (as hereinafter defined) (i) is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation; (ii) has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted; and (iii) is duly qualified or licensed to do
business as a foreign corporation and is in good standing in all jurisdictions
in which it is required to be so qualified or licensed except where the failure
to be so licensed or qualified would not have a material adverse effect on the
Company and its Subsidiaries taken as a whole. As used in this Agreement, the
term "Subsidiaries" means Portfolio Management Consultants, Inc., Portfolio
Brokerage Services, Inc. and Portfolio Technology Services, Inc. and the term
"Subsidiary" refers to each of such entities individually. The Company does not
own any capital stock in any entity other than the Subsidiaries.
4.2 Capitalization.
(a) The issuance and sale of the Shares has been duly authorized by the
Company, and upon payment for the Shares in accordance with Section 1.3 hereof,
the Shares will be validly issued, fully paid and non-assessable.
(b) The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock and 5,000,000 shares of preferred stock, no par value (the
"Preferred Stock"). As of the date of this Agreement, there are (x) 5,555,713
shares of Common Stock issued and outstanding and no shares of Common Stock
held in the Company's treasury, (y) no shares of Common Stock reserved for
issuance upon
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exercise of outstanding stock options, warrants or otherwise except for (i)
2,534,000 shares of Common Stock reserved for issuance upon exercise of options
granted by the Company, (ii) 5,125,000 shares of Common Stock reserved for
issuance upon exercise of warrants issued by the Company, and (iii)
approximately 290,000 shares of Common Stock reserved for issuance upon the
exchange of certain shares of Preferred Stock for Common Stock and (z) 349,017
shares of Preferred Stock issued and outstanding, and no shares of the
Preferred Stock held in the Company's treasury or reserved for issuance upon
exercise of outstanding stock options or otherwise. All the outstanding shares
of capital stock of the Company have been duly authorized and validly issued
and are fully paid and nonassessable. Except (i) for the Other Agreements or
(ii) as described in the Memorandum, the Company does not have and is not bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of the Company or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of the Company. Except as described in the
Memorandum, the Company has not entered into any agreement to register its
equity or debt securities under the Securities Act of 1933, as amended (the
"Securities Act"), other than the Registration Rights Agreements, and there are
no understandings or agreements with respect to the voting of any of the
Company's capital stock.
(c) All of the outstanding shares of capital stock of the Subsidiaries have
been duly authorized and validly issued and are fully paid and nonassessable,
and all such shares are owned directly or indirectly by the Company free and
clear of any lien, charge, encumbrance or security interest whatsoever except
for the security interests of Bedford Capital Corporation ("Bedford") and
certain old and new bridge lenders of the Company (the "Bridge Lenders") which
shall be released upon consummation of the Restructuring. No Subsidiary has or
is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of capital stock or any other equity security of such Subsidiary
or any securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such Subsidiary.
4.3 Authorization and Validity of Agreements.
(a) This Agreement has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. All corporate
proceedings on the part of the Company necessary to approve this Agreement and
to consummate the transactions contemplated hereby have been taken prior to the
date of this Agreement.
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(b) The Registration Rights Agreement has been duly authorized and, when
executed and delivered by the Company at the Closing, will constitute a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.
4.4 No Conflict with Other Instruments; No Approvals Required Except as Have
Been Obtained. Delivery and performance of this Agreement and the Registration
Rights Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not violate, with or without
the giving of notice or the lapse of time, or both, or require any
registration, qualification, approval or filing under, any provision of law,
statute, ordinance or regulation applicable to the Company, and will not
conflict with, or require any consent or approval under, or result in the
breach or termination of any provision of, or constitute a default under, or
result in the acceleration of the performance of the obligations of the Company
under, or result in the creation of any claim, lien, charge or encumbrance upon
any of the properties, assets or businesses of the Company or any of the
Subsidiaries pursuant to the Articles of Incorporation or By-Laws of the
Company or any of its Subsidiaries, as the case may be, or any order, judgment,
decree, law, ordinance or regulation applicable to the Company or any contract,
instrument, agreement or restriction to which the Company or any of the
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
any of their assets or properties is bound. Neither the Company nor any of its
Subsidiaries nor any of their respective assets or properties is subject to any
charter, by-law, contract or other instrument or agreement, order, judgment,
decree, law, statute, ordinance or regulation or any other restriction of any
kind or character that would prevent the Company from entering into this
Agreement or the Registration Rights Agreement or from consummating the
transactions contemplated hereby or thereby in accordance with the terms hereof
or thereof.
4.5 No Material Adverse Change. Since September 30, 1996, there has not been
any material adverse change in the business, prospects, assets, liabilities,
results of operations or financial condition of the Company or any of its
Subsidiaries, except as described in, or contemplated by, the Memorandum.
4.6 Full Disclosure. None of the Memorandum, the Registration Rights Agreement,
this Agreement or the Schedules hereto (except for the Subscriber's
representations and warranties set forth herein), contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein, in light of the circumstances under
which they were made, not misleading except that no representation or warranty
is made
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with respect to the projections set forth in the Memorandum under the caption
"Financial Projections" other than as set forth in Section 4.7(b). There is no
fact known to the Company which the Company has not disclosed to the Subscriber
in the Memorandum or herein which materially adversely affects, or which could
reasonably be expected to materially adversely affect, the business, prospects,
assets, liabilities, results of operations or financial condition of the
Company and its Subsidiaries taken as a whole or the ability of the Company to
perform it obligations under this Agreement or the Registration Rights
Agreement.
4.7 Financial Statements.
(a) Except as otherwise stated in the notes thereto, the financial statements
of the Company and its Subsidiaries included as exhibits to the Memorandum have
been prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis and fairly present the financial
position, results of operations and changes in financial position of the
Company and its Subsidiaries as of the dates and for the periods indicated. The
selected financial data relating to the Company and its Subsidiaries included
in the Memorandum have been compiled on a basis consistent with that of the
audited consolidated financial statements of the Company and its Subsidiaries
included Company's Form 10-KSB included as an exhibit to the Memorandum and
fairly present the information shown therein. Except as reflected in such
financial statements and the notes thereto and except as described in the
Memorandum under the caption "The Company -- Corporate History -- New Bridge
Loan", neither the Company nor any of its Subsidiaries have any liabilities
absolute or contingent, that are, individually or in the aggregate, material to
the Company and its Subsidiaries, other than ordinary course liabilities
incurred since the last date of such financial statements in connection with
the transactions contemplated by the Memorandum or with conduct of the business
of the Company or any of its Subsidiaries that are not, individually or in the
aggregate, material to the Company and its Subsidiaries.
(b) Nothing has come to the attention of the Company which causes it to believe
that the information contained in the Memorandum under the caption "Financial
Projections" is not reasonably based upon information available to the
management of the Company as of the date of the Memorandum and at the time of
Closing. The Company believes that the projections of financial results
contained in the Memorandum were prepared on a reasonable basis and the
underlying assumptions provide a reasonable basis for such forecast.
4.8 Use of Proceeds. The net proceeds from the sale of the Shares
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will be used solely for the purposes set forth in the Memorandum.
4.9 Litigation.
(a) Except as described in the Memorandum, there is no action, suit, proceeding
or investigation pending, or to the best knowledge of the Company, threatened,
against or affecting the Company or any of its Subsidiaries in any court or
before any governmental authority or arbitration board or tribunal, which
could, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the business, assets, liabilities, results of
operations or financial condition of the Company and its Subsidiaries taken as
a whole or that could adversely affect the consummation of the transactions
contemplated hereby or by the Registration Rights Agreement.
(b) Except as described in the Memorandum, neither the Company nor any of its
Subsidiaries is subject to, or in any material way affected by, any judgment,
order, decree, rule or regulation of any court, governmental authority or
arbitration board or tribunal which has materially adversely affected or which
could reasonably be expected to materially adversely affect the business,
assets, liabilities, results of operations or financial condition of the
Company and its Subsidiaries taken as a whole or that could adversely affect
the consummation of the transactions contemplated hereby or by the Registration
Rights Agreement.
4.10 Taxes. The Company and its Subsidiaries have filed all United States
federal income tax returns and all other tax returns that are required to be
filed by it and all such tax returns are true, correct and complete in all
material respects. The Company and its Subsidiaries have paid all taxes for the
periods covered by such returns, except for such taxes being diligently
contested in good faith and by appropriate proceedings and adequately reserved
for in accordance with GAAP on the Company's balance sheet as of September 30,
1996. No claims for additional taxes (as hereinafter defined), interest or
penalties are now being asserted or threatened against the Company or any of
its Subsidiaries by any taxing authority except for such claims that,
individually or in the aggregate, could not be reasonably expected to have a
material adverse effect on the business, assets, liabilities, results of
operations or financial condition of the Company and its Subsidiaries taken as
a whole or are reserved for in accordance with GAAP on the Company's balance
sheet as of September 30, 1996. For purposes of this Agreement, the term
"taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, property, sales,
use, occupation, transfer, license, payroll, withholding, social security and
franchise taxes, imposed by the United States, or any
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state, local of foreign government or subdivision or agency thereof; and such
term shall include any interest, penalties or additions to tax attributable to
such assessments. For purposes of this Agreement the term "tax return" shall
mean any report, return or other information required to be supplied to taxing
authority in connection with taxes.
4.11 Compliance with Laws. Neither the Company nor any of its Subsidiaries is,
or after giving effect to the transactions contemplated hereby and by the
Registration Rights Agreement and the transactions described in the Memorandum
under the caption "The Restructuring" and "The Company -- Phillips and Andrus
LLC"), will be, in material violation of any statutes, laws, ordinances, rules
or regulations, or any judgment, order or decree (Federal, state, local or
foreign) to which any of them is, or will be, subject or has failed to obtain
any material licenses, permits, franchises or other governmental authorizations
necessary to the ownership or operation of its properties or the conduct of its
business.
4.12 Private Offering. Neither the Company, its Subsidiaries nor, to the best
knowledge of the Company, any person authorized to act on behalf of the Company
(other than the Placement Agent, as to whom no such representation or warranty
is made) has taken any action which would require registration of the offering
and sale of the Shares pursuant to this Agreement or the Other Agreements under
the Securities Act or would violate applicable state securities or "blue sky"
laws or any rules, regulations or policies adopted thereunder. The Company
agrees that it will not, and will not authorize anyone to, take any action so
as to require the issuance and sale of the Shares within the provisions of
Section 5 of the Securities Act.
4.13 SEC Reports. Since January 1, 1992, the Company has filed all annual,
quarterly and other reports required to be filed by it with the Securities and
Exchange Commission (the "SEC") under Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As of the dates filed,
such reports complied as to form in all material respects with the requirements
of the Exchange Act and did not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading.
4.14 Intellectual Property. Each of the Company and its Subsidiaries owns or
possesses all material patents, trademarks, service marks, trade names,
copyrights, licenses, and other rights, in each case free from burdensome
restrictions (excluding the security interests therein of Bedford and the
Bridge Lenders which shall be released upon
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consummation of the Restructuring), which are necessary for the ownership,
maintenance and operation of its properties and assets, and neither the Company
nor any of its Subsidiaries is in violation of any provision thereof in any
material respect.
4.15 Investment Company Act. The Company is not required to register
as an investment company under the Investment Company Act of 1940, as
amended.
5. Representations and Warranties of the Subscriber. The Subscriber
represents and warrants as follows:
5.1 Due Organization, Good Standing and Authority. If the Subscriber is not a
natural person, such Subscriber represents and warrants that it is a
corporation, partnership or trust duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. If the Subscriber
is a natural person, it represents and warrants that (i) it is over 21 years of
age, and (ii) the address set forth under its name on the signature page hereof
is its true and correct address and residence.
5.2 Authorization and Validity of Agreement. This Agreement has been duly
authorized, executed and delivered by the Subscriber and constitutes a valid
and binding obligation of the Subscriber, enforceable against the Subscriber in
accordance with its terms.
5.3 Accredited Investor. The Subscriber understands that the Shares to be sold
to such Subscriber are being offered and sold without registration under the
Securities Act, in reliance, in part, upon the exemption provided in Regulation
D promulgated under Section 4(2) of the Securities Act. The Subscriber further
understands that such exemption depends in part upon, and such Shares are being
sold in reliance on, each of the representations and warranties set forth in
this Section and in Section 5 of the Other Agreements. The Subscriber is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act, as indicated by the responses to the Confidential Investor
Questionnaire attached hereto.
5.4 Investment Intent. The Subscriber represents to the Company that it is
purchasing the Shares to be purchased by it solely for its own account or as
trustee for a commingled pension trust and with no intention of distributing or
reselling said Shares or any part thereof, or interest therein, in any
transaction which would be in violation of the securities laws of the United
States of America or any state thereof, without prejudice, however, to the
Subscriber's right at all times to sell or otherwise dispose of all or any part
of said Shares under a registration under the Securities Act or under an
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exemption from such registration available under the Securities Act and any
applicable state securities law, and subject, nevertheless, to the disposition
of the Subscriber's property being at all times within the Subscriber's control
in compliance with applicable Federal and state regulations.
5.5 Accuracy and Reliance.
(a) All of the information concerning the Subscriber supplied by it in any
materials furnished to the Company or the Placement Agent is accurate and
complete.
(b) The Subscriber hereby acknowledges that it has made, and is solely
responsible for making, its own independent evaluation of the economic and
other risks involved in its investment in the Shares and its own independent
decision to make such investment. The Subscriber hereby acknowledges that it
has prior investment experience, including investment in non-listed and
non-registered securities, or has employed the services of an investment
advisor, attorney and/or accountant to read all of the documents furnished or
made available by the Company to the Subscriber and to evaluate the merits and
risks of such an investment on its behalf. The Subscriber can bear the economic
risk of this investment and can afford a complete loss of its investment.
(c) The Subscriber hereby acknowledges that it has been furnished with a copy
of the Memorandum, and any other documents that it has deemed necessary and
requested in connection with its evaluation of the offering of the Shares. The
Subscriber has been given the opportunity to ask questions of, and receive
answers from, the Company with respect to the business, financial condition and
results of operations of the Company and its Subsidiaries and the terms and
conditions of the offering of the Shares; and the Subscriber has been given the
opportunity to obtain such additional information necessary to verify the
accuracy of the information contained in the Memorandum or the accuracy of the
information that was otherwise provided in order for it to evaluate the merits
and risks of an investment in the Shares to the extent that the Company
possesses such information or can acquire it without unreasonable effort or
expense.
6. Compliance with the Securities Act.
6.1 Certificates Evidencing the Shares.
(a) The Subscriber hereby acknowledges and agrees that each certificate
evidencing the Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
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"THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. THE COMMON STOCK
REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN SECTION 6 OF THE SUBSCRIPTION AGREEMENT DATED AS OF
DECEMBER 23, 1996, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF PMC
INTERNATIONAL, INC."
(b) The certificates representing the Common Stock and each certificate issued
in transfer thereof, shall also bear any legend required under any applicable
state securities or "blue sky" laws.
(c) The Subscriber consents to the Company's making a notation on its records
or giving instructions to any transfer agent of the Common Stock in order to
implement the restrictions on transfer mentioned in this Section 6.
6.2 Notice of Proposed Transfer; Opinion of Counsel. Prior to any transfer of
any Shares which is not registered under an effective registration statement
under the Securities Act, the holder thereof will give written notice to the
Company of such holder's intention to effect such transfer and shall deliver an
opinion of counsel, in form and substance reasonably satisfactory to the
Company, to the effect that the proposed transfer may be effected without
registration of such Shares under the Securities Act. Each certificate issued
upon or in connection with the transfer of the Shares shall bear the
appropriate restrictive legend set forth in Section 6.1, unless in the opinion
of such counsel such legend is no longer required to insure compliance with the
Securities Act. The Company will pay the reasonable fees and disbursements of
counsel (other than house counsel) for any holder of Shares in connection with
any and all opinions rendered by such counsel pursuant to this Section 6.2 when
no registration statement is in effect.
7. Miscellaneous.
7.1 Filing of Registration Statement. In the event that either (a) the
registration statement required to be filed by the Company pursuant to Section
2.1 of the Registration Rights Agreement shall not have been so filed with the
SEC on or prior to the 45th calendar day following the Closing Date or (b) such
registration statement shall have been filed within such 45-day period but
shall not have been declared effective by the SEC on or prior to the 150th
calendar day after the filing date for such registration statement, then the
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Company shall, within thirty days of the first of such events not to have
occurred, offer to the Subscriber the opportunity to purchase at a price of
$.01 per share that number of shares of Common Stock equal to 1/6th of the
total number of shares of Common Stock purchased by the Subscriber pursuant to
this Agreement.
7.2 Directorships. At a date (or dates) mutually acceptable to the Company, the
Subscriber and the Other Subscribers (which date shall be no more than 90 days
following the Closing unless the Subscriber and the Other Subscribers shall
agree), the Company shall cause its Board of Directors to be expanded by two
and shall appoint a director selected by the Subscriber and the Other
Subscribers (the "Subscribers' Director") and a director who is mutually
acceptable to the Company, the Subscriber and the Other Subscribers (the
"Mutually Acceptable Director"), which Mutually Acceptable Director shall
initially be Emmett J. Daly. D. Porter Bibb shall continue to serve as a member
of the Board of Directors until the earlier of such time as both the
Subscribers' Director and the Mutually Acceptable Director have been appointed
as such or his voluntary resignation from the Board of Directors. The Company
agrees to nominate for director and solicit proxies or consents in favor of the
(a) Subscribers' Director for so long as the Subscriber and the Other
Subscribers own, individually or in the aggregate, 10% or more of the
outstanding Common Stock and (b) Mutually Acceptable Director for so long as
the Subscriber and the Other Subscribers own, individually or in the aggregate,
5% or more of the outstanding Common Stock.
7.3 Survival of Representations and Warranties; Severability. All
representations, warranties and agreements contained in this Agreement or made
in writing by or on behalf of the Company or by the Subscriber in connection
with the transactions contemplated by this Agreement shall survive the
execution and delivery of this Agreement, any investigation at any time made by
the Subscriber or any other holder of the Shares on the Subscriber's behalf,
the purchase of the Shares under this Agreement and any disposition or payment
of the Shares. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement shall be deemed
representations and warranties of the Company under this Agreement.
7.4 Termination of Agreement. This Agreement may be terminated and the
transactions contemplated herein abandoned (i) by the written agreement of the
Company and the Subscriber or (ii) by any party if the Closing has not occurred
by February 28, 1997.
7.5 Amendment; Waiver. No provision of this Agreement may be
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amended, waived or otherwise modified except by an instrument in writing
executed by the parties hereto.
7.6 Notices, etc. Except as otherwise provided in this Agreement, notices and
other communications under this Agreement shall be in writing and shall be
delivered, or mailed by registered or certified mail, return receipt requested,
by a nationally recognized overnight courier, postage prepaid, or by telecopy
addressed: (i) if to the Subscriber, at such address or telecopy number as the
Subscriber shall have furnished to the Company in writing from time to time for
such purpose, or (ii) if to any other holder of any Shares, at such address as
such other holder shall have furnished to the Company in writing, or, until any
such other holder so furnishes to the Company an address, then to and at the
address of the last holder of such Share who has furnished an address to the
Company, or (iii) if to the Company, to PMC International, Inc., Anaconda
Tower, 14th Floor, 555 Seventeenth Street, Denver, Colorado 80202 to the
attention of its President, or at such other address or to the attention of
such other officer, as the Company shall have furnished to the Subscriber and
each such other holder in writing.
7.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, whether so expressed or not. This Agreement may not be
assigned without the prior written consent of the other party hereto.
7.8 Descriptive Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
7.9 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF COLORADO, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
7.10 Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
7.11 Integration; Severability.
(a) This Agreement, including Schedule A and the Confidential Investor
Questionnaire attached hereto, embodies the entire agreement and understanding
between the Subscriber and the Company and supersedes all prior agreements and
understandings relating to the
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subject matter hereof.
(b) Any provisions of this Agreement that is prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition, unenforceability or lack of authorization
without invalidating the remaining provisions hereof or effecting the validity,
unenforceability or legality of such provision in any other jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
PMC INTERNATIONAL, INC.
By:
Name:
KEEFE, BRUYETTE & WOODS, INC.
By:
Name:
Name of Entity (Print or Type)
By:
Name:
Signature of Individual Subscriber
Name of Individual Subscriber
Address of Subscriber:
SCHEDULE A
PURCHASE PRICE
SUBSCRIBER # OF SHARES PER SHARE
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Exhibit 10.7
This Warrant and any shares acquired upon the exercise of this Warrant have not
been registered under the Securities Act of 1933, as amended, and may not be
transferred, sold or otherwise disposed of except while a registration under
such Act is in effect or pursuant to an exemption therefrom under such Act.
This Warrant and such shares may be transferred only in compliance with the
conditions specified in this Warrant.
PMC INTERNATIONAL, INC.
Common Stock Purchase Warrant
No. KBW-1 December 24, 1996
PMC International, Inc. (the "Company"), a Colorado corporation, for value
received, hereby certifies that Keefe Bruyette & Woods, Inc. ("KBW"), or
registered assigns, is entitled to purchase from the Company 250,000 duly
authorized, validly issued, fully paid and nonassessable shares of Common
Stock, par value $.01 per share (the "Common Stock"), of the Company at the
purchase price per share of $2.125, at any time or from time to time prior to
7:00 P.M., New York City time, on December 24, 2001, all subject to the terms,
conditions and adjustments set forth below in this warrant (the "Warrant", such
term to include any such warrants issued in substitution therefor).
Notwithstanding anything to the contrary contained herein, in the event that
either (a) the registration statement required to be filed by the Company
pursuant to Section 2.1 of the Registration Rights Agreement shall not have
been so filed with the Securities and Exchange Commission on or prior to the
45th calendar day following the Closing Date (as defined in the Registration
Rights Agreement) or (b) such registration statement shall have been filed
within such 45-day period but shall not have been declared effective by the
Securities and Exchange Commission on or prior to the 150th calendar day after
the filing date for such registration statement, then, after the first of such
events to occur, the number of shares subject to this Warrant and the exercise
price therefor shall be adjusted such that KBW, or registered assigns, shall be
entitled to purchase from the Company 291,667 shares of Common Stock at the
purchase price per share of $1.821, subject to the terms, conditions and
adjustments set forth herein. In the event of the adjustment contemplated by
the preceding sentence is made, then (i) any references to $2.125 contained
herein shall be replaced with $1.821 and (ii) any prior adjustments or
readjustments made pursuant to Sections 2 and 4 shall be successively
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recalculated in order to reflect the adjustment contemplated by the preceding
sentence.
Certain capitalized terms used in this Warrant are defined in Section 12;
references to a "Section" are, unless otherwise specified, to one of the
sections of this Warrant.
1. Exercise of Warrant. 1.1. Manner of Exercise. This Warrant may
be exercised by the holder hereof, in whole or in part, during normal
business hours on any Business Day, by surrender of this Warrant to
the Company at its principal office, accompanied by a subscription in
substantially the form attached to this Warrant (or a reasonable
facsimile thereof) duly executed by such holder and accompanied by
payment, in cash, by certified or official bank check payable to the
order of the Company, or in the manner provided in Section 1.4 (or by
any combination of such methods), in the amount obtained by
multiplying (a) the number of shares of Common Stock (without giving
effect to any adjustment thereof) designated in such subscription by
(b) $2.125, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock determined as provided in
Sections 2 through 4.
1.2. When Exercise Effective. Each exercise of this Warrant shall be deemed to
have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1, and at such time the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such exercise as provided in Section 1.3 shall be deemed to have
become the holder or holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable after each
exercise of this Warrant, in whole or in part, and in any event within five
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof or, subject to Section 9, as such holder (upon
payment by such holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock to which such
holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share on the Business Day next
preceding the date of such exercise, and
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(b) in case such exercise is in part only, a new Warrant or Warrants of like
tenor, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment thereof)
to the number of such shares called for on the face of this Warrant minus the
number of such shares designated by the holder upon such exercise as provided
in Section 1.1.
1.4 Payment by Application of Shares Otherwise Issuable. Upon any exercise of
this Warrant, the holder hereof may, at its option, instruct the Company, by
written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company
and the number of shares issuable upon such exercise shall be reduced by such
specified number.
2. Adjustment of Common Stock Issuable Upon Exercise. General; Warrant
Price. The number of shares of Common Stock which the holder of this Warrant
shall be entitled to receive upon each exercise hereof shall be determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of this Section 2) be issuable upon such exercise, as designated
by the holder hereof pursuant to Section 1.1, by the fraction of which (a) the
numerator is $2.125 and (b) the denominator is the Warrant Price in effect on
the date of such exercise. The "Warrant Price" shall initially be $2.125 per
share, shall be adjusted and readjusted from time to time as provided in this
Section 2 and, as so adjusted or readjusted, shall remain in effect until a
further adjustment or readjustment thereof is required by this Section 2.
2.2. Adjustment of Warrant Price.
2.2.1 Issuance of Additional Shares of Common Stock. In case the Company at any
time or from time to time after the date hereof shall issue or sell Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to
be issued pursuant to Section 2.3 or 2.4) without consideration or for a
consideration per share less than the Current Market Price, then, and in each
such case, subject to Section 2.7, such Warrant Price shall be reduced,
concurrently with such issue or sale, to a price (calculated to the nearest
.001 of a cent) determined by multiplying such Warrant Price by a fraction
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(a) the numerator of which shall be (i) the number of shares of Common Stock
outstanding immediately prior to such issue or sale plus (ii) the number of
shares of Common Stock which the aggregate consideration received by the
Company for the total number of such Additional Shares of Common Stock so
issued or sold would purchase at such Current Market Price, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 2.2.1, (x) immediately after
any Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding.
2.2.2 Extraordinary Dividends and Distributions. In case the Company at any
time or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property by
way of dividend or spin-off, reclassification, recapitalization or similar
corporate rearrangement) on the Common Stock, other than dividends or
distributions payable in Additional Shares of Common Stock and other than cash
dividends or other cash distributions, which do not constitute Extraordinary
Cash Dividends, then, and in each such case, subject to Section 2.7, the
Warrant Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class of securities
entitled to receive such dividend or distribution shall be reduced, effective
as of the close of business on such record date, to a price (calculated to the
nearest .001 of a cent) determined by multiplying such Warrant Price by a
fraction
(x) the numerator of which shall be the Current Market Price in effect on
such record date or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading, less an amount equal to
the fair market value of such dividend or distribution as of the payment date
of such dividends or distributions (as determined in good faith by the Board of
Directors of the Company) applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current Market Price.
2.3. Treatment of Options and Convertible Securities. In case the Company at
any time or from time to time after the date hereof shall issue, sell, grant or
assume, or shall fix a record date for the determination of holders of any
class of securities entitled to
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receive, any Options or Convertible Securities,
then, and in each such case, the maximum number of Additional Shares of Common
Stock (as set forth in the instrument relating thereto, without regard to any
provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as
of the time of such issue, sale, grant or assumption or, in case such a record
date shall have been fixed, as of the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), provided that such Additional Shares
of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Current Market Price immediately prior to such issue,
sale, grant or assumption or immediately prior to the close of business on such
record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), as the case may be, and
provided, further, that in any such case in which Additional Shares of Common
Stock are deemed to be issued
(a) no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common Stock
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise, for any increase in the consideration payable
to the Company, or decrease in the number of Additional Shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof (by change of rate
or otherwise), the Warrant Price computed upon the original issue, sale, grant
or assumption thereof (or upon the occurrence of the record date, or date prior
to the commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation or
retirement) of any such Options which shall not have been exercised or the
expiration of any rights of conversion or exchange under any such Convertible
Securities which (or purchase by the Company and cancellation or retirement of
any such Convertible Securities the rights of conversion or exchange under
which) shall not have been
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exercised, the Warrant Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of
the record date, or date prior to the commencement of ex-dividend trading, as
the case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration (or such cancellation or retirement, as
the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible Securities, the
only Additional Shares of Common Stock issued or sold were the Additional
Shares of Common Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received by
the Company for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration actually received by the
Company upon such exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such conversion or
exchange, and
(ii) in the case of Options for Convertible Securities, only the Convertible
Securities, if any, actually issued or sold upon the exercise of such Options
were issued at the time of the issue, sale, grant or assumption of such
Options, and the consideration received by the Company for the Additional
Shares of Common Stock deemed to have then been issued was the consideration
actually received by the Company for the issue, sale, grant or assumption of
all such Options, whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall have the
effect of increasing the Warrant Price by an amount in excess of the amount of
the adjustment thereof originally made in respect of the issue, sale, grant or
assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their terms not more than
45 days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Warrant Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the manner
provided in subdivision (c) above.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the Company at
any time or from time to time after the date hereof shall declare or pay any
dividend on the Common Stock payable in Common
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Stock, or shall effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then, and in each
such case, Additional Shares of Common Stock shall be deemed to have been
issued (a) in the case of any such dividend, immediately after the close of
business on the record date for the determination of holders of any class of
securities entitled to receive such dividend, or (b) in the case of any such
subdivision, at the close of business on the day immediately prior to the day
upon which such corporate action becomes effective.
2.5. Computation of Consideration. For the purposes of this Section 2,
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the net amount of cash
received by the Company, without deducting any expenses paid or incurred by the
Company or any commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar services in
connection with such issue or sale,
(ii) insofar as it consists of property (including securities) other than cash,
be computed at the fair value thereof at the time of such issue or sale, as
determined in good faith by the Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued or sold together
with other stock or securities or other assets of the Company for a
consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (i) and (ii) above, allocable to such
Additional Shares of Common Stock, all as determined in good faith by the Board
of Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been issued pursuant to
Section 2.3, relating to Options and Convertible Securities, shall be deemed to
have been issued for a consideration per share determined by dividing
(i) the total amount, if any, received and receivable by the Company as
consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration to
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protect against dilution) payable to the Company upon the exercise in full of
such Options or the conversion or exchange of such Convertible Securities or,
in the case of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such Convertible
Securities, in each case computing such consideration as provided in the
foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been issued pursuant to
Section 2.4, relating to stock dividends, stock splits, etc., shall be deemed
to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2.7. Minimum Adjustment of Warrant Price. If the amount of any adjustment of
the Warrant Price required pursuant to this Section 2 would be less than one
percent (1%) of the Warrant Price in effect at the time such adjustment is
otherwise so required to be made, such amount shall be carried forward and
adjustment with respect thereto made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate at least one percent (1%) of such
Warrant Price.
3. Consolidation, Merger, etc. 3.1. Adjustments for Consolidation,
Merger, Sale of Assets, Reorganization, etc. In case the Company
after the date hereof (a) shall consolidate with or merge into any
other Person and shall not be the continuing or surviving corporation
of such consolidation or merger, or (b) shall permit any other Person
to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of
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its properties or assets to any other Person in a transaction or
series of transactions in connection with which the Common Stock shall
be changed into or exchanged for stock or other securities of any
other Person or cash or any other property, or (d) shall effect a
capital reorganization or reclassification of the Common Stock (other
than a capital reorganization or reclassification resulting in the
issue of Additional Shares of Common Stock for which adjustment in the
Warrant Price is provided in Section 2.2.1 or 2.2.2), then, and in the
case of each such transaction, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this
Warrant, the holder of this Warrant, upon the exercise hereof at any
time after the consummation of such transaction, shall be entitled to
receive (at the aggregate Warrant Price in effect at the time of such
consummation for all Common Stock issuable upon such exercise
immediately prior to such consummation), in lieu of the Common Stock
issuable upon such exercise prior to such consummation, the highest
amount of securities, cash or other property to which such holder
would actually have been entitled as a shareholder upon such
consummation if such holder had exercised the rights represented by
this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to
the adjustments provided for in Sections 2 through 4, provided that if
a purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding shares of
Common Stock, and if the holder of such Warrants so designates in a
notice given to the Company on or before the date immediately
preceding the date of the consummation of such transaction, the holder
of such Warrants shall be entitled to receive the highest amount of
securities, cash or other property to which such holder would actually
have been entitled as a shareholder if the holder of such Warrants had
exercised such Warrants prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to
adjustments (from and after the consummation of such purchase, tender
or exchange offer) as nearly equivalent as possible to the adjustments
provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything contained in the
Warrants to the contrary, the Company will not effect any of the transactions
described in clauses (a) through (d) of Section 3.1 unless, prior to the
consummation thereof, each Person (other than the Company) which may be
required to deliver any stock, securities, cash or property upon the exercise
of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant, (a)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
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of the Company under this Warrant), (b) the obligations of the Company under
the Registration Rights Agreement and (c) the obligation to deliver to such
holder such shares of stock, securities, cash or property as, in accordance
with the foregoing provisions of this Section 3, such holder may be entitled to
receive, and such Person shall have similarly delivered to such holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such holder, stating that this Warrant shall thereafter
continue in full force and effect and the terms hereof (including, without
limitation, all of the provisions of this Section 3) shall be applicable to the
stock, securities, cash or property which such Person may be required to
deliver upon any exercise of this Warrant or the exercise of any rights
pursuant hereto.
4. Other Dilutive Events. In case any event shall occur as to which the
provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Sections 2 and 3, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of its
articles or certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not permit the
par value of any shares of stock receivable upon the exercise of this Warrant
to exceed the amount payable therefor upon such exercise, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
exercise of the Warrants from time to time outstanding, and (c) will not take
any action which results in any adjustment of the Warrant Price if the total
number of shares of Common Stock issuable after the
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action upon the exercise of all of the Warrants would exceed the total number
of shares of Common Stock then authorized by the Company's articles or
certificate of incorporation and available for the purpose of issue upon such
exercise.
6. Accountants' Report as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock issuable upon the exercise of this
Warrant, the Company at its expense will promptly compute such adjustment or
readjustment in accordance with the terms of this Warrant and cause independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company) selected by the Company to verify such
computation (other than any computation of the fair value of property as
determined in good faith by the Board of Directors of the Company) and prepare
a report setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Warrant Price in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by Section 2) on account thereof. The
Company will forthwith mail a copy of each such report to each holder of a
Warrant and will, upon the written request at any time of any holder of a
Warrant, furnish to such holder a like report setting forth the Warrant Price
at the time in effect and showing in reasonable detail how it was calculated.
The Company will also keep copies of all such reports at its principal office
and will cause the same to be available for inspection at such office during
normal business hours by any holder of a Warrant or any prospective purchaser
of a Warrant designated by the holder thereof.
7. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer of all or
substantially all the properties or assets of the Company to any other Person,
or
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(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place and
the time, if any such time is to be fixed, as of which the holders of record of
Common Stock shall be entitled to exchange their shares of Common Stock for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 20
days prior to the date therein specified, in the case of any date referred to
in the foregoing subdivision (i), and at least 90 days prior to the date
therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
8. Registration of Common Stock. The shares of Common Stock issuable upon
exercise of this Warrant shall constitute Registrable Securities (as such term
is defined in the Registration Rights Agreement). Each holder of this Warrant
shall be entitled to all of the benefits afforded to a holder of any such
Registrable Securities under the Registration Rights Agreement and such holder,
by its acceptance of this Warrant, agrees to be bound by and to comply with the
terms and conditions of the Registration Rights Agreement applicable to such
holder as a holder of such Registrable Securities. At any such time as Common
Stock is listed on any national securities exchange, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange, upon official notice of issuance, the shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
9. Restrictions on Transfer. 9.1 Restrictive Legends. Except as
otherwise permitted by this Section 9, each certificate for Common
Stock issued upon the exercise of any Warrant, and each certificate
issued upon the transfer of any such Common Stock, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933 and may not be transferred in the absence of such
registration or an exemption therefrom under such Act. Such shares may be
transferred only in compliance with the conditions
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specified in the Common Stock Purchase Warrant issued by PMC International,
Inc. A complete and correct copy of the form of such Warrant is available for
inspection at the principal office of PMC International, Inc. and will be
furnished to the holder of such shares upon written request and without
charge."
9.2 Notice of Proposed Transfer; Opinions of Counsel. Prior to any transfer
of any Warrant, the holder thereof will give written notice to the Company of
such holder's intention to effect such transfer and, except as set forth below,
shall deliver an opinion of counsel (which may be counsel to the Company), in
form and substance reasonably satisfactory to the Company, to the effect that
the proposed transfer may be effected without registration of such Warrant or
Common Stock issued upon the exercise of any Warrant under the Securities Act
or applicable state securities laws. Each certificate issued upon or in
connection with the transfer of any Warrant or Common Stock issued upon the
exercise of any Warrant shall bear the appropriate restrictive legend set forth
on the face of this Warrant or in Section 9.1, unless in the opinion of such
counsel such legend is no longer required to insure compliance with the
Securities Act. The Company will pay the reasonable fees and disbursements of
counsel (other than house counsel) in connection with any and all opinions
rendered by such counsel pursuant to this Section 9.2. Notwithstanding anything
to the contrary contained herein, KBW shall be entitled to transfer this
Warrant, in whole or in part, to any affiliate (as such term is defined under
the rules and regulations promulgated under the Securities Act) or officer of
KBW without delivery of any opinion of counsel provided that the transferee
provides to the Company any representations deemed necessary by the Company to
determine that such transfer may be effected without registration of such
Warrant or underlying Common Stock under the Securities Act or applicable state
securities laws.
9.3 Termination of Restrictions. The restrictions imposed by this Section 9
upon the transferability of any Warrant or Common Stock issued upon the
exercise of any Warrant shall cease and terminate as to any particular Warrant
or Common Stock issued upon the exercise of any Warrant (a) when such
securities shall have been effectively registered under the Securities Act, or
(b) when, in the opinion of counsel in form and substance reasonably
satisfactory to the Company, such restrictions are no longer required in order
to insure compliance with the Securities Act. Whenever such restrictions shall
cease and terminate as to any Warrant or Common Stock issued upon the exercise
of any Warrant, the holder thereof shall be entitled to receive from the
Company, without expense (other than applicable transfer taxes, if any), new
securities of like tenor not bearing the applicable legends required by Section
9.1.
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10. Reservation of Stock, etc. The Company will at all times reserve and keep
available, solely for issuance and delivery upon exercise of the Warrants, the
number of shares of Common Stock from time to time issuable upon exercise of
all Warrants at the time outstanding. All shares of Common Stock issuable upon
exercise of any Warrants shall be duly authorized and, when issued upon such
exercise, shall be validly issued and, in the case of shares, fully paid and
nonassessable with no liability on the part of the holders thereof.
11. Registration and Transfer of Warrants, etc.
11.1. Warrant Register; Ownership of Warrants. The Company will keep at its
principal office a register in which the Company will provide for the
registration of Warrants and the registration of transfers of Warrants. The
Company may treat the Person in whose name any Warrant is registered on such
register as the owner thereof for all other purposes, and the Company shall not
be affected by any notice to the contrary, except that, if and when any Warrant
is properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer thereof as the owner of such Warrant for all purposes. Subject
to Section 9, a Warrant, if properly assigned, may be exercised by a new holder
without a new Warrant first having been issued.
11.2. Transfer and Exchange of Warrants. Upon surrender of any Warrant for
registration of transfer or for exchange to the Company at its principal
office, the Company at its expense will (subject to compliance with Section 9,
if applicable) execute and deliver in exchange therefor a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
11.3. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant
and, in the case of any such loss, theft or destruction of any Warrant, upon
delivery of an indemnity bond in such reasonable amount as the Company may
determine, or, in the case of any such mutilation, upon the surrender of such
Warrant for cancellation to the Company at its principal office, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
12. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
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Additional Shares of Common Stock: All shares (including treasury shares) of
Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4, deemed to be
issued) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than
(a) shares issued upon: the exercise of this Warrant; the exercise of any
other Warrants issued by the Company in connection with the New Bridge Loan (as
such term is defined in the Private Placement Memorandum); the Restructuring
(as such term is defined in the Private Placement Memorandum); the exercise of
Options and warrants issued by the Company in connection with debt financings
of the Company that are outstanding as of the date hereof; and the exchange of
shares of the Company's Series A Preferred Stock (whether occurring before or
after the date hereof);
(b) up to (i) 1,000,000 shares issued upon exercise of Options granted to
David Andrus but only if and to the extent granted as contemplated by the
Private Placement Memorandum (without any amendments or supplements thereto)
and (ii) 1,750,000 shares issued upon exercise of Options granted to the
Company's employees, consultants or directors under bona fide benefit plans
adopted by the Board of Directors and approved by the holders of Common Stock
when required by law, but only if and to the extent that the exercise price in
respect of any Option equals or exceeds the Market Price on the date of the
grant of such Option;
(c) shares issued to shareholders of any entity which merges into the Company
in proportion to their stock holdings in such entity immediately prior to such
merger, upon such merger
(d) shares issued by the Company in the Offering (including any shares that
may be issued as a result of the Company failing to comply with certain
provisions of the Registration Rights Agreement);
(e) shares issued in a bona fide public offering pursuant to a firm
commitment underwriting, but only if and to the extent that the consideration
received by the Company in respect of each share so issued (as determined
pursuant to Section 2.5) equals or exceeds 95% of the Current Market Price;
(f) shares issued in a bona fide private placement through a placement agent
which is a member firm of the NASD or by the Company, but only if and to the
extent that the consideration received by the Company in respect of each share
so issued (as determined pursuant to Section 2.5) equals or exceeds 90% of the
Current Market Price;
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(g) such additional number of shares as may become issuable upon the exercise
of any of the securities referred to in the foregoing clauses (a) and (b) by
reason of adjustments required pursuant to anti-dilution provisions applicable
to such securities as in effect on the date hereof.
Business Day: Any day other than a Saturday or a Sunday or a day on which
commercial banking institutions in Denver, Colorado are authorized by law to be
closed. Any reference to "days" (unless Business Days are specified) shall mean
calendar days.
Common Stock: As defined in the introduction to this Warrant, such term to
include any stock into which such Common Stock shall have been changed or any
stock resulting from any reclassification of such Common Stock, and all other
stock of any class or classes (however designated) of the Company the holders
of which have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference.
Company: As defined in the introduction to this Warrant, such term to include
any corporation which shall succeed to or assume the obligations of the Company
hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares of stock (other
than Common Stock) or other securities directly or indirectly convertible into
or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily Market
Price during the period of the most recent 20 days, ending on such date, on
which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current
Market Price shall be the Market Price on such date.
Extraordinary Cash Dividend: Any cash dividend or distribution with respect to
the Common Stock the amount of which exceeds, when aggregated with all other
such dividends or distributions paid on the Common Stock over the 365-day
period immediately preceding the record date for such dividend or distribution,
on a per share basis, the lesser of (i) 25% of the consolidated net income of
the Company for the four fiscal quarters immediately preceding the record date
for such dividend or distribution and (ii) 8% of the average of the Market
Prices of the Common Stock on each trading day during the 365-day
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period referred to above.
Market Price: On any date specified herein, the amount per share of the Common
Stock, equal to (a) the last sale price of such Common Stock, regular way, on
such date or, if no such sale takes place on such date, the average of the
closing bid and asked prices thereof on such date, in each case as officially
reported on the principal national securities exchange on which such Common
Stock is then listed or admitted to trading, or (b) if such Common Stock is not
then listed or admitted to trading on any national securities exchange but is
designated as a national market system security by the NASD, the last trading
price of the Common Stock on such date, or (c) if there shall have been no
trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown
by the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the higher of (x) the book value thereof as determined
by any firm of independent public accountants of recognized standing selected
by the Board of Directors of the Company as of the last day of any month ending
within 60 days preceding the date as of which the determination is to be made
or (y) the fair value thereof determined in good faith by the Board of
Directors of the Company as of a date which is within 18 days of the date as of
which the determination is to be made.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
Person: A corporation, an association, a partnership, an
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Private Placement Memorandum: The Private Placement Memorandum of the
Company, dated as of November 11, 1996, and any amendments or
supplements thereto.
Registration Rights Agreement: The Registration Rights Agreement
between the Company and KBW and others dated as of December 24, 1996.
Securities Act: The Securities Act of 1933, as amended, or any similar federal
statute, and the rules and regulations of the Securities and Exchange
Commission thereunder, all as the same shall be in effect at the time.
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Warrant Price: As defined in Section 2.1.
Warrant: As defined in the introduction to this Warrant.
13. Remedies. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
14. No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. Notices. All notices and other communications under this Warrant shall be
in writing and shall be delivered, or mailed by registered or certified mail,
return receipt requested, by a nationally recognized overnight courier, postage
prepaid, addressed (a) if to any holder of any Warrant, at the registered
address of such holder as set forth in the register kept at the principal
office of the Company, or (b) if to the Company, to the attention of its
President at its principal office, provided that the exercise of any Warrant
shall be effective in the manner provided in Section 1.
16. Amendments. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
17. Descriptive Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
18. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF COLORADO, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
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IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
set forth above.
PMC INTERNATIONAL, INC.
By: /s/
Kenneth S. Phillips
President and CEO
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To PMC International, Inc.,
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, ______* shares of Common
Stock of PMC International, Inc. and herewith makes payment of $______
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ________ __________, whose address is
______________________.
Dated:
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of Warrant)
---------------------------------------
(Street Address)
---------------------------------------
(City)(State)(Zip Code)
Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
FORM OF ASSIGNMENT
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[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto _____________ ________________ the
right represented by such Warrant to purchase ______ shares of Common Stock of
PMC International, Inc. to which such Warrant relates, and appoints
_____________________________ Attorney to make such transfer on the books of
PMC International, Inc. maintained for such purpose, with full power of
substitution in the premises.
Dated:
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of Warrant)
---------------------------------------
(Street Address)
---------------------------------------
(City)(State)(Zip Code)
Signed in the presence of:
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Exhibit 10.8
This Warrant and any shares acquired upon the exercise of this Warrant have not
been registered under the Securities Act of 1933, as amended, and may not be
transferred, sold or otherwise disposed of except while a registration under
such Act is in effect or pursuant to an exemption therefrom under such Act.
This Warrant and such shares may be transferred only in compliance with the
conditions specified in this Warrant.
PMC INTERNATIONAL, INC.
Common Stock Purchase Warrant
No. E -_ December 24, 1996
PMC International, Inc. (the "Company"), a Colorado corporation, for value
received, hereby certifies that [Holder] ("Warrant Holder"), or registered
assigns, is entitled to purchase from the Company 10,000 duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock, par value
$.01 per share (the "Common Stock"), of the Company at the purchase price per
share of $2.125, at any time or from time to time prior to 7:00 P.M., New York
City time, on December 24, 2001, all subject to the terms, conditions and
adjustments set forth below in this warrant (the "Warrant", such term to
include any such warrants issued in substitution therefor).
Certain capitalized terms used in this Warrant are defined in Section 12;
references to a "Section" are, unless otherwise specified, to one of the
sections of this Warrant.
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1. Exercise of Warrant. 1.1. Manner of Exercise. This Warrant may
be exercised by the holder hereof, in whole or in part, during normal
business hours on any Business Day, by surrender of this Warrant to
the Company at its principal office, accompanied by a subscription in
substantially the form attached to this Warrant (or a reasonable
facsimile thereof) duly executed by such holder and accompanied by
payment, in cash, by certified or official bank check payable to the
order of the Company, or in the manner provided in Section 1.4 (or by
any combination of such methods), in the amount obtained by
multiplying (a) the number of shares of Common Stock (without giving
effect to any adjustment thereof) designated in such subscription by
(b) $2.125, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock determined as provided in
Sections 2 through 4.
1.2 When Exercise Effective. Each exercise of this Warrant shall be deemed to
have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1, and at such time the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such exercise as provided in Section 1.3 shall be deemed to have
become the holder or holders of record thereof.
1.3 Delivery of Stock Certificates, etc. As soon as practicable after each
exercise of this Warrant, in whole or in part, and in any event within five
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof or, subject to Section 9, as such holder (upon
payment by such holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock to which such
holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share on the Business Day next
preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or Warrants of like
tenor, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment thereof)
to the number of such shares called for on the face of this Warrant minus the
number of such shares designated by the holder upon such exercise as provided
in Section 1.1.
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1.4 Payment by Application of Shares Otherwise Issuable. Upon any exercise of
this Warrant, the holder hereof may, at its option, instruct the Company, by
written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company
and the number of shares issuable upon such exercise shall be reduced by such
specified number.
2. Adjustment of Common Stock Issuable Upon Exercise. 2.1. General; Warrant
Price. The number of shares of Common Stock which the holder of this Warrant
shall be entitled to receive upon each exercise hereof shall be determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of this Section 2) be issuable upon such exercise, as designated
by the holder hereof pursuant to Section 1.1, by the fraction of which (a) the
numerator is $2.125 and (b) the denominator is the Warrant Price in effect on
the date of such exercise. The "Warrant Price" shall initially be $2.125 per
share, shall be adjusted and readjusted from time to time as provided in this
Section 2 and, as so adjusted or readjusted, shall remain in effect until a
further adjustment or readjustment thereof is required by this Section 2.
2.2. Adjustment of Warrant Price.
2.2.1 Issuance of Additional Shares of Common Stock. In case the Company at any
time or from time to time after the date hereof shall issue or sell Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to
be issued pursuant to Section 2.3 or 2.4) without consideration or for a
consideration per share less than the Current Market Price, then, and in each
such case, subject to Section 2.7, such Warrant Price shall be reduced,
concurrently with such issue or sale, to a price (calculated to the nearest
.001 of a cent) determined by multiplying such Warrant Price by a fraction
(a) the numerator of which shall be (i) the number of shares of Common Stock
outstanding immediately prior to such issue or sale plus (ii) the number of
shares of Common Stock which the aggregate consideration received by the
Company for the total number of such Additional Shares of Common Stock so
issued or sold would purchase at such Current Market Price, and
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(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 2.2.1, (x) immediately after
any Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding.
2.2.2 Extraordinary Dividends and Distributions. In case the Company at any
time or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property by
way of dividend or spin-off, reclassification, recapitalization or similar
corporate rearrangement) on the Common Stock, other than dividends or
distributions payable in Additional Shares of Common Stock and other than cash
dividends or other cash distributions, which do not constitute Extraordinary
Cash Dividends, then, and in each such case, subject to Section 2.7, the
Warrant Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class of securities
entitled to receive such dividend or distribution shall be reduced, effective
as of the close of business on such record date, to a price (calculated to the
nearest .001 of a cent) determined by multiplying such Warrant Price by a
fraction
(x) the numerator of which shall be the Current Market Price in effect on
such record date or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading, less an amount equal to
the fair market value of such dividend or distribution as of the payment date
of such dividends or distributions (as determined in good faith by the Board of
Directors of the Company) applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current Market Price.
2.3 Treatment of Options and Convertible Securities. In case the Company at
any time or from time to time after the date hereof shall issue, sell, grant or
assume, or shall fix a record date for the determination of holders of any
class of securities entitled to receive, any Options or Convertible Securities,
then, and in each such case, the maximum number of Additional Shares of Common
Stock (as set forth in the instrument relating thereto, without regard to any
provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be
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Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), provided that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 2.5) of such shares would be less than the Current Market
Price immediately prior to such issue, sale, grant or assumption or immediately
prior to the close of business on such record date (or, if the Common Stock
trades on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading), as the case may be, and provided, further, that in any
such case in which Additional Shares of Common Stock are deemed to be issued
(a) no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common Stock
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise, for any increase in the consideration payable
to the Company, or decrease in the number of Additional Shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof (by change of rate
or otherwise), the Warrant Price computed upon the original issue, sale, grant
or assumption thereof (or upon the occurrence of the record date, or date prior
to the commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation or
retirement) of any such Options which shall not have been exercised or the
expiration of any rights of conversion or exchange under any such Convertible
Securities which (or purchase by the Company and cancellation or retirement of
any such Convertible Securities the rights of conversion or exchange under
which) shall not have been exercised, the Warrant Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of
the record date, or date prior to the commencement of ex-dividend trading, as
the case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration (or such cancellation or retirement, as
the case may be), be recomputed as if:
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(i) in the case of Options for Common Stock or Convertible Securities, the
only Additional Shares of Common Stock issued or sold were the Additional
Shares of Common Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received by
the Company for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration actually received by the
Company upon such exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such conversion or
exchange, and
(ii) in the case of Options for Convertible Securities, only the Convertible
Securities, if any, actually issued or sold upon the exercise of such Options
were issued at the time of the issue, sale, grant or assumption of such
Options, and the consideration received by the Company for the Additional
Shares of Common Stock deemed to have then been issued was the consideration
actually received by the Company for the issue, sale, grant or assumption of
all such Options, whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall have the
effect of increasing the Warrant Price by an amount in excess of the amount of
the adjustment thereof originally made in respect of the issue, sale, grant or
assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their terms not more than
45 days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Warrant Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the manner
provided in subdivision (c) above.
2.4 Treatment of Stock Dividends, Stock Splits, etc. In case the Company at
any time or from time to time after the date hereof shall declare or pay any
dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled
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to receive such dividend, or (b) in the case of any such subdivision, at the
close of business on the day immediately prior to the day upon which such
corporate action becomes effective.
2.5 Computation of Consideration. For the purposes of this Section 2,
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the net amount of cash
received by the Company, without deducting any expenses paid or incurred by the
Company or any commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar services in
connection with such issue or sale,
(ii) insofar as it consists of property (including securities) other than
cash, be computed at the fair value thereof at the time of such issue or sale,
as determined in good faith by the Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued or sold together
with other stock or securities or other assets of the Company for a
consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (i) and (ii) above, allocable to such
Additional Shares of Common Stock, all as determined in good faith by the Board
of Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been issued pursuant to
Section 2.3, relating to Options and Convertible Securities, shall be deemed to
have been issued for a consideration per share determined by dividing
(i) the total amount, if any, received and receivable by the Company as
consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration to protect against dilution) payable to the Company upon
the exercise in full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a),
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by
(ii) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been issued pursuant to
Section 2.4, relating to stock dividends, stock splits, etc., shall be deemed
to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2.7. Minimum Adjustment of Warrant Price. If the amount of any adjustment of
the Warrant Price required pursuant to this Section 2 would be less than one
percent (1%) of the Warrant Price in effect at the time such adjustment is
otherwise so required to be made, such amount shall be carried forward and
adjustment with respect thereto made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate at least one percent (1%) of such
Warrant Price.
3. Consolidation, Merger, etc. 3.1. Adjustments for Consolidation,
Merger, Sale of Assets, Reorganization, etc. In case the Company
after the date hereof (a) shall consolidate with or merge into any
other Person and shall not be the continuing or surviving corporation
of such consolidation or merger, or (b) shall permit any other Person
to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of
its properties or assets to any other Person in a transaction or
series of transactions in connection with which the Common Stock shall
be changed into or exchanged for stock or other securities of any
other Person or cash or any other property, or (d) shall effect a
capital reorganization or reclassification of the Common Stock (other
than a capital reorganization or reclassification resulting in the
issue of Additional Shares of Common Stock for which adjustment in the
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Warrant Price is provided in Section 2.2.1 or 2.2.2), then, and in the
case of each such transaction, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this
Warrant, the holder of this Warrant, upon the exercise hereof at any
time after the consummation of such transaction, shall be entitled to
receive (at the aggregate Warrant Price in effect at the time of such
consummation for all Common Stock issuable upon such exercise
immediately prior to such consummation), in lieu of the Common Stock
issuable upon such exercise prior to such consummation, the highest
amount of securities, cash or other property to which such holder
would actually have been entitled as a shareholder upon such
consummation if such holder had exercised the rights represented by
this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to
the adjustments provided for in Sections 2 through 4, provided that if
a purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding shares of
Common Stock, and if the holder of such Warrants so designates in a
notice given to the Company on or before the date immediately
preceding the date of the consummation of such transaction, the holder
of such Warrants shall be entitled to receive the highest amount of
securities, cash or other property to which such holder would actually
have been entitled as a shareholder if the holder of such Warrants had
exercised such Warrants prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to
adjustments (from and after the consummation of such purchase, tender
or exchange offer) as nearly equivalent as possible to the adjustments
provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything contained in the
Warrants to the contrary, the Company will not effect any of the transactions
described in clauses (a) through (d) of Section 3.1 unless, prior to the
consummation thereof, each Person (other than the Company) which may be
required to deliver any stock, securities, cash or property upon the exercise
of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant, (a)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), (b) the obligations of the Company under
the Registration Rights Agreement and (c) the obligation to deliver to such
holder such shares of stock, securities, cash or property as, in accordance
with the foregoing provisions of this Section 3, such holder may be entitled to
receive, and such Person shall have similarly delivered to such holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to
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such holder, stating that this Warrant shall thereafter
continue in full force and effect and the terms hereof (including, without
limitation, all of the provisions of this Section 3) shall be applicable to the
stock, securities, cash or property which such Person may be required to
deliver upon any exercise of this Warrant or the exercise of any rights
pursuant hereto.
4. Other Dilutive Events. In case any event shall occur as to which the
provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Sections 2 and 3, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of its
articles or certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not permit the
par value of any shares of stock receivable upon the exercise of this Warrant
to exceed the amount payable therefor upon such exercise, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
exercise of the Warrants from time to time outstanding, and (c) will not take
any action which results in any adjustment of the Warrant Price if the total
number of shares of Common Stock issuable after the action upon the exercise of
all of the Warrants would exceed the total number of shares of Common Stock
then authorized by the Company's articles or certificate of incorporation and
available for the purpose of issue upon such exercise.
6. Accountants' Report as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock issuable upon
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the exercise of this Warrant, the Company at its expense will promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant
and cause independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company) selected by the
Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company) and prepare a report setting forth such adjustment or readjustment and
showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the consideration received or to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued,
(b) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (c) the Warrant Price in effect immediately prior to such
issue or sale and as adjusted and readjusted (if required by Section 2) on
account thereof. The Company will forthwith mail a copy of each such report to
each holder of a Warrant and will, upon the written request at any time of any
holder of a Warrant, furnish to such holder a like report setting forth the
Warrant Price at the time in effect and showing in reasonable detail how it was
calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any holder of a Warrant or any
prospective purchaser of a Warrant designated by the holder thereof.
7. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer of all or
substantially all the properties or assets of the Company to any other Person,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the
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amount and character of such dividend, distribution or right, and (ii) the date
or expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as
of which the holders of record of Common Stock shall be entitled to exchange
their shares of Common Stock for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 20 days prior to the date therein specified, in the case of any
date referred to in the foregoing subdivision (i), and at least 90 days prior
to the date therein specified, in the case of the date referred to in the
foregoing subdivision (ii).
8. Registration of Common Stock. The shares of Common Stock issuable upon
exercise of this Warrant shall constitute Registrable Securities (as such term
is defined in the Registration Rights Agreement). Each holder of this Warrant
shall be entitled to all of the benefits afforded to a holder of any such
Registrable Securities under the Registration Rights Agreement and such holder,
by its acceptance of this Warrant, agrees to be bound by and to comply with the
terms and conditions of the Registration Rights Agreement applicable to such
holder as a holder of such Registrable Securities. At any such time as Common
Stock is listed on any national securities exchange, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange, upon official notice of issuance, the shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
9. Restrictions on Transfer. 9.1. Restrictive Legends. Except as
otherwise permitted by this Section 9, each certificate for Common
Stock issued upon the exercise of any Warrant, and each certificate
issued upon the transfer of any such Common Stock, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
transferred in the absence of such registration or an exemption therefrom
under such Act. Such shares may be transferred only in compliance with the
conditions specified in the Common Stock Purchase Warrant issued by PMC
International, Inc. A complete and correct copy of the form of such Warrant
is available for inspection at the principal office of PMC International,
Inc. and will be furnished to the holder of such shares upon written
request and without charge."
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9.2 Notice of Proposed Transfer; Opinions of Counsel. Prior to any transfer of
any Warrant, the holder thereof will give written notice to the Company of such
holder's intention to effect such transfer and shall deliver an opinion of
counsel (which may be counsel to the Company), in form and substance reasonably
satisfactory to the Company, to the effect that the proposed transfer may be
effected without registration of such Warrant or Common Stock issued upon the
exercise of any Warrant under the Securities Act or applicable state securities
laws. Each certificate issued upon or in connection with the transfer of any
Warrant or Common Stock issued upon the exercise of any Warrant shall bear the
appropriate restrictive legend set forth on the face of this Warrant or in
Section 9.1, unless in the opinion of such counsel such legend is no longer
required to insure compliance with the Securities Act. The Company will pay the
reasonable fees and disbursements of counsel (other than house counsel) in
connection with any and all opinions rendered by such counsel pursuant to this
Section 9.2.
9.3 Termination of Restrictions. The restrictions imposed by this Section 9
upon the transferability of any Warrant or Common Stock issued upon the
exercise of any Warrant shall cease and terminate as to any particular Warrant
or Common Stock issued upon the exercise of any Warrant (a) when such
securities shall have been effectively registered under the Securities Act, or
(b) when, in the opinion of counsel in form and substance reasonably
satisfactory to the Company, such restrictions are no longer required in order
to insure compliance with the Securities Act. Whenever such restrictions shall
cease and terminate as to any Warrant or Common Stock issued upon the exercise
of any Warrant, the holder thereof shall be entitled to receive from the
Company, without expense (other than applicable transfer taxes, if any), new
securities of like tenor not bearing the applicable legends required by Section
9.1.
10. Reservation of Stock, etc. The Company will at all times reserve and keep
available, solely for issuance and delivery upon exercise of the Warrants, the
number of shares of Common Stock from time to time issuable upon exercise of
all Warrants at the time outstanding. All shares of Common Stock issuable upon
exercise of any Warrants shall be duly authorized and, when issued upon such
exercise, shall be validly issued and, in the case of shares, fully paid and
nonassessable with no liability on the part of the holders thereof.
11. Registration and Transfer of Warrants, etc.
11.1. Warrant Register; Ownership of Warrants. The Company will keep at its
principal office a register in which the Company will provide for the
registration of Warrants and the registration of transfers of
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Warrants. The Company may treat the Person in whose name any Warrant is
registered on such register as the owner thereof for all other purposes, and
the Company shall not be affected by any notice to the contrary, except that,
if and when any Warrant is properly assigned in blank, the Company may (but
shall not be obligated to) treat the bearer thereof as the owner of such
Warrant for all purposes. Subject to Section 9, a Warrant, if properly
assigned, may be exercised by a new holder without a new Warrant first having
been issued.
11.2. Transfer and Exchange of Warrants. Upon surrender of any Warrant for
registration of transfer or for exchange to the Company at its principal
office, the Company at its expense will (subject to compliance with Section 9,
if applicable) execute and deliver in exchange therefor a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
11.3. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant
and, in the case of any such loss, theft or destruction of any Warrant, upon
delivery of an indemnity bond in such reasonable amount as the Company may
determine, or, in the case of any such mutilation, upon the surrender of such
Warrant for cancellation to the Company at its principal office, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
12. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury shares) of
Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4, deemed to be
issued) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than
(a) shares issued upon: the exercise of this Warrant; the exercise of any
other Warrants issued by the Company in connection with the New Bridge Loan (as
such term is defined in the Private Placement Memorandum); the Restructuring
(as such term is defined in the Private Placement Memorandum); or as
compensation to Keefe, Bruyette & Woods, Inc. in connection with the Offering
(as such term is defined in the Private Placement Memorandum); the exercise of
Options and warrants issued by the Company in connection with debt financings
of the Company that are outstanding as of the date hereof; and the exchange
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of shares of the Company's Series A Preferred Stock (whether occurring before
or after the date hereof);
(b) up to (i) 1,000,000 shares issued upon exercise of Options granted to
[Holder] but only if and to the extent granted as contemplated by the Private
Placement Memorandum (without any amendments or supplements thereto) and (ii)
1,750,000 shares issued upon exercise of Options granted to the Company's
employees, consultants or directors under bona fide benefit plans adopted by
the Board of Directors and approved by the holders of Common Stock when
required by law, but only if and to the extent that the exercise price in
respect of any Option equals or exceeds the Market Price on the date of the
grant of such Option;
(c) shares issued to shareholders of any entity which merges into the Company
in proportion to their stock holdings in such entity immediately prior to such
merger, upon such merger
(d) shares issued by the Company in the Offering (including any shares that
may be issued as a result of the Company failing to comply with certain
provisions of the Registration Rights Agreement);
(e) shares issued in a bona fide public offering pursuant to a firm
commitment underwriting, but only if and to the extent that the consideration
received by the Company in respect of each share so issued (as determined
pursuant to Section 2.5) equals or exceeds 95% of the Current Market Price;
(f) shares issued in a bona fide private placement through a placement agent
which is a member firm of the NASD or by the Company, but only if and to the
extent that the consideration received by the Company in respect of each share
so issued (as determined pursuant to Section 2.5) equals or exceeds 90% of the
Current Market Price;
(g) such additional number of shares as may become issuable upon the exercise
of any of the securities referred to in the foregoing clauses (a) and (b) by
reason of adjustments required pursuant to anti-dilution provisions applicable
to such securities as in effect on the date hereof.
Business Day: Any day other than a Saturday or a Sunday or a day on which
commercial banking institutions in Denver, Colorado are authorized by law to be
closed. Any reference to "days" (unless Business Days are specified) shall mean
calendar days.
Common Stock: As defined in the introduction to this Warrant, such term to
include any stock into which such Common Stock shall have been
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changed or any stock resulting from any reclassification of such Common Stock,
and all other stock of any class or classes (however designated) of the Company
the holders of which have the right, without limitation as to amount, either to
all or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference.
Company: As defined in the introduction to this Warrant, such term to include
any corporation which shall succeed to or assume the obligations of the Company
hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares of stock (other
than Common Stock) or other securities directly or indirectly convertible into
or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the average daily Market
Price during the period of the most recent 20 days, ending on such date, on
which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current
Market Price shall be the Market Price on such date.
Extraordinary Cash Dividend: Any cash dividend or distribution with respect to
the Common Stock the amount of which exceeds, when aggregated with all other
such dividends or distributions paid on the Common Stock over the 365-day
period immediately preceding the record date for such dividend or distribution,
on a per share basis, the lesser of (i) 25% of the consolidated net income of
the Company for the four fiscal quarters immediately preceding the record date
for such dividend or distribution and (ii) 8% of the average of the Market
Prices of the Common Stock on each trading day during the 365-day period
referred to above.
Market Price: On any date specified herein, the amount per share of the Common
Stock, equal to (a) the last sale price of such Common Stock, regular way, on
such date or, if no such sale takes place on such date, the average of the
closing bid and asked prices thereof on such date, in each case as officially
reported on the principal national securities exchange on which such Common
Stock is then listed or admitted to trading, or (b) if such Common Stock is not
then listed or admitted to trading on any national securities exchange but is
designated as a national market system security by the NASD, the last trading
price of the Common Stock on such date, or (c) if there shall have been no
trading on such date or if the Common Stock is not so
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designated, the average of the closing bid and asked prices of the Common Stock
on such date as shown by the NASD automated quotation system, or (d) if such
Common Stock is not then listed or admitted to trading on any national exchange
or quoted in the over-the-counter market, the higher of (x) the book value
thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of the
last day of any month ending within 60 days preceding the date as of which the
determination is to be made or (y) the fair value thereof determined in good
faith by the Board of Directors of the Company as of a date which is within 18
days of the date as of which the determination is to be made.
NASD: The National Association of Securities Dealers, Inc.
Options: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
Person: A corporation, an association, a partnership, an
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Private Placement Memorandum: The Private Placement Memorandum of the
Company, dated as of November 11, 1996, and any amendments or
supplements thereto.
Registration Rights Agreement: The Registration Rights Agreement to
be entered into by Warrant Holder and the Company.
Securities Act: The Securities Act of 1933, as amended, or any similar federal
statute, and the rules and regulations of the Securities and Exchange
Commission thereunder, all as the same shall be in effect at the time.
Warrant Price: As defined in Section 2.1.
Warrant: As defined in the introduction to this Warrant.
13. Remedies. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
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14. No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. Notices. All notices and other communications under this Warrant shall be
in writing and shall be delivered, or mailed by registered or certified mail,
return receipt requested, by a nationally recognized overnight courier, postage
prepaid, addressed (a) if to any holder of any Warrant, at the registered
address of such holder as set forth in the register kept at the principal
office of the Company, or (b) if to the Company, to the attention of its
President at its principal office, provided that the exercise of any Warrant
shall be effective in the manner provided in Section 1.
16. Amendments. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
17. Descriptive Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
18. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF COLORADO, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
set forth above.
PMC INTERNATIONAL, INC.
By:
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FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To PMC International, Inc.,
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, ______* shares of Common
Stock of PMC International, Inc. and herewith makes payment of $______
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ________________________, whose address is
______________________.
Dated:
------------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of Warrant)
------------------------------------------
(Street Address)
------------------------------------------
(City)(State)(Zip Code)
* Insert here the number of shares called for on the face of this
Warrant (or, in the case of a partial exercise, the portion
thereof as to which this Warrant is being exercised), in either
case without making any adjustment for Additional Shares of
Common Stock or any other stock or other securities or property
or cash which, pursuant to the adjustment provisions of this
Warrant, may be delivered upon exercise. In the case of partial
exercise, a new Warrant or Warrants will be issued and delivered,
representing the unexercised portion of the Warrant, to the
holder surrendering the Warrant.
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FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto _____________________ the right
represented by such Warrant to purchase ______ shares of Common Stock of PMC
International, Inc. to which such Warrant relates, and appoints
_____________________________ Attorney to make such transfer on the books of
PMC International, Inc. maintained for such purpose, with full power of
substitution in the premises.
Dated:
---------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of
Warrant)
---------------------------------------
(Street Address)
---------------------------------------
(City)(State)(Zip Code)
Signed in the presence of:
- ------------------------------
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<PAGE> 1
Exhibit 10.9
RESTRUCTURING AGREEMENT
This RESTRUCTURING AGREEMENT (this "Agreement"), dated as of December 24, 1996,
is between Bedford Capital Financial Corporation, a corporation organized under
the laws of Liberia ("Bedford"), PMC International Inc., a Colorado corporation
(the "Company"), Portfolio Management Consultants, Inc., a Colorado corporation
("PMC"), Portfolio Brokerage Services Inc., a Colorado corporation ("PBS"), and
Portfolio Technology Services, Inc. a Colorado corporation ("PTS").
RECITALS
A. Bedford, the Company, PMC, PBS and PTS are parties to the Investment
Agreement, dated as of July 26, 1995 (the "Investment Agreement"), pursuant to
which Bedford loaned a total of $3,000,000 to the Company (the "Loans")
evidenced by certain promissory notes of the Company (the "Notes"). The Loans
are secured by Security and Pledge Agreements between Bedford and each of the
Company and PTS, each dated as of July 26, 1995 (the "Security Agreements") and
a Non-Recourse Guaranty and Pledge Agreement between Bedford and PBS dated as
of July 26, 1995 (the "Pledge Agreement"). In connection with the Loans,
Bedford received warrants (the "Warrants") to purchase up to 3,000,000 shares
of the Company's Common Stock, par value $.01 ("Common Stock").
B. Concurrent with the execution and delivery of this Agreement, the Company
is effecting the closing of a private placement of its Common Stock (the
"Offering") pursuant to the terms of the Private Placement Memorandum dated
November 11, 1996 (as amended and supplemented from time to time, the
"Memorandum"). Closing of the Offering is conditioned upon effectiveness of the
restructuring of the relationship of the Company and its subsidiaries with
Bedford reflected in this Agreement (the "Restructuring").
C. Concurrent with the execution and delivery of this Agreement, Bedford and
the Company are amending and restating the Registration Rights Agreement dated
as of July 26, 1996 (the "Registration Rights Agreement").
D. Bedford has assigned a portion of the Loans and the Warrants to
certain persons associated with it. References to Bedford has holder
of the Loans and the Warrants include such assignees.
E. In order to facilitate the Closing, the parties desire to complete the
Restructuring on the terms set forth herein. Undefined capitalized terms used
in this Agreement shall have the meaning given
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<PAGE> 2
to such terms in the Investment Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
Repayment of The Loans; Exercise and
Cancellation of Warrants; Return of Notes
Section 1.1 Repayment of the Loans. Upon execution and delivery of this
Agreement, the Company is paying to Bedford by wire transfer of immediately
available funds an amount equal to the sum of (i) all interest accrued on the
Loans through the date hereof, plus (ii) principal in amount equal to
$1,976,250.
Section 1.2 Exercise and Cancellation of Warrants; Issuance of Additional
Warrants. Upon execution and delivery of this Agreement, (i) Bedford is
exercising Warrants to purchase 1,023,750 shares of Common Stock, (ii) Bedford
is delivering to the Company and the Company is accepting for cancellation the
remaining Warrants not being exercised pursuant to clause (i) of this Section
1.2 in exchange for the issuance and delivery of 976,250 shares of Common Stock
and (iii) the Company is executing and delivering to Bedford a new Warrant to
purchase 150,000 shares of Common Stock at an exercise price of $2.125 per
share. In payment of the exercise price of these Warrants, Bedford is
delivering and the Company is accepting delivery of the unpaid portion of the
Notes to the extent of their outstanding principal balance. The Company is
issuing and delivering to Bedford certificates representing such shares, which
shall be duly issued and authorized, fully paid and non-assessable.
Section 1.3 Cancellation of Notes and Warrants. Bedford is delivering to the
Company for cancellation all Notes and Warrants, such cancellation to be
effective upon consummation of the transactions contemplated by Sections 1.1
and 1.2.
ARTICLE 2
Termination of Investment Agreement and
Related Agreements; Release of Liens
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<PAGE> 3
Section 2.1 Termination of Investment Agreement and Related Agreements. Except
as specified in Section 2.3, the Investment Agreement and all agreements
executed by Bedford pursuant to or in connection with the Investment Agreement
including, without limitation, the Security Agreements, the Pledge Agreement
and all other Security Documents, and all obligations of the parties
thereunder, are hereby terminated, and notwithstanding any provision to the
contrary in any such agreement, no provision of any such agreement will survive
such termination.
Section 2.2 Release of Liens. Bedford will, and will cause all other holders of
the Notes to, cooperate in good faith and execute such documents as the Company
reasonably requires to effect the release of all liens or other security
interests of such parties over or affecting the Collateral under the Security
Documents.
Section 2.3 Other Agreements. This Agreement does not affect the Rights
Agreement, which is being amended concurrently herewith and which shall remain
in effect, as amended, following consummation of the transactions contemplated
hereby and shall terminate only in accordance with its terms. In addition,
Bedford, the Company and certain shareholders of the Company are as of the date
hereof executing and delivering a Shareholders Agreement to replace the
shareholders agreement entered into by Bedford and the Company, among others,
in connection with the Investment Agreement.
ARTICLE 3
Representations and Warranties of the Parties
Each of the parties represents and warrants to the other parties that (i) it
has full power and authority to enter into this Agreement, (ii) it has duly
authorized the execution and delivery of this Agreement, and the performance
and observance of its terms, (iii) this Agreement constitutes legal, valid and
binding obligations of such party, enforceable against it in accordance with
its terms, and (iv) no consent, approval, exemption, authorization or order of
or other action by, and no notice to or filing with, any third party is
required in connection with the execution, delivery or performance by such
party of this Agreement or to consummate any transactions contemplated hereby,
except for filings required under the applicable securities laws.
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ARTICLE 4
Miscellaneous
4.1 Notices. All notices given hereunder shall be in writing, shall be given by
overnight courier service, telecopy, facsimile or copy delivered by hand, and,
(i) if delivered by overnight air courier service, shall be deemed received one
business day after having been deposited with such overnight air courier
service, postage prepaid, and (ii) if delivered by telex, telecopy or hand
delivery, shall be deemed received on the day the notice is sent, in each case
addressed as follows:
If to Bedford or to any holder of a Note, to:
Bedford Capital Financial Corporation
2nd Floor
Charlotte Hs.
Shirly Street
Nassau, Bahamas
Attention: Richard C. Mauran
Chairman and CEO
and Suzanne J. Black
Treasurer and CFO
With a copy to:
Karen L. Barsch, Esq.
Otten, Johnson, Robinson, Neff & Ragonetti, P.C.
950 Seventeenth Street, Suite 1600
Denver, Colorado 80202
If to the Company, PMC, PBS, or PTS, to:
PMC International, Inc.
555 17th Street
Suite 1400
Denver, Colorado 80202
Attention: Chief Executive Officer
With a copy to:
Holme Roberts & Owen LLP
1700 Lincoln
Suite 4100
Denver, CO 80206
Attention: Francis R. Wheeler
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Any party may, by written notice so delivered to the others, change the address
or facsimile number to which delivery shall thereafter be made.
4.2 Counterpart Execution; Bedford Representation. This Agreement may be
executed in any number of counterparts which together, including those received
by facsimile transmission which shall be effective as originals, shall
constitute but one and the same instrument. This Agreement shall become
effective upon execution by the parties, provided that Bedford's execution
shall constitute execution on behalf of itself and each holder of a Note for
purposes of this Section 4.2. Bedford hereby represents and warrants that it
has full authority and approval to execute this Agreement on behalf of each
holder of a Note and acknowledges that the Company is relying on such
representation. Bedford will fully indemnify and hold the Company harmless for
any damage or expense incurred by the Company resulting directly or indirectly
from the inaccuracy of the Representations of Bedford in this Paragraph 4.2.
4.3 Entire Agreement. This Agreement constitutes and incorporates the entire
agreement between the parties concerning the subject matter hereof and
supersedes and cancels any prior or contemporaneous agreements, verbal or
written, between the parties concerning the subject matter hereof.
4.4 Amendments; Waiver. No amendment or waiver of any provision of
this Agreement shall be effective unless the same shall be in writing
and signed by each of Bedford and the Company.
4.5 Inconsistent Provisions; Severability. The invalidity,
illegality or unenforceability of any provision of this Agreement
shall not in any way affect or impair the legality or enforceability
of the remaining provisions hereof.
4.6 References and Titles. All references in this Agreement to Sections and
other subdivisions are to Sections and other subdivisions of this Agreement
unless expressly provided otherwise. The words "this Agreement", "this
instrument", "herein", "hereof", "hereby", "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited.
4.7 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
4.8 Governing Law; Jurisdiction. This Agreement shall be governed by
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and construed in accordance with the laws of the state of Colorado. Each party
hereby consents to venue and jurisdiction in the District Court in and for the
City and County of Denver, State of Colorado and in the United States District
Court for the District of Colorado with respect to any claim arising out of or
in connection with this Agreement.
EXECUTED to be effective as of the day and year first above written.
BEDFORD CAPITAL FINANCIAL CORPORATION,
By: /s/ J.W. Nevil Thomas
Chairman, President & CEO
PMC INTERNATIONAL, INC.
By: /s/ Kenneth S. Phillips
President & CEO
PORTFOLIO MANAGEMENT CONSULTANTS, INC.
By: /s/ Kenneth S. Phillips, President
PORTFOLIO BROKERAGE SERVICES, INC.
By: /s/ Vali Nasr
President
PORTFOLIO TECHNOLOGY SERVICES, INC.
By: /s/ Kenneth S. Phillips, EVP
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Exhibit 10.10
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement"),
dated as of December 24, 1996, is between PMC International, Inc., a Colorado
corporation (the "Company") and Bedford Capital Financial Corporation, a
corporation organized under the laws of Liberia ("Bedford"), and amends and
restates in its entirely that certain Registration Rights Agreement between the
same parties dated as of July 26, 1995 (the "Original Agreement").
RECITALS
A. Concurrent with the execution and delivery of this Agreement, the Company is
effecting the closing of a private placement (the "Offering") of its common
stock, par value $.01 per share ("Common Stock"), pursuant to the terms of the
Private Placement Memorandum dated November 11, 1996, as amended. Closing of
the Offering is conditioned upon effectiveness of the restructuring of the
relationship of the Company and its subsidiaries with Bedford (the
"Restructuring") as reflected in this Agreement and the Restructuring Agreement
dated as of the date hereof among Bedford, the Company and the Company's
subsidiaries.
B. In connection with the Restructuring, Bedford and the Company have agreed to
modify the Original Agreement in the manner provided herein, to be effective
upon closing of the Offering. The Company has agreed to register certain
securities of Bedford in connection with a registration statement being filed
with the Securities and Exchange Commission (the "Commission") pursuant to that
certain Registration Rights Agreement (the "Registration Rights Agreement")
dated as of the date hereof among the Company, Keefe, Bruyette & Woods, Inc.,
certain persons who made bridge loans to the Company in November 1996 and
subscribers for shares of Common Stock in the Offering.
AGREEMENT
The parties hereto agree that the Original Agreement is hereby amended and
restated to read in its entirety as follows:
Section 1. Demand Registration Rights.
(a) The Company shall, within 45 calendar days after the date hereof, file a
"shelf registration" statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), covering the
Registrable Securities (as defined below) and all shares
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<PAGE> 2
of Common Stock and other securities which the Company may elect to register on
behalf of other persons and shall use its best efforts to have such
Registration Statement declared effective by the Commission. The Company agrees
to use its best efforts to keep the Registration Statement continuously
effective for the period commencing on the date of effectiveness and ending on
the date it is no longer required to maintain effectiveness under the
Registration Rights Agreement, but in any event until the earlier to occur of
(i) the date when each of the Registrable Securities ceases to be Registrable
Securities and (ii) the date when each of the Registrable Securities not
otherwise transferred or sold pursuant to the Registration Statement may be
sold or distributed by the holder thereof in reliance upon Rule 144 (giving
effect to all conditions thereof, including, without limitation, the volume
limitations contained in Rule 144(e)). The Company shall pay all registration
expenses incurred in connection with the Registration Statement as contemplated
by the Registration Rights Agreement, but Bedford shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such holder's Registrable Securities pursuant to the
Registration Statement. For purposes of this Agreement, "Registrable
Securities" means any and all shares of Common Stock held by Bedford on the
date hereof (including shares issued in the Restructuring), any and all shares
of Common Stock acquired by Bedford directly from the Company or an affiliate
of the Company in an unregistered transaction not involving any public
offering, including shares of Common Stock issued upon exercise of warrants
issued to Bedford as part of the Restructuring and any securities issued or
issuable with respect to any Common Stock referred to above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
Securities will cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) they shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force, or (iv) they shall have ceased to be
outstanding.
(b) Bedford may at any time while the Registration Statement is effective,
request that the Company amend or supplement the Registration Statement to
effect a distribution of its shares of Common Stock to its shareholders;
provided, that the Company shall not be obligated
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to effect any such amendment or supplement if such action would in any way
adversely affect the rights of the holders of Registrable Securities (as such
term is defined in the Registration Rights Agreement).
(c) At any time or from time to time after the Registration Statement is no
longer effective, Bedford may request that the Company effect the registration
under the Securities Act of Bedford's Registrable Securities. The Company shall
file as soon as practicable, and in any event within sixty (60) days of the
receipt of such request, and use its best efforts to cause to become effective
as soon as practicable, the registration under the Securities Act of all
Registrable Securities for which Bedford has requested registration. The
registration requested pursuant to this Section 1(c) shall be referred to
herein as "Demand Registration." Bedford shall have two rights to request
Demand Registrations. The Company will not include in any Demand Registration
any securities other than Bedford's Registrable Securities without the prior
written consent of Bedford. In the case of any underwritten public offering
being effected pursuant to a Demand Registration, the underwriter or
underwriters with respect to such offering shall be selected by Bedford. If at
any time of any request to register Registrable Securities pursuant to this
Section 1, the Company is engaged or has firm plans to engage within 60 days of
the time of the request in a registered public offering as to which Bedford may
seek to include Registrable Securities pursuant to piggyback rights under
Section 2, then the Company may, at its option, direct that such request may be
delayed for a period not in excess of 6 months from the effective date of such
offering, such right to delay a request to be exercised by the Company not more
than once in any 12 month period.
Section 2. Piggyback Registration Rights. Whenever the Company proposes to
register any of its securities under the Securities Act (other than pursuant to
a Demand Registration and other than a registration on Form S-8 of securities
issuable pursuant to employee benefit plans) and the registration form to be
used may be used for the registration of the Common Stock (a "Piggyback
Registration"), the Company will give prompt written notice to Bedford of its
intention to effect such a registration and will include in such registration
all of Bedford's Registrable Securities with respect to which the Company has
received a written request for inclusion therein within fifteen (15) days after
the receipt of the Company's notice. In the event that any negotiation pursuant
to a Piggyback Registration shall be, in whole or in part, an underwritten
public offering, Bedford shall have the right to elect that its Registrable
Securities be included in the underwriting on the same terms and conditions as
the shares of the Company otherwise being sold through underwriters under such
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registration. If a Piggyback Registration is an underwritten primary
registration by the Company, and Bedford's Registrable Securities requested for
inclusion pursuant to this Section 2 would constitute more than 25% of the
total number of shares to be included in a proposed underwritten public
offering, and the managing underwriter advises the Company in writing that in
its reasonable opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering, the
Company will include in such registration, in order of priority, the following
(i) first, the securities the Company proposes to sell, (ii) second, the
Registrable Securities requested by Bedford to be included in such
registration, and (iii) third, other securities requested to be included in
such registration by persons other than Bedford, provided, however, that the
shares of Bedford's Registrable Securities to be included in such offering
shall constitute at least 25% of the total number of shares to be included in
such offering.
3. Registration Procedures. Except for the filing of the Registration
Statement, which is being effected pursuant to the Registration Rights
Agreement and which will be governed by the registration procedures specified
in the Registration Rights Agreement, if and whenever the Company is required
by the provisions of this Agreement to register any of Bedford's Registrable
Securities under the Securities Act, the Company will, as expeditiously as
possible:
(a) Prepare and file with the Commission a registration statement with respect
to such securities and cause or use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby, provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company will furnish
to Bedford's counsel copies of all documents proposed to be filed;
(b) prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for the period
of distribution contemplated and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement in accordance with Bedford's intended method of
disposition set forth in such registration statement for such period;
(c) furnish to Bedford and to each underwriter such number of copies of the
registration statement the prospectus included therein (including each
preliminary prospectus), all post-effective amendments and such other documents
as such persons may reasonably request in
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order to facilitate the public sale or other disposition of the securities
covered by such registration statement;
(d) use its best efforts to register or qualify the securities covered by such
registration statement under the securities or blue sky laws of such
jurisdictions as Bedford, or in the case of an underwritten public offering,
the managing underwriter, shall reasonably request, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business in any jurisdiction where it is not so qualified or to
take any action which would subject it to taxation or general service of
process in any jurisdiction where it is not otherwise subject to such taxation
or general service of process;
(e) notify Bedford promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statements has been filed;
(f) notify Bedford promptly of any request by the Commission for the
amending or supplementing of such registration statement or prospectus
or for additional information;
(g) prepare and file with the Commission, promptly upon the request of Bedford,
any amendments or supplements to such registration statement or prospectus
which, in the opinion of counsel for Bedford is required under the Securities
Act or the rules and regulations thereunder in connection with the distribution
of the Registrable Securities by Bedford;
(h) advise Bedford promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the Commission suspending the
effectiveness of a registration statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent
the issuance of any stop order or obtain its withdrawal if a stop order should
be issued;
(i) not file any amendment or supplement to a registration statement or
prospectus to which Bedford shall have reasonably objected on the grounds that
such amendment or supplement does not comply in all material respects with the
requirements of the Securities Act or the rules and regulations thereunder,
after having been furnished with a copy thereof at least three business days
prior to the filing thereof;
(j) immediately notify Bedford at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained
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in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing, and, as expeditiously as
possible, amend or supplement such prospectus to eliminate the untrue statement
or the omission;
(k) use its best efforts (if the offering is underwritten) to furnish, at the
request of Bedford, on the date that securities are delivered to the
underwriters for sale pursuant to such registration; (i) an opinion dated such
date of counsel representing the Company for the purposes of such registration,
addressed to the underwriters and to Bedford, stating that such registration
statement has become effective under the Securities Act and that (A) to the
best knowledge of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities Act, and (B) the
registration statement, the related prospectus, and each amendment or
supplement thereof, comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need express no
opinion as to financial statements and financial and statistical data contained
therein) and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters and to
Bedford, stating that they are independent public accountants within the
meaning of the Securities Act, and that, in the opinion of such accountants,
the financial statements of the Company included in the registration statement
or the prospectus, or any amendment or supplement thereof, comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act;
(l) make available for inspection by Bedford, any underwriter participating in
any distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by Bedford or such underwriter, all
financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries, and cause the officers, directors and
employees of the Company and its subsidiaries to supply all information
reasonably requested by Bedford or such underwriter, attorney, accountant or
agent in connection with such registration statement;
(m) use its best efforts to cause all such securities to be listed on such
securities exchange on which similar securities issued by the Company are then
listed;
(n) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
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4. Registration Expenses and Indemnification.
(a) All Registration Expenses incurred in connection with (i) a Demand
Registration or (ii) a Piggyback Registration will be borne by the Company. As
used herein, "Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Agreement, including, without
limitation, all registration and filing fees, fees and expenses of compliance
with federal and state securities or blue sky laws, securities laws of any
foreign jurisdictions, printing expenses, messenger and delivery expenses and
fees and disbursements of counsel for Bedford and all independent certified
public accountants, underwriters (excluding discounts and commissions
attributable to the sale of Registrable Securities) and other persons retained
by Bedford or the Company.
(b) The Company agrees to indemnify, to the extent permitted by law, Bedford
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statement therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by Bedford expressly for use
therein or by Bedford's failure to deliver a copy of the registration statement
or prospectus or any amendments or supplements thereto in conformity with
applicable federal and state securities laws after the Company has furnished
Bedford with a sufficient number of copies of the same. In connection with an
underwritten offering, the Company will indemnify such underwriters, their
officers and directors and each person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of Bedford.
(c) In connection with any registration statement in which Bedford is
participating, Bedford shall furnish to the Company in writing such information
and affidavits as the Company reasonably requests for use in connection with
any such registration statement or prospectus and, to the extent permitted by
law, will indemnify the Company, its directors and officers and each person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the
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statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by Bedford; provided that the liability of Bedford will be in
proportion to and limited to the net amount received by Bedford from the sale
of the Registrable Securities pursuant to such registration statement.
(d) Any party entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party and its
legal counsel a conflict of interest may exist between such indemnified party
and any other of such indemnified parties with respect to such claim.
(e) The indemnification provided for under this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling person of such
indemnified party and will survive the offering of any registrable securities
of the Company in a registration statement, and otherwise.
(f) If the indemnification provided for in this Section 4 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, liability, claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statement or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information
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supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission.
(g) Notwithstanding the foregoing, to the extent that the provisions of
indemnification and contribution contained in an underwriting agreement entered
into in connection with an underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
5. Miscellaneous.
(a) All notices given hereunder shall be in writing, shall be given by
overnight courier service, telecopy, facsimile or copy delivered by hand, and,
(i) if delivered by overnight air courier service, shall be deemed received one
business day after having been deposited with such overnight air courier
service, postage prepaid, and (ii) if delivered by telex, telecopy or hand
delivery, shall be deemed received on the day the notice is sent, in each case
addressed as follows:
If to Bedford, to it at:
Bedford Capital Financial Corporation
2nd Floor
Charlotte Hs.
Shirly Street
Nassau, Bahamas
Attention: Richard C. Mauran, Chairman and CEO
and Suzanne J. Black, Treasurer and CFO
With a copy to:
Karen L. Barsch, Esq.
Otten, Johnson, Robinson, Neff & Ragonetti, P.C.
950 Seventeenth Street, Suite 1600
Denver, Colorado 80202
If to the Company, to it at:
PMC International, Inc.
555 17th Street
Suite 1400
Denver, Colorado 80202
Attention: Chief Executive Officer
With a copy to:
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Holme Roberts & Owen LLP
1700 Lincoln
Suite 4100
Denver, CO 80206
Attention: Francis R. Wheeler
Any party may, by written notice so delivered to the others, change the address
or facsimile number to which delivery shall thereafter be made.
(b) This Agreement may be executed in any number of counterparts which
together, including those received by facsimile transmission which shall be
effective as originals, shall constitute but one and the same instrument.
(c) This Agreement constitutes and incorporates the entire agreement between
the parties concerning the subject matter hereof and supersedes and cancels any
prior or contemporaneous agreements, verbal or written, between the parties
concerning the subject matter hereof.
(d) No amendment or waiver of any provision of this Agreement shall be
effective unless the same shall be in writing and signed by each of Bedford and
the Company.
(e) The invalidity, illegality or unenforceability of any provision of this
Agreement shall not in any way affect or impair the legality or enforceability
of the remaining provisions hereof.
(f) All references in this Agreement to Sections and other subdivisions are to
Sections and other subdivisions of this Agreement unless expressly provided
otherwise. The words "this Agreement", "this instrument", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.
(g) The obligations of the Company to effect registrations of securities
hereunder shall terminate at such time as Bedford beneficially owns less than
5% of the Company's issued and outstanding Common Stock (determined as provided
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or any equivalent successor rule but excluding Common Stock as
to which Bedford does not have any pecuniary interest determined as provided in
the rules adopted under Section 16 of the Exchange Act).
(h) This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
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(i) This agreement shall be governed by and construed in accordance with the
laws of the state of Colorado. Each party hereby consents to venue and
jurisdiction in the District Court in and for the City and County of Denver,
State of Colorado and in the United States District Court for the District of
Colorado with respect to any claim arising out of or in connection with this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed and delivered by its duly authorized officer as of the date first
written above.
PMC INTERNATIONAL, INC., a Colorado corporation
By: /s/ Kenneth S. Phillips
BEDFORD FINANCIAL CAPITAL CORPORATION, a corporation organized under
the laws of Liberia
By: /s/ J.W. Nevil Thomas
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Exhibit 10.11
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT (this "Agreement"), dated as of December 24, 1996,
is among PMC International, Inc., a Colorado corporation (the "Company"),
Bedford Capital Financial Corporation, a corporation organized under the laws
of Liberia ("Bedford"), Kenneth S. Phillips, an individual ("Phillips"), David
L. Andrus, an individual ("Andrus") and Phillips & Andrus, LLC, a Colorado
limited liability company ("HoldCo").
RECITALS
A. Concurrent with the execution and delivery of this Agreement, the Company is
effecting the closing of a private placement (the "Offering") of its common
stock ("Common Stock") pursuant to the terms of the Private Placement
Memorandum dated November 11, 1996, as amended. Closing of the Offering is
conditioned upon effectiveness of the restructuring of the relationship of the
Company and its subsidiaries with Bedford as reflected in this Agreement and
the Restructuring Agreement dated as of the date hereof among Bedford, the
Company and the Company's subsidiaries.
B. Bedford, Phillips, Andrus and HoldCo, each of whom beneficially own Common
Stock, are entering into this Agreement to define the circumstances under which
each such party will vote his or its shares of Common Stock in favor of the
Company board of directors nominee or nominees of the other parties, and for
certain other purposes. Each person who now owns or hereafter acquires shares
of Common Stock subject to the provisions of this Agreement, including
initially Bedford, Phillips, Andrus and HoldCo, is sometimes referred to
hereinafter as a "Shareholder" and Phillips, Andrus and HoldCo are collectively
referred to hereinafter as "HoldCo Shareholders."
AGREEMENT
Section 1. Board of Directors.
(a) Composition. Until such time as this Agreement is terminated or amended,
the Company's Board of Directors shall consist of a maximum of seven persons.
(b) Bedford Nominee and Joint Nominee. For such time as Bedford
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beneficially owns (determined as provided in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or any equivalent
successor rule, but excluding any shares as to which Bedford does not have a
pecuniary interest as provided in the rules adopted under Section 16 of the
Exchange Act) at least 10% of the Company's issued and outstanding Common Stock
(all outstanding in the money options and warrants issued by the Company being
assumed to have been exercised) Bedford shall be entitled to designate one
person to be nominated as director of the Company (the "Bedford Nominee"). In
addition, for such time as Bedford beneficially owns at least 5% of the
Company's issued and outstanding Common Stock (beneficial ownership and issued
and outstanding Common Stock being determined as specified above), Bedford and
the HoldCo Shareholders shall be entitled to designate one person to be
nominated as a director of the Company, such person to be reasonably acceptable
to Bedford and the HoldCo Shareholders (the "Joint Nominee"). Bill Atkinson is
deemed to be an acceptable Joint Nominee to Bedford and the HoldCo Shareholders
so long as he is willing to serve as such.
(c) HoldCo Shareholder Nominees. During the term of this Agreement, the HoldCo
Shareholders shall be entitled to designate three persons to be nominated as
directors of the Company, at least one of whom shall be a senior member of the
Company's management appointed as such after the date of this Agreement (the
"HoldCo Shareholders Nominee").
(d) Voting Shares. At every annual meeting of shareholders of the Company and
at every special meeting of the shareholders of the Company held for the
purpose of electing directors of the Company, or in connection with the taking
of any written consent to action in respect of the election of directors of the
Company, (i) Bedford shall vote its shares of Common Stock in favor of the
HoldCo Shareholder Nominees, (ii) Bedford and the HoldCo Shareholders shall
vote their shares of Common Stock in favor of the Joint Nominee, and (iii) for
such time as Bedford beneficially owns at least 10% of the Company's issued and
outstanding Common Stock (beneficial ownership and issued and outstanding
Common Stock being determined as specified above), the HoldCo Shareholders
shall vote their respective shares of Common Stock in favor of the Bedford
Nominee. All parties hereto agree to take such action as is reasonably
requested by any other party in order to effect the parties' intent with
respect to the election of directors and the other terms of this Agreement.
(e) New Shareholders. Bedford and the HoldCo Shareholders acknowledge that
purchasers of Common Stock in connection with the Offering (the "New
Shareholders") have been granted certain rights to nominate persons for
election to the Company's board of directors pursuant to Section 7.2 of their
respective subscription agreements
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with the Company (the "Subscription Agreements"), a copy of which is attached
hereto as Exhibit A. Bedford and the HoldCo Shareholders agree to vote their
respective shares of Common Stock or give written consents in favor of the
nominees designated by the New Shareholders pursuant to the terms of such
Section 7.2. of the Subscription Agreements.
(f) Bedford Shares. For purposes of this Section 1, the number of shares of
Common Stock owned by Bedford shall include (i) such number of the 3,000,000
shares of Common Stock owned as of or acquired by Bedford on or about December
24, 1996 in connection with the Restructuring (as such term is defined in the
Private Placement Memorandum of the Company dated November 11, 1996, as
supplemented December 23, 1996) as are subsequently distributed by Bedford to
executive officers or directors of Bedford, (ii) such number of shares of
Common Stock issued pursuant to Warrants to purchase up to 150,000 shares of
Common Stock acquired by Bedford in connection with the Restructuring and
subsequently distributed to executive officers and directors of Bedford, (iii)
such number of shares of Common Stock acquired by Bedford upon exercise of an
option given by the LLC, in each such case where beneficially owned (determined
as provided above) by such executive officers or directors as of the date of
determination.
Section 2. Restrictions on Transfer of Common Stock.
(a) Certain Transfers Prohibited. Except as provided in Section 2(b), no
Shareholder may sell, assign, pledge or otherwise transfer or encumber in any
manner or by any means whatsoever (collectively, a "Transfer") any shares of
Common Stock which such Shareholder may now own or may hereafter acquire,
unless the transferee shall agree in writing to be bound by the provisions of
this Agreement with respect to shares of Common Stock such transferee acquires.
Any purported Transfer in violation of this Agreement shall be void and
ineffective and shall not operate to Transfer any interest or title to the
purported transferee.
(b) Certain Sales and Transfers Permitted. The restrictions on Transfers
provided under Section 2(a) shall not be applicable with respect (i) to any
Transfer of Common Stock effected pursuant to a public sale or distribution,
(ii) to any Transfer to the Company or (iii) to a Transfer pursuant to a bona
fide pledge to an independent third party. . For purposes hereof, the term
"public sale" shall mean any sale of Common Stock to the public pursuant to an
offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), or to the public through a broker, dealer or market maker
pursuant to the provisions of Rule 144 adopted under the
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Securities Act.
Section 3. Restrictive Legend. The following legend shall be placed
on each certificate representing a Shareholder's shares of Common
Stock, including any certificates hereafter acquired by a Shareholder:
The shares represented by this certificate are subject to certain restrictions
on transfer and other agreements as set forth in a Shareholders Agreement,
dated effective as of December 24, 1996, among PMC International, Inc., Bedford
Capital Financial Corporation, Kenneth S. Phillips, David L. Andrus and
Phillips & Andrus, LLC, copies of which are on file in the office of the
corporation.
Section 4. Termination. This Agreement shall terminate upon the earliest of (i)
written consent of the Shareholders; (ii) at such time as Bedford beneficially
owns less than 5% of the Company's issued and outstanding Common Stock
(beneficial ownership and issued and outstanding Common Stock being determined
as specified above); and (iii) December 20, 2006.
Section 5 Miscellaneous.
(a) Further Assurances. From time to time after the date of this Agreement, the
Shareholders shall execute and deliver such other instruments and documents and
shall take such other actions as the other Shareholders may reasonably request
to effectuate the transactions contemplated by this Agreement.
(b) Modification. This Agreement may be modified only by written
instrument properly executed by or on behalf of the Shareholders.
(c) Governing Law. This Agreement is a contract entered into in the State of
Colorado, and shall be construed and enforced in accordance with the laws of
the State of Colorado without reference to Colorado's conflicts of laws
principles.
(d) Jurisdiction and Venue. This Agreement shall be subject to the exclusive
jurisdiction of the courts of the City and County of Denver, Colorado or the
federal district courts located in the City and County of Denver. The
Shareholders agree that any breach of any term or condition of this Agreement
shall be deemed to be breach occurring in the State of Colorado by virtue of a
failure to perform any act required to be performed in the State of Colorado
and irrevocably and expressly agree to submit to the jurisdiction of the courts
of the City and County of Denver, Colorado and the federal district courts
located in the City and County of Denver, State of Colorado for the purpose of
resolving any disputes among the Shareholders relating to
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this Agreement or the transactions contemplated hereby. The parties irrevocably
waive, to the fullest extent permitted by law, any objection which they may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, or any judgment entered by any
court in respect hereof brought in the City and County of Denver, Colorado, and
further irrevocably waive any claim that any suit, action or proceeding brought
in the City and County of Denver, Colorado has been brought in an inconvenient
forum.
(e) Waiver. No waiver by any Shareholder, whether express or implied, of its
rights under any provision of this Agreement shall constitute a waiver of the
Shareholder's rights under such provisions at any other time or a waiver of the
Shareholder's rights under any other provision of this Agreement. No failure by
any Shareholder to take any action against any breach of this Agreement or
default by another party shall constitute a waiver of the former Shareholder's
right to enforce any provision of this Agreement or to take action against such
breach or default or any subsequent breach or default by the other Shareholder.
(f) Severability. If any one or more of the provisions contained in this
Agreement shall be declared invalid, illegal or unenforceable, the remainder of
the provisions of this Agreement shall remain in full force and effect, and the
provision held to be invalid, illegal or unenforceable shall be enforced as
nearly as possible according to its original terms and intent to eliminate such
invalidity, illegality or unenforceability.
(g) Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, including all counterparts received
by facsimile transmission, but all of which together shall constitute one and
the same instrument.
(h) Section Headings. The section headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or
affect any provision hereof.
(i) Notices. All notices given hereunder shall be in writing, shall be given by
overnight courier service, telecopy, facsimile or copy delivered by hand, and,
(i) if delivered by overnight air courier service, shall be deemed received one
Business Day after having been deposited with such overnight air courier
service, postage prepaid, and (ii) if delivered by telex, telecopy or hand
delivery, shall be deemed received on the day the notice is sent, in each case
addressed as follows:
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If to Bedford, to:
Bedford Capital Financial Corporation
2nd Floor
Charlotte Hs.
Shirly Street
Nassau, Bahamas
Attention: Richard C. Mauran, Chairman
and CEO and Suzanne J. Black,
Treasurer and CFO
With a copy to:
Karen L. Barsch, Esq.
Otten, Johnson, Robinson, Neff & Ragonetti, P.C.
950 Seventeenth Street, Suite 1600
Denver, Colorado 80202
If to the Company, to:
PMC International, Inc.
555 17th Street
Suite 1400
Denver, Colorado 80202
Attention: Chief Executive Officer
With a copy to:
Holme Roberts & Owen LLP
1700 Lincoln
Suite 4100
Denver, CO 80206
Attention: Francis R. Wheeler
If to Phillips, to:
Kenneth S. Phillips
c/o PMC International, Inc.
555 17th Street
Suite 1400
Denver, Colorado 80202
If to Andrus, to:
David L. Andrus
c/o PMC International, Inc.
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555 17th Street
Suite 1400
Denver, Colorado 80202
If to Phillips & Andrus, LLC
c/o, PMC international, Inc.
555 17th Street
Suite 1400
Denver, Colorado 80202
Attention: Kenneth S. Phillips
Any party may, by written notice so delivered to the others, change the address
or facsimile number to which delivery shall thereafter be made.
(j) Remedies Not Exclusive. No remedy conferred by any of the
provisions of this Agreement is intended to be exclusive of any other
remedy. The election of any one remedy by a party shall not constitute
a waiver of the right to pursue other available remedies.
(k) Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties and their successors, assigns,
transferees, heirs and legal representatives, including all persons who acquire
shares of Common Stock from a party subject to this Agreement.
(l) Prevailing Party. In the event of any litigation with regard to this
Agreement, the prevailing party shall be entitled to receive from the
non-prevailing party, and the non-prevailing party shall immediately pay upon
demand, all reasonable fees and expenses of counsel for the prevailing party.
(m) Arbitration. The parties hereby agree that any legal suit, dispute, claim,
demand, controversy or cause of action of every kind and nature whatsoever,
known or unknown, fixed or contingent, that either may now have or at any time
in the future claim to have based in whole or in part, or arising from or out
of or that in any way is related to the negotiations, execution, interpretation
or enforcement of this Agreement (collectively, the "Disputes") shall be
completely and finally settled by submission of any such Disputes to
arbitration under the rules of the American Arbitration Association ("AAA")
then in effect. There shall be one arbitrator, and such arbitrator shall be
chosen by mutual agreement of the parties in accordance with AAA rules. Unless
the parties agree otherwise, the arbitration proceedings shall take place in
Denver, Colorado. Notice of demand for arbitration shall be filed in writing
with the other party to this
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Agreement and with the AAA. In no event shall the demand for arbitration be
made after the date when institution of legal or equitable proceedings based on
such Dispute would be barred by the applicable statute of limitations. The
findings of the arbitrator shall be final and binding on the parties. Judgment
on such award may be entered in any court of competent jurisdiction, or
application may be made to that court for a judicial acceptance of the award
and an order or enforcement, as the party seeking to enforce that award may
elect.
(n) Existing Shareholder Agreement. This Agreement replaces in its
entirety the Shareholders Agreement dated as of July 26, 1995, by the
Company, Bedford, Phillips, Andrus and HoldCo., which is hereby
terminated.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first written above.
PMC INTERNATIONAL, INC., a Colorado corporation
By: /s/ Kenneth S. Phillips, President & CEO
BEDFORD CAPITAL FINANCIAL CORPORATION, a Liberia corporation
By: /s/
Chairman, President & CEO
/s/
Kenneth S. Phillips
/s/
David L. Andrus
PHILLIPS & ANDRUS, LLC, a Colorado limited liability company
By: /s/ Kenneth S. Phillips, Manager
EXHIBIT A
Section 7.2 to the Subscription Agreements
Directorships. At a date (or dates) mutually acceptable to the Company, the
Subscriber and the Other Subscribers (which date shall be no more than 90 days
following the Closing unless the Subscriber and the Other Subscribers shall
agree), the Company shall cause its Board of Directors to be expanded by two
and shall appoint a director selected by the Subscriber and the Other
Subscribers (the "Subscribers' Director") and a director who is mutually
acceptable to the Company, the Subscriber and the Other Subscribers (the
"Mutually Acceptable Director"), which Mutually Acceptable Director shall
initially be Emmett J. Daly. D. Porter Bibb shall continue to serve as a member
of the Board of Directors until the earlier of such time as both the
Subscribers' Director and the Mutually acceptable Director have been appointed
as such or his voluntary resignation from the Board of Directors. The Company
agrees to nominate for director and solicit proxies or consents in favor of the
(a) Subscribers' Director
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for so long as the Subscriber and the Other Subscribers own, individually or in
the aggregate, 10% or more of the outstanding Common Stock and (b) Mutually
Acceptable Director for so long as the Subscriber and the Other Subscribers
own, individually or in the aggregate, 5% or more of the outstanding Common
Stock.
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Exhibit 10.12
This Warrant and any shares acquired upon the exercise of this Warrant have not
been registered under the Securities Act of 1933, as amended, and may not be
transferred, sold or otherwise disposed of except while a registration under
such Act is in effect or pursuant to an exemption therefrom under such Act.
This Warrant and such shares may be transferred only in compliance with the
conditions specified in this Warrant.
PMC INTERNATIONAL, INC.
Common Stock Purchase Warrant
No. F -1 December 24, 1996
PMC International, Inc. (the "Company"), a Colorado corporation, for value
received, hereby certifies that [Holder] ("Warrant Holder"), or registered
assigns, is entitled to purchase from the Company 130,000 duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock, par value
$.01 per share (the "Common Stock"), of the Company at the purchase price per
share of $2.125, at any time or from time to time prior to 7:00 P.M., New York
City time, on December 24, 2001, all subject to the terms, conditions and
adjustments set forth below in this warrant (the "Warrant", such term to
include any such warrants issued in substitution therefor).
Certain capitalized terms used in this Warrant are defined in Section 12;
references to a "Section" are, unless otherwise specified, to one of the
sections of this Warrant.
1. Exercise of Warrant. 1.1. Manner of Exercise. This Warrant may
be exercised by the holder hereof, in whole or in part, during normal
business hours on any Business Day, by surrender of this Warrant to
the Company at its principal office, accompanied by a subscription in
substantially the form attached to this Warrant (or a reasonable
facsimile thereof) duly executed by such holder and accompanied by
payment, in cash, by certified or official bank check payable to the
order of the Company, or in the manner provided in Section 1.4 (or by
any combination of such methods), in the amount obtained by
multiplying (a) the number of shares of Common Stock (without giving
effect to any adjustment thereof) designated in such subscription by
(b) $2.125, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock determined as provided in
Sections 2 through 4.
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When Exercise Effective. Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the Business Day on
which this Warrant shall have been surrendered to the Company as provided in
Section 1.1, and at such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such exercise as provided in Section 1.3 shall be deemed to have become the
holder or holders of record thereof.
Delivery of Stock Certificates, etc. As soon as practicable after each exercise
of this Warrant, in whole or in part, and in any event within five Business
Days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the holder hereof or, subject to Section 9, as such holder (upon payment by
such holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock to which such
holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share on the Business Day next
preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or Warrants of like
tenor, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment thereof)
to the number of such shares called for on the face of this Warrant minus the
number of such shares designated by the holder upon such exercise as provided
in Section 1.1.
1.4 Payment by Application of Shares Otherwise Issuable. Upon any exercise of
this Warrant, the holder hereof may, at its option, instruct the Company, by
written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company
and the number of shares issuable upon such exercise shall be reduced by such
specified number.
(i) Adjustment of Common Stock Issuable Upon Exercise. General;
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Warrant Price. The number of shares of Common Stock which the holder of this
Warrant shall be entitled to receive upon each exercise hereof shall be
determined by multiplying the number of shares of Common Stock which would
otherwise (but for the provisions of this Section 2) be issuable upon such
exercise, as designated by the holder hereof pursuant to Section 1.1, by the
fraction of which (a) the numerator is $2.125 and (b) the denominator is the
Warrant Price in effect on the date of such exercise. The "Warrant Price" shall
initially be $2.125 per share, shall be adjusted and readjusted from time to
time as provided in this Section 2 and, as so adjusted or readjusted, shall
remain in effect until a further adjustment or readjustment thereof is required
by this Section 2.
Adjustment of Warrant Price.
Issuance of Additional Shares of Common Stock. In case the Company at any time
or from time to time after the date hereof shall issue or sell Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to
be issued pursuant to Section 2.3 or 2.4) without consideration or for a
consideration per share less than the Current Market Price, then, and in each
such case, subject to Section 2.7, such Warrant Price shall be reduced,
concurrently with such issue or sale, to a price (calculated to the nearest
.001 of a cent) determined by multiplying such Warrant Price by a fraction
(c) the numerator of which shall be (i) the number of shares of Common Stock
outstanding immediately prior to such issue or sale plus (ii) the number of
shares of Common Stock which the aggregate consideration received by the
Company for the total number of such Additional Shares of Common Stock so
issued or sold would purchase at such Current Market Price, and
(d)the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 2.2.1, (x) immediately after
any Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding.
(i) Extraordinary Dividends and Distributions. In case the Company at any time
or from time to time after the date hereof shall declare, order, pay or make a
dividend or other distribution (including, without limitation, any distribution
of other or additional stock or other securities or property by way of dividend
or spin-off, reclassification, recapitalization or similar corporate
rearrangement)
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on the Common Stock, other than dividends or distributions payable in
Additional Shares of Common Stock and other than cash dividends or other cash
distributions, which do not constitute Extraordinary Cash Dividends, then, and
in each such case, subject to Section 2.7, the Warrant Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of
business on such record date, to a price (calculated to the nearest .001 of a
cent) determined by multiplying such Warrant Price by a fraction
(x) the numerator of which shall be the Current Market Price in effect on such
record date or, if the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading, less an amount equal to the
fair market value of such dividend or distribution as of the payment date of
such dividends or distributions (as determined in good faith by the Board of
Directors of the Company) applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current Market Price.
1.2. Treatment of Options and Convertible Securities. In case the Company at
any time or from time to time after the date hereof shall issue, sell, grant or
assume, or shall fix a record date for the determination of holders of any
class of securities entitled to receive, any Options or Convertible Securities,
then, and in each such case, the maximum number of Additional Shares of Common
Stock (as set forth in the instrument relating thereto, without regard to any
provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as
of the time of such issue, sale, grant or assumption or, in case such a record
date shall have been fixed, as of the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), provided that such Additional Shares
of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Current Market Price immediately prior to such issue,
sale, grant or assumption or immediately prior to the close of business on such
record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), as the case may be, and
provided, further, that in any such case in which Additional Shares of Common
Stock are deemed to be issued
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(a) no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common Stock
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide, with the
passage of time or otherwise, for any increase in the consideration payable to
the Company, or decrease in the number of Additional Shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof (by change of rate
or otherwise), the Warrant Price computed upon the original issue, sale, grant
or assumption thereof (or upon the occurrence of the record date, or date prior
to the commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation or
retirement) of any such Options which shall not have been exercised or the
expiration of any rights of conversion or exchange under any such Convertible
Securities which (or purchase by the Company and cancellation or retirement of
any such Convertible Securities the rights of conversion or exchange under
which) shall not have been exercised, the Warrant Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of
the record date, or date prior to the commencement of ex-dividend trading, as
the case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration (or such cancellation or retirement, as
the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible Securities, the only
Additional Shares of Common Stock issued or sold were the Additional Shares of
Common Stock, if any, actually issued or sold upon the exercise of such Options
or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such Options, whether
or not exercised, plus the consideration actually received by the Company upon
such exercise, or for the issue or sale of all such Convertible Securities
which were actually converted or exchanged, plus the additional consideration,
if any, actually received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only the
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Convertible Securities, if any, actually issued or sold upon the exercise of
such Options were issued at the time of the issue, sale, grant or assumption of
such Options, and the consideration received by the Company for the Additional
Shares of Common Stock deemed to have then been issued was the consideration
actually received by the Company for the issue, sale, grant or assumption of
all such Options, whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall have the
effect of increasing the Warrant Price by an amount in excess of the amount of
the adjustment thereof originally made in respect of the issue, sale, grant or
assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their terms not more than
45 days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Warrant Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the manner
provided in subdivision (c) above.
1.3. Treatment of Stock Dividends, Stock Splits, etc. In case the Company at
any time or from time to time after the date hereof shall declare or pay any
dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action
becomes effective.
1.4. Computation of Consideration. For the purposes of this Section
2,
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the net amount of cash
received by the Company, without deducting any expenses paid or incurred by the
Company or any commissions or compensations paid or
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concessions or discounts allowed to underwriters, dealers or others performing
similar services in connection with such issue or sale,
(ii) insofar as it consists of property (including securities) other than cash,
be computed at the fair value thereof at the time of such issue or sale, as
determined in good faith by the Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued or sold together
with other stock or securities or other assets of the Company for a
consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (i) and (ii) above, allocable to such
Additional Shares of Common Stock, all as determined in good faith by the Board
of Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been issued pursuant to
Section 2.3, relating to Options and Convertible Securities, shall be deemed to
have been issued for a consideration per share determined by dividing
(i) the total amount, if any, received and receivable by the Company as
consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration to protect against dilution) payable to the Company upon
the exercise in full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been issued pursuant to
Section 2.4, relating to stock dividends, stock splits, etc., shall be deemed
to have been issued for no consideration.
1.5. Adjustments for Combinations, etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by
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reclassification or otherwise, into a lesser number of shares of Common Stock,
the Warrant Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
1.6. Minimum Adjustment of Warrant Price. If the amount of any adjustment of
the Warrant Price required pursuant to this Section 2 would be less than one
percent (1%) of the Warrant Price in effect at the time such adjustment is
otherwise so required to be made, such amount shall be carried forward and
adjustment with respect thereto made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate at least one percent (1%) of such
Warrant Price.
2. Consolidation, Merger, etc. Adjustments for Consolidation, Merger, Sale of
Assets, Reorganization, etc. In case the Company after the date hereof (a)
shall consolidate with or merge into any other Person and shall not be the
continuing or surviving corporation of such consolidation or merger, or (b)
shall permit any other Person to consolidate with or merge into the Company and
the Company shall be the continuing or surviving Person but, in connection with
such consolidation or merger, the Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any
other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person in a transaction or series of
transactions in connection with which the Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any
other property, or (d) shall effect a capital reorganization or
reclassification of the Common Stock (other than a capital reorganization or
reclassification resulting in the issue of Additional Shares of Common Stock
for which adjustment in the Warrant Price is provided in Section 2.2.1 or
2.2.2), then, and in the case of each such transaction, proper provision shall
be made so that, upon the basis and the terms and in the manner provided in
this Warrant, the holder of this Warrant, upon the exercise hereof at any time
after the consummation of such transaction, shall be entitled to receive (at
the aggregate Warrant Price in effect at the time of such consummation for all
Common Stock issuable upon such exercise immediately prior to such
consummation), in lieu of the Common Stock issuable upon such exercise prior to
such consummation, the highest amount of securities, cash or other property to
which such holder would actually have been entitled as a shareholder upon such
consummation if such holder had exercised the rights represented by this
Warrant immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to
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the adjustments provided for in Sections 2 through 4, provided that if a
purchase, tender or exchange offer shall have been made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock, and if the
holder of such Warrants so designates in a notice given to the Company on or
before the date immediately preceding the date of the consummation of such
transaction, the holder of such Warrants shall be entitled to receive the
highest amount of securities, cash or other property to which such holder would
actually have been entitled as a shareholder if the holder of such Warrants had
exercised such Warrants prior to the expiration of such purchase, tender or
exchange offer and accepted such offer, subject to adjustments (from and after
the consummation of such purchase, tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in Sections 2 through 4.
2.2. Assumption of Obligations. Notwithstanding anything contained in the
Warrants to the contrary, the Company will not effect any of the transactions
described in clauses (a) through (d) of Section 3.1 unless, prior to the
consummation thereof, each Person (other than the Company) which may be
required to deliver any stock, securities, cash or property upon the exercise
of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant, (a)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), (b) the obligations of the Company under
the Registration Rights Agreement and (c) the obligation to deliver to such
holder such shares of stock, securities, cash or property as, in accordance
with the foregoing provisions of this Section 3, such holder may be entitled to
receive, and such Person shall have similarly delivered to such holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such holder, stating that this Warrant shall thereafter
continue in full force and effect and the terms hereof (including, without
limitation, all of the provisions of this Section 3) shall be applicable to the
stock, securities, cash or property which such Person may be required to
deliver upon any exercise of this Warrant or the exercise of any rights
pursuant hereto.
3. Other Dilutive Events. In case any event shall occur as to which the
provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular
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auditors of the Company), which shall give their opinion upon the adjustment,
if any, on a basis consistent with the essential intent and principles
established in Sections 2 and 3, necessary to preserve, without dilution, the
purchase rights represented by this Warrant. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the holder of this Warrant and
shall make the adjustments described therein.
4. No Dilution or Impairment. The Company will not, by amendment of its
articles or certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not permit the
par value of any shares of stock receivable upon the exercise of this Warrant
to exceed the amount payable therefor upon such exercise, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
exercise of the Warrants from time to time outstanding, and (c) will not take
any action which results in any adjustment of the Warrant Price if the total
number of shares of Common Stock issuable after the action upon the exercise of
all of the Warrants would exceed the total number of shares of Common Stock
then authorized by the Company's articles or certificate of incorporation and
available for the purpose of issue upon such exercise.
5. Accountants' Report as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock issuable upon the exercise of this
Warrant, the Company at its expense will promptly compute such adjustment or
readjustment in accordance with the terms of this Warrant and cause independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company) selected by the Company to verify such
computation (other than any computation of the fair value of property as
determined in good faith by the Board of Directors of the Company) and prepare
a report setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Warrant Price in effect
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immediately prior to such issue or sale and as adjusted and readjusted (if
required by Section 2) on account thereof. The Company will forthwith mail a
copy of each such report to each holder of a Warrant and will, upon the written
request at any time of any holder of a Warrant, furnish to such holder a like
report setting forth the Warrant Price at the time in effect and showing in
reasonable detail how it was calculated. The Company will also keep copies of
all such reports at its principal office and will cause the same to be
available for inspection at such office during normal business hours by any
holder of a Warrant or any prospective purchaser of a Warrant designated by the
holder thereof.
6. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer of all or
substantially all the properties or assets of the Company to any other Person,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place and
the time, if any such time is to be fixed, as of which the holders of record of
Common Stock shall be entitled to exchange their shares of Common Stock for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 20
days prior to the date therein specified, in the case of any date referred to
in the foregoing subdivision (i), and at least 90 days prior to the date
therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
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7. Registration of Common Stock. The shares of Common Stock issuable upon
exercise of this Warrant shall constitute Registrable Securities (as such term
is defined in the Registration Rights Agreement). Each holder of this Warrant
shall be entitled to all of the benefits afforded to a holder of any such
Registrable Securities under the Registration Rights Agreement and such holder,
by its acceptance of this Warrant, agrees to be bound by and to comply with the
terms and conditions of the Registration Rights Agreement applicable to such
holder as a holder of such Registrable Securities. At any such time as Common
Stock is listed on any national securities exchange, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange, upon official notice of issuance, the shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance.
8. Restrictions on Transfer. Restrictive Legends. Except as
otherwise permitted by this Section 9, each certificate for Common
Stock issued upon the exercise of any Warrant, and each certificate
issued upon the transfer of any such Common Stock, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933 and may not be transferred in the absence of such
registration or an exemption therefrom under such Act. Such shares may be
transferred only in compliance with the conditions specified in the Common
Stock Purchase Warrant issued by PMC International, Inc. A complete and correct
copy of the form of such Warrant is available for inspection at the principal
office of PMC International, Inc. and will be furnished to the holder of such
shares upon written request and without charge."
8.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to any transfer of
any Warrant, the holder thereof will give written notice to the Company of such
holder's intention to effect such transfer and shall deliver an opinion of
counsel (which may be counsel to the Company), in form and substance reasonably
satisfactory to the Company, to the effect that the proposed transfer may be
effected without registration of such Warrant or Common Stock issued upon the
exercise of any Warrant under the Securities Act or applicable state securities
laws. Each certificate issued upon or in connection with the transfer of any
Warrant or Common Stock issued upon the exercise of any Warrant shall bear the
appropriate restrictive legend set forth on the face of this Warrant or in
Section 9.1, unless in the opinion of such counsel such legend is no longer
required to insure compliance with the Securities Act. The Company will pay the
reasonable fees and disbursements of counsel (other than house counsel) in
connection with
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any and all opinions rendered by such counsel pursuant to this Section
9.2.
8.3. Termination of Restrictions. The restrictions imposed by this Section 9
upon the transferability of any Warrant or Common Stock issued upon the
exercise of any Warrant shall cease and terminate as to any particular Warrant
or Common Stock issued upon the exercise of any Warrant (a) when such
securities shall have been effectively registered under the Securities Act, or
(b) when, in the opinion of counsel in form and substance reasonably
satisfactory to the Company, such restrictions are no longer required in order
to insure compliance with the Securities Act. Whenever such restrictions shall
cease and terminate as to any Warrant or Common Stock issued upon the exercise
of any Warrant, the holder thereof shall be entitled to receive from the
Company, without expense (other than applicable transfer taxes, if any), new
securities of like tenor not bearing the applicable legends required by Section
9.1.
9. Reservation of Stock, etc. The Company will at all times reserve and keep
available, solely for issuance and delivery upon exercise of the Warrants, the
number of shares of Common Stock from time to time issuable upon exercise of
all Warrants at the time outstanding. All shares of Common Stock issuable upon
exercise of any Warrants shall be duly authorized and, when issued upon such
exercise, shall be validly issued and, in the case of shares, fully paid and
nonassessable with no liability on the part of the holders thereof.
10. Registration and Transfer of Warrants, etc.
10.1. Warrant Register; Ownership of Warrants. The Company will keep at its
principal office a register in which the Company will provide for the
registration of Warrants and the registration of transfers of Warrants. The
Company may treat the Person in whose name any Warrant is registered on such
register as the owner thereof for all other purposes, and the Company shall not
be affected by any notice to the contrary, except that, if and when any Warrant
is properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer thereof as the owner of such Warrant for all purposes. Subject
to Section 9, a Warrant, if properly assigned, may be exercised by a new holder
without a new Warrant first having been issued.
10.2. Transfer and Exchange of Warrants. Upon surrender of any Warrant for
registration of transfer or for exchange to the Company at its principal
office, the Company at its expense will (subject to compliance with Section 9,
if applicable) execute and deliver in exchange therefor a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any
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applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
10.3 Replacement of Warrants. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant
and, in the case of any such loss, theft or destruction of any Warrant, upon
delivery of an indemnity bond in such reasonable amount as the Company may
determine, or, in the case of any such mutilation, upon the surrender of such
Warrant for cancellation to the Company at its principal office, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
11. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including treasury shares) of
Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4, deemed to be
issued) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than
(a) shares issued upon: the exercise of this Warrant; the exercise of any other
Warrants issued by the Company in connection with the New Bridge Loan (as such
term is defined in the Private Placement Memorandum); the Restructuring (as
such term is defined in the Private Placement Memorandum); or as compensation
to Keefe, Bruyette & Woods, Inc. in connection with the Offering (as such term
is defined in the Private Placement Memorandum); the exercise of Options and
warrants issued by the Company in connection with debt financings of the
Company that are outstanding as of the date hereof; and the exchange of shares
of the Company's Series A Preferred Stock (whether occurring before or after
the date hereof);
(b) up to (i) 1,000,000 shares issued upon exercise of Options granted to David
Andrus but only if and to the extent granted as contemplated by the Private
Placement Memorandum (without any amendments or supplements thereto) and (ii)
1,750,000 shares issued upon exercise of Options granted to the Company's
employees, consultants or directors under bona fide benefit plans adopted by
the Board of Directors and approved by the holders of Common Stock when
required by law, but only if and to the extent that the exercise price in
respect of any Option equals or exceeds the Market Price on the date of the
grant of such Option;
(c) shares issued to shareholders of any entity which merges into the
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Company in proportion to their stock holdings in such entity immediately prior
to such merger, upon such merger
(d) shares issued by the Company in the Offering (including any shares that may
be issued as a result of the Company failing to comply with certain provisions
of the Registration Rights Agreement);
(e) shares issued in a bona fide public offering pursuant to a firm commitment
underwriting, but only if and to the extent that the consideration received by
the Company in respect of each share so issued (as determined pursuant to
Section 2.5) equals or exceeds 95% of the Current Market Price;
(f) shares issued in a bona fide private placement through a placement agent
which is a member firm of the NASD or by the Company, but only if and to the
extent that the consideration received by the Company in respect of each share
so issued (as determined pursuant to Section 2.5) equals or exceeds 90% of the
Current Market Price;
(g) such additional number of shares as may become issuable upon the exercise
of any of the securities referred to in the foregoing clauses (a) and (b) by
reason of adjustments required pursuant to anti-dilution provisions applicable
to such securities as in effect on the date hereof.
Business Day: Any day other than a Saturday or a Sunday or a day on which
commercial banking institutions in Denver, Colorado are authorized by law to be
closed. Any reference to "days" (unless Business Days are specified) shall mean
calendar days.
Common Stock: As defined in the introduction to this Warrant, such term to
include any stock into which such Common Stock shall have been changed or any
stock resulting from any reclassification of such Common Stock, and all other
stock of any class or classes (however designated) of the Company the holders
of which have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference.
Company: As defined in the introduction to this Warrant, such term to include
any corporation which shall succeed to or assume the obligations of the Company
hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of
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Common Stock.
Current Market Price: On any date specified herein, the average daily Market
Price during the period of the most recent 20 days, ending on such date, on
which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current
Market Price shall be the Market Price on such date.
Extraordinary Cash Dividend: Any cash dividend or distribution with respect to
the Common Stock the amount of which exceeds, when aggregated with all other
such dividends or distributions paid on the Common Stock over the 365-day
period immediately preceding the record date for such dividend or distribution,
on a per share basis, the lesser of (i) 25% of the consolidated net income of
the Company for the four fiscal quarters immediately preceding the record date
for such dividend or distribution and (ii) 8% of the average of the Market
Prices of the Common Stock on each trading day during the 365-day period
referred to above.
Market Price: On any date specified herein, the amount per share of the Common
Stock, equal to (a) the last sale price of such Common Stock, regular way, on
such date or, if no such sale takes place on such date, the average of the
closing bid and asked prices thereof on such date, in each case as officially
reported on the principal national securities exchange on which such Common
Stock is then listed or admitted to trading, or (b) if such Common Stock is not
then listed or admitted to trading on any national securities exchange but is
designated as a national market system security by the NASD, the last trading
price of the Common Stock on such date, or (c) if there shall have been no
trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown
by the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the higher of (x) the book value thereof as determined
by any firm of independent public accountants of recognized standing selected
by the Board of Directors of the Company as of the last day of any month ending
within 60 days preceding the date as of which the determination is to be made
or (y) the fair value thereof determined in good faith by the Board of
Directors of the Company as of a date which is within 18 days of the date as of
which the determination is to be made.
NASD: The National Association of Securities Dealers, Inc.
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Options: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
Person: A corporation, an association, a partnership, an
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Private Placement Memorandum: The Private Placement Memorandum of the
Company, dated as of November 11, 1996, and any amendments or
supplements thereto.
Registration Rights Agreement: The Registration Rights Agreement
between the company and [Holder] dated as of December 24, 1996.
Securities Act: The Securities Act of 1933, as amended, or any similar federal
statute, and the rules and regulations of the Securities and Exchange
Commission thereunder, all as the same shall be in effect at the time.
Warrant Price: As defined in Section 2.1.
Warrant: As defined in the introduction to this Warrant.
12. Remedies. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
13. No Rights or Liabilities as Stockholder. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
14. Notices. All notices and other communications under this Warrant shall be
in writing and shall be delivered, or mailed by registered or certified mail,
return receipt requested, by a nationally recognized overnight courier, postage
prepaid, addressed (a) if to any holder of any Warrant, at the registered
address of such holder as set forth in the register kept at the principal
office of the Company, or (b) if to
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the Company, to the attention of its President at its principal office,
provided that the exercise of any Warrant shall be effective in the manner
provided in Section 1.
15. Amendments. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
17. Descriptive Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
18. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF COLORADO, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
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IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
set forth above.
PMC INTERNATIONAL, INC.
By:
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To PMC International, Inc.,
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, ______* shares of Common
Stock of PMC International, Inc. and herewith makes payment of $______
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ________________________, whose address is
______________________.
Dated:
(Signature must conform in all respects
to name of holder as specified on the
face of Warrant)
(Street Address)
(City)(State)(Zip Code)
* Insert here the number of shares called for on the face of this Warrant (or,
in the case of a partial exercise, the portion thereof as to which this Warrant
is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of partial exercise, a new Warrant
or Warrants will be issued and delivered, representing the unexercised portion
of the Warrant, to the holder surrendering the Warrant.
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FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto _____________ ____________ the right
represented by such Warrant to purchase ______ shares of Common Stock of PMC
International, Inc. to which such Warrant relates, and appoints
_____________________________ Attorney to make such transfer on the books of
PMC International, Inc. maintained for such purpose, with full power of
substitution in the premises.
Dated:
(Signature must conform in all respects
to name of holder as specified on the
face of Warrant)
(Street Address)
(City)(State)(Zip Code)
Signed in the presence of:
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<PAGE> 1
EXHIBIT 10.13
ADVISORY AGREEMENT
This ADVISORY AGREEMENT (the "Agreement") is entered into effective as
of the 26th day of July, 1995, by NEVCORP INC., a corporation organized
pursuant to the laws of the Province of Ontario, Canada ("Nevcorp"), and PMC
INTERNATIONAL, INC., a Colorado corporation (the "Corporation").
RECITALS
Nevcorp has expertise in providing investment banking and other general
advisory services to business organizations in North America, and the
Corporation wishes to engage the service of Nevcorp upon the terms and
conditions contained herein.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree to the terms set out
below.
1. Appointment. The Corporation hereby appoints Nevcorp, and Nevcorp
accepts such appointment, to act as an advisor for the Corporation during the
term of this Agreement. The services to be performed by Nevcorp shall consist
of such activities as may be reasonably requested by the Corporation from time
to time, it being acknowledged and agreed that the primary responsibility of
Nevcorp will be providing assistance to the Corporation in meeting its growth
objectives and providing ongoing financial advisory services.
2. Fees. In consideration of the services to be provided by Nevcorp
hereunder, the Corporation shall pay to Nevcorp a fee of US $100,000 (One
Hundred Thousand United States Dollars) per year (the "Fee"), payable in
advance in monthly installments in advance on the first day of each month,
commencing August 1, 1995 and ending upon termination of this Agreement, except
that if Bedford Capital Financial Corporation ("Bedford") fails to exercise its
option to make the Second Loan (as such term is defined in that certain
Investment Agreement dated July 27, 1995 by and among the Corporation and its
subsidiaries and Bedford), the Fee shall be reduced to US $40,000 (Forty
Thousand United States Dollars) per year from and after the date of
expiration of Bedford's option. The Corporation shall also pay or reimburse
Nevcorp for Nevcorp's travel expenses incurred in connection with this
Agreement. Any reimbursements payable to Nevcorp shall be paid to Nevcorp
within ten (10) days after receipt by the Corporation of documentation
evidencing the relevant expenses.
<PAGE> 2
3. Term; Termination. The term of this Agreement shall commence on the
date first set forth above and shall continue until the later to occur of (i)
payment in full of that certain promissory note of even date herewith made by
the Corporation payable to the order of Bedford Capital Financial Corporation
("Bedford") in the original principal amount of $1,200,000 or (ii) the date as
of which Bedford ceases to own, or have a right to acquire, an aggregate of at
least 10%, on a fully-diluted basis, of the Corporation's outstanding common
stock. This Agreement may also be terminated by Nevcorp at any time upon giving
not less than 60 days prior written notice to the Corporation, and may be
terminated by the Corporation only in accordance with the preceding sentence or
upon the bankruptcy, insolvency, dissolution or winding up of Nevcorp.
4. Notices. Any notice, request, demand, consent, approval or other
communication provided or permitted hereunder shall be in writing and may be
given by personal delivery, telecopy or may be sent by registered mail,
postage prepaid, addressed to the party for which it is intended at its address
as follows:
If to Nevcorp:
110 Sandringham Drive
Toronto, Ontario
M3H 1C9 Canada
Attn: J.W. Nevil Thomas
If to the Corporation:
PMC International, Inc.
555 17th Street, 14th Floor
Denver, Colorado 80202
Attn: Kenneth S. Phillips, President
A party may change its address for purposes of receipt of any such
communication by giving ten days' prior notice of such change in the manner
above prescribed. Any notice sent by registered mail as aforesaid shall be
deemed to have been given on the fifth business day next following the mailing
thereof. Any notice sent by telecopy or personally delivered shall be deemed to
have been received on the date of delivery. In the event of an actual or
threatened disruption in postal service, notice shall be sent by telecopy or
personally delivered.
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, without regard to principles
of conflicts of laws.
6. Binding Effect; Assignment. This Agreement and all documents and
agreements delivered pursuant hereto shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Neither party may
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assign any of its rights or obligations under this Agreement without the prior
written consent of the other party, except that Nevcorp may assign its rights
and obligations to any person or entity which controls, is controlled by or is
under common control with Nevcorp.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the day and year first above written.
NEVCORP INC.
/s/ WILLIAM L. ATKINSON
----------------------------------
William L. Atkinson, Authorized
PMC INTERNATIONAL, INC.
/s/ KENNETH S. PHILLIPS
----------------------------------
Kenneth S. Phillips, President
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Exhibit 10.14
PMC International, Inc.
555 17th Street, 14th Floor
Denver, Colorado 80202
December 24, 1996
J.W. Nevil Thomas
Nevcorp, Inc.
110 Sandringham Drive
Toronto, Ontario
M3H 1C9 Canada
Re: Termination of Nevcorp Advisory Agreement
Dear Nevil:
This letter will confirm that the Advisory Agreement dated as of July 26, 1995
between PMC International, Inc. (the "Company") and Nevcorp Inc. (the
"Agreement") will terminate immediately upon the closing of the sale of common
stock of the Company pursuant to the Private Placement Memorandum dated
November 11, 1996, as supplemented December 23, 1996 (the "Memorandum") and
payment of all sums due and owning Nevcorp thereunder on and as of such closing
date.
The total amount that will be due and owning under the Agreement as of the
closing date plus a termination fee in the amount of $4,000 will be paid to
Nevcorp by the Company promptly following such closing out of the proceeds of
the Offering (as defined in the Memorandum).
Please acknowledge your agreement with the terms set forth above by executing
this letter in the space provided below and returning a copy to me.
Sincerely,
Kenneth S. Phillips
President and Chief Executive Officer
Agreed and Accepted:
Nevcorp, Inc.
By: /s/ J.W. NEVIL THOMAS
----------------------------
J.W. Nevil Thomas
<PAGE> 1
Exhibit 10.15
PMC INTERNATIONAL, INC.
1994 INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the 1994 Incentive Stock Option Plan (the
"Plan") is to advance the interests of PMC International, Inc. and any
subsidiary corporation (hereinafter referred to as the "Company") and
all of its shareholders, by strengthening the Company's ability to
attract and retain in its employ individuals of training, experience,
and ability, and to furnish additional incentive to officers and
valued employees upon whose judgment, initiative, and efforts the
successful conduct and development of its business largely depends, by
encouraging such officers and employees to become owners of capital
stock of the Company.
This will be effected through the granting of stock options as herein
provided, which options are intended to qualify as "Incentive Stock
Options" within the meaning of Section 422 of the Internal Revenue
Code, as amended (the "Code").
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the directors duly appointed to administer the
Plan.
(c) "Common Stock" means the Company's Common Stock.
(d) "Date of Grant" means the date on which an Option is granted
under the Plan.
(e) "Option" means an Option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not
expired, has been granted under the Plan.
(g) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to
exercise an Option by bequest or inheritance or by reason of the death
of any Optionee.
3. Administration of Plan. The Plan shall be administered by a
committee of two or more directors appointed by the Board (the
"Committee"). The Committee shall report all action taken by it to
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the Board. The Committee shall have full and final authority in its
discretion, subject to the provisions of the Plan, to determine the
individuals to whom and the time or times at which Options shall be
granted and the number of shares and purchase price of Common Stock
covered by each Option; to construe and interpret the Plan; to
determine the terms and provisions of the respective Option
agreements, which need not be identical, including, but without
limitation, terms covering the payment of the Option Price; and to
make all other determinations and take all other actions deemed
necessary or advisable for the proper administration of the Plan. All
such actions and determinations shall be conclusively binding for all
purposes and upon all persons.
4. Common Stock Subject to Options. The aggregate number of shares
of the Company's Common Stock which may be issued upon the exercise of
Options granted under the Plan shall not exceed 500,000, subject to
adjustment under the provisions of Paragraph 9. The shares of Common
Stock to be issued upon the exercise of Options may be authorized but
unissued shares, shares issued and reacquired by the Company or shares
bought on the market for the purposes of the Plan. In the event any
Option shall, for any reason, terminate or expire or be surrendered
without having been exercised in full, the shares subject to such
Option but not purchased thereunder shall again be available for
Options to be granted under the Plan.
The aggregate fair market value (determined as of the time any option
is granted) of the stock for which any employee may be granted options
which are first exercisable in any single calendar year under this
Plan (and any other plan of the Company meeting the requirements for
Incentive Stock Option Plans) shall not exceed $100,000.
5. Participants. Options will be granted only to persons who are
employees of the Company and only in connection with any such person's
employment. The term "employees" shall include officers as well as
other employees, and the officers and other employees who are
directors of the Company. The Committee will determine the employees
to be granted options and the number of shares subject to each option.
6. Terms and Conditions of Options. Any Option granted under the
Plan shall be evidenced by an agreement executed by the Company and
the recipient and shall contain such terms and be in such form as the
Committee may from time to time approve, subject to the following
limitations and conditions:
(a) Option Price. The purchase price of each option shall not be
less than 100% of the fair market value of the Company's common stock
at the time of the granting of the option provided, however, if the
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optionee, at the time the option is granted, owns stock possessing
more than 10% of the total combined voting power of all classes of
stock of the Company, the purchase price of the option shall not be
less than 110% of the fair market value of the stock at the time of
the granting of the option.
(b) Period of Option. The maximum period for exercising an option
shall be ten (10) years from the date upon which the option is
granted, provided, however, if the optionee, at the time the option is
granted, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, the maximum
period for exercising an option shall be five (5) years from the date
upon which the option is granted and provided further, however, that
these periods may be shortened in accordance with the provisions of
Paragraphs 6 or 7 below.
Subject to the foregoing, the period during which each option may be
exercised, and the expiration date of each Option shall be fixed by
the Committee.
If an optionee shall cease to be employed by the Company for any
reason other than death, he may, but only within the three months (or,
in the event of the optionee's termination of employment due to
disability, as defined in Section 22(e)(3) of the Code, within the one
year) next succeeding such cessation of employment, exercise his
option to the extent that he was entitled to exercise it on the date
of such cessation. The Plan will not confer upon any optionee any
right with respect to continuance of employment by the Company, nor
will it interfere in any way with his right, or his employer's right,
to terminate his employment at any time.
(c) Vesting of Shareholder Rights. Neither an Optionee nor his
successor shall have any rights as a shareholder of the Company until
the certificates evidencing the shares purchased are properly
delivered to such Optionee or his successor.
(d) Exercise of Option. Each Option shall be exercisable from time
to time during a period (or periods) determined by the Committee and
ending upon the expiration or termination of the Option; provided,
however, the Committee may, by the provisions of any Option Agreement,
limit the number of shares purchasable thereunder in any period or
periods of time during which the Option is exercisable. An Option
shall not be exercisable in whole or in part prior to the date of
shareholder approval of the Plan.
Options may be exercised in part from time to time during the option
period. The exercise of any option will be contingent upon compliance
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by the Optionee (or purchaser acting pursuant to Section 6(b)) with
the provisions of Section 10 below and upon receipt by the Company of
either (i) cash or certified bank check payable to its order in the
amount of the purchase price of such shares (ii_ shares of Company
stock having a fair market value equal to the purchase price of such
shares, or (iii) a combination of (i) and (ii). If any law or
regulation requires the Company to take any action with respect to the
shares to be issued upon exercise of any option, then the date for
delivery of such stock shall be extended for the period necessary to
take such action.
(e) Nontransferability of Option. No Option shall be transferable or
assignable by an Optionee, otherwise than by will or the laws of
descent and distribution and each Option shall be exercisable, during
the Optionee's lifetime, only by him. No Option shall be pledged or
hypothecated in any way and no Option shall be subject to execution,
attachment, or similar process except with the express consent of the
Committee.
(f) Death of Optionee. In the event of the death of an optionee
while in the employ of the Company, the option theretofore granted to
him shall be exercisable only within the three months succeeding such
death and then only (i) by the person or persons to whom the
optionee's rights under the option shall pass by the optionee's will
or by the laws of descent and distribution, and (ii) if and to the
extent that he was entitled to exercise the option at the date of his
death.
7. Assumed Options. In connection with any transaction to which
Section 424(a) of the Code is applicable, options may be granted
pursuant hereto in substitution of existing options or existing
options may be assumed as prescribed by that Section and any
regulations issued thereunder. Notwithstanding anything to the
contrary contained in this Plan, options granted pursuant to this
Paragraph shall be at prices and shall contain such terms, provisions,
and conditions as may be determined by the Committee and shall include
such provisions and conditions as may be necessary to meet the
requirements of Section 424(a) of the Code.
8. Certain Dispositions of Shares. Any options granted pursuant to
this Plan shall be conditioned such that if, within the earlier of (i)
the two-year period beginning on the date of grant of an option or
(ii) the one-year period beginning on the date after which any share
of stock is transferred to an individual pursuant to his exercise of
an option, such an individual makes a disposition of such share of
stock by way of sale, exchange, gift, transfer of legal title, or
otherwise, such individual shall promptly report such disposition to
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the Company in writing and shall furnish to the Company such details
concerning such disposition as the Company may reasonably request.
9. Reclassification, Consolidation, or Merger. If and to the extent
that the number of issued shares of Common Stock of the Corporation
shall be increased or reduced by change in par value, split up,
reclassification, distribution of a dividend payable in stock, or the
like, the number of shares subject to Option and the Option price per
share shall be proportionately adjusted by the Committee, whose
determination shall be conclusive. If the Corporation is reorganized
or consolidated or merged with another corporation, an Optionee
granted an Option hereunder shall be entitled to receive Options
covering shares of such reorganized, consolidated, or merged company
in the same proportion, at an equivalent price, and subject to the
same conditions. The new Option or assumption of the old Option shall
not give Optionee additional benefits which he did not have under the
old Option, or deprive him of benefits which he had under the old
Option.
10. Restrictions on Issuing Shares. The exercise of each Option
shall be subject to the condition that if at any time the Company
shall determine in its discretion that the satisfaction of withholding
tax or other withholding liabilities, or that the listing,
registration, or qualification of any shares otherwise deliverable
upon such exercise upon any securities exchange or under any state or
federal law, or that the consent or approval of any regulatory body,
is necessary or desirable as a condition of, or in connection with,
such exercise or the delivery or purchase of shares purchased thereto,
then in any such event, such exercise shall not be effective unless
such withholding, listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions
not acceptable to the Company.
Unless the shares of stock covered by the Plan have been registered
with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of 1933, each optionee shall, by accepting an
option, represent and agree, for himself and his transferees by will
or the laws of descent and distribution, that all shares of stock
purchased upon the exercise of the option will be acquired for
investment and not for resale or distribution. Upon such exercise of
any portion of an option, the person entitled to exercise the same
shall, upon request of the Company, furnish evidence satisfactory to
the Company (including a written and signed representation) to the
effect that the shares of stock are being acquired in good faith for
investment and not for resale or distribution. Furthermore, the
Company may, if it deems appropriate, affix a legend to certificates
representing shares of stock purchased upon exercise of options
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indicating that such shares have not been registered with the
Securities and Exchange Commission and may so notify its transfer
agent. Such shares may be disposed of by an optionee in the following
manner only: (1) pursuant to an effective registration statement
covering such resale or reoffer, (2) pursuant to an applicable
exemption from registration as indicated in a written opinion of
counsel acceptable to the Company, or (3) in a transaction that meets
all the requirements of Rule 144 of the Securities and Exchange
Commission. If shares of stock covered by the Plan have been
registered with the Securities and Exchange Commission, no such
restrictions on resale shall apply, except in the case of optionees
who are directors, officers, or principal shareholders of the Company.
Such persons may dispose of shares only by one of the three aforesaid
methods.
11. Use of Proceeds. The proceeds received by the Company from the
sale of Common Stock pursuant to the exercise of Options granted under
the Plan shall be added to the Company's general funds and used for
general corporate purposes.
12. Amendment, Suspension, and Termination of Plan. The Board of
Directors may alter, suspend, or discontinue the Plan, but may not,
without the approval of a majority of those holders of the Company's
Common Stock voting in person or by proxy at any meeting of the
Company's shareholders, make any alteration or amendment thereof which
operates to (a) abolish the Committee, change the qualification of its
members, or withdraw the administration of the Plan from its
supervision, (b) make any material change in the class of eligible
employees as defined in Section 5, (c) increase the total number of
shares reserved for purposes of this Plan except as provided in
Section 9, (d) increase the total number of shares for which an option
or options may be granted to any one employee, (e) extend the term of
the Plan or the maximum option periods provided in Paragraph 6, (f)
decrease the minimum option price provided in Paragraph 6, except as
provided in Paragraph 9, or (g) materially increase the benefits
accruing to employees participating under this Plan.
Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate on December 31, 2003. No Option may be
granted during any suspension or after the termination of the Plan.
No amendment, suspension, or termination of the Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations
under any Option theretofore granted to such Optionee under the Plan.
13. Limitations. Every right of action by or on behalf of the
Company or by any shareholder against any past, present or future
member of the Board, or any officer or employee of the Company arising
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out of or in connection with this Plan shall, irrespective of the
place where such action may be brought and irrespective of the place
of residence of any such director, officer or employee cease and be
barred by the expiration of one year from whichever is the later of
(a) the date of the act or omission in respect of which such right of
action arises; or (b) the first date upon which there has been made
generally available to shareholders an annual report of the Company or
any proxy statement for the annual meeting of shareholders following
the issuance of such annual report, which annual report and proxy
statement alone or together set forth, for the related period, the
number of shares issuable upon the exercise of the options granted
pursuant to this Plan; and any and all right of action by any employee
(past, present or future) against the Company arising out of or in
connection with this Plan shall, irrespective of the place where such
action may be brought, cease and be barred by the expiration of one
year from the date of the act or omission in respect of which such
right of action arises.
14. Effective Date of the Plan. This Plan shall become effective
upon the adoption thereof by the Board of Directors of the Company.
15. Governing Law. The Plan shall be governed by the laws of the
State of Colorado.
16. Expenses of Administration. All costs and expenses incurred in
the operation and administration of this Plan shall be borne by the
Company.
PMC INTERNATIONAL, INC.
By:
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Exhibit 10.16
REIMBURSEMENT AND PLEDGE AGREEMENT
THIS REIMBURSEMENT AND PLEDGE AGREEMENT (this "Agreement"), dated as
of January 8, 1997, is between KP3, LLC, a Colorado limited liability
company (the "Pledgor"), and PMC International, Inc., a Colorado
corporation (which, together with its successors, assigns, endorsees,
transferees and assignees, is hereinafter referred to as the
"Company").
Recitals
A. The Company gave notice to its shareholders on December 18, 1996
of a proposal to provide financial assistance to a limited liability
company or its successor (the "LLC") in which certain of its directors
and officers had a financial interest, such financial assistance to
take the form of a loan by the Company to the LLC, a guaranty from the
Company of the LLC's obligations to a third party, a pledge of
collateral by the Company to secure the LLC' obligations to a third
party or a combination of the foregoing, such financial assistance not
to exceed $2,000,000.
B. On January 6, 1997, a committee of the Board of Directors of the
Company duly authorized the loans to the Pledgor contemplated hereby
and the Company's providing collateral (the "Bank Collateral") to
Norwest Bank Colorado, National Association (the "Bank") to secure a
loan made by the Bank to the Pledgor in the amount of up to $1,750,000
(the "Loan") pursuant to a Term Loan Agreement dated as of January 8,
1997 (the "Loan Agreement") and any renewal or replacement thereof,
such collateral to be made available for up to a two year period.
C. The Pledgor has agreed to reimburse the Company for any amounts
paid by the Company toward the Loan or for collateral applied by the
Bank to the Loan and has agreed to grant a security interest in all
shares of the Company's common stock held by the LLC, consisting of an
aggregate of 1,643,845 shares (the "Stock"), to secure such
reimbursement obligation and any amounts owed by the Pledgor to the
Company pursuant hereto.
D. The proceeds of the Loan have been used by the Pledgor for the
purpose of prepaying at a discount amounts owed by Pledgor under
Pledgor's promissory note in favor of Marc Geman ("Geman") dated July
27, 1995 in the original principal amount of $2,015,000 (the "Geman
Note"), of repaying certain loans made to the Pledgor to pay interest
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on the Geman Note, of repaying a loan made by the Company to the
Pledgor's predecessor in the original principal amount of $250,000 on
January 3, 1997, and of paying interest on the Loan.
E. The Company has agreed to advance to the Pledgor amounts
sufficient to permit payment of interest on the Loan, such advances to
be evidenced by a promissory note or notes as contemplated by Section
1.2.
F. It is a condition precedent to the Company's granting a security
interest in the Bank Collateral to secure the Loan that the Pledgor
execute and deliver to the Company this Agreement, thereby agreeing to
the reimbursement obligation stated herein and pledging the Stock and
any other collateral described herein to the Company. The Pledgor
acknowledges that the Company is relying on this Agreement in granting
a security interest in the Bank Collateral to the Bank.
Agreement
IN CONSIDERATION of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor agrees with the Company as follows:
ARTICLE I
AGREEMENT TO REIMBURSE;
PROMISSORY NOTES
1.1. Agreement to Reimburse. The Pledgor agrees with the Company to
repay and reimburse the Company for any amounts paid by the Company on
the Loan and for the fair market value of any of the Bank Collateral
applied by the Bank toward the Loan, together with interest on such
amounts from the date of such repayment or reimbursement at a rate per
annum equal to 9% per annum through the date of payment, such payment
or reimbursement to be made within 30 days of such payment or
application. If the amounts due hereunder are not repaid to the
Company within such 30 day period, the rate of interest shall increase
to 15% per annum until such amount have been paid in full.
1.2. Interest Loans. The Company hereby agrees to loan to the LLC
amounts sufficient to pay interest on the Loan so long as (i) no Event
of Default (as hereinafter defined) shall have occurred and be
continuing and (ii) the amount of loans made and Bank Collateral
provided would not exceed $2,000,000. The Pledgor shall deliver to
the Company promissory notes substantially in the form of Exhibit A
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(the "Company Notes") hereto to evidence its obligation to repay each
loan made to the Pledgor to pay interest on the Loan.
ARTICLE II
SECURITY INTEREST
2.1. Grant of Security Interest. The Pledgor hereby assigns and
pledges to the Company, and hereby grants to the Company a lien on and
security interest in, (a)(i) all of the Pledgor's right, title and
interest in and to the Stock, including all of Pledgor's rights to
receive the Stock upon payment of the Geman Note pursuant to the terms
of the Stock Pledge Agreement between Pledgor and Geman dated as of
July 26, 1995; (ii) all rights of the Pledgor to receive monies due or
to become due with respect to any or all of the Stock; (iii) all
dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for or in connection with any or all of the Stock; (iv) all
additional shares of stock of the Company from time to time acquired
by the Pledgor in respect of or in exchange for any or all of the
Stock or otherwise, and the certificates representing such additional
shares, and all dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of the Stock; and (b) all other
property in which the Pledgor at any time has rights and in which at
any time a security interest has been granted to the Company by the
Pledgor (collectively, the "Collateral").
2.2. Obligations Secured. This Agreement secures the payment and
performance of all obligations of the Pledgor to the Company now or
hereafter existing under this Agreement and the Company Notes, and any
agreements entered into pursuant thereto, whether for principal,
interest, fees, expenses or otherwise (all such obligations of the
Pledgor being the "Obligations").
2.3. Delivery of Collateral. All certificates or instruments
representing or evidencing the Collateral shall be delivered to and
held by or on behalf of the Company pursuant hereto, and shall be in
suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, all in
form and substance acceptable to the Company. The Company shall have
the right in its discretion and without notice to the Pledgor to
transfer to or to register in the name of the Company or any of its
nominees any or all of the Collateral.
2.4. Release of Collateral. The Company hereby agrees to release as
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Collateral hereunder (i) such shares of Stock as are necessary to
satisfy the obligations of the Pledgor under the Bedford Options (as
hereinafter defined) upon application of the proceeds of the exercise
of the Bedford Options to repayment of the Loan, (ii) shares of Stock
sold by the Pledgor for the fair market value thereof (but in any
event not less than $1.20 per share) upon application of the net
proceeds of such sale to repayment of the Loan (net proceeds to be
determined after payment of reasonable expenses of sale and any
federal and state income taxes to be incurred by the members of the
Pledgor in connection with such sale), and (iii) such shares of Stock
as to which the Company may agree upon any other repayment of the
Loan.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1. Representations and Warranties. The Pledgor represents and
warrants as follows (the following representations may be relied upon
by the Company and its agents and attorneys, at any time, including in
connection with the sale of the Collateral following foreclosure):
(a) The Pledgor is a limited liability company that is duly
organized, validly existing and in good standing under the laws of the
State of Colorado, has all requisite power and authority to own its
assets and to carry on its business as now conducted and to enter into
and perform its obligations under this Agreement.
(b) This Agreement has been duly authorized, executed and delivered
by the Pledgor and constitutes a valid and binding obligation of the
Pledgor enforceable against the Pledgor in accordance with its terms.
(c) The Pledgor is the legal and beneficial owner of the Collateral
free and clear of any lien, pledge, charge or encumbrance of any kind
("Lien").
(d) The Pledgor has legal title to and all necessary right and
authority to pledge and assign the Collateral and to deliver the
Collateral. The Collateral is not subject to any restrictions on the
pledge, sale or other transfer thereof and the Pledgor is not party to
any agreement or undertaking that restricts the right to pledge, sell
or transfer the Collateral as contemplated by this Agreement, except
(i) those imposed under applicable federal and state securities laws,
(ii) those contained in options on 335,000 shares of Stock previously
disclosed to the Company (or having such other exercise price, not
below $1.00 per share, to which the Pledgor may agree)(the "Bedford
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Options") as to which all requirements necessary to permit the pledge,
sale or other transfer contemplated by this Agreement shall have been
complied with, and (iii) those contained in the Shareholders Agreement
dated as of December 24, 1996, among PMC International, Inc., Bedford
Capital Financial Corporation, Kenneth S. Phillips, David L. Andrus
and Phillips & Andrus, LLC as to which all requirements necessary to
permit the pledge, sale or other transfer contemplated by this
Agreement have been waived.
(f) The pledge of the Collateral pursuant to this Agreement, the
delivery of the Collateral to the Company or its designee, and the
execution by the Pledgor of a blank stock power will create a valid
and perfected first security interest in the Collateral securing the
payment and performance of the Obligations.
(g) The execution, delivery and performance of this Agreement by the
Pledgor do not and will not (i) violate any provision of the articles
of organization or operating agreement of the Company, (ii) violate
any provision of any law, rule, regulation, order, decree or other
legal obligation having applicability to the Pledgor or the
Collateral, nor (iii) violate, conflict with or result in a breach of
or constitute a default under any document, agreement, lease, license,
permit, authorization, approval or instrument to which the Pledgor is
a party or by which the Pledgor or its property may be bound or
affected.
(h) The Pledgor has not made any contract or arrangement of any kind,
the performance of which contract or arrangement by any other
individual or entity could give rise to a Lien on the Collateral. The
Pledgor has not performed any acts, or entered into any agreement or
contract of any kind, which might prevent the Company from enforcing
any of the terms or conditions of this Agreement or selling the
Collateral following foreclosure or which would limit the Company in
any such enforcement.
(i) The Pledgor hereby makes for the benefit of the Company all
representations made by it for the benefit of the Bank in the Loan
Agreement.
3.2. Covenants and Further Assurances.
(a) The Pledgor agrees that, at any time and from time to time, the
Pledgor will promptly execute and deliver all further instruments and
documents and take all further action that may be reasonably necessary
or desirable, or that the Company may reasonably request, in order to
perfect and protect the assignment and security interest granted or
purported to be granted hereby or to enable the Company to exercise
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and enforce its rights and remedies hereunder with respect to any
Collateral. Pledgor shall provide written notice to Geman of the
Company's security interest in the Collateral in a form satisfactory
to the Company. In the event that any Collateral is delivered to, or
comes within the possession of Pledgor at any time, Pledgor shall
notify Company thereof immediately and shall take all action requested
by Company to effect delivery of the Collateral to the Company and
shall execute and deliver all instruments of transfer and other
documents as shall be requested by Company in its discretion to
perfect the security interest in the Collateral created hereby.
(b) The Pledgor agrees to deliver all cash, instruments and other
property described in Section 3.1 above and all additional shares of
stock described in Section 3.1 above to the Company within five days
after receipt by the Pledgor and to execute all pledge agreements,
security agreements, stock powers, financing statements and all other
documents that the Company deems necessary or advisable to grant the
Company a valid, perfected first priority security interest in such
additional stock or property.
(c) The Pledgor will not take any action with respect to the
Collateral which might have a material adverse effect on the security
interest of the Company hereunder in the Collateral or the value of
the Collateral.
(d) The Company shall offer to the Pledgor to enter into a
registration rights agreement in substantially the form offered to
persons who recently exchanged the Company's preferred stock for
common stock.
(e) The Pledgor hereby agrees to comply, for the benefit of the
Company, with all covenants made for the benefit of the Bank in
Sections 6 and 7 of the Loan Agreement (other than Sections 6.3.1,
6.3.2, 6.3.3 and 6.3.4).
ARTICLE IV
POWERS AND AUTHORIZATIONS
4.1. Voting, Dividends and Other Payments.
(a) So long as there exists no Event of Default (as defined in
Article V hereof):
(i) the Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers relating or pertaining to the
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Stock pledged by it or any part thereof for any purpose not
inconsistent with the terms hereof;
(ii) any and all dividends in cash or other property, stock or
liquidating dividends, distributions of property, returns of capital
or other distributions and payments made on or in respect of the
Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding Collateral or received in exchange
therefor or for any part thereof or as a result of any merger,
consolidation, acquisition or other exchange of assets to which any
such issuer may be a party or otherwise, and any and all cash and
other property received in exchange for or redemption of any
Collateral (in each case, after reservation of an amount necessary to
cover federal or state income taxes incurred in connection therewith),
shall be and become part of the Collateral and, if received by the
Pledgor, at the Pledgor's option, either (A) shall be held in trust by
the Pledgor for the benefit of the Company and forthwith be delivered
by the Pledgor to the Company (registered in the name of the Company,
or accompanied by proper instruments of assignment executed by the
Pledgor) to be held subject to the terms hereof or (B) shall be
applied to payment of principal or interest on the Loan.
(b) Upon the occurrence of an Event of Default all rights of the
Pledgor to exercise the voting and/or consensual rights and powers
which it is entitled to exercise pursuant to Section 4.1(a) shall, at
the Company's option, immediately upon notice to the Pledgor, cease,
and the Company shall be entitled to receive all dividends on the
Collateral, which dividends shall be held as additional Collateral
hereunder.
4.2. Transfers and Other Liens. The Pledgor shall not, without the
prior written consent of the Company:
(a) Sell, assign or otherwise dispose of any of the Collateral,
except pursuant to the Bedford Options or as otherwise permitted under
Section 2.3; or
(b) Create or suffer to exist any Lien upon or with respect to any of
the Collateral, except for the Lien created by this Agreement.
4.3. Company Appointed Attorney-in-Fact. The Pledgor irrevocably
appoints the Company as the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the
Pledgor or otherwise, from time to time in the Company's discretion,
to take any action and to execute any instrument that the Company may
deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation:
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(a) to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above;
(c) to file any claims or take any action or institute any
proceedings which the Company may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Company with respect to any of the Collateral;
(d) at the Company's option, to effect the transfer of record of the
Collateral in and to the name of the Company and to sell or otherwise
transfer the Collateral in accordance with the terms of this
Agreement; and
(e) at any time after the occurrence of an Event of Default, to
instruct the depository, transfer agent, trustee or holder of the
Collateral to immediately pay over the Collateral to the Company or
sell the Collateral and immediately pay over the proceeds to the
Company.
The Company promptly give notice to the Pledgor of any actions taken
by it pursuant to this Section 4.3.
4.4. Continuing Security Interest; Release of Collateral. This
Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the
payment in full of the Obligations, (b) be binding upon and inure to
the benefit of the Pledgor, and its successors and assigns, and (c) be
binding upon and inure, together with the rights and remedies of the
Company hereunder, to the benefit of the Company, its successors,
participants, transferees and assigns. Upon the complete and final
payment and performance of the Obligations in full, and upon written
request delivered by the Pledgor to the Company, the security interest
created by this Agreement shall terminate and all rights to the
Collateral shall revert to the Pledgor. Upon such event, the Company
shall, upon the Pledgor's request and at the Pledgor's expense (x)
return to the Pledgor such of the Collateral as shall not have been
sold or otherwise disposed of or applied pursuant to the terms hereof,
and (y) execute and deliver to the Pledgor such documents as the
Pledgor shall reasonably request to evidence such termination. The
termination of the security interests created by this Agreement shall
not terminate or otherwise affect the Company's right or ability to
exercise any right, power or remedy on account of any claim for breach
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of warranty or representation, for failure to perform any covenant or
other agreement, under any indemnity or for fraud, deceit or other
misrepresentation or omission.
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
5.1. Events of Default. The occurrence of any one or more of the
following events or existence of any one or more of the following
conditions shall constitute an event of default ("Event of Default")
under this Agreement:
(a) The Pledgor shall fail to make any payment when and as due under
the Company Note, or shall fail to observe or perform any term of the
Company Note and such failure shall continue for ten days or more.
(b) The Pledgor shall fail to observe or perform any term of this
Agreement and such failure shall continue for ten days or more.
(c) Any warranty or representation made to the Company in connection
with this Agreement proves to have been false in any material respect
when made or deemed made.
(d) The Pledgor shall become insolvent, admit in writing its
inability to pay its debts as they mature, or make an assignment for
the benefit of creditors; or the Pledgor shall apply for or consent to
the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee
otherwise shall be appointed for the Pledgor and shall not be
discharged within 15 calendar days after such appointment.
(e) The occurrence and continuance of an event of default as
described in Section 8 of the Loan Agreement.
5.2. Remedies. Upon the occurrence of an Event of Default hereunder:
(a) All rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 4.1 shall cease.
(b) All payments received by the Pledgor under or in connection with
the Collateral shall be received in trust for the benefit of the
Company, shall be segregated from other funds of the Pledgor and shall
be forthwith paid over to the Company in the same form as so received
(with any necessary endorsement).
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(c) The Company may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a Company on default
under the Uniform Commercial Code (the "Code") in effect in the State
of Colorado at that time and also may without notice, except as
specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Company's
offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Company may deem commercially reasonable.
The Pledgor agrees that, to the extent notice of sale shall be
required by law, at least five calendar days' notice to the Pledgor of
the time after which any private sale is to be made shall constitute
reasonable notification, but notice given in any other reasonable
manner or at any other reasonable time shall be sufficient. The
Company shall have the right to purchase the Collateral at any public
or private sale, and shall have the right to credit upon the amount of
the bid made therefor the amount payable to it out of the net proceeds
of such sale. Without precluding any other methods of sale, the sale
of Collateral shall have been made in a commercially reasonable manner
if conducted in conformity with reasonable commercial practices of
financial institutions disposing of similar property, but in any
event, the Company may sell at its option on such terms as it may
choose without assuming any credit risk and without obligation to
advertise. The Company shall not be obligated to make any sale of
Collateral, regardless of notice of sale having been given. The
Company may adjourn any sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(d) The Pledgor recognizes that the Company will be unable to effect
a public sale of any of the Stock by reason of certain prohibitions
contained in the Securities Act of 1933 and other applicable state and
federal securities laws. The Pledgor acknowledges that the Company
may sell the Stock and such other Collateral, if any, that is subject
to such prohibitions privately to a restricted group of purchasers who
agree to purchase such securities for their own account for investment
and not with a view to the distribution or sale thereof, or in any
other manner deemed advisable by the Company, and at such price or
prices as the Company determines in its sole discretion. The Pledgor
acknowledges and agrees that any such private sale may result in
prices and other terms less favorable to the seller than if such sale
were a public sale.
(e) The Pledgor shall be liable for and will pay to the Company, as
soon as incurred, all costs and expenses, including attorneys' fees,
related or incidental to the care, holding, retaking, preparing for
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sale, selling or collection of or realization upon any of the
Collateral or relating or incidental to the establishment or
preserving or enforcement of the rights of the Company hereunder or in
respect of any of the Collateral, and obtaining legal advice related
to any of the foregoing. Further, the Pledgor agrees that any
proceeds of the Collateral, resulting from sale, collection or
otherwise, and other available moneys coming into the hands of the
Company may be applied by the Company, before or after the occurrence
of an Event of Default, to the satisfaction or reduction of such of
the Obligations or costs and expenses as it may see fit, whether or
not matured, in such order as the Company determines.
(f) The Company shall have the right in its discretion and upon
notice to the Pledgor, to transfer to or to register in the name of
the Company or any of its nominees any or all of the Collateral.
(g) Without any notice to the Pledgor, subject to compliance with
notice provisions, if any, required by law, the Company may instruct
the depository, transfer agent, trustee or other holder of the
Collateral to immediately pay over the Collateral to the Company or
sell the Collateral and pay the proceeds to the Company. The Pledgor
hereby authorizes and instructs the depository, trustee, transfer
agent or holder of the Collateral to immediately pay over the
Collateral to the Company or sell the Collateral and pay the proceeds
to the Company upon notice from the Company without the need for any
acknowledgment or consent by the Pledgor or further action on the part
of the Pledgor and the Pledgor hereby agrees to indemnify and hold
harmless the depository, transfer agent, trustee or other holder of
the Collateral from and against any and all claims, demands, causes of
action, losses or expenses as a result of the depository, transfer
agent, trustee or other holder of the Collateral delivering the
Collateral to the Company or liquidating the Collateral and paying the
proceeds to the Company.
(h) The Company may exercise all of the remedies set forth herein
from time to time upon the occurrence of any Event of Default and may
exercise the remedies set forth herein separately in connection with
the occurrence of each Event of Default. The exercise of any remedies
herein in connection with one Event of Default shall not prevent the
Company from exercising any and all remedies set forth herein in
connection with any subsequent Event of Default. The Pledgor
recognizes that the Collateral is of a type that may decline speedily
in value.
5.3. Application of Proceeds. The proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be applied
by the Company in the following order of priority:
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First, to payment of the expenses of such sale or other realization,
including reasonable compensation to the Company and its agents and
counsel, and all expenses, liabilities and advances incurred or made
by the Company in connection therewith, and any other unreimbursed
expenses for which the Company is to be reimbursed pursuant to this
Agreement or the Company Notes;
Second, to payment of all other Obligations in such order as the
Company shall determine until all such Obligations have been paid in
full; and
Third, to payment to the Pledgor, or its successors or assigns, or as
a court of competent jurisdiction may direct.
ARTICLE VI
MISCELLANEOUS
6.1. Security Interest Absolute. The Pledgor agrees that all rights
of the Company and the assignment and security interest hereunder and
all Obligations of the Pledgor shall be absolute and unconditional,
irrespective of, and the Pledgor hereby consents to:
(a) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations;
(b) any amendment, modification or restatement of any of the terms of
this Agreement or the Company Notes;
(c) any exchange, release or nonperfection of any Collateral; or
(d) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, which might otherwise constitute a
defense available to, or a discharge of, the Pledgor.
6.2. Notices. All notices, consents, waivers and other
communications under this Agreement must be in writing and will be
deemed to have been duly given (a) when delivered by hand (including
by a nationally recognized overnight courier service), with written
confirmation of receipt, or (b) when sent by telecopier (with written
confirmation of receipt), provided that a copy is also delivered by
hand (including by a nationally recognized overnight courier service),
with written confirmation of receipt, on the next business day
thereafter, in each case to the addresses listed below:
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If to Pledgor:
KP3, LLC
555 Seventeenth Street
14th Floor
Attention: Kenneth S. Phillips
Facsimile: (303) 293-2152
With a copy to:
Waldbaum, Corn, Koff, Berger & Cohen, P.C.
303 East Seventeenth Avenue
Suite 940
Denver, Colorado 80203
Attention: Leonard N. Waldbaum, Esq.
Facsimile: (303) 861-0601
If to Company:
PMC International, Inc.
555 Seventeenth Street
14th Floor
Denver, Colorado 80202
Attention: Maureen E. Dobel, Esq.
Facsimile: (303) 293-2152
With a copy to:
Holme Roberts & Owen, LLP.
1700 Lincoln
Suite 4100
Denver, CO 80203
Attention: Francis R. Wheeler
Facsimile: (303) 866-0200
Any party may change its address for the giving of notice by providing
notice of such change hereunder.
6.3. Waiver of Rights of Subrogation. The Company hereby waives any
rights of subrogation it may have to enforce against Kenneth S.
Phillips under the Continuing Guaranty given by Mr. Phillips to the
Bank in connection with the Loan.
6.4. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
6.5. Entire Agreement. This Agreement and the Company Notes
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constitute and incorporate the entire agreement between the Company
and the Pledgor concerning the subject matter of this Agreement and
supersede any prior agreements between the Company and the Pledgor
concerning the subject matter hereof.
6.6. Jurisdiction and Venue. At the option of the Company, an action
may be brought to enforce this Agreement in the District Court in and
for the City and County of Denver, State of Colorado, in the United
States District Court for the District of Colorado or in any other
court in which venue and jurisdiction are proper. The Pledgor
consents to venue and jurisdiction in the District Court for the City
and County of Denver, State of Colorado and in the United States
District Court for the District of Colorado and to jurisdiction and
service of process under Sections 13-1-124(1)(a) and 13-1-125,
Colorado Revised Statutes (1973), as amended, in any action commenced
to enforce this Agreement, and hereby irrevocably waives the defense
of inconvenient forum to the maintenance of any such action or
proceeding.
6.7. Severability. The invalidity, illegality or unenforceability of
any provision of this Agreement shall not in any way affect or impair
the legality or enforceability of the remaining provisions of this
Agreement.
6.8. Time of the Essence. Time is of the essence with respect to the
dates, terms and conditions of this Agreement.
6.9. Amendments and Waivers. No amendment or waiver of any provision
of this Agreement nor consent to any departure by the Pledgor here
from, shall in any event be effective unless the same shall be in
writing and signed by the Company, and then such waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given.
6.10. Facsimile Signatures. This Agreement, and all documents
executed pursuant hereto including without limitation financing
statements, stock powers and other documents evidencing the security
interest created hereby, may be executed and delivered by facsimile
transmission, such execution and delivery to be valid and deemed an
original for all purposes.
IN WITNESS WHEREOF, the Company and the Pledgor have duly executed and
delivered this Agreement as of the date first above written.
COMPANY:
PMC INTERNATIONAL, INC.
By:
Name: Maureen E. Dobel
Title: Corporate Secretary
PLEDGOR:
KP3, LLC,
By:
Name: Kenneth S. Phillips
Title: Manager
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Exhibit 10.17
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (the "Agreement") is dated as of the 8th day
of January, 1997, and is by and among KP3, LCC, a limited liability company
with offices located at 555 Seventeenth Street, Fourteenth Floor, Denver,
Colorado 80202 (the "Borrower"), Norwest Bank Colorado, National Association, a
national banking association with offices located at 1740 Broadway, Denver,
Colorado 80274-8673 (the "Bank"), and PMC International, Inc., 555 Seventeenth
Street, Fourteenth Floor, Denver, Colorado 80222 ("PMCI").
RECITALS:
WHEREAS, the Borrower has requested the Bank to lend it up to the sum
of One Million Seven Hundred Fifty Thousand And No/100 Dollars ($1,750,000.00)
on a term loan basis (the "Loan") for the purpose of refinancing obligations of
Phillips & Andrus, LLC and acquiring shares of PMCI, and;
WHEREAS, the Bank is willing to lend such sum to Borrower upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises herein contained, and
each intending to be legally bound hereby, the parties agree as follows:
1. Definitions
As used herein:
1.1. Agreement" shall mean this Term Loan Agreement and all
amendments and supplements hereto which may from time to time become effective
hereafter in accordance with the terms of this Agreement.
1.2. "Banking Day" shall mean a day on which banks are open
for business in Denver, Colorado.
1.3. "Base Rate" shall mean the "base" or "prime" rate of
interest as announced by the Bank as in effect from time to time.
1.4. "Borrowed Money" shall mean funds obtained by
incurring contractual indebtedness and shall not include trade accounts payable.
1.5. "Collateral" and "Collateral Documents" shall mean
the security and the security documents specified in Section 4.
<PAGE> 2
1.6. "Default" shall mean an Event of Default as referred
to in Section 8 hereof, or an event which with notice or lapse of time or both
would become an Event of Default.
1.7. "Indebtedness" shall mean, as to the Borrower, all items
of indebtedness, obligation or liability, whether matured or unmatured,
liquidated or unliquidated, direct or contingent, joint or several.
1.8. "Note" and "Term Note" shall mean the promissory note
evidencing the Borrower's obligation to the Bank as described in this Agreement.
2. The Loan
2.1. On the effective date hereof, the Bank will lend to the
Borrower the principal sum of One Million Seven Hundred Fifty Thousand And
No/100 Dollars ($1,750,000.00) on a term basis (the "Loan").
2.2. The Bank will credit the proceeds of the Loan to the
Borrower's deposit account with the Bank.
2.3. At the time of the making of the Loan, the Borrower will
execute and deliver the Term Note to the Bank.
2.4. Interest on the Note shall be calculated at an annual
rate of three tenths of one percent (.30%) less than the Base Rate in effect
from time to time on the basis of the actual number of days elapsed in a year
of 360 days, and shall change as and when the Base Rate changes.
2.5. The principal of the Loan will be re-paid in full at
maturity, December 31, 1997.
2.6. Interest shall be payable quarterly, commencing March 31,
1997, and continuing on the same day of each succeeding quarter.
2.7. All sums payable to the Bank hereunder shall be paid
directly to the Bank in immediately available funds. The Bank shall send the
Borrower statements of all amounts due hereunder, which statements shall be
considered correct and conclusively binding on the Borrower unless the Borrower
notifies the Bank to the contrary within thirty days of its receipt of any
statement which it deems to be incorrect. Alternatively, at its sole
discretion, the Bank may charge against any deposit account of the Borrower all
or any part of any amount due hereunder.
2.8. The Borrower may, without the payment of penalty or
premium, prepay the principal of the Loan in whole or, from time to time, in
part. Moreover, Borrower agrees to reduce the principal amount of the loan in
an amount equal to any amount received by Borrower from Bedford Capital
Financial Group's exercising its option to purchase PMCI shares. The Bank
agrees promptly to release its Collateral in amount that is equal to Borrower's
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prepayment(s), so that the Collateral shall be equal to the principal
obligation of the Loan and anticipated interest. The Bank further agrees
quarterly to reduce its Collateral in the amount of $35,000, provided that
regular quarterly interest payments are made by Borrower to the Bank.
2.9. The Bank acknowledges that it has received a due
diligence fee from Borrower in the amount of $10,000. The Bank has determined
that the appropriate fee should be $8,750 and the Bank agrees to reimburse
$1,250 to the Borrower at Closing.
3. Conditions Precedent
The obligation of the Bank to make the Loan hereunder is
subject to the following conditions precedent:
3.1. The Borrower shall have delivered to the Bank, prior
to the disbursement of the Loan (the "Closing") the following:
3.1.1. The Note.
3.1.2. A security agreement/collateral pledge
agreement, duly executed by "PMCI," pledging to Bank the Collateral that is
described in Section 4, as well as a control agreement executed by Norwest
Investment Services, Inc. ("NISI").
3.1.3. Duly executed guaranty agreement of Kenneth
S. Phillips.
3.1.4. A copy of resolutions of PMCI's board of
directors and a copy of the Borrower's operating agreement authorizing the
execution, delivery and performance of the documents that they shall
respectively execute in connection with this Agreement, including the Note, the
Collateral Documents, and each other document to be delivered pursuant hereto.
3.1.5. A certificate of PMCI's corporate secretary
as to the incumbency and signatures of the officers of PMCI signing this
Agreement, and the Collateral Documents.
3.1.6. A written opinion of the PMCI's counsel,
dated the date of the Closing and addressed to the Bank, in the form that is
attached to this Agreement as Exhibit A.
3.2. At the time of the Closing:
3.2.1. No Event of Default shall have occurred and
be continuing, and no event shall have occurred and be continuing that, with
the giving of notice or passage of time or both, would be an Event of Default;
3.2.2. No material adverse change shall have
occurred in the financial condition of Borrower or PMCI since the date of this
Agreement or the Closing, as applicable; and
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3.2.3. All of the Collateral Documents shall have
remained in full force and effect.
3.3. At the time of the Closing, all legal matters
incidental thereto shall be satisfactory to the Bank's legal counsel.
4. Security
4.1. To secure the Note and the performance of its additional
obligations as set forth hereunder, prior to or simultaneous with the first
borrowing hereunder, PMCI shall execute and deliver to the Bank a security
agreement or collateral pledge agreement, and financing statement, in form and
substance satisfactory to the Bank, granting to the Bank a first security
interest in cash-equivalent investment property that is reasonably acceptable
to the Bank, that has a value of at least $1,890,000, and that is held in
PMCI's account with NISI. PMCI will also execute, together with NISI, the
Bank's control agreement by which the parties acknowledge that the Bank has
control of the Collateral until such time as the Note has been paid in full.
The amount of the Collateral ($1,890,000) is equal to the initial principal
amount of the Loan plus an interest reserve of $140,000. The Collateral will be
reduced, as specified in Section 2.8 hereof, as interest and principal are
paid, so that the Collateral will remain at all times equal to the principal
balance of the Loan plus interest calculated to be due up to the including the
date of maturity.
4.2. Subject to Section 2.8 of this Agreement, the Collateral
shall stand as one general, continuing collateral security for all indebtedness
due the Bank, and may be retained by the Bank until all such indebtedness has
been paid in full.
4.3. At any time requested by the Bank, the Borrower or PMCI
shall execute and deliver to the Bank such additional documents as the Bank may
consider to be necessary or desirable to evidence or perfect the security
interests referred to in this Section 4.
4.4. In addition, the Borrower shall cause to be executed and
delivered to Bank a guaranty agreement, in form and substance acceptable to the
Bank, whereby Kenneth S. Phillips individually, shall guaranty repayment of all
indebtedness evidenced by the Note.
4.5. The foregoing liens shall be first and prior liens.
5. Representations and Warranties
To induce the Bank to enter into this Agreement, PMCI
represents and warrants to the Bank as follows:
5.1. PMCI is a corporation duly organized, existing and in
good standing under the laws of the State of Colorado.
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5.2. PMCI has successfully completed the private equity
placement that is more fully described in that certain Confidential Private
Placement Memorandum dated November 11, 1996, as supplemented December 23,
1996.
5.3. The execution, delivery and performance of this
Agreement and the Collateral Documents are within the powers of PMCI and have
been duly authorized by PMCI's board of directors.
5.4. No consent, approval or authorization of or declaration
or filing with any governmental authority on the part of PMCI is required in
connection with the execution and delivery of the Collateral Documents.
To induce the Bank to enter into this Agreement, the Borrower
represents and warrants to the Bank as follows:
5.5. The Borrower is a limited liability company duly
organized, existing and in good standing under the laws of the State of
Colorado.
5.6. The execution, delivery and performance of this
Agreement and the issuance of the Note are within the powers of the Borrower
and have been duly authorized.
5.7. This Agreement is, and the Note when issued will be,
valid and binding in accordance with their terms.
6. Affirmative Covenants
The Borrower covenants and agrees that so long as any
indebtedness remains outstanding hereunder, unless the Bank shall otherwise
consent in writing, it will do all of the following.
6.1. Pay, when due, all taxes assessed against it or its
property except to the extent and so long as contested in good faith.
6.2. Maintain its limited liability company existence, and
comply with all laws and regulations applicable.
6.3. Furnish to the Bank:
6.3.1. Promptly after they become available, the
quarterly and annual securities reports of PMCI.
6.3.2. Annual federal tax returns for the guarantor
within 90 days after filing of said tax returns.
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6.3.3. Annual financial statements of the guarantor
within 90 days after the end of guarantor's fiscal year end.
6.3.4. Within 45 days after the end of each fiscal
quarter, account statements from NISI, with respect to the Collateral.
6.3.5. Promptly upon knowledge thereof, notice of
the Bank in writing of the occurrence of any event which has or might, after
the lapse of time or the giving of notice and the lapse of time, become an
event of default under Section 8 of this Agreement.
6.3.6. Promptly, such other information as the Bank
may reasonably request.
6.4. Maintain present ownership and management of the
Borrower.
6.5. Cause PMCI to advance funds to the Borrower, if
necessary, to allow Borrower to make interest payments to the Bank as required
by the Note.
6.6. When requested so to do, make available for inspection
by duly authorized representatives of the Bank any of its books and records,
and furnish the Bank any information regarding its business affairs and
financial condition within a reasonable time after written request therefor.
7. Negative Covenants
Without the Bank's written consent, so long as any
indebtedness remains outstanding hereunder, the Borrower will not do any of the
following.
7.1. Create, incur, assume or suffer to exist, contingently
or otherwise, other than in the ordinary course of business for conducting
their present business operation, indebtedness for Borrowed Money, except: (i)
indebtedness arising under this Agreement, (ii) indebtedness disclosed to the
Bank in writing as existing at the time of execution of this Agreement, (iii)
purchase money financing, and (iv) indebtedness for money borrowed from PMCI or
a third party to pay principal or interest on the Loan.
7.2. Permit the aggregate amount of the Borrower's
expenditures for fixed assets, including but not limited to fixed asset lease
and lease purchases, to exceed $25,000.00 annually.
7.3. Enter into any transaction of merger or consolidation,
or transfer, sell, assign, lease or otherwise dispose of all or a substantial
part of its properties or assets, or any of its notes or accounts receivable,
or any assets or properties necessary or desirable for the proper conduct of
its business, or change the nature of its business, or wind up, liquidate or
dissolve, or agree to do any of the foregoing.
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<PAGE> 7
7.4. Purchase or otherwise acquire all or substantially all
of the assets of any person, firm, corporation or association unless after the
consummation of such transaction, and after giving effect thereto and to any
concurrent transactions, no event of default specified in Section 8 hereof, and
no event which with notice or lapse of time or both would become such an event
of default, would exist.
7.5. Become or remain a guarantor or surety, or pledge its
credit or become liable in any manner (except by endorsement for deposit in the
ordinary course of business) on undertakings of another.
7.6. Make any loan or advance to any member, manager, or
employee of the Borrower, except for temporary advances in the ordinary course
of business.
7.7. Make a material change in its accounting procedures,
whether for tax purposes or otherwise.
8. Events of Default
8.1. Upon the occurrence of any of the following events of
default:
8.1.1. Default in any payment of interest or of
principal on the Note when due, and continuance thereof for 5 days; or
8.1.2. Default in the observance or performance of
any agreement of the Borrower set forth in Sections 6 and 7 hereof; or
8.1.3. Default in the observance or performance of
any other agreement of the Borrower herein set forth and continuance thereof for
30 days; or
8.1.4. Default by the Borrower in the payment of
any other indebtedness for Borrowed Money or in the observance or performance of
any term, covenant or agreement of the Borrower in any agreement relating to
any indebtedness of the Borrower, the effect of which default is to permit the
holder of such indebtedness to declare the same due prior to the date fixed for
its payment under the terms thereof; or
8.1.5. Any representation or warranty made by the
Borrower or PMCI herein, or in any statement or certificate furnished by the
Borrower or PMCI hereunder, is untrue in any material respect; or
8.1.6. A judicial judgment or governmental ruling
against the Borrower or PMCI, which has a material adverse effect on the
Borrower's or PMCI's ability to continue business;
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<PAGE> 8
then, or at any time thereafter, unless such event of default is remedied, the
Bank or the holder of the Note may, by notice in writing to the Borrower,
declare the Note to be due and payable, whereupon the Note shall immediately
become due and payable.
8.2. Upon the occurrence of any of the following events of
default:
The Borrower or PMCI becomes insolvent or
bankrupt, or makes an appointment for the
benefit of creditors or consents to the
appointment of a custodian, trustee or
receiver for themselves or for the greater
part of their properties; or a custodian,
trustee or receiver is appointed for the
Borrower or PMCI, or for the greater part
of their properties without their consent
and is not discharged within 60 days; or
bankruptcy, reorganization or liquidation
proceedings are instituted by or against
the Borrower or PMCI and, if instituted
against either of them, is consented to by
them or remain undismissed for 60 days;
then the Note shall automatically become immediately due and payable, without
notice.
9. Miscellaneous
9.1. The provisions of this Agreement shall be in addition to
those of any guaranty, pledge or security agreement, note or other evidence of
liability held by the Bank, all of which shall be construed as complementary to
each other. Nothing herein contained shall prevent the Bank from enforcing any
or all other notes, guaranty, pledge or security agreements in accordance with
their respective terms.
9.2. From time to time, the Borrower and PMCI will execute
and deliver to the Bank such additional documents and will provide such
additional information as the Bank may reasonably require to carry out the
terms of this Agreement and be informed of the Borrower's and PMCI's status and
affairs.
9.3. The Bank shall have the right at all times to enforce
the provisions of this Agreement and the Collateral Document, in strict
accordance with the terms hereof and thereof, notwithstanding any conduct or
custom on the part of the Bank in refraining from so doing at any time or
times. The failure of the Bank at any time or times to enforce its rights under
such provisions, strictly in accordance with the same, shall not be construed
as having created a custom in any way or manner contrary to specific provisions
of this Agreement or as having in any way or manner modified or waived the
same. All rights and remedies of the Bank are cumulative and concurrent and the
exercise of one right or remedy shall not be deemed a waiver or release of any
other right or remedy.
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<PAGE> 9
9.4. The Borrower will pay all expenses, including the
reasonable fees and expenses of legal counsel for the Bank, incurred in
connection with the enforcement of this Agreement and the Collateral Documents
and the collection or attempted collection of the Note.
9.5. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by certified mail, postage prepaid, return receipt requested,
addressed as follows, or at such other address as may be provided in writing to
the parties to this Agreement.
Borrower: KP3, LLC
555 Seventeenth St.
Fourteenth Floor
Denver, CO 80202
Attention: Kenneth S. Phillips
Copy to: Leonard N. Waldbaum, Esq.
Waldbaum, Corn, Koff, Berger & Cohen
303 E. 17th Avenue, Suite 940
Denver, CO 80203
PMCI: PMC International, Inc.
555 Seventeenth Street
Fourteenth Floor
Denver, CO 80202
Attention: Maureen E. Dobel, Esq.
Copy to: Francis R. Wheeler, Esq.
Holme Roberts & Owen LLP
1700 Lincoln Street, Suite 4100
Denver, CO 80203-4541
Bank: Norwest Bank Colorado, N.A.
1740 Broadway
Denver, CO 80274-8673
Attention: Margaret J. Brown
9.6 The substantive laws of the State of Colorado shall
govern the construction of this Agreement and the rights and remedies of the
parties hereto.
9.7 If any provision of this Agreement shall be held invalid
under any applicable laws, such invalidity shall not affect any other provision
of this Agreement that can be given effect without the invalid provision, and,
to this end, the provisions hereof are severable.
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<PAGE> 10
9.8 All representations, warranties, covenants and agreements
of the Borrower and PMCI hereunder shall survive the making of the Loan.
9.9 Whenever any installment of the interest on the Note
becomes due and payable on a day which is not a Banking Day, the maturity or
due date thereof shall be extended to the next succeeding Banking Day and, in
the case of principal of the Note, interest shall be payable thereon at the
rate per annum specified in the Note during such extension.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the day and year first above written.
KP3, LLC
By:__________________________________
Kenneth S. Phillips, Manager
Norwest Bank Colorado, National Association
By:__________________________________
Margaret J. Brown, Vice President
PMC International, Inc.
By:__________________________________
Title:________________________________
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the PMC International, Inc. registration
statement on Form S-2 of our report dated April 12, 1996 accompanying the
consolidated financial statements of PMC International, Inc. for the years
ended December 31, 1995 and 1994 which is part of the registration statement
and to the reference to us under the heading "Experts" in such registration
statement.
/s/ Spicer, Jeffries & Co.
February 6, 1997
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth S. Phillips, David L. Andrus, Vali Nasr,
and Maureen E. Dobel, and each of them, his attorneys-in-fact, with full power
of substitution, for him in any and all capacities, to sign a registration
statement to be filed with the Securities and Exchange Commission (the
"Commission") on Form SB-2 in connection with the registration by PMC
International, Inc. a Colorado corporation (the "Company"), of securities
("Securities") on behalf of certain selling stockholders, and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission; and to sign all documents in connection with the qualification and
sale of the Securities with Blue Sky authorities and with the National
Association of Securities Dealers, Inc.; granting unto said attorneys-in-fact
full power and authority to perform any other act on behalf of the undersigned
required to be done in the premises, hereby ratifying and confirming all that
said attorneys-in-fact may lawfully do or cause to be done by virtue hereof.
Date: February 4, 1997 /s/ Kenneth S. Phillips
-------------------------------------
Kenneth S. Phillips
Date: February 4, 1997 /s/ David L. Andrus
-------------------------------------
David L. Andrus
Date: February 4, 1997 /s/ Vali Nasr
-------------------------------------
Vali Nasr
Date: February 4, 1997 /s/ J. W. Nevil Thomas
-------------------------------------
J. W. Nevil Thomas
Date: February 4, 1997 /s/ D. Porter Bibb
-------------------------------------
D. Porter Bibb
