SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the Appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PMC INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction
applies:____________________
2) Aggregate number of securities to which transaction
applies:____________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):____________________
4) Proposed maximum aggregate value of
transaction:____________________
5) Total fee paid:____________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
form or Schedule and the date of its filing.
1) Amount Previously Paid:____________________
2) Form, Schedule or Registration Statement
No.:____________________
3) Filing Party:____________________
4) Date Filed:____________________
<PAGE>
PMC INTERNATIONAL, INC.
555 17TH STREET
14TH FLOOR
DENVER, COLORADO 80202
November ___, 1997
Dear Shareholder:
On behalf of the Board of Directors (the "Board"), I
cordially invite you to attend the annual meeting of shareholders
(the "Meeting") of PMC International, Inc. (the "Company"), which
will be held at the Company's principal offices 555 17th Street,
14th Floor, Denver, Colorado 80202 on Monday December 15, 1997 at
2:30 local time.
At the Meeting, shareholders will be asked to consider and
vote upon the following matters: (1) election of the full Board
of Directors for the ensuing year; (2) approval of an amendment
to the Company's Articles of Incorporation to provide for the
automatic conversion of the Company's outstanding preferred
stock, together with any and all accrued but unpaid dividends
through the conversion date, into common stock (the "Conversion
Amendment"); (3) approval of an amendment to the Company's
Articles of Incorporation to provide for a "reverse split" of the
shares of Common Stock of the Company (the "Reverse Stock
Split"); (4) approval of the Company's Equity Incentive Plan and
the reservation of 500,000 (or, in the event Proposal Three is
not approved, 2,000,000) shares of the Company's common stock for
issuance thereunder (the "Plan Proposal"); and (5) transaction of
such other business as may properly come before the Meeting or
any adjournment or postponement thereof.
After careful consideration, the Board has approved, and
recommends that the shareholders vote FOR, each of the
proposals. The Conversion Amendment requires the approval of
two-thirds of all outstanding shares of common stock and
preferred stock voting as separate classes, the Reverse Stock
Split requires the approval of two-thirds of all outstanding
shares of common stock and the Plan Proposal requires the
approval of a majority of the shares of common stock present in
person or by proxy at the Meeting, in each case assuming a quorum
is represented at the Meeting. Under Colorado law, neither
holders of Common Stock nor holders of Preferred Stock will have
dissenters' rights in the event either Proposal Two or Proposal
Three is approved.
Neither Proposal Two nor Proposal Three is dependant on the
passage of the other. Accordingly, if the shareholders approve
the Conversion Amendment but not the Reverse Stock Split, the
Company's Preferred Stock will be converted to Common Stock as
described herein, but the Company will not effectuate the Reverse
Stock Split. Similarly, if the Reverse Stock Split is approved
but the Conversion Amendment is not, the Company will effect a
reverse split of the Common Stock as described herein, but the
Preferred Stock will remain outstanding.
Details of the proposals and other important information are
set forth in the accompanying Proxy Statement and should be
considered carefully by shareholders.
I hope that you will attend the Meeting. Whether or not you
plan to attend the Meeting and regardless of the number of shares
of stock you own, please complete, date and sign the enclosed
proxy card and return it promptly in the accompanying envelope,
which requires no postage if mailed in the United States. You
may, of course, attend the Meeting and vote in person, even if
you have previously returned your proxy card.
Sincerely,
Kenneth S. Phillips
President
<PAGE>
PMC INTERNATIONAL, INC.
555 17TH STREET
14TH FLOOR
DENVER, COLORADO 80202
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on December 15, 1997
TO ALL SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the annual meeting of
shareholders (the "Meeting") of PMC International, Inc. (the
"Company"), will be held at the Company's principal offices 555
17th Street, 14th Floor, Denver, Colorado 80202 on Monday
December 15, 1997 at 2:30 local time, for the following purposes:
1. To elect the full Board of Directors for the ensuing year;
2. To amend the Company's Articles of Incorporation to provide
for the automatic conversion of the Company's outstanding
preferred stock, together with any and all accrued but
unpaid dividends through the conversion date, into common
stock;
3. To effect a 1 for 4 Reverse Stock Split of the Company's
Common Stock;
4. To approve the Company's Equity Incentive Plan and the
reservation of 500,000 (or, in the event Proposal Three is
not approved, 2,000,000) shares of the Company's common
stock for issuance thereunder; and
5. To transact such other business as may properly come before
the Meeting.
Only shareholders of record at the close of business on
November 7, 1997 are entitled to vote at the Meeting or any
postponements or adjournments thereof. A list of such
shareholders will be available for examination by any shareholder
for any purpose relevant to the Meeting, during normal business
hours, at the principal office of the Company, 555 17th Street,
14th Floor, Denver, Colorado, for a period of ten days before the
Meeting.
Neither Proposal Two nor Proposal Three is dependant on the
passage of the other. Accordingly, if the shareholders approve
the Conversion Amendment but not the Reverse Stock Split, the
Company's Preferred Stock will be converted to Common Stock as
described herein, but the Company will not effectuate the Reverse
Stock Split. Similarly, if the Reverse Stock Split is approved
but the Conversion Amendment is not, the Company will effectuate
the Reverse Stock Split as described herein, but the Preferred
Stock will remain outstanding.
All shareholders are invited to attend the Meeting. Whether
or not they expect to attend the Meeting in person, all
shareholders are requested to complete, date and sign the
enclosed proxy card and return it promptly in the postage paid,
return-addressed envelope provided for that purpose.
Shareholders who attend the Meeting may revoke a prior proxy and
vote in person as set forth in the Proxy Statement.
Kenneth S. Phillips
President
Denver, Colorado
November ___, 1997
IMPORTANT -- YOUR PROXY IS ENCLOSED
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE
MEETING REGARDLESS OF THE SIZE OF YOUR HOLDINGS. WHETHER OR NOT
YOU INTEND TO ATTEND THE MEETING IN PERSON, WE URGE YOU TO
COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ENVELOPE PROVIDED FOR THAT PURPOSE, WHICH DOES NOT
REQUIRE POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND
THE SPECIAL MEETING, YOU MAY VOTE BY PROXY OR YOU MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON. BY RETURNING YOUR PROXY PROMPTLY,
A QUORUM WILL BE ASSURED AT THE MEETING, WHICH WILL PREVENT
COSTLY FOLLOW-UP AND DELAYS.
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION......................................................1
Shares Outstanding and Voting Rights........................1
Annual Report...............................................2
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS AND
CERTAIN BENEFICIAL OWNERS...................................2
PROPOSAL 1 -- ELECTION OF DIRECTORS...............................4
Information Concerning the Nominees.........................4
Other Executive Officers and Key Employees..................5
Committees and Meetings.....................................5
Section 16(a) Beneficial Ownership Reporting Compliance.....6
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS..................6
Compensation of Directors...................................6
Executive Compensation......................................7
Options Granted.............................................8
Option Exercises and Year End Option Values.................8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................9
Employment Agreements.......................................9
Other Agreements............................................9
PROPOSAL 2 -- CONVERSION OF PREFERRED STOCK......................11
Reasons for the Conversion Amendment.......................12
Securities Law Treatment of Conversion.....................13
Amendment to Articles of Incorporation.....................13
Effects of Conversion Amendment............................14
The Company's Capital Structure............................14
The Company's Common Stock.................................15
Federal Income Tax Consequences of the Conversion Amendment16
Voting Requirements........................................17
PROPOSAL 3 -- REVERSE STOCK SPLIT................................17
Purpose and Effect of Reverse Stock Split..................17
Treatment of Fractional Shares and Script..................14
Federal Income Tax Consequences of the Conversion Amendment16
Vote Required..............................................17
PROPOSAL 4 -- THE COMPANY'S EQUITY INCENTIVE PLAN................29
SHAREHOLDER PROPOSALS............................................30
OTHER BUSINESS...................................................30
EXHIBIT A. AMENDMENT TO ARTICLES OF INCORPORATION REGARDING CONVERSION
OF PREFERRED STOCK
EXHIBIT B. AMENDMENT TO ARTICLES OF INCORPORATION REGARDING REVERSE
STOCK SPLIT
EXHIBIT C. PMC INTERNATIONAL EQUITY INCENTIVE PLAN
i
<PAGE>
PMC INTERNATIONAL, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
to be held on December 15, 1997
INTRODUCTION
This Proxy Statement is being furnished to the shareholders
of PMC International, Inc., a Colorado corporation (the
"Company"), in connection with the solicitation of proxies by the
Board of Directors of the Company (the "Board") for use at the
annual meeting of shareholders of the Company (the "Meeting") to
be held at the Company's principal offices 555 17th Street, 14th
Floor, Denver, Colorado 80202 on December 15, 1997 at 2:30, local
time, and at any postponement or adjournment thereof. The
Meeting is being held for the following purposes: (1) to elect
the Board of six Directors for the ensuing year; (2) to approve
an amendment to the Company's Articles of Incorporation to
provide for the automatic conversion of the Company's outstanding
Preferred Stock, together with any and all accrued but unpaid
dividends through the conversion date, into Common Stock (the
"Conversion Amendment"); (3) to approve an amendment to the
Company's Articles of Incorporation to provide for a "reverse
split" of the shares of Common Stock of the Company (the "Reverse
Stock Split"); (4) to approve the Company's Equity Incentive Plan
and the reservation of 500,000 (or, in the event Proposal Three
is not approved, 2,000,000) shares of the Company's common stock
for issuance thereunder; and (5) to transact such other business
as may properly come before the Meeting.
Because many of the Company's shareholders may be unable to
attend the Meeting in person, the Board solicits proxies by mail
to give each shareholder an opportunity to vote on all matters
presented at the Meeting. Shareholders are urged to: (1) read
this Proxy Statement carefully; (2) specify their choice in each
matter by marking the appropriate box on the enclosed proxy card;
and (3) sign, date and return the proxy card by mail in the
postage-paid, return addressed envelope provided for that purpose.
The Company's executive offices are located at 555 17th
Street, 14th Floor, Denver, Colorado 80202 (telephone
303-292-1177). This Proxy Statement and the accompanying form of
proxy are being first mailed to shareholders on or about
__________ ___, 1997.
Shares Outstanding and Voting Rights
The Board has fixed the close of business on November 7,
1997, as the record date (the "Record Date") for the
determination of shareholders entitled to notice of, and to vote
at, the Meeting. The only outstanding voting stock of the
Company is its common stock, par value $.01 per share (the
"Common Stock"), of which 19,431,610 shares were outstanding as
of the close of business on the Record Date. In addition, with
respect to the Conversion Amendment, the Company's Series A
preferred stock, no par value (the "Preferred Stock"), of which
138,182 shares were outstanding as of the close of business on
the Record Date, will also be entitled to vote. As of the Record
Date, the Company had approximately 410 record holders of its
Common Stock and 15 record holders of its Preferred Stock. Each
outstanding share of Common Stock is entitled to one vote with
respect to each matter subject to a vote. With respect to the
Conversion Amendment, each outstanding share of Preferred Stock
is also entitled to one vote. Under Article 113 of the Colorado
Business Corporation Act, the holders of the Common Stock and the
Preferred Stock will not have dissenters' rights if the
Conversion Amendment is approve, and the holders of Common Stock
will not have dissenters' rights if the Reverse Stock Split is
approved.
Votes cast in person or by proxy at the Meeting will be
tabulated by the election inspectors appointed for the Meeting.
The presence, in person or by proxy, of the holders of at least
two-thirds of all outstanding shares of Common Stock and
Preferred Stock is necessary to constitute a quorum with respect
to the Conversion Amendment and the presence, in person or by
proxy, of the holders of at least two-thirds of all outstanding
shares of Common Stock is necessary to constitute a quorum with
respect to the Reverse Stock Split, but the presence, in person
or by proxy, of the holders of only a majority of the outstanding
shares of Common Stock entitled to vote at the Meeting
1
<PAGE>
is necessary to constitute a quorum for purposes of approving the
Plan Proposal and other matters.
The affirmative vote of two-thirds of all outstanding shares
of Common Stock and Preferred Stock voting as separate classes
will be required to approve the Conversion Amendment, the
affirmative vote of two-thirds of all outstanding shares of
Common Stock will be required to approve the Reverse Stock Split,
and the affirmative vote of the majority of the Common Stock
represented at the Meeting will be required to approve the Plan
Proposal or to ratify or approve other proposals. As a result,
an abstention or broker non-vote will have the same effect as a
vote against a proposal. A proxy submitted by a shareholder may
indicate that all or a portion of the shares represented by such
proxy are not being voted by such shareholder with respect to a
particular matter. This could occur, for example, when a broker
is not permitted to vote shares held in street name on certain
matters in the absence of instructions from the beneficial owner
of the shares. The shares subject to any such proxy that are not
being voted with respect to a particular proposal may be
considered present and entitled to vote for other purposes and
will count for purposes of determining the presence of a quorum.
(Directions to "withhold authority" to vote for Directors, will
be considered as abstentions.)
With respect to election of Directors, holders of the
Company's Common Stock may vote in favor of the nominees, may
withhold their vote for the nominees, or may withhold their vote
as to specific nominees. Directors will be elected by a
plurality of the votes of the shares of Common Stock present or
represented by proxy at the Meeting. Holders of the Company's
Common Stock may vote in favor of or against each of the other
proposals and holders of the Company's Preferred Stock may vote
in favor of or against the Conversion Amendment.
Proxies properly executed and returned in a timely manner
will be voted at the Meeting in accordance with the directions
noted thereon. Any shareholder giving a proxy has the power to
revoke it any time before it is voted, either by delivering to
the Secretary of the Company a signed notice of revocation or a
later dated signed proxy or by attending the Meeting and voting
in person. Attendance at the Meeting will not in itself
constitute the revocation of a proxy. Any written notice of
revocation or subsequent proxy should be sent so as to be
delivered to the Company, Attention: Secretary, or hand delivered
to the Secretary of the Company at the aforementioned address, at
or before the vote to be taken at the Meeting.
If no specific instructions are given with respect to the
matters to be acted upon at the Meeting, shares of Common Stock
represented by a properly executed proxy will be voted FOR:
(1) the election of all six nominees listed under the caption
"PROPOSAL ONE -- Election of Directors," (2) the Conversion
Amendment, (3) the Reverse Stock Split, and (4) the Company's
Equity Incentive Plan. If no specific instructions are given
with respect to the matters to be acted upon at the Meeting,
shares of Preferred Stock represented by a properly executed
proxy will be voted FOR the Conversion Amendment.
The cost of solicitation of proxies will be paid by the
Company. In addition to solicitation by mail, officers and
regular employees of the Company may solicit proxies by
telephone, telegram or by personal interviews. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to
forward soliciting material to the beneficial owners of shares
held of record by them and will be reimbursed for their
reasonable expenses.
Annual Report
A copy of the Company's Annual Report on Form 10-KSB, as
amended, which includes the consolidated financial statements of
the Company for the year ended December 31, 1996, is being mailed
with this Proxy Statement to all shareholders entitled to vote on
any matter at the Meeting. The Annual Report to shareholders
does not form any part of the materials for the solicitation of
proxies.
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN
BENEFICIAL OWNERS
The following table and related notes contain information
concerning beneficial ownership of the Company's Common Stock as
of November 10, 1997 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.
------------------------------------------------------------------
Name and Address Number of Percent of
Shares Class
Kenneth S. Phillips(1)........... 2,999,767 (10) (11) 15.42%
Scott A. MacKillop(1)............ 32,000 (18) *
J.W. Nevil Thomas(2)............. 20,000 (11)(13) *
D. Porter Bibb(3)................ 20,000(11)(14) *
Emmett J. Daly(4)................ 210,000 (18) (19) 1.07
Richard C. Hyde(5)............... 10,000 (18) *
Vali Nasr(1)..................... 120,497(15) *
David L. Andrus(6)............... 887,000(11)(12) 4.39
Bedford Capital Financial
Corporation(7)................... 2,971,250(16) 15.18
KP3, LLC(1)...................... 1,643,845(17) 8.46
OCH ZIFF Captial Management(20).. 1,866,666 9.6
Bay Pond Partners, L.P.(8)....... 1,463,333 7.53
Bay Pond Investors (Bermuda),
Ltd.(8).......................... 1,081,000 5.56
Wheatley Partners, L.P.(9)....... 1,607,666 8.27
All Officers and Directors as a
group (7 persons)................ 3,422,264 17.37
______________________
* Less than 1%.
(1) The address of Mr. Phillips, Mr. Nasr, Mr. MacKillop, Mr.
Andrus and KP3, LLC is 555 Seventeenth Street, 14th Floor,
Denver, Colorado 80202.
(2) The address of Mr. Thomas is Scotia Plaza, Suite 3507 King
Street West, Toronto, Ontario M5H 3Y2.
(3) The address of Mr. Bibb is 59 Madison Avenue, New York, New
York 10022.
(4) The address of Mr. Daly is Two World Trade Center, 85th Floor,
New York, New York 10048.
(5) The address of Mr. Hyde is Moreland Capital, Inc., 30050
Chagrin Blvd., Suite 100, Pepper Pike, Ohio 44124.
(6) The address of Mr. Andrus is 2554 Linden Drive, Boulder, CO 80304
(7) The address of Bedford Capital Financial Corporation is 2nd
Floor, Charlotte Hs., Shirly Street, Box N964, Nassau, Bahamas.
(8) The address of Bay Pond Partners, L.P. and Bay Pond Investors
(Bermuda), Ltd. is c/o Wellington Management Company, L.L.P., 75
State Street, Boston, Massachusetts 02109.
(9) The address of Wheatley Partners, L.P. is 80 Cutter Mill Road,
Suite 311, Great Neck, New York 11021.
(10) Includes 1,643,845 shares owned by KP3, of which
Mr. Phillips is the managing member and has the controlling
ownership interest and 5,500 shares underlying presently
exercisable warrants.
(11) Includes 20,000 shares underlying presently exercisable
options.
(12) Includes 767,000 shares underlying presently exercisable
options.
(13) Does not include shares owned by Bedford of which Mr. Thomas
is a director and a 6.31% shareholder.
(14) Does not include 200,000 shares underlying presently
exercisable options granted to Ladenburg, Thalmann & Co.,
Inc., of which Mr. Bibb is a managing director.
(15) Includes 50,000 shares underlying presently exercisable
options.
(16) 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.
(17) 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.
(18) Includes 10,000 shares underlying presently exercisable options.
(19) Includes 25,000 shares owned jointly with Regina Daly and 135,000
shares underlying presently exercisable options.
(20) The address of OCH ZIF Capital Management is 153 E. 53rd Street,
43rd Floor, New York, NY 10022.
<PAGE>
PROPOSAL ONE-- ELECTION OF DIRECTORS
The number of members of the Board is currently fixed at
seven, although the Company currently has only six directors.
There are six nominees for election to the Board at the Meeting.
Each Director to be elected will hold office until the next
annual meeting of shareholders and until his successor is elected
and has qualified, or until such Director's earlier death,
resignation or removal. Of the nominees listed below, Messrs.
Phillips, Thomas, Bibb, Daly, Hyde and MacKillop are currently
Directors of the Company.
There are no family relationships among any of the Directors
and executive officers of the Company.
The Company is soliciting proxies in favor of the election of
Messrs. Phillips, Thomas, Bibb, Daly, MacKillop and Hyde as
Directors. The Company intends that the proxies will be voted
FOR these six nominees unless otherwise specified. If any of them
is or becomes unable to serve as a Director, an event that the
Company does not currently anticipate, it is intended that the
proxies will be voted for the election of such other person, if
any, as may be designated by the Board.
Information Concerning the Nominees
MR. KENNETH S. PHILLIPS. President and Chief Executive
Officer, Director. Mr. Phillips founded the Company 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 a co-founding
participant in the Wilshire Cooperative in 1986 (associated with
the institutional consulting firm Wilshire Associates). He
served as the 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.
MR. SCOTT A. MACKILLOP. Executive Vice President, Chief
Operating Officer, Director. Mr. MacKillop joined the Company in
September 1997 as an Executive Vice President and the Chief
Operating Officer of the Company, as President of ADAM Investment
Services, Inc. ("ADAM"), the Company's wholly owned subsidiary,
as Chief Operating Officer of Optima Funds Management, Inc.
("Optima"), a wholly owned subsidiary of ADAM, and as a member of
the Boards of Directors of both ADAM and Optima. Mr. MacKillop
has been employed by ADAM since 1992. From 1991 until 1992 Mr.
MacKillop served as outside general counsel to ADAM. Mr.
MacKillop received a B.A. degree from Stanford University in 1972
and a J.D. degree from George Washington University Law School in
1976.
MR. J.W. NEVIL THOMAS. Chairman of the Board. 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 and of
Bedford and its subsidiary as described above, Mr. Thomas is a
director of Gan Canada 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 a B.B. Com. from the University of Toronto, an M.A.
in Economics from Queens University, an M.B.A from York
University and is a Chartered Financial Analyst.
<PAGE>
MR. D. PORTER BIBB. Director. Mr. Bibb became a Director of
the Company in October 1995. Mr. Bibb is a Managing Director of
Ladenburg, Thalmann & Co., Inc. ("Ladenburg"), an investment
banking firm. Before joining Ladenburg in 1984, Mr. Bibb was a
Managing Director of Bankers Trust Company, involved in the
start-up of their investment banking operations. Before that
time, he was Director of Corporate Development for the New York
Times. In addition to being a Director of the Company, Mr. Bibb
is a Director of East Wind Group, Inc. 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.
MR. EMMETT J. DALY. Director. Mr. Daly became a Director of
the Company in February 1997. Mr. Daly is currently Senior Vice
President of Corporate Finance of Keefe, Bruyette & Woods, Inc.
("KBW"), an investment banking firm that Mr. Daly joined in 1987
as an Associate in the Corporate Finance Department. Before that
time he spent two years as a Credit Analyst followed by one year
as an Assistant Treasurer of Manufacturers Hanover Trust
Company. Mr. Daly received a B.A. in Economics from College of
the Holy Cross and an M.B.A from the Kenan Flager School of
Business at University of North Carolina, Chapel Hill.
MR. RICHARD C. HYDE. Director. Mr. Hyde became a director of
the Company in July 1997. Mr. Hyde is President of Moreland
Capital, Inc., an asset management and investment consulting
firm. He is also a Principal in Vestor Associates, LLC, the
general partner of Vestor Partners, LP, a private equity
investment fund. Prior to his current affiliations, from 1970 to
1995 Mr. Hyde served in investment/asset management positions
with Ameritrust Company and its successor organizations, Society
Corporation and Key Corp. From 1984 through 1993, he was Chief
Investment officer. From 1993 through 1995, Mr. Hyde was the CEO
of Society Asset Management and Managing Director of Key Asset
Management Holdings. Mr. Hyde holds both a Bachelor of Science
and MBA -- Finance from Miami University of Ohio.
The Board recommends a vote FOR each Nominee.
Other Executive Officer and Key Employee
MR. VALI NASR. Chief Financial Officer, Treasurer. Mr. Nasr
joined the Company in 1992 as the Company's Chief Financial
Officer, financial Principal and Treasurer. Since September
1995, Mr. Nasr has been President of Portfolio Brokerage Services
Inc., the Company's wholly owned subsidiary. Before joining the
Company, Mr. Nasr was Vice President of Finance for a large,
retail broker-dealer. Before holding this position for four
years, Mr. Nasr spent four years as Vice President of Accounting
with Sutro & Company, Inc. ("Sutro") in San Francisco. Before
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 a B.A.
in Accounting from the University of California, Berkeley and an
M.B.A. in Finance from Golden Gate University.
The Company's current executive officers are Messrs. Phillips,
MacKillop, and Nasr.
Committees and Meetings
The Board has established three standing committees: an Audit
Committee, a Compensation Committee and an Executive Committee.
Audit Committee
The Audit Committee consists of two independent directors
who are not employees of the Company, Messrs. Daly and Thomas, and
the Company's President and CEO Mr. Phillips.
The Audit Committee did not meet during 1996. The functions of
the Audit Committee are to recommend to the Board the appointment
of independent auditors, to review the plan and scope of any
audit of the Company's financial statements and to review the
Company's significant accounting policies and other related
matters.
<PAGE>
Compensation Committee
The Compensation Committee consists of three independent
directors who are not employees of the Company. Messrs. Bibb,
Daly and Hyde currently serve as the members of the Compensation
Committee. The Compensation Committee did not meet during 1996.
The functions of the Compensation Committee are to make
recommendations to the Board regarding the compensation of
executive officers and to administer the Company's bonuses and
stock option plans, including, if approved, the Equity Incentive
Plan. It also makes recommendations to the Board with respect to
the compensation of the Chairman of the Board and the Chief
Executive Officer and approves the compensation paid to other
senior executives.
Executive Committee
The Executive Committee consists of Messrs. Phillips,
MacKillop and Daly. The Executive Committee did not meet in
1996. The Executive Committee possesses the powers and
discharges the duties of the Board between meetings of the full
Board.
During 1996, the Board met four times. Attendance at Board
meetings averaged 100%, and each incumbent Director attended all
of the Board meetings.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company's Directors and certain
of its officers, and persons holding more than ten percent of the
Company's Common Stock are required to file forms reporting their
beneficial ownership of the Company's Common Stock and subsequent
changes in that ownership with the Securities and Exchange
Commission (the "Commission"). Such persons are also required to
furnish the Company copies of forms so filed. The Company
believes that during the year ended December 31, 1996, the
following officers, Directors or 10% holders of its Common Stock
filed late reports, failed to report transactions on a timely
basis or failed to file a form required under Section 16 of the
Exchange Act: Bedford failed to timely file one required report,
and William L. Atkinson failed to timely file one required
report. In each case, an appropriate form was
subsequently filed with the Commission.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
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 then 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.
<PAGE>
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.
Summary Compensation Table
Annual Long-Term
Compensation Compensation
Options
Name and Principal Fiscal Salary Granted(1)
Position Year
- ---------------------------------------------------------
Kenneth S. Phillips 1996 $252,000 50,000
President, Chief 1995 228,124
Executive Officer 1994 241,774
- ---------------------------------------------------------
David L. Andrus(2) 1996 $240,000 1,050,000
Executive Vice 1995 40,000
President
- ---------------------------------------------------------
Vali Nasr 1996 $139,015 50,000
Chief Financial 1995 126,475
Officer & Treasurer 1994 128,262
- ---------------------------------------------------------
(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) Mr. Andrus joined the Company in 1995 and was notified on
October 13, 1997 that his affiliation with the Company as an
officer and employee will cease effective January 11, 1998.
Options Granted
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.
Option Grants in Last Fiscal Year
Percentage
of Total
Number of Options
Shares Granted to
Name Underlying Employees Exercise Expiration
Options in Price Date
Granted / Fiscal
Year
- --------------------------------------------------------------------
Kenneth S. 50,000 4.2% $1.00 6/7/2001
Phillips
- --------------------------------------------------------------------
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
- --------------------------------------------------------------------
_______________________
(1) Options will expire 24 months after Mr. Andrus leaves the
employ of the Company, January 11, 1998.
<PAGE>
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.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year End Option/SAR Values
Number of
Securities Value of
Shares Underlying Unexercised
Name Acquired Value Unexercised Money
on Realized Options at FY Options at
Exercise End FY End
Exercisable/ Exercisable/
Unexercisable Unexercisable
- -------------------------------------------------------------------------
Kenneth S. Phillips 0 0 20,000/30,000 $20,000/$30,000
- -------------------------------------------------------------------------
David L. Andrus 0 0 575,000/550,000 $276,875/$170,000
- -------------------------------------------------------------------------
Vali Nasr 0 0 50,000/0 $50,000/$0
- -------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSRANSACTIONS
Employment Agreements
The Company has employment agreements with Mr. Phillips, its
President and Chief Executive Officer and ADAM has an employment
agreement with Mr. MacKillop, the Executive Vice President and
Chief Operating Officer of the Company. The Company also has an
employment agreement with its former Executive Vice President,
David Andrus. 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. MacKillop is dated September 23,
1997, and is for a two-year term. ADAM may terminate the
agreement at any time after the one-year anniversary of the date
of the agreement by giving six months' prior written notice. The
agreement provides for a minimum salary of $240,000, an annual
bonus of up to $50,000, options to acquire 250,000 shares of
Common Stock, and participation in the Company's other benefit
plans.
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. On October 13, 1997,
the Company notified Mr. Andrus that his affiliation with the
Company as an officer and employee will cease effective January
11, 1998. Pursuant to his employment agreement, Mr. Andrus will
receive severance payments in an amount equal to his current salary,
payable ratably on a semi-monthly basis for up to one year after his
separation from the Company. Such payments will cease sooner in the
event Mr. Andrus gains employment affording him comparable compensation.
Other Agreements
In January 1995, the Company entered into an agreement with
Ladenburg, pursuant to which Ladenburg agreed to assist the
Company in financing efforts. Ladenburg was involved in the
Company's transactions with Bedford. Mr. D. Porter Bibb, a
principal of Ladenburg, was named to the Company's Board in
September 1995.
<PAGE>
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. Contemporaneous with the
closing of the July 1995 transaction with the Company, Bedford
also purchased 1 million shares of the Common Stock from Mr.
Geman, the former Chief Executive Officer of the Company, thereby
becoming a greater-than-10% shareholder of the Company. 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, including 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.
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 under which the
Company agreed to hold him harmless, in an amount not to exceed
$100,000, for expenses incurred in defense of a then-pending
investigation by the Commission. As of December 31, 1996, the
Company had made a total of $50,786 in indemnification payments
under that agreement.
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 as the
December 1995 Offering. The units issued in the December 1995
Offering and the June 1996 Offering were issued primarily to
employees, business associates and affiliates of the Company or
Bedford. In the June 1996 Offering, David L. Andrus, the
Company's former Executive Vice President, purchased 100 units,
thereby acquiring $100,000 of subordinated debt and receiving a
promissory note and warrants to purchase 100,000 shares of Common
Stock. In addition, certain other employees of the Company
participated in the June 1996 Offering, purchasing a total of
162.5 units, thereby acquiring $162,500 of subordinated debt and
receiving promissory notes and warrants to purchase 162,500
shares of Common Stock. Mr. Andrus and the other Company
employees participated in the June 1996 Offering on the same
terms as all other investors. The purchasers of units in the
December 1995 Offering and/or the June 1996 Offering received
registration rights with respect to the shares of Common Stock
underlying the warrants.
In November 1996 the Company borrowed $250,000 (the
"November 1996 Loan") to fund working capital requirements
pending the closing of a private placement of Common Stock in
December 1996. The lenders included Messrs. Phillips and Andrus,
the Company's President and Chief Executive Officer and Executive
Vice President, respectively, and certain other employees of the
Company. Bedford, a shareholder affiliate of the Company, and
KBW, 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 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 (1) to repay interest due
and owing on the promissory notes issued in connection with the
December 1995 Offering and June 1996 Offering, including the
notes held by the father and brother of Mr. Phillips, the
Company's Chief Executive Officer, Mr. Andrus, the Company's
former Executive Vice President, and certain employees of the
Company, (2) to repay interest due and owing under the Bedford
Loans, (3) to repay a portion of
<PAGE>
the principal on the Bedford
Loans and (4) to repay the November 1996 Loan (including the
notes held by Mr. Phillips, certain other members of the
Company's management and Mr. Andrus).
Simultaneous with the closing of the December 1996 Offering,
the Company completed a restructuring of its debt and a partial
restructuring of its outstanding Preferred Stock (the "December
1996 Restructuring"). The December 1996 Restructuring involved
(1) 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 at an
exercise price of $2.125 per share; (2) the issuance of 1,500,000
shares of Common Stock upon the exercise of warrants issued to
investors in connection with the Company's private placement of
promissory notes and warrants in the December 1995 Offering and
the June 1996 Offering, the delivery of canceled promissory notes
in the aggregate
<PAGE>
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; (3) the repayment of the November 1996 Loan, and
(4) the conversion of 173,120 shares of Preferred Stock into
238,043 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
$322,700 as of as of January 31, 1997. A portion of the
conversion of shares of Preferred Stock into Common Stock was
effected in January 1997. The new warrants issued by the Company
to Bedford and others as described in clauses (1) and (2) are
referred to hereafter as the "New Warrants." With respect to the
transactions described in clause (2), the brother and father of
Mr. Phillips, the Company's President and Chief Executive
Officer, Mr. Andrus, the Company's former Executive Vice
President, and certain other employees of the Company,
participated on the same terms as the other parties.
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.
As a result of the December 1996 Restructuring, 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 13.3%
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 so 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 December 1996 Restructuring, the
Company's consulting agreement with Nevcorp, Inc. was terminated.
In January 1997, the Company provided assistance to Mr.
Phillips, the Company's President and Chief Executive Officer, by
pledging cash collateral in the amount of $1,890,000 to a bank in
connection with the bank's loan to KP3, LLC ("KP3"), a company
owned and controlled by Mr. Phillips. The loan was for the
purpose of financing payment of the deferred portion of the
purchase price of 1,643,845 shares of the Company's Common Stock
owned by KP3 (the "KP3 Shares") that were purchased from a former
officer of the Company at the time of his departure. The Company
has agreed to provide collateral for the loan for up to two years
and to lend funds to KP3 to service interest payments on the loan
during that period. To date, the Company has lent $96,000 to KP3
specifically to service interest payments on the loan. KP3 has
agreed to reimburse the Company for all amounts paid by the
Company toward the loan or for collateral applied to the loan,
including interest at an annual rate of 9%
<PAGE>
and has granted the
Company a security interest in the KP3 Shares. Such loan was
restructured through a different banker on October 1, 1997. In
connection therewith, the collateral pledge by the Company in
connection with the loan was reduced to $1,400,000 and the
Company released 350,000 of the KP3 Shares previously held as
collateral. The new loan due date is December 31, 1998.
The Bylaws of the Company were amended in December 1996 to
set the number of members of the Board 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 is
currently Emmett J. Daly, a Senior Vice President of KBW. The
director to be designated by the investors is Mr. Hyde.
Under a Shareholders Agreement among Bedford, the Company,
Mr. Phillips, Mr. Andrus and Phillips & Andrus, LLC, (1) Bedford
is entitled to designate
<PAGE>
one director and one additional director
is to be reasonably acceptable to Bedford and Messrs. Phillips
and Andrus and (2) 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 MacKillop are two of the three directors
they are entitled to designate. The director acceptable to
Bedford and Messrs. Phillips and Andrus is currently Mr. Bibb.
The remaining director, who is to be a member of senior
management has not yet been designated by Messrs. Phillips and
Andrus.
ADAM Acquisition
On September 24, 1997, the Company completed the acquisition
of ADAM, a financial services and investment advisory company
headquartered in Atlanta, Georgia. ADAM has provided investment
consulting services to institutional investors since 1973.
ADAMS's primary services are based around mutual funds. ADAM
offers 17 model portfolios constructed using no-load mutual funds
and funds available at net asset value. These "standard"
portfolios consist of 5 global tactical asset allocation
portfolios, 5 global strategic asset allocation portfolios and 7
asset class portfolios that concentrate on narrow asset class
groups. ADAM also has 5 strategic asset allocation portfolios
constructed using mutual funds that invest in companies that are
identified as operating in a socially responsible manner. ADAM's
mutual fund portfolios are also offered as options for use by
401(k) plans and with several insurance companies within variable
life and variable annuity contracts. ADAM has a staff of
approximately 20 people, all of whom are either located in its
corporate headquarters in Atlanta, Georgia or in the Company's
Denver offices. ADAM has one wholly-owned subsidiary, Optima,
which it acquired in 1995. Optima provides mutual fund wrap
services to clients.
The agreement providing for the acquisition of ADAM by the
Company provided that the Company would acquire all of the
outstanding capital stock of ADAM for up to $9.0 million in cash
and up to $200,000 in Common Stock if certain conditions are met
over time. In addition, the Company agreed to assume the normal
operating liabilities of ADAM at closing of the acquisition,
estimated to be approximately $1.6 million. At the closing of
the ADAM transaction, the Company paid $5,000,000 in cash for all
of the common stock of ADAM, and pursuant to the agreement
governing the transaction, may, upon the occurrence of certain
contingent events, be obligated to make additional payments of a
maximum of $2,000,000 on the first anniversary of the closing and
$2,000,000 on the second anniversary of the closing. ADAM is now
a wholly owned subsidiary of the Company, and the Company
anticipates that ADAM will continue to operate as a wholly owned
subsidiary of the Company in the near future.
<PAGE>
PROPOSAL TWO -- CONVERSION OF PREFERRED STOCKEFERRED STOCK
For the reasons set forth below, the Board believes that the
best interests of the Company and its shareholders will be served
by amending the Company's Articles of Incorporation to provide
for the automatic conversion, on the date the amendment to the
Articles of Incorporation is filed with the Colorado Secretary of
State (the "Conversion Effective Date"), of each outstanding
share of the Company's Preferred Stock, together with any and all
accrued but unpaid dividends through the Conversion Effective
Date, into 1.375 shares of the Company's Common Stock (the
"Conversion Amendment"). The Board has unanimously approved and
recommends a vote FOR the Conversion Amendment.
Holders of Preferred Stock should note that the Board is
also proposing to the holders of the Common Stock a Reverse Stock
Split proposal whereby the Common Stock would be split on a 1 for
4 basis. Accordingly, should the Conversion Amendment and the
Reverse Stock Split proposal be approved at the Meeting, after
taking account of the conversion of the Preferred Stock into
Common Stock and then the reverse split of the Common Stock, each
share of Preferred Stock would be converted into .34375 shares of
Common Stock. (See "Proposal Three--Reverse Split of the Common
Stock")
On the date of this Proxy Statement, there were 138,182
shares of Preferred Stock outstanding. The holders of the
Preferred Stock are entitled to receive dividends at the rate of
$0.325 per share per annum. Such dividends are payable when and
as declared by the Board, semi-annually on January 15 and July 15
of each and every year. As of September 30, 1997, the Company
was in arrears in the amount of approximately $275,964 in the
payment of accrued dividends on the outstanding Preferred Stock,
(each outstanding share of Preferred Stock is entitled to a
cumulative dividend of approximately $2.00). In addition, 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 Proxy Statement, are satisfied.
Finally, upon liquidation or dissolution of the Company, holders
of the Series A Preferred 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 Series A
Preferred ($2.50), plus all unpaid cumulative dividends. The
Company currently intends to retain all earnings for the
continued growth and development of its business and has no plans
to pay cash dividends in the future. Because the Company has no
plans to make such dividend payments, the Board believes that it
will be in the best interests of the Company and its
shareholders, including both the holders of the Preferred Stock
and the holders of the Common Stock, to convert the outstanding
Preferred Stock into Common Stock.
Reasons for the Conversion Amendment
The Board believes that the Conversion Amendment is
important to the Company's present and future growth and
profitability. The Board further believes that future operating
income should be invested in the Company's business for the
Company to return to sustained, profitable operations.
As part of its analysis of the Company's financial
condition, the Board has considered the Company's obligations on
the outstanding Preferred Stock. The Board has considered that:
(1) the Company's operating income has been insufficient to make
dividend payments on the Preferred Stock or the Common Stock;
(2) the dividend arrearage on the Preferred Stock was
approximately $275,964 as of September 30, 1997; and (3) the
Board does not intend to pay this amount or any future dividends
for the foreseeable future. With respect to the conclusion in
clause (3) of the preceding sentence, the Board considered the
Company's internal financial projections but otherwise conducted
no specific financial analysis. The Board concluded that the
dividend arrearage and the cumulative nature of the Preferred
Stock dividend had and would continue to have a negative effect
on the Company's ability to borrow money necessary to finance its
operations, placed the growth and future profitability of the
Company at risk, and made the Company unattractive to investors,
resulting in decreasing prices of and little trading in the
Common Stock to the detriment of all shareholders. The Board
determined that the Company's best option consisted of a
shareholder-approved reorganization of the capital structure to
remove the burden so described of the Preferred Stock dividend.
<PAGE>
The Board has also considered the impact of the Preferred
Stock on the Company's ability to effectively and efficiently
raise additional capital. The Company has registered Common
Stock under the Securities Act of 1933 using a Form SB-2
Registration Statement. In the future with respect to secondary
sales of such securities, it would be much more efficient and
cost-effective for the Company to use a Form S-3 Registration
Statement. However, as long as the Company is in default with
respect to the Preferred Stock dividend obligations, it will be
unable to use a Form S-3 Registration Statement.
An additional reason in support of the Board's
recommendation that the outstanding Preferred Stock be converted
into Common Stock is the current and future lack of liquidity
with respect to the Preferred Stock. As mentioned above, the
Company is currently unable to pay the dividend arrearage with
respect to the Preferred Stock. The Preferred Stock is neither
convertible nor, under the present circumstances, redeemable by
the Company. Therefore, because there is no existing public
market for the Preferred Stock, the holders of the Preferred
Stock have no way to realize the value of their investment
therein. The proposed conversion of the Preferred Stock into
Common Stock would allow existing holders of the Preferred Stock
to trade such Common Stock in the existing public market for such
Common Stock, subject to any applicable restrictions under the
Securities Act.
The amendment to the Company's Articles of Incorporation
necessary to convert the Preferred Stock into Common Stock
requires the approval of two-thirds of all outstanding shares of
Common Stock and Preferred Stock voting as separate classes, as
described in this Proxy Statement. The conversion ratio being
offered to the holders of Preferred Stock is equal to the
conversion ratio (the "December Conversion Ratio") offered to
holders of Preferred Stock as part of the December 1996
Restructuring described above. The December Conversion Ratio was
determined based on (1) the Board's considered evaluation of what
the holders of the Preferred Stock would accept and
(2) subsequent negotiations with such holders. The Board believes
that the outstanding Preferred Stock should be converted into
Common Stock on the same basis as was used in the December 1996
Restructuring, and so the conversion ratio used in the Conversion
Amendment is the same as the December Conversion Ratio.
The Conversion Amendment allows all existing shareholders
the opportunity to participate in the future of the Company. The
Board believes that the Conversion Amendment is fair to and in
the best interests of the holders of Preferred Stock because it
provides them with increased liquidity and/or participation in
the Company's future that they would not otherwise have, and that
it is fair to and in the best interests of the holders of Common
Stock because it provides them a participation in the Company's
future as compared to what they would receive as a liquidation
payment were the Company liquidated currently at book value.
Securities Law Treatment of Conversion
It is the Company's belief that the shares of Common Stock
issued upon Conversion will be "Exempted Securities" under
Section 3(a)(9) of the Securities Act of 1933 (the "Securities
Act"). Accordingly, shares of Common Stock issued upon
Conversion would not be restricted securities under the
Securities Act and would be freely tradeable.
Amendment to Articles of Incorporation
If the Conversion Amendment is approved, the Company's
Articles of Incorporation would promptly be amended to reflect
the mandatory conversion of the Preferred Stock. A copy of the
proposed amendment to the Articles of Incorporation is attached
to this Proxy Statement as Exhibit A.
<PAGE>
Effects of Conversion Amendment
If the shareholders approve the Conversion Amendment, on the
Conversion Effective Date the outstanding shares of Preferred
Stock, together with any and all accrued but unpaid dividends
through the Conversion Effective Date, will automatically be
converted into shares of Common Stock on the basis of 1.375
shares of Common Stock for each share of Preferred Stock AND THE
HOLDERS OF PREFERRED STOCK WILL NO LONGER BE ENTITLED TO RECEIVE
DIVIDENDS ON THE PREFERRED STOCK, WILL NO LONGER BE ENTITLED TO
ANY LIQUIDATION PREFERENCE, AND WILL NO LONGER HAVE ANY OF THE
OTHER RIGHTS ASSOCIATED WITH THE PREFERRED STOCK. Each stock
certificate representing issued and outstanding shares of
Preferred Stock will automatically represent the proportionate
number of shares of Common Stock. The holders of Preferred Stock
may, but are not required to, exchange their existing Preferred
Stock certificates for certificates representing the
proportionate number of shares of Common Stock. If not exchanged
earlier, the Preferred Stock certificates will be exchanged for
certificates representing the proportionate number of shares of
Common Stock at such time as a holder surrenders the certificates
for the purpose of transferring shares to another person.
<PAGE>
The Company's Capital Structure
The following table illustrates the principal effects on the
Company's outstanding capital stock of converting the Preferred
Stock into Common Stock:
Number of Shares of Capital Stock
- --------------------------------------------------------------------
Before Conversion After Conversion
- --------------------------------------------------------------------
Common Stock
- --------------------------------------------------------------------
Authorized 50,000,000 50,000,000
- --------------------------------------------------------------------
Issued and Outstanding 19,431,610 19,621,610
- --------------------------------------------------------------------
Preferred Stock
- --------------------------------------------------------------------
Authorized 5,000,000 5,000,000
- --------------------------------------------------------------------
Issued and Outstanding 138,182 0
- --------------------------------------------------------------------
Available for Future 4,861,818 5,000,000
Issuance
- --------------------------------------------------------------------
<PAGE>
The following table sets forth (1) the capitalization of the
Company as of September 30, 1997 and (2) the pro forma
capitalization of the Company after giving effect to the
Conversion Amendment.
As of Pro Forma
September
30, 1997
($)
- --------------------------------------------------------------------
Liabilities:
- --------------------------------------------------------------------
Accounts payable 1,163,851 1,163,851
- --------------------------------------------------------------------
Accrued expenses 612,386 612,386
- --------------------------------------------------------------------
Other liabilities 136,948 136,948
- --------------------------------------------------------------------
Deferred revenue 1,391,999 1,391,999
- --------------------------------------------------------------------
Notes payable 368,426 368,426
- --------------------------------------------------------------------
Obligations under capital leases 382,655 382,655
- -------------------------------------------------------------------
Income Tax Payable 2,152 2,152
- --------------------------------------------------------------------
Total Liabilities 4,058,414 4,058,414
- --------------------------------------------------------------------
Shareholders' Equity (Deficit):
- --------------------------------------------------------------------
Preferred stock, no par value, 345,455 0
authorized 5,000,000 shares; issued
and outstanding, 138,182 and 0 shares
- --------------------------------------------------------------------
Common stock, $.01 par value, 415,475 417,375
authorized, 50,000,000 shares, issued
and outstanding, 19,431,610 and
19,621,610 shares
- --------------------------------------------------------------------
Additional paid-in capital 22,704,222 23,047,777
- --------------------------------------------------------------------
Deficit (12,499,720) (12,499,720)
- -------------------------------------------------------------------
Total Shareholders' Equity (Deficit) 10,965,432 10,965,432
- --------------------------------------------------------------------
<PAGE>
The Company's Common Stock
The Company's Common Stock (symbol: PMCI) currently trades
in the over-the-counter market in the National Quotation Bureau's
Listing, also known as the Bulletin Board. The following table
shows the high and low bid prices of the Company's Common Stock
for the periods indicated. These quotations reflect inter-dealer
prices without retail markup, markdown, or commissions and may
not represent actual transactions.
--------------------------------------------------------
Time Period High Bid Low Bid
--------------------------------------------------------
--------------------------------------------------------
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 $2.00 $1.375
--------------------------------------------------------
--------------------------------------------------------
1997
--------------------------------------------------------
--------------------------------------------------------
First Quarter $2.50 $2.00
--------------------------------------------------------
--------------------------------------------------------
Second Quarter $2.50 $1.625
--------------------------------------------------------
--------------------------------------------------------
Third Quarter $1.9375 $1.25
--------------------------------------------------------
--------------------------------------------------------
Fourth Quarter(1) $1.8125 $1.50
--------------------------------------------------------
(1) Through November 12, 1997.
The Company currently has outstanding a total of 138,182
shares of Series A Preferred Stock. As of September 30, 1997,
the Company was in default in the payment of dividends on the
Series A Preferred Stock in the amount of $274,964. No dividends
may be paid on the Common Stock if dividends payable on the
Series A Preferred Stock are in arrears.
The Company has never paid dividends on its Common Stock and
currently intends to retain all earnings for the continued growth
and development of its business and has no plans to pay cash
dividends in the future. Any change in the Company's dividend
policy will be made in the discretion of the Company's Board in
light of the Company's future earnings, financial condition and
capital requirements and of general business conditions and other
factors that cannot now be predicted.
<PAGE>
Federal Income Tax Consequences of the Conversion Amendment
The following discussion of the federal income tax
consequences of the conversion of Preferred Stock into Common
Stock as contemplated in the Conversion Amendment is for general
information only. This summary is based upon laws, regulations,
rulings and judicial decisions now in effect, all of which are
subject to change. This discussion does not cover all aspects of
federal taxation that may be relevant and it does not address
state, local, foreign or other tax laws. The discussion is not
intended to be, nor should it be relied on as, a comprehensive
analysis of the tax issues arising from or relating to the
proposed conversion. Income tax consequences to the holders of
the Preferred Stock whose shares will be converted into Common
Stock may vary from the federal tax consequences described
generally below. HOLDERS OF PREFERRED STOCK SHOULD CONSULT THEIR
OWN TAX ADVISORS AS TO THE EFFECT OF THE CONVERSION AMENDMENT
UNDER APPLICABLE FEDERAL, STATE AND LOCAL INCOME TAX LAWS.
The conversion has been structured so that it will qualify
as a nontaxable recapitalization under section 368(a)(1)(E) of
the Internal Revenue Code of 1986, as amended (the "Code").
Although the Company believes that the conversion will so
qualify, no tax opinion will be received with respect to the
transaction. As a nontaxable recapitalization, the Company will
not recognize gain or loss as a result of the transaction.
With respect to the converting shareholders, if the
conversion qualifies as a nontaxable recapitalization, no gain or
loss will be recognized on the exchange of the Preferred Stock
for Common Stock, except to the extent that a portion of the
Common Stock is considered as payment of the dividend arrearages
with respect to the Preferred Stock. In general, to the extent
the value of the Common Stock received exceeds the issue price of
the Preferred Stock surrendered (which is believed to be $2.50
per share) the excess payment will be treated as a partial
payment of the dividend arrearages on the Preferred Stock. A
payment on the dividend arrearages will be taxed under the
priority system of section 301 of the Code (which is, first,
ordinary income to the extent of the current or accumulated tax
earnings of the Company, then as a return of tax basis in the
Preferred Stock, and the balance as gain from the disposition of
the Preferred Stock).
Any cash received in lieu of a fractional share of Common
Stock will be treated as a sale transaction with respect to the
fractional share of Common Stock that otherwise would have been
received.
The tax basis of the Common Stock received will be equal to
the tax basis of the Preferred Stock surrendered, reduced for any
return of basis under section 301, as described above, and
reduced for any basis applied in computing the gain from the
receipt of cash in lieu of a fractional share.
Voting Requirements
Each holder of Common Stock and each holder of Preferred
Stock is entitled to one vote per share held. With respect to
the Conversion Amendment, the Preferred Stock and the Common
Stock are entitled to vote as separate classes.
The affirmative vote of holders of two-thirds of all
outstanding shares of Common Stock and Preferred Stock of the
Company voting as separate classes is required for approval of
the Conversion Amendment. Proxies solicited by the Board will be
voted FOR approval of the Conversion Amendment. Shareholders are
not entitled to cumulate votes.
For this purpose, a shareholder voting through a proxy who
abstains with respect to approval of the Conversion Amendment is
considered to be present and entitled to vote on the approval of
the Conversion Amendment at the Meeting, and is in effect a
negative vote, but a shareholder (including a broker) who does
not give authority to a proxy to vote on the Conversion Amendment
shall not be considered present and entitled to vote on the
Conversion Amendment.
<PAGE>
A copy of the proposed amendment to the Articles of
Incorporation effecting the Conversion Amendment is set forth on
Exhibit A, attached to this Proxy Statement and incorporated
herein by reference; provided, however, that the text of the
proposed amendment is subject to change as may be required by the
Colorado Secretary of State, and the Board may make any and all
changes to the Certificate of Amendment to the Articles of
Incorporation relating to the amendment that it deems necessary
to file the document with the Colorado Secretary of State, and
give effect to the Conversion Amendment described in Proposal
Two.
Shareholders should note that a vote with respect to the
Conversion Amendment is independent of a vote with respect to the
Reverse Stock Split, and neither of these proposals is
conditioned upon the approval of the other. Therefore, if the
Conversion Amendment is approved but the Reverse Stock Split is
not, then the Company's outstanding Preferred Stock will be
converted into Common Stock as described above but the Company
will not effectuate the Reverse Stock Split. Likewise, if the
Reverse Stock Split is approved but the Conversion Amendment is
not, then the Company's outstanding Preferred Stock will remain
outstanding and the Company will effect the Reverse Stock Split.
The Board recommends a vote FOR this Proposal Two to approve
the amendment to the Company's Articles of Incorporation to
convert the Company's outstanding Preferred Stock into Common
Stock.
<PAGE>
PROPOSAL THREE -- REVERSE SPLIT OF THE COMMON STOCK
General
At the Meeting, holders of the Company's Common Stock will
also vote on a proposal to amend the Articles of Incorporation to
effect a one-for-four reverse stock split (the "Reverse Stock
Split"). If the Reverse Stock Split is approved by the holders
of the Company's Common Stock at the Meeting, the Reverse Stock
Split will be effected only upon a determination by the Board of
Directors that the Reverse Stock Split is in the best interests
of the Company and its shareholders. In such event, the Reverse
Stock Split would become effective upon the date (the "Reverse
Stock Split Effective Date") of the filing of an amendment to the
Articles of Incorporation effecting the Reverse Stock Split. A
copy of such amendment is set forth as Exhibit B hereto.
The Board of Directors has authorized, subject to
Shareholder approval, a one-for-four Reverse Stock Split of the
Company's outstanding Common Stock. The Board selected a
one-for-four Reverse Stock Split based on its determination that
such a Reverse Stock Split would result in greater marketability
and liquidity of the Common Stock, based upon prevailing and
anticipated market conditions and other relevant factors.
Any shareholder entitled to a fraction of a share of Common
Stock as a result of the Reverse Stock Split will, in lieu
thereof, receive scrip evidencing that fraction of a share of
Common Stock as described below.
Purpose and Effect of the Reverse Stock Split
The intent of the Reverse Stock Split is to increase the
marketability and liquidity of the Common Stock. The Reverse
Stock Split could enhance the acceptability of the Common Stock
by the financial community and the investing public.
The Board believes that the current per-share price of the
Common Stock has limited the effective marketability of the
Common Stock because of the reluctance of many brokerage firms
and institutional investors to recommend lower-priced stocks to
their clients or to hold them in their own portfolios, among
other reasons. Certain policies and practices of the securities
industry may tend to discourage individual brokers within those
firms from dealing in lower-priced stocks. Some of those
policies and practices involve time-consuming procedures that
make the handling of lower-priced stocks economically
unattractive. The brokerage commission on a sale of lower-priced
stock may also represent a higher percentage of the sale price
than the brokerage commission on a higher-priced issue. Any
reduction in brokerage commissions resulting from the Reverse
Stock Split may be offset, however, in whole or in part, by
increased brokerage commissions required to be paid by
shareholders selling "odd lots" created by such Reverse Stock
Split.
The Common Stock is currently traded in the over-the-counter
market under the symbol PMCI. One current goal of the Board is
to have the Common Stock listed on the Nasdaq Small Cap Market.
The Board feels that having the Common Stock listed on a national
market will result in the increased tradeability of the shares
with a much broader market for the stock. Under listing
requirements recently adopted by the National Association of
Securities Dealers (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
that net tangible assets requirement for inclusion on the Nasdaq
Small Cap Market, it does not satisfy the minimum per share bid
price. The Reverse Stock Split is intended to raise the minimum
bid on the Common Stock above the $4.00 level required for
initial listing on the Nasdaq Small Cap Market. On November 11,
1997, the last reported sale price for the Common Stock was
$1.50. If effectuated, the Reverse Stock Split may raise the
minimum bid for the Common Stock above the $4.00 threshold. Due
to market uncertainties beyond the Company's control, however,
there can be no assurance that the Reverse Stock Split will raise
the minimum bid for the Common Stock above $4.00. Moreover,
even if such Reverse Stock Split is accomplished and the Common
Stock has a minimum bid that exceeds $4.00, future operating
losses or acquisitions involving intangibles could result in
reductions of the Company's net tangible assets below the minimum
required for listing on the Nasdaq Small Cap Market.
<PAGE>
There can be no assurance that any positive effects will
occur with respect to the shares of Common Stock as a result of
the Reverse Stock Split, including without limitation that the
market price per share of New Common Stock after the Reverse
Stock Split will either exceed or remain in excess of the current
market price. Further, there can be no assurance that the market
for the Common Stock will be improved. Holders of the Company's
Common Stock should note that the Board of Directors cannot
predict what effect the Reverse Stock Split will have on the
market price of the Common Stock.
The Company does not anticipate that any Reverse Stock Split
will result in a reduction in the number of holders of Common
Stock, and does not currently intend to effect any Reverse Stock
Split that would result in a reduction in the number of holders
large enough to jeopardize listing of the Common Stock on
National Association of Securities Dealers' Electronic Bulletin
Board, or the Company's being no longer subject to the periodic
reporting requirements of the Securities and Exchange Commission
under the Exchange Act.
After giving effect to the settlement of fractional shares
of Common Stock as described herein, there will be no material
differences between the rights of the shares of Common Stock
outstanding prior to the Reverse Stock Split and those to be
outstanding after the Reverse Stock Split is effected. Holders
of the Company's Common Stock have no right under Colorado law to
dissent from the Reverse Stock Split.
Consummation of the Reverse Stock Split will not alter the
number of authorized shares of Common Stock, which will remain at
50,000,000 shares, or the number of authorized shares of
Preferred Stock, which will remain at 5,000,000. Other than the
treatment of fractional shares discussed below, proportionate
voting rights and other rights of the holders of Common Stock
will not be altered by the Reverse Stock Split.
Other than the treatment of fractional shares discussed
below, the proposed Reverse Stock Split would not change the
Shareholders' equity or interest in the Company, and the book
value of the number of shares outstanding immediately after the
Reverse Stock Split would be equal to the book value of the
number of shares outstanding immediately prior to the Reverse
Stock Split. Total shareholders' equity would therefore remain
unchanged.
Holders of the Company's Common Stock should note that
certain disadvantages may result from the approval of this
Proposal Three and the effectuation of the Reverse Stock Split.
In such event, the number of outstanding shares of Common Stock
would be decreased as a result of the Reverse Stock Split, but
the number of authorized shares of Common Stock would not be so
decreased. The Company would therefore have the authority to
issue a greater number of shares of Common Stock following the
Reverse Stock Split without the need to obtain shareholder
approval to authorize additional shares. Any such additional
issuance may have the effect of significantly reducing the
interest of the existing shareholders of the Company with respect
to earnings per share, voting, liquidation value and book and
market value per share.
The Reverse Stock Split would have the effect of decreasing
the number of shares of Common Stock outstanding from 19,431,610
to approximately 4,857,900 (assuming that no additional shares of
Common Stock are issued by the Company after the record date of
the Meeting). The Common Stock will continue to be par value,
$.01 per share, common stock following any Reverse Stock Split.
On the Reverse Stock Split Effective Date, each share of
Common Stock issued and outstanding prior thereto (the "Old
Common Stock"), will be reclassified as and changed into
one-quarter (1/4th) of a share of the Company's Common Stock, par
value $.01 per share (the "New Common Stock"), subject to the
treatment of fractional interests. Shortly after the Reverse
Stock Split Effective Date, the Company will send transmittal
forms to the holders of the Old Common Stock to be used in
forwarding their certificates formerly representing shares of Old
Common Stock for surrender and exchange for certificates
representing whole shares of New Common stock.
<PAGE>
Treatment of Fractional Shares and Scrip
No fraction of a share will be issued upon the effectuation
of the Reverse Stock Split. If Proposal Two and Three are
approved, in lieu of issuing any fraction of a share of New
Common Stock in effectuating the Reverse Stock Split, each holder
of Common Stock of the Company will be paid the cash equivalent
of such fraction based on the market value thereof on the Reverse
Stock Split Effective Date, determined as follows. The market
price per share of Common Stock on the Reverse Stock Split
Effective Date will be deemed to be the average of the high and
low bids as reported on the over-the-counter market in the
National Quotation Bureau's Listing for the 15 consecutive
business days ending 5 business days before the Reverse Stock
Split Effective Date. For example, assume a holder of Common
Stock held 750 shares of Common Stock immediately prior to the
Reverse Stock Split Effective Date. Upon conversion, the
shareholder would receive 187 shares of New Common Stock. In
addition, assuming the average of the high and low bids as
reported on the over-the-counter market in the National Quotation
Bureau's Listing for the 15 consecutive business days ending 5
business days before the Reverse Stock Split Effective Date was
$2.00, the shareholder would receive $4.00 in exchange for his .5
"fractional" shares of the Company that would not be converted
into New Common Stock ($2.00 times .5 times the conversion ratio
of 4).
In the event Proposal Two is not approved but Proposal Three
is, those holders of Old Common Stock whose shares are not evenly
divisible by four (4) will not receive cash as described above
but will instead receive scrip evidencing fractional shares of
New Common Stock ("Scrip"). Such Scrip will not carry any voting
or other rights as a shareholder under Colorado law, but the
Scrip may be exchanged with the Company if combined with other
Scrip equaling one share of New Common Stock. The reason for
this difference in treatment is because if Proposal Two is not
approved and the Preferred Stock remains outstanding, the
Company's Articles of Incorporation provide that no cash payment
may be made upon any class of stock of the Company if dividend
payments on the Preferred Stock are then currently in arrears.
Accordingly, if Proposal Two is not approved, because the
Company's Articles of Incorporation prohibit the cash payment for
fractional shares, in order to effectuate the Reverse Stock
Split, the Scrip treatment of fractional shares would be
necessary.
Federal Income Tax Consequences of the Reverse Split
The following discussion of the federal income tax
consequences of the Reverse Stock Split is for general
information only. This summary is based upon laws, regulations,
rulings and judicial decisions now in effect, all of which are
subject to change. This discussion does not cover all aspects of
federal taxation that may be relevant and it does not address
state, local, foreign or other tax laws. The discussion is not
intended to be, nor should it be relied on as, a comprehensive
analysis of the tax issues arising from or relating to the
proposed Reverse Stock Split. Income tax consequences to the
holders of the Common Stock may vary from the federal tax
consequences described generally below. HOLDERS OF COMMON STOCK
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE EFFECT OF THE
REVERSE STOCK SPLIT UNDER APPLICABLE FEDERAL, STATE AND LOCAL
INCOME TAX LAWS.
The Reverse Stock Split has been structured so that it will
qualify as a nontaxable transaction under the Code. Although the
Company believes that the transaction will so qualify, no tax
opinion will be received with respect to the transaction. As a
nontaxable transaction, the Company will not recognize gain or
loss as a result of the transaction.
With respect to holders of common stock, if the Reverse
Stock Split qualifies as a nontaxable transaction, no gain or
loss will be recognized by such holders, the aggregate tax basis
of the New Common Stock received (including any Scrip received)
will be the same as the tax basis of the Old Common Stock
surrendered, and the holding period of the New Common Stock
(including any Scrip received in lieu of a fractional share) will
include the holding period of the Old Common Stock surrendered.
Any cash received in lieu of a fractional share of New Common
Stock will be treated as a sale transaction with respect to the
fractional share that would otherwise be received.
<PAGE>
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION
ONLY. ACCORDINGLY, EACH HOLDER OF COMMON STOCK OF THE COMPANY IS
URGED TO CONSULT WITH HIS OWN TAX ADVISOR WITH RESPECT OT THE TAX
CONSEQUENCES OF THE PROPOSED REVERSE STOCK SPLIT, INCLUDING THE
APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, MUNICIPAL,
FOREIGN OR OTHER TAXING JURISDICTION.
Vote Required
The affirmative vote of the holders of two-thirds of the
shares of Common Stock outstanding and entitled to vote at the
Meeting will be required to approve the Reverse Stock Split. If
approved, Proposal Three will become effective upon the filing of
Articles of Amendment to the Articles of Incorporation of the
Company by the Secretary of State of Colorado, which is expected
to follow shortly after the approval, if at all, of Proposal
Three. A copy of the proposed amendment to the Articles of
Incorporation effecting the Reverse Stock Split is set forth on
Exhibit B, attached to this Proxy Statement and incorporated
herein by reference; provided, however, that the text of the
proposed amendment is subject to change as may be required by the
Colorado Secretary of State, and the Board may make any and all
changes to the Certificate of Amendment to the Articles of
Incorporation relating to the amendment that it deems necessary
to file the document with the Colorado Secretary of State, and
give effect to the Reverse Stock Split described in Proposal
Three. The Board of Directors will be authorized, without a
further vote of the Shareholders, to abandon the Reverse Stock
Split and determine not to file the Amendment to the Articles of
Incorporation effecting the Reverse Stock Split if the Board
concludes that such action would be in the best interests of the
Company and its Shareholders.
Shareholders should note that a vote with respect to the
Reverse Stock Split is independent of a vote with respect to the
Conversion Amendment, and neither of these proposals is
conditioned upon the approval of the other. Therefore, if the
Reverse Stock Split is approved but the Conversion Amendment is
not, then the Company's outstanding Preferred Stock will remain
outstanding and the Company will effect the Reverse Stock Split.
Likewise, if the Conversion Amendment is approved but the Reverse
Stock Split is not, then the Company's outstanding Preferred
Stock will be converted into Common Stock as described above but
the Company will not effectuate the Reverse Stock Split.
The Board recommends a vote FOR this Proposal Three to
approve the amendment to the Company's Articles of Incorporation
to effect the Reverse Stock Split.
<PAGE>
PROPOSAL FOUR -- THE COMPANY'S EQUITY INCENTIVE PLAN
General
At the Meeting, the Company's shareholders will be asked to
consider and vote upon a proposal to approve the Company's
Equity Incentive Plan (the "Plan"). The Plan will be effective
on the date that it is adopted by the Company's Board of
Directors, and as of such time, the Board may grant awards of
options pursuant to the Plan. However, until shareholder
approval is obtained, no option can be exercised and if
shareholder approval is not obtained, all awards granted under
the Plan will be canceled.
The Plan was adopted by the Company's Board of Directors on
November 12, 1997. The Board believes that approval of the Plan
is in the best interests of the Company. The purpose of the Plan
is to provide incentives to attract, retain and motivate eligible
persons whose present and potential contributions are important
to the success of the Company, by offering them an opportunity to
participate in the company's future performance through awards of
options and stock bonuses.
The following is a summary of the principal provisions of
the Plan and is not intended to be complete. For your
convenience, the Plan has been reproduced in its entirety in
Exhibit C to this Proxy Statement, and the Company's shareholders
are urged to review the full text of the plan. Tax information
related to the Plan follows this summary.
Capitalized terms not defined in this section shall have the
meaning given to them in the Plan.
Administration
The Plan permits a Committee of the Board to administer the
Plan (except with regard to issuances of Options to non-employee
directors which will be administered by the Board). The
Committee is comprised of at least two members of the Board, all
of whom are outside directors and "disinterested persons."
"Disinterested persons" and "outside directors" are defined in
the Plan and comply with definitions given such terms under the
Exchange Act and Section 162(m) of the Code, respectively.
References herein to the "Committee" mean either the committee
appointed to administer the Plan or the Board. Subject to the
terms of the Plan, the Committee determines the persons who are
to receive awards, the number of shares subject to each such
award and the terms and conditions of such awards. The Committee
also has the authority to construe and interpret any of the
provisions of the Plan or any awards granted thereunder and to
modify awards granted under the Plan. The interpretation by the
Committee of any of the provisions of the Plan or any award
granted under the Plan is final and conclusive, unless such
interpretation is in contravention of any express term of the
Plan.
Eligibility
The Plan provides that awards may be granted to such
employees, directors, and consultants of the Company or any
Affiliated Corporation as the Committee may determine. As of
November 12, 1997, approximately 88 people would be eligible to
participate in the Plan.
Stock Reserved for Issuance
The stock subject to awards under the Option Plan consists
of shares of the Company's Common Stock reserved for issuance
thereunder. The aggregate number of shares that may be issued
under awards pursuant to the Plan is 500,000 (or, if Proposal
Three is not approved, 2,000,000). In addition, shares that are
subject to issuance upon exercise of an option under the Plan but
cease to be subject to such option for any reason (other than the
exercise of such option), that are subject to an award granted
under the Plan but are forfeited or repurchased by the Company at
the original issue price, and that are subject to an award that
terminates without shares being issued, will be available for
grant and issuance under the Plan.
<PAGE>
Because the officers and employees who may participate and
the amount of their options are determined by the Committee, in
its sole discretion, it is not possible to state the names or
positions of, or the number of options that may be granted to,
the Company's officers and employees and consultants. The
maximum number of Shares with respect to which a Participant may
receive Options and Stock Appreciation Rights under the Plan in
any calendar year is 100,000 (or, if Proposal Three is not
approved, 400,000) Shares.
Terms of Options
Subject to the terms and conditions of the Plan, the
Committee, in its discretion, determines for each option certain
terms and conditions, including, whether the option is to be an
Incentive Option or a Non-Qualified Option, the number of shares
for which the option will be granted, the exercise price of the
option, and the periods during which the option may be
exercised. Each option is evidenced by a stock option agreement
in such form as the Committee approves and is subject to the
following conditions, in addition to those described elsewhere
herein or in the Plan:
(a) Date of Grant. The date of grant of an option will be
the date on which the Committee decides to grant the option,
unless the Committee specifies otherwise. The related stock
option agreement and a copy of the Plan will be delivered to the
optionee within a reasonable time after the option is granted.
(b) Term of Exercise of Options. Options are exercisable
within the period, or upon the events, determined by the
Committee as set forth in the related stock option agreement.
The Company anticipates that most of the options that will be
granted under the Plan will be exercisable for ten years and
options granted under the Plan will generally vest and become
exercisable at a rate of 20% one year after the date of grant,
and then ratably on a quarterly basis over the succeeding four
years of employment.
(c) Exercise Price. Each stock option agreement states the
related option exercise price, which may not be less than 100% of
the fair market value of the shares of Common Stock on the date
of the grant. The exercise price of an Incentive Option granted
to a 10% shareholder may not be less than 110% of the fair market
value of shares of the Company's Common Stock on the date of
grant. On November 12, 1997, the fair market value of the
Company's Common Stock (as determined by the average of the bid
and asked price as reported in the over-the-counter market) was
$1.625.
(d) Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise
agreement, stating the number of shares purchased, the
restrictions imposed on the shares purchased, if any, and certain
representations and covenants regarding optionee's investment
intent and access to information, together with payment in full
of the exercise price for the number of shares purchased. The
option exercise price may be paid in cash or by check, fully paid
shares of the Company Common Stock, through a "same day sale,"
through a "margin commitment," through any combination of the
foregoing, or other methods approved by the Committee.
(e) Termination of Employment. Unless otherwise specified
by the Committee or Board, as applicable, if an optionee ceases
to provide services as an employee, director, consultant,
independent contractor or advisor to the Company, or a parent,
subsidiary or affiliate of the Company (except in the case of
death or disability), the optionee has three months to exercise
any then-exercisable options. A twelve month exercise period
applies in cases of an optionee's disability or death.
(f) Limitations on Exercise. The Committee may determine a
minimum number of shares that can be purchased on an exercise of
an option. Notwithstanding the minimum number, an optionee will
not be prevented from exercising his or her option for the full
number of shares for which such option is exercisable.
<PAGE>
(g) Limitations on Incentive Option. An individual will
not be eligible to receive an Incentive Option unless such
individual is an employee of the Company or an Affiliated
Corporation. The aggregate fair market value (determined as of
the time an option is granted) of the shares with respect to
which Incentive Options are exercisable for the first time by an
optionee during any calendar year may not exceed $100,000.
(h) Transferability. Unless otherwise permitted by the
Committee, an option generally is not transferable except by will
or pursuant to the laws of descent and distribution, and is
exercisable during the optionee's lifetime only by the optionee.
(i) Rights as a Shareholder. An optionee has no rights as
a shareholder with respect to any shares covered by an option
until the option has been validly exercised and shares of the
Company's Common Stock are issued to the optionee.
(j) Other Provisions. The option grant and exercise
agreements authorized under the Plan, which may be different for
each option, may contain such other provisions as the Committee
deems advisable.
Restricted Stock Awards
Generally. The Committee may grant a Participant one or
more Restricted Stock Awards consisting of Shares of Stock. The
number of Shares granted as a Restricted Stock Award shall be
determined by the Committee. A Participant's right to retain a
Restricted Stock Award granted to him is subject to such
restrictions, including but not limited to his continuous
employment by or performance of services for the Company for a
restriction period specified by the Committee or the attainment
of specified performance goals and objectives, as may be
established by the Committee with respect to such Award. In the
event of the death or Disability of a Participant, or the
retirement of a Participant in accordance with the Company's
established retirement policy, all required periods of service
and other restrictions applicable to Restricted Stock Awards then
held by him shall lapse with respect to a pro rata part of each
such Award based on the ratio between the number of full months
of employment or services completed at the time of termination of
services from the grant of each Award to the total number of
months of employment or continued services required for such
Award to be fully nonforfeitable, and such portion of each such
Award shall become fully nonforfeitable. The remaining portion
of each such Award would be forfeited and immediately returned to
the Company. If a Participant's employment or consulting
services terminate for any other reason, any Restricted Stock
Awards as to which the period for which services are required or
other restrictions have not been satisfied (or waived or
accelerated as provided herein) would be forfeited, and all
shares of Stock related thereto immediately returned to the
Company.
Privileges of a Stockholder, Transferability. A recipient
of a Restricted Stock Award has all voting,
dividend, liquidation and other rights with respect to Stock in
accordance with its terms received by him as a Restricted Stock
Award upon his becoming the holder of record of such Stock;
provided, however, that the Participant's right to sell,
encumber, or otherwise transfer such Stock shall be subject to
the limitations contained in the Plan.
Enforcement of Restrictions. The Committee shall cause a
legend to be placed on the
Stock certificates issued pursuant to each Restricted Stock Award
referring to the restrictions provided by the Plan and, in
addition, may in its sole discretion require the Participant to
keep the duly endorsed stock certificates in the custody of the
Company or a third party while the restrictions enumerated in the
Plan remain in effect.
<PAGE>
Stock Units
A Participant may be granted a number of Stock Units
determined by the Committee. The number of Stock Units, the
goals and objectives to be satisfied with respect to each grant
of Stock Units, the time and manner of payment for each Stock
Unit, and the other terms and conditions applicable to a grant of
Stock Units shall be determined by the Committee.
Stock Appreciation Rights
Persons Eligible. The Committee, in its sole discretion,
may grant Stock Appreciation Rights to Eligible Employees,
Directors or Eligible Consultants.
Terms of Grant. The Committee shall determine at the time of
the grant of
a Stock Appreciation Right the time period during which the Stock
Appreciation Right may be exercised and any other terms that
shall apply to the Stock Appreciation Right.
Exercise. A Stock Appreciation Right shall entitle a
Participant to receive a number of shares of Stock (without any
payment to the Company, except for applicable withholding taxes),
cash, or Stock and cash, as determined by the Committee in
accordance with the Plan. If a Stock Appreciation Right is
issued in tandem with an Option, except as may otherwise be
provided by the Committee, the Stock Appreciation Right shall be
exercisable during the period that its related Option is
exercisable. A Participant desiring to exercise a Stock
Appreciation Right shall give written notice of such exercise to
the Company, which notice shall state the proportion of Stock and
cash that the Participant desires to receive pursuant to the
Stock Appreciation Right exercised. Upon receipt of the notice
from the Participant, the Company shall deliver to the person
entitled thereto (i) a certificate or certificates for Stock
and/or (ii) a cash payment, in accordance with the provisions of
the Plan.
Number of Shares or Amount of Cash. Subject to the discretion
of the Committee to substitute
cash for Stock, or Stock for cash, the number of Shares that may
be issued pursuant to the exercise of a Stock Appreciation Right
shall be determined by dividing: (i) the total number of Shares
of Stock as to which the Stock Appreciation Right is exercised,
multiplied by the amount by which the Fair Market Value of one
share of Stock on the exercise date exceeds the Fair Market Value
of one Share of Stock on the date of grant of the Stock
Appreciation Right, by (ii) the Fair Market Value of one Share of
Stock on the exercise date; provided, however, that fractional
shares shall not be issued and in lieu thereof, a cash adjustment
shall be paid. In lieu of issuing Stock upon the exercise of a
Stock Appreciation Right, the Committee in its sole discretion
may elect to pay the cash equivalent of the Fair Market Value of
the Stock on the exercise date for any or all of the Shares of
Stock that would otherwise be issuable upon exercise of the Stock
Appreciation Right.
Effect of Exercise. If a Stock Appreciation Right is issued
in tandem with an
Option, the exercise of the Stock Appreciation Right or the
related Option will result in an equal reduction in the number of
corresponding Options or Stock Appreciation Rights that were
granted in tandem with such Stock Appreciation Rights and Options.
Termination of Services. Upon the termination of the services
of a Participant,
any Stock Appreciation Rights then held by such Participant shall
be exercisable within the time periods, and upon the same
conditions with respect to the reasons for termination of
services, as are specified in the Plan with respect to Options.
<PAGE>
Stock Bonuses
The Committee may award Stock Bonuses to such Participants,
subject to such conditions and restrictions, as it determines in
its sole discretion. Stock Bonuses may be either outright grants
of Stock, or may be grants of Stock subject to and conditioned
upon certain employment or performance related goals.
Recapitalization/Change of Control
The number of Shares subject to any award, and the number of
shares issuable under the Plan, are subject to proportionate
adjustment in the event of a stock dividend, recapitalization,
stock split, reverse stock split, subdivision, combination,
reclassification or similar change relating to the capital
structure of the Company without consideration. In the event of
a dissolution or liquidation of the Company, a merger or
consolidation in which the Company does not survive (other than a
merger with a wholly owned subsidiary or where there is no
substantial change in the shareholders of the corporation or the
options granted are assumed, converted or replaced by the
successor corporation), all outstanding awards may be assumed,
converted or replaced by the successor corporation.
Alternatively, the successor corporation may substitute
equivalent awards or provide substantially similar consideration
to participants as was provided to shareholders. If a successor
corporation refuses to assume or substitute options, such options
will expire upon the occurrence of the transaction.
If a Change in Control (as defined in the Plan) occurs, all
Options become immediately exercisable in full, whether or not
the Participants to whom such Options have been granted remain
employees, directors or consultants of the Company; all
restrictions with respect to outstanding Restricted Stock Awards
lapse; all Stock Units become payable; and all other Awards
become immediately exercisable or vest, as the case may be,
without any further action or passage of time.
Termination of the Plan
The Committee, to the extent permitted by law, and with
respect to any Shares at the time not subject to awards, may
suspend or discontinue the Plan or revise or amend the Plan in
any respect whatsoever; provided that the Committee may not,
without approval of the shareholders, amend the Plan in a manner
that requires shareholder approval pursuant to the U.S. Code or
the regulations thereunder or pursuant to Rule 16b-3 of the
Exchange Act. Furthermore, no amendment, modification or
termination of the Plan may in any manner adversely affect any
Options, Stock Appreciation Rights, Restricted Stock Awards,
Stock Units, Stock Bonuses or other Award granted under the Plan,
without the consent of the Participant holding such Options,
Stock Appreciation Rights, Restricted Stock Awards, Stock Units,
Stock Bonuses or other Awards.
Term of the Plan
Unless sooner terminated by the Board of Directors, the Plan
shall terminate at the close of business on November 11, 2007,
and no Option, Stock Appreciation Right, Restricted Stock Award,
Stock Unit, Stock Bonus, other Award or Stock shall be granted,
or offer to purchase Stock made, after such termination.
Options, Stock Appreciation Rights, Restricted Stock Awards,
other Awards, and Stock Units outstanding at the time of the Plan
termination may continue to be exercised, or become free of
restrictions, or paid, in accordance with their terms.
<PAGE>
Federal Income Tax Consequences of the Plan
Options so designated under the Plan are intended to qualify
as Incentive Options. All options that are not designated as
Incentive Options are intended to be Non-Qualified Options.
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS
PROXY STATEMENT OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO
THE COMPANY AND PARTICIPATING EMPLOYEES, DIRECTORS AND
CONSULTANTS ASSOCIATED WITH STOCK OPTIONS GRANTED UNDER THE
PLAN. THE U.S. FEDERAL TAX LAWS MAY CHANGE AND THE U.S. FEDERAL,
STATE AND LOCAL TAX CONSEQUENCES FOR ANY OPTIONEE WILL DEPEND
UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING
EMPLOYEE HAS BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF A
QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
PARTICIPATION IN THE PLAN.
When a non-qualified stock option is granted, there are no
income tax consequences for the option holder or the Company.
When a non-qualified stock option is exercised, in general, the
option holder recognizes compensation equal to the excess of the
fair market value of the Common Stock on the date of exercise
over the exercise price. If, however, the sale of the Common
Stock at a profit would subject the option holder to liability
under Section 16(b) of the Exchange Act ("Section 16(b)"), the
option holder will recognize compensation income equal to the
excess of (i) the fair market value of the Common Stock on the
earlier of the date that is six months after the date of exercise
or the date the option holder can sell the Common Stock without
Section 16(b) liability over (ii) the exercise price. The option
holder can make an election under section 83(b) of the Code to
measure the compensation as of the date the non-qualified option
is exercised. The compensation recognized by an employee is
subject to income tax withholding. The Company is entitled to a
deduction equal to the compensation recognized by the option
holder for the Company's taxable year that ends with or within
the taxable year in which the option holder recognized the
compensation, assuming the compensation amounts satisfy the
ordinary and necessary and reasonable compensation requirements
for deductibility.
When an incentive stock option is granted, there are no
income tax consequences for the option holder or the Company.
When an incentive option is exercised, the option holder does not
recognize income and the Company does not receive a deduction.
The option holder, however, must treat the excess of the fair
market value of the Common Stock on the date of exercise over the
exercise price as an item of adjustment for purposes of the
alternative minimum tax. If the option holder makes a
"disqualifying disposition" of the Common Stock (described below)
in the same taxable year the incentive stock option was
exercised, there are no alternative minimum tax consequences.
If the option holder disposes of the Common Stock after the
option holder has held the Common Stock for at least two years
after the incentive stock option was granted and one year after
the incentive stock option was exercised, the amount the option
holder receives upon the disposition over the exercise price is
treated as long-term capital gain for the option holder. The
Company is not entitled to a deduction. If the option holder
makes a "disqualifying disposition" of the Common Stock by
disposing of the Common Stock before it has been held for at
least two years after the date the incentive option was granted
and one year after the date the incentive option was exercised,
the option holder recognizes compensation income equal to the
excess of (i) the fair market value of the Common Stock on the
date the incentive option was exercised or, if less, the amount
received on the disposition over (ii) the exercise price. At
present, the Company is not required to withhold income or other
taxes. The Company is entitled to a deduction equal to the
compensation recognized by the option holder for the Company's
taxable year that ends with or within the taxable year in which
the option holder recognized the compensation, assuming the
compensation amounts satisfy the ordinary and necessary and
reasonable compensation requirements for deductibility.
The Plan provides that option holders are responsible for
making appropriate arrangements with the Company to provide for
any additional withholding amounts. Furthermore, the Company
shall have no obligation to deliver shares of Common Stock upon
the exercise of any Options, Stock Appreciation Rights, awards or
units under the Plan until all applicable federal, state and
local income and other tax withholding requirements have been
satisfied.
<PAGE>
Under Section 162(m) of the Code, the Company may be limited
as to Federal income tax deductions to the extent that total
annual compensation in excess of $1 million is paid to the chief
executive officer of the Company or any one of the other four
highest paid executive officers who are employed by the Company
on the last day of the taxable year. However, certain
"performance-based compensation" the material terms of which are
disclosed to and approved by the Company's shareholders is not
subject to this limitation on deductibility. The Company has
structured the Option and Stock Appreciation Rights portions of
the Plan with the intention that compensation resulting therefrom
would be qualified performance-based compensation and would be
deductible without regard to the limitations otherwise imposed by
Section 162(m) of the Code. The Plan allows the Committee
discretion to award restricted stock and other stock-based awards
that are intended to be qualified performance-based
compensation. Bonuses and other compensation payable in stock
under the Plan are not intended to qualify as performance-based
compensation.
Board Recommendation
THE COMPANY'S BOARD OF DIRECTORS BELIEVES THAT PROPOSAL FOUR
IS FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS
SHAREHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE PLAN.
SHAREHOLDER PROPOSALS
The Company intends to hold its annual meeting for the year
ended December 31, 1997 in June 1998. Accordingly, any proposal
by a shareholder intended to be presented at the Company's Annual
Meeting to for the year ended December 31, 1997, must be received
by the Company on or before February 1, 1998 to be included in
the proxy materials of the Company relating to such meeting.
OTHER BUSINESS
The Company does not anticipate that any other matters will
be brought before the Meeting. However, if any additional
matters properly come before the Meeting, it is intended that the
persons authorized under proxies may, in the absence of
instructions to the contrary, vote or act thereon in accordance
with their best judgement.
BY THE BOARD OF DIRECTORS
Kenneth S. Phillips
President
Denver, Colorado
November ___, 1997
<PAGE>
(Proxy for Common Shareholders)
PMC INTERNATIONAL, INC.
555 17TH STREET
14TH FLOOR
DENVER, COLORADO 80202
Proxy for Annual Meeting of Shareholders to be held on December 15,
1997
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Kenneth S. Phillips and
Scott A. MacKillop with full power of substitution, as proxies to
represent the undersigned at the Annual Meeting of Shareholders
to be held on December 15, 1997 or any adjournment thereof
("Annual Meeting") and to vote thereat, as designated below, all
the shares of common stock of PMC International, Inc. held of
record by the undersigned at the close of business on November 7,
1997, with all the power that the undersigned would possess if
personally present, in accordance with the instructions noted
hereon, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF ALL OF THE LISTED NOMINEES AND APPROVAL OF ITEMS 2, 3, AND 4,
IF NOT OTHERWISE SPECIFIED. THIS PROXY WILL BE VOTED PURSUANT TO
THE BOARD OF DIRECTORS' RECOMMENDATIONS.
1. PROPOSAL TO ELECT SIX DIRECTORS TO SERVE UNTIL THE 1998
ANNUAL MEETING OF SHAREHOLDERS.
[ ] For all nominees listed (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
Nominees: Kenneth S. Phillips Emmett J. Daly
J.W. Nevil Thomas Richard C. Hyde
D. Porter Bibb Scott A. MacKillop
2. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO
CONVERT THE COMPANY'S OUTSTANDING PREFERRED STOCK INTO
COMMON STOCK.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
3. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO
EFFECT A 1 FOR 4 REVERSE SPLIT OF THE COMMON STOCK.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
4. PROPOSAL TO ESTABLISH THE COMPANY'S EQUITY INCENTIVE PLAN
AND TO APPROVE THE RESERVATION OF 500,000 (OR IN THE EVENT
PROPOSAL 3 IS NOT APPROVED, 2,000,000) SHARES FOR ISSUANCE
THEREUNDER.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
PLEASE DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE.
<PAGE>
(Proxy for Preferred Shareholders)
PMC INTERNATIONAL, INC.
555 17TH STREET
14TH FLOOR
DENVER, COLORADO 80202
Proxy for Annual Meeting of Shareholders to be held on December 15,
1997
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Kenneth S. Phillips and
Scott A. MacKillop with full power of substitution, as proxies to
represent the undersigned at the Annual Meeting of Shareholders
to be held on December 15, 1997 or any adjournment thereof
("Annual Meeting") and to vote thereat, as designated below, all
the shares of preferred stock of PMC International, Inc. held of
record by the undersigned at the close of business on November 7,
1997, with all the power that the undersigned would possess if
personally present, in accordance with the instructions noted
hereon, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
OF ITEM 2 IF NOT OTHERWISE SPECIFIED. THIS PROXY WILL BE VOTED
PURSUANT TO THE BOARD OF DIRECTORS' RECOMMENDATIONS.
2. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO
CONVERT THE COMPANY'S OUTSTANDING PREFERRED STOCK INTO
COMMON STOCK.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
PLEASE DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE.
<PAGE>
The shares represented by
this proxy will be voted as
directed by the shareholder. In
his discretion, either named proxy
may vote on such other business as
may properly come before the Annual
Meeting or any adjournments or
postponements thereof.
This proxy revokes all
proxies with respect to the Annual
Meeting and may be revoked prior to
exercise. Receipt of the notice of
Annual Meeting and the Proxy
Statement relating to the Annual
Meeting is hereby acknowledged.
Please mark, sign, date and
return the proxy card
promptly, using the enclosed
envelope.
Date
Signature
Signature if
held jointly
Please sign exactly as name
appears hereon. When shares
are held by joint tenants,
both should sign. When
signing as attorney, as
executor, administrator,
trustee or guardian, please
give full title as such. If
a corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
<PAGE>
EXHIBIT A
CONVERSION AMENDMENT PROPOSED AMENDMENT TO ARTICLES OF
INCORPORATION
If the shareholders approve the Conversion Amendment, the
Company's Articles of Incorporation will be amended to add to
Article IV the following provision relating to the automatic
conversion of the Preferred Stock into Common Stock on the
Conversion Effective Date:
"7. Automatic Conversion of Series A Preferred Stock.
Notwithstanding any other provision of this Article IV,
effective at 12:01 Mountain Standard Time on December
___, 1997 (the "Conversion Effective Date"):
(a) Each outstanding share of Series A
Preferred Stock, together with any and all
accrued but unpaid dividends through the
Conversion Effective Date (the "Accrued
Dividends"), will automatically be converted
into 1.375 shares of Common Stock.
(b) No fraction of a share will be issued
upon the conversion of the Series A Preferred
Stock. In lieu of issuing any fraction of a
share, each holder of Series A Preferred
Stock will be paid the cash equivalent of
such fraction based on the market value
thereof on the Conversion Effective Date,
determined as follows. The market price per
share of common stock on the Conversion
Effective Date will be deemed to be the
average of the high and low bids as reported
on the over-the-counter market in the
National Quotation Bureau's Listing for the
15 consecutive business days ending 5
business days before the Conversion Effective
Date.
(c) The holders of Series A Preferred Stock
will no longer be entitled to receive
dividends on the Series A Preferred Stock,
will no longer be entitled to any liquidation
preference, and will no longer have any of
the other rights associated with the Series A
Preferred Stock.
(d) Each stock certificate representing
issued and outstanding shares of Series A
Preferred Stock will automatically represent
the proportionate number of shares of Common
Stock. The holders of Series A Preferred
Stock may, but are not required to, exchange
their existing Series A Preferred Stock
certificates for certificates representing
the proportionate number of shares of Common
Stock. If not exchanged earlier, the Series
A Preferred Stock certificates will be
exchanged for certificates representing the
proportionate number of shares of Common
Stock at such time as a holder surrenders the
certificates for the purpose of transferring
shares to another person."
If the shareholders approve the Conversion Amendment, the
above amendment to the Company's Articles of Incorporation will
become effective upon the filing of Articles of Amendment with
the Colorado Secretary of State. The Articles of Amendment will
amend the Company's Articles of Incorporation to give effect to
the Conversion Amendment.
<PAGE>
EXHIBIT B
REVERSE STOCK SPLIT PROPOSED AMENDMENT TO ARTICLES OF
INCORPORATION
If the shareholders approve the Reverse Stock Split, the
Company's Articles of Incorporation will be amended to add to
Article IV a include a new Section 6:
6. Reverse Stock Split:
(a) Notwithstanding other reverse stock splits previously
effectuated by the Company, effective December __, 1997 (the
"Reverse Stock Split Effective Date"), each outstanding share of
the Corporation's common stock, $.01 par value per share (the
"Old Common Stock"), shall be converted into .25 shares of common
stock, par value $.01 per share (the "New Common Stock") with all
of the rights and preferences set forth in these Articles of
Incorporation and under applicable law.
(b) Each stock certificate representing issued and
outstanding shares of Old Common Stock will automatically
represent the proportionate number of shares of New Common
Stock. The holders of Old Common Stock may, but are not required
to, exchange their existing Old Common Stock certificates for
certificates representing the proportionate number of shares of
New Common Stock. If not exchanged earlier, the Old Common Stock
certificates will be exchanged for certificates representing the
proportionate number of shares of New Common Stock at such time
as a holder surrenders the certificates for the purpose of
transferring shares to another person.
[(c) Fractional Shares. No fraction of a share will be
issued upon the conversion of the Old Common Stock. In lieu of
issuing any fraction of a share, each holder of Old Common Stock
will be paid the cash equivalent of such fraction based on the
market value of the Old Common Stock on the Reverse Stock Split
Effective Date, determined as follows. The market price per
share of common stock on the Reverse Stock Split Effective Date
will be deemed to be the average of the high and low bids as
reported on the over-the-counter market in the National Quotation
Bureau's Listing for the 15 consecutive business days ending 5
business days before the Reverse Stock Split Effective Date.]
Or in the event Proposal Two is not approved:
[(c) In the event of fractional shares, such fractional
shares shall be converted into scrip ("Scrip"). Such Scrip shall
plainly indicate the amount of such fraction and shall carry no
voting rights in the Company. Combined Scrip equaling one shall
be exchangeable with the Company for one share of the Company's
New Common Stock.]
<PAGE>
EXHIBIT C
PMC INTERNATIONAL, INC.
EQUITY INCENTIVE PLAN
ARTICLE I
INTRODUCTION
1.1 Establishment. PMC International, Inc., a Colorado
corporation, hereby establishes the PMC International, Inc.
Equity Incentive Plan (the "Plan") for certain employees and
directors of the Company (as defined in subsection 2.1(f)) and
certain consultants to the Company. The Plan permits the grant
of incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, non-qualified
stock options, restricted stock awards, stock appreciation
rights, stock bonuses, stock units and other stock grants to
certain employees and directors of the Company and to certain
consultants to the Company.
1.2 Purposes. The purposes of the Plan are to provide those who
are selected for participation in the Plan with added incentives
to continue in the long-term service of the Company and to create
in such persons a more direct interest in the future success of
the operations of the Company by relating incentive compensation
to increases in shareholder value, so that the income of those
participating in the Plan is more closely aligned with the income
of the Company's shareholders. The Plan is also designed to
provide a financial incentive that will help the Company attract,
retain and motivate the most qualified employees, directors and
consultants.
ARTICLE II
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings
set forth below:
(a) "Affiliated Corporation" means any corporation or
other entity that is affiliated with PMCI through stock ownership
or otherwise and is designated as an "Affiliated Corporation" by
the Board, provided, however, that for purposes of Incentive
Options granted pursuant to the Plan, an "Affiliated Corporation"
means any parent or subsidiary of the Company as defined in
Section 424 of the Code.
(b) "Award" means an Option, a Restricted Stock Award,
a Stock Appreciation Right, a Stock Unit, grants of Stock
pursuant to Article XI or other issuances of Stock hereunder.
(c) "Board" means the Board of Directors of PMCI.
(d) "Code" means the Internal Revenue Code of 1986, as
it may be amended from time to time.
(e) "Committee" means a committee consisting of
members of the Board who are empowered hereunder to take actions
in the administration of the Plan. The Committee shall be so
constituted at all times as to permit the Plan to comply with
Rule 16b-3 or any successor rule promulgated under the Securities
Exchange Act of 1934 (the "1934 Act"). Members of the Committee
and any subcommittee or special committee shall be appointed from
time to time by the Board, shall serve at the pleasure of the
Board and may resign at any time upon written notice to the
Board. The Committee shall select Participants from Eligible
Employees and Eligible Consultants of the Company and shall
determine the awards to be made pursuant to the Plan and the
terms and conditions thereof. For purposes of making
determinations under this Plan with regard to Eligible Directors,
the "Committee" shall consist of the Board.
<PAGE>
(f) "Company" means PMCI and the Affiliated
Corporations.
(g) "Disabled" or "Disability" shall have the meaning
given to such terms in Section 22(e)(3) of the Code.
(h) "Effective Date" means the effective date of the
Plan, November 12, 1997.
(i) "Eligible Directors" means those directors of the
Company who are not Eligible Employees or Eligible Consultants,
as defined below.
(j) "Eligible Employees" means those employees
(including, without limitation, officers and directors who are
also employees) of the Company or any subsidiary or division
thereof, upon whose judgment, initiative and efforts the Company
is, or will become, largely dependent for the successful conduct
of its business. For purposes of the Plan, an employee is an
individual whose wages are subject to the withholding of federal
income tax under section 3401 of the Code.
(k) "Eligible Consultants" means those consultants to
the Company who are determined, by the Committee, to be
individuals whose services are important to the Company and who
are eligible to receive Awards, other than Incentive Options,
under the Plan.
(l) "Fair Market Value" means the average of the mean
between the bid and the asked prices of the Stock or the closing
price, as applicable, on the Nasdaq Stock Market, the principal
stock exchange or other market on which the Stock is traded, over
the five consecutive trading days ending on a particular date or
by such other method as the Committee may specify at the time an
Award is granted. If the price of the Stock is not reported on
any securities exchange or national market system, the Fair
Market Value of the Stock on a particular date shall be as
determined by the Committee. If, upon exercise of an Option, the
exercise price is paid by a broker's transaction as provided in
subsection 7.2(g)(ii)(D), Fair Market Value, for purposes of the
exercise, shall be the price at which the Stock is sold by the
broker.
(m) "Incentive Option" means an Option designated as
such and granted in accordance with Section 422 of the Code.
(n) "Non-Qualified Option" means any Option other than
an Incentive Option.
(o) "Option" means a right to purchase Stock at a
stated or formula price for a specified period of time. Options
granted under the Plan shall be either Incentive Options or
Non-Qualified Options.
(p) "Option Certificate" shall have the meaning given
to such term in Section 7.2 hereof.
(q) "Option Holder" means a Participant who has been
granted one or more Options under the Plan.
(r) "Option Price" means the price at which each share
of Stock subject to an Option may be purchased, determined in
accordance with subsection 7.2(b).
(s) "Participant" means an Eligible Employee, Eligible
Director or Eligible Consultant designated by the Committee, or
in the case of an Eligible Director, the Board, from time to time
during the term of the Plan to receive one or more of the Awards
provided under the Plan.
(t) "PMCI" means PMC International, Inc. and any
successor thereto.
(u) "Restricted Stock Award" means an award of Stock
granted to a Participant pursuant to Article VIII that is subject
to certain restrictions imposed in accordance with the provisions
of such Section.
<PAGE>
(v) "Share" means a share of Stock.
(w) "Stock" means the $0.01 par value common stock of
PMCI.
(x) "Stock Appreciation Right" means the right,
granted by the Committee pursuant to the Plan, to receive a
payment equal to the increase in the Fair Market Value of a Share
of Stock subsequent to the grant of such Award.
(y) "Stock Bonus" means either an outright grant of
Stock or a grant of Stock subject to and conditioned upon certain
employment or performance related goals.
(z) "Stock Unit" means a measurement component equal
to the Fair Market Value of one share of Stock on the date for
which a determination is made pursuant to the provisions of this
Plan.
2.2 Gender and Number. Except when otherwise indicated by
the context, the masculine gender shall also include the feminine
gender, and the definition of any term herein in the singular
shall also include the plural.
ARTICLE III
PLAN ADMINISTRATION
The Plan shall be administered by the Committee. In
accordance with the provisions of the Plan, the Committee shall,
in its sole discretion, select the Participants from among the
Eligible Employees, Eligible Directors and Eligible Consultants,
determine the Awards to be made pursuant to the Plan, the number
of Stock Units, Stock Appreciation Rights or shares of Stock to
be issued thereunder and the time at which such Awards are to be
made, fix the Option Price, period and manner in which an Option
becomes exercisable, establish the duration and nature of
Restricted Stock Award restrictions, establish the terms and
conditions applicable to Stock Bonuses and Stock Units, and
establish such other terms and requirements of the various
compensation incentives under the Plan as the Committee may deem
necessary or desirable and consistent with the terms of the
Plan. With regard to issuance of Awards to non-employee members
of the Board, such decisions identical to those made by the
Committee as to Eligible Employees and Eligible Consultants shall
be made by the Board. The Committee shall determine the form or
forms of the agreements with Participants that shall evidence the
particular provisions, terms, conditions, rights and duties of
PMCI and the Participants with respect to Awards granted pursuant
to the Plan, which provisions need not be identical except as may
be provided herein; provided, however, that Eligible Consultants
and Eligible Directors shall not be eligible to receive Incentive
Options. The Committee may from time to time adopt such rules
and regulations for carrying out the purposes of the Plan as it
may deem proper and in the best interests of the Company. The
Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any agreement
entered into hereunder in the manner and to the extent it shall
deem expedient and it shall be the sole and final judge of such
expediency. No member of the Committee shall be liable for any
action or determination made in good faith. The determinations,
interpretations and other actions of the Committee pursuant to
the provisions of the Plan shall be binding and conclusive for
all purposes and on all persons.
<PAGE>
ARTICLE IV
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. The number of Shares that are
authorized for issuance under the Plan in accordance with the
provisions of the Plan and subject to such restrictions or other
provisions as the Committee may from time to time deem necessary
shall not exceed 500,000, subject to the provisions regarding
changes in capital described below. The maximum number of Shares
with respect to which a Participant may receive Options and Stock
Appreciation Rights under the Plan in any calendar year is
100,000 Shares. The Shares may be either authorized and unissued
Shares or previously issued Shares acquired by PMCI. This
authorization may be increased from time to time by approval of
the Board and by the stockholders of PMCI if, in the opinion of
counsel for PMCI, stockholder approval is required. Shares of
Stock that may be issued upon exercise of Options or Stock
Appreciation Rights, that are issued as Restricted Stock Awards
or Stock Bonuses, that are issued with respect to Stock Units,
and that are issued as incentive compensation or other Stock
grants under the Plan shall be applied to reduce the maximum
number of Shares remaining available for use under the Plan.
PMCI shall at all times during the term of the Plan and while any
Options or Stock Units are outstanding retain as authorized and
unissued Stock at least the number of Shares from time to time
required under the provisions of the Plan, or otherwise assure
itself of its ability to perform its obligations hereunder.
4.2 Other Shares of Stock. Any shares of Stock that are
subject to an Option that expires or for any reason is terminated
unexercised, any shares of Stock that are subject to an Award
(other than an Option) and that are forfeited, and any shares of
Stock withheld for the payment of taxes or received by PMCI as
payment of the exercise price of an Option shall automatically
become available for use under the Plan, provided, however, that
no more than 100,000 shares of Stock may be awarded pursuant to
Incentive Options.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If
PMCI shall at any time increase or decrease the number of its
outstanding Shares or change in any way the rights and privileges
of such Shares by means of the payment of a stock dividend or any
other distribution upon such shares payable in Stock, or through
a stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock, then in
relation to the Stock that is affected by one or more of the
above events, the numbers, rights and privileges of the following
shall be increased, decreased or changed in like manner as if
they had been issued and outstanding, fully paid and
nonassessable at the time of such occurrence: (i) the Shares as
to which Awards may be granted under the Plan and (ii) the Shares
then included in each outstanding Award granted hereunder.
4.4 Other Distributions and Changes in the Stock. If
(a) PMCI shall at any time distribute with respect to
the Stock assets or securities of persons other than PMCI
(excluding cash or distributions referred to in Section 4.3), or
(b) PMCI shall at any time grant to the holders of its
Stock rights to subscribe pro rata for additional shares thereof
or for any other securities of PMCI, or
(c) there shall be any other change (except as
described in Section 4.3) in the number or kind of outstanding
Shares or of any stock or other securities into which the Stock
shall be changed or for which it shall have been exchanged,
and if the Committee shall in its discretion determine that the
event described in subsection (a), (b), or (c) above equitably
requires an adjustment in the number or kind of Shares subject to
an Option or other Award, an adjustment in the Option Price or
the taking of any other action by the Committee, including
without limitation, the setting aside of any property for
delivery to the Participant upon the exercise of an Option or the
full vesting of an Award, then such adjustments shall be made, or
other action shall be taken, by the Committee and shall be
effective for all purposes of the Plan and on each outstanding
Option or Award that involves the particular type of stock for
which a change was effected. Notwithstanding the foregoing
provisions of this Section 4.4, pursuant to Section 8.3 below, a
Participant holding Stock received as a Restricted Stock Award
shall have the right to receive all amounts, including cash and
property of any kind, distributed with respect to the Stock after
such Restricted Stock Award was granted upon the Participant's
becoming a holder of record of the Stock.
<PAGE>
4.5 General Adjustment Rules. No adjustment or
substitution provided for in this Article IV shall require PMCI
to sell a fractional share of Stock under any Option, or
otherwise issue a fractional share of Stock, and the total
substitution or adjustment with respect to each Option and other
Award shall be limited by deleting any fractional share. In the
case of any such substitution or adjustment, the aggregate Option
Price for the total number of shares of Stock then subject to an
Option shall remain unchanged but the Option Price per share
under each such Option shall be equitably adjusted by the
Committee to reflect the greater or lesser number of shares of
Stock or other securities into which the Stock subject to the
Option may have been changed, and appropriate adjustments shall
be made to other Awards to reflect any such substitution or
adjustment.
4.6 Determination by the Committee, Etc. Adjustments under
this Article IV shall be made by the Committee, whose
determinations with regard thereto shall be final and binding
upon all parties thereto.
<PAGE>
ARTICLE V
CORPORATE REORGANIZATION; CHANGE IN CONTROL
5.1 Reorganization. Upon the occurrence of any of the
following events, if the notice required by Section 5.2 shall
have first been given, the Plan and all Options then outstanding
hereunder shall automatically terminate and be of no further
force and effect whatsoever, without the necessity for any
additional notice or other action by the Board or the Company:
(a) the merger or consolidation of the Company with or into
another corporation (other than a consolidation or merger in
which the Company is the continuing corporation and which does
not result in any reclassification or change of outstanding
shares of Common Stock); or (b) the sale or conveyance of the
property of the Company as an entirety or substantially as an
entirety (other than a sale or conveyance in which the Company
continues as holding company of an entity or entities that
conduct the business or businesses formerly conducted by the
Company); or (c) the dissolution or liquidation of the Company.
5.2 Required Notice. At least 30 days' prior written
notice of any event described in Section 5.1 shall be given by
the Company to each Option Holder, unless in the case of the
events described in clauses (a) or (b) of Section 5.1, the
Company, or the successor or purchaser, as the case may be, shall
make adequate provision for the assumption of the outstanding
Options or the substitution of new options for the outstanding
Options on terms comparable to the outstanding Options except
that the Option Holder shall have the right thereafter to
purchase the kind and amount of securities or property or cash
receivable upon such merger, consolidation, sale or conveyance by
a holder of the number of Shares that would have been receivable
upon exercise of the Option immediately prior to such merger,
consolidation, sale or conveyance (assuming such holder of Stock
failed to exercise any rights of election and received per share
the kind and amount received per share by a majority of the
non-electing shares). The provisions of this Article VII shall
similarly apply to successive mergers, consolidations, sales or
conveyances. Such notice shall be deemed to have been given when
delivered personally to an Option Holder or when mailed to an
Option Holder by registered or certified mail, postage prepaid,
at such Option Holder's address last known to the Company.
5.3 Acceleration of Exercisability. Option Holders
notified in accordance with Section 5.2 may exercise their
Options at any time before the occurrence of the event requiring
the giving of notice (but subject to occurrence of such event),
regardless of whether all conditions of exercise relating to
length of service have been satisfied.
5.4 Change of Control. Unless provided otherwise by the
Committee at the time of the grant of an Award, upon a change in
control of PMCI as defined below: (i) all Options shall become
immediately exercisable in full during the remaining term
thereof, and shall remain so, whether or not the Participants to
whom such Options have been granted remain employees or
consultants of the Company; (ii) all restrictions with respect to
outstanding Restricted Stock Awards shall immediately lapse;
(iii) all Stock Units shall become immediately payable; and (iv)
all other Awards shall become immediately exercisable or shall
vest, as the case may be, without any further action or passage
of time. A "Change in Control" is deemed to have occurred if (i)
a person (as such term is used in Section 13(d) of the Exchange
Act) becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of shares of the Company having 30% or more of
the total number of votes that may be cast for the election of
directors of the Company without the prior approval of at least a
majority of the members of the Board unaffiliated with such
person, or (ii) individuals who constitute the directors of the
Company at the beginning of a 24-month period cease to constitute
at least 2/3 of all directors at any time during such period,
unless the election of any new or replacement directors was
approved by a vote of at least a majority of the members of the
Board in office immediately prior to such period and of the new
and replacement directors so approved. Notwithstanding anything
to the contrary in this Section 5.4, no Option will become
exercisable by virtue of the occurrence of a Change in Control if
the Option Holder of that Option or any group of which that
Option Holder is a member is the person whose acquisition
constituted the Change in Control.
<PAGE>
ARTICLE VI
PARTICIPATION
Participants in the Plan shall be those Eligible Employees
and Eligible Directors of the Company who, in the judgment of the
Committee, are performing, or during the term of their incentive
arrangement will perform, vital services in the management,
operation and development of the Company, and significantly
contribute, or are expected to significantly contribute, to the
achievement of long-term corporate economic objectives. Eligible
Consultants shall be selected from those non-employee consultants
to the Company who are performing services important to the
operation and growth of the Company. Participants may be granted
from time to time one or more Awards; provided, however, that the
grant of each such Award shall be separately approved by the
Committee and receipt of one such Award shall not result in
automatic receipt of any other Award. Upon determination by the
Committee that an Award is to be granted to a Participant,
written notice shall be given to such person, specifying the
terms, conditions, rights and duties related thereto. Each
Participant shall, if required by the Committee, enter into an
agreement with PMCI, in such form as the Committee shall
determine and which is consistent with the provisions of the
Plan, specifying such terms, conditions, rights and duties.
Awards shall be deemed to be granted as of the date specified in
the grant resolution of the Committee, which date shall be the
date of any related agreement with the Participant. In the event
of any inconsistency between the provisions of the Plan and any
such agreement entered into hereunder, the provisions of the Plan
shall govern.
ARTICLE VII
OPTIONS
7.1 Grant of Options. Coincident with or following
designation for participation in the Plan, a Participant may be
granted one or more Options. The Committee in its sole
discretion shall designate whether an Option is an Incentive
Option or a Non-Qualified Option; provided, however, that only
Non-Qualified Options may be granted to Eligible Consultants and
Eligible Directors. The Committee may grant both an Incentive
Option and a Non-Qualified Option to an Eligible Employee at the
same time or at different times. Incentive Options and
Non-Qualified Options, whether granted at the same time or at
different times, shall be deemed to have been awarded in separate
grants and shall be clearly identified, and in no event shall the
exercise of one Option affect the right to exercise any other
Option or affect the number of shares for which any other Option
may be exercised, except as provided in subsection 7.2(j). An
Option shall be considered as having been granted on the date
specified in the grant resolution of the Committee.
7.2 Stock Option Certificates. Each Option granted under
the Plan shall be evidenced by a written stock option certificate
or agreement (an "Option Certificate"). An Option Certificate
shall be issued by PMCI in the name of the Participant to whom
the Option is granted (the "Option Holder") and in such form as
may be approved by the Committee. The Option Certificate shall
incorporate and conform to the conditions set forth in this
Section 7.2 as well as such other terms and conditions that are
not inconsistent as the Committee may consider appropriate in
each case.
(a) Number of Shares. Each Option Certificate shall
state that it covers a specified number of shares of Stock, as
determined by the Committee.
(b) Price. The price at which each share of Stock
covered by an Option may be purchased shall be determined in each
case by the Committee and set forth in the Option Certificate,
but in no event shall the price be less than 100 percent of the
Fair Market Value of the Stock on the date an Incentive Option is
granted.
(c) Duration of Options; Restrictions on Exercise.
Each Option Certificate shall state the period of time,
determined by the Committee, within which the Option may be
exercised by the Option Holder (the "Option Period"). The Option
Period must end, in all cases, not more than ten years from the
date the Option is granted. The Option Certificate shall also
set forth any installment or other restrictions on Option
exercise during such period, if any, as may be determined by the
Committee. Each Option shall become exercisable (vest) over such
period of time, if any, or upon such events, as determined by the
Committee.
<PAGE>
(d) Termination of Services, Death, Disability, Etc.
The Committee may specify the period, if any, after which an
Option may be exercised following termination of the Option
Holder's services. The effect of this subsection 7.2(d) shall be
limited to determining the consequences of a termination and
nothing in this subsection 7.2(d) shall restrict or otherwise
interfere with the Company's discretion with respect to the
termination of any individual's services. If the Committee does
not otherwise specify, the following shall apply:
(i) If the services of the Option Holder are
terminated within the Option Period for "cause", as determined by
the Company, the Option shall thereafter be void for all
purposes. As used in this subsection 7.2(d), "cause" shall mean
willful misconduct, a willful failure to perform the Option
Holder's duties, insubordination, theft, dishonesty, conviction
of a felony or any other willful conduct that is materially
detrimental to the Company or such other cause as the Board in
good faith reasonably determines provides cause for the discharge
of an Option Holder.
(ii) If the Option Holder becomes Disabled, the
Option may be exercised by the Option Holder within one year
following the Option Holder's termination of services on account
of Disability (provided that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option
may be exercised only as to the shares as to which the Option had
become exercisable on or before the date of the Option Holder's
termination of services because of Disability.
(iii) If the Option Holder dies during the Option
Period while still performing services for the Company or within
the one year period referred to in (ii) above or the three-month
period referred to in (iv) below, the Option may be exercised by
those entitled to do so under the Option Holder's will or by the
laws of descent and distribution within one year following the
Option Holder's death, (provided that such exercise must occur
within the Option Period), but not thereafter. In any such case,
the Option may be exercised only as to the shares as to which the
Option had become exercisable on or before the date of the Option
Holder's death.
(iv) If the services of the Option Holder are
terminated (which for this purpose means that the Option Holder
is no longer employed by the Company or performing services for
the Company) by the Company within the Option Period for any
reason other than cause, Disability or the Option Holder's death,
the Option may be exercised by the Option Holder within three
months following the date of such termination (provided that such
exercise must occur within the Option Period), but not
thereafter. In any such case, the Option may be exercised only
as to the shares as to which the Option had become exercisable on
or before the date of termination of services.
(e) Transferability. Each Option shall not be
transferable by the Option Holder except by will or pursuant to
the laws of descent and distribution. Each Option is exercisable
during the Option Holder's lifetime only by him or her, or in the
event of Disability or incapacity, by his or her guardian or
legal representative. The Committee may, however, provide at the
time of grant or thereafter that the Option Holder may transfer a
Non-Qualified Option to a member of the Option Holder's immediate
family, a trust of which members of the Option Holder's immediate
family are the only beneficiaries, or a partnership of which
members of the Option Holder's immediate family or trusts for the
sole benefit of the Option Holder's immediate family are the only
partners. Immediate family means the Option Holder's spouse,
issue (by birth or adoption), parents, grandparents, and siblings
(including half brothers and sisters and adopted siblings).
During the Option Holder's lifetime the Option Holder may not
transfer an Incentive Option under any circumstances.
(f) Consideration for Grant of Option. Each Option
Holder agrees to remain in the employment of the Company or to
continue providing consulting services to the Company, as the
case may be, at the pleasure of the Company, for a continuous
period of at least one year after the date the Option is granted,
at the rate of compensation in effect on the date of such
agreement or at such changed rate as may be fixed, from time to
time, by the Company. Nothing in this paragraph shall limit or
impair the Company's right to terminate the employment of any
employee or to terminate the consulting services of any
consultant.
<PAGE>
(g) Exercise, Payments, Etc.
(i) Manner of Exercise. The method for
exercising each Option granted hereunder shall be by delivery to
PMCI of written notice specifying the number of Shares with
respect to which such Option is exercised. The purchase of such
Shares shall take place at the principal offices of PMCI within
thirty days following delivery of such notice, at which time the
Option Price of the Shares shall be paid in full by any of the
methods set forth below or a combination thereof. Except as set
forth in the next sentence, the Option shall be exercised when
the Option Price for the number of shares as to which the Option
is exercised is paid to PMCI in full. If the Option Price is
paid by means of a broker's loan transaction described in
subsection 7.2(g)(ii)(D), in whole or in part, the closing of the
purchase of the Stock under the Option shall take place (and the
Option shall be treated as exercised) on the date on which, and
only if, the sale of Stock upon which the broker's loan was based
has been closed and settled, unless the Option Holder makes an
irrevocable written election, at the time of exercise of the
Option, to have the exercise treated as fully effective for all
purposes upon receipt of the Option Price by PMCI regardless of
whether or not the sale of the Stock by the broker is closed and
settled. A properly executed certificate or certificates
representing the Shares shall be delivered to or at the direction
of the Option Holder upon payment therefor. If Options on less
than all shares evidenced by an Option Certificate are exercised,
PMCI shall deliver a new Option Certificate evidencing the Option
on the remaining shares upon delivery of the Option Certificate
for the Option being exercised.
(ii) The exercise price shall be paid by any of
the following methods or any combination of the following
methods at the election of the Option Holder, or by any other
method approved by the Committee upon the request of the Option
Holder:
(A) in cash;
(B) by certified check, cashier's check or
other check acceptable to the Company, payable to the order of
PMCI;
(C) by delivery to PMCI of certificates
representing the number of shares then owned by the Option
Holder, the Fair Market Value of which equals the purchase price
of the Stock purchased pursuant to the Option, properly endorsed
for transfer to PMCI; provided however, that no Option may be
exercised by delivery to PMCI of certificates representing Stock,
unless such Stock has been held by the Option Holder for more
than six months; for purposes of this Plan, the Fair Market Value
of any shares of Stock delivered in payment of the purchase price
upon exercise of the Option shall be the Fair Market Value as of
the exercise date; the exercise date shall be the day of delivery
of the certificates for the Stock used as payment of the Option
Price; or
(D) by delivery to PMCI of a properly
executed notice of exercise together with irrevocable
instructions to a broker to deliver to PMCI promptly the amount
of the proceeds of the sale of all or a portion of the Stock or
of a loan from the broker to the Option Holder required to pay
the Option Price.
(h) Date of Grant. An Option shall be considered as
having been granted on the date specified in the grant resolution
of the Committee.
(i) Withholding.
(i) Non-Qualified Options. Upon exercise of an
Option, the Option Holder shall make appropriate arrangements
with the Company to provide for the amount of additional
withholding required by Sections 3102 and 3402 of the Code and
applicable state income tax laws, including payment of such taxes
through delivery of shares of Stock or by withholding Stock to be
issued under the Option, as provided in Article XVII.
<PAGE>
(ii) Incentive Options. If an Option Holder makes
a disposition (as defined in Section 424(c) of the Code) of any
Stock acquired pursuant to the exercise of an Incentive Option
prior to the expiration of two years from the date on which the
Incentive Option was granted or prior to the expiration of one
year from the date on which the Option was exercised, the Option
Holder shall send written notice to the Company at the Company's
principal place of business of the date of such disposition, the
number of shares disposed of, the amount of proceeds received
from such disposition and any other information relating to such
disposition as the Company may reasonably request. The Option
Holder shall, in the event of such a disposition, make
appropriate arrangements with the Company to provide for the
amount of additional withholding, if any, required by Sections
3102 and 3402 of the Code and applicable state income tax laws.
7.3 Restrictions on Incentive Options.
(a) Initial Exercise. The aggregate Fair Market Value
of the Shares with respect to which Incentive Options are
exercisable for the first time by an Option Holder in any
calendar year, under the Plan or otherwise, shall not exceed
$100,000. For this purpose, the Fair Market Value of the Shares
shall be determined as of the date of grant of the Option.
(b) Ten Percent Stockholders. Incentive Options
granted to an Option Holder who is the holder of record of 10% or
more of the outstanding Stock of PMCI shall have an Option Price
equal to 110% of the Fair Market Value of the Shares on the date
of grant of the Option and the Option Period for any such Option
shall not exceed five years.
7.4 Shareholder Privileges. No Option Holder shall have
any rights as a shareholder with respect to any shares of Stock
covered by an Option until the Option Holder becomes the holder
of record of such Stock, and no adjustments shall be made for
dividends or other distributions or other rights as to which
there is a record date preceding the date such Option Holder
becomes the holder of record of such Stock, except as provided in
Article IV.
ARTICLE VIII
RESTRICTED STOCK AWARDS
8.1 Grant of Restricted Stock Awards. Coincident with or
following designation for participation in the Plan, the
Committee may grant a Participant one or more Restricted Stock
Awards consisting of Shares of Stock. The number of Shares
granted as a Restricted Stock Award shall be determined by the
Committee.
8.2 Restrictions. A Participant's right to retain a Restricted
Stock Award granted to him under Section 8.1 shall be subject to
such restrictions, including but not limited to his continuous
employment by or performance of services for the Company for a
restriction period specified by the Committee or the attainment
of specified performance goals and objectives, as may be
established by the Committee with respect to such Award. The
Committee may in its sole discretion require different periods of
service or different performance goals and objectives with
respect to different Participants, to different Restricted Stock
Awards or to separate, designated portions of the Shares
constituting a Restricted Stock Award. In the event of the death
or Disability of a Participant, or the retirement of a
Participant in accordance with the Company's established
retirement policy, all required periods of service and other
restrictions applicable to Restricted Stock Awards then held by
him shall lapse with respect to a pro rata part of each such
Award based on the ratio between the number of full months of
employment or services completed at the time of termination of
services from the grant of each Award to the total number of
months of employment or continued services required for such
Award to be fully nonforfeitable, and such portion of each such
Award shall become fully nonforfeitable. The remaining portion
of each such Award shall be forfeited and shall be immediately
returned to PMCI. If a Participant's employment or consulting
services terminate for any other reason, any Restricted Stock
Awards as to which the period for which services are required or
other restrictions have not been satisfied (or waived or
accelerated as provided herein) shall be forfeited, and all
shares of Stock related thereto shall be immediately returned to
PMCI.
<PAGE>
8.3 Privileges of a Stockholder, Transferability. A
Participant shall have all voting, dividend, liquidation and
other rights with respect to Stock in accordance with its terms
received by him as a Restricted Stock Award under this Article
VIII upon his becoming the holder of record of such Stock;
provided, however, that the Participant's right to sell,
encumber, or otherwise transfer such Stock shall be subject to
the limitations of Section 11.2.
8.4 Enforcement of Restrictions. The Committee shall cause
a legend to be placed on the Stock certificates issued pursuant
to each Restricted Stock Award referring to the restrictions
provided by Sections 8.2 and 8.3 and, in addition, may in its
sole discretion require one or more of the following methods of
enforcing the restrictions referred to in Sections 8.2 and 8.3:
(a) Requiring the Participant to keep the Stock
certificates, duly endorsed, in the custody of PMCI while the
restrictions remain in effect; or
(b) Requiring that the Stock certificates, duly
endorsed, be held in the custody of a third party while the
restrictions remain in effect.
<PAGE>
ARTICLE IX
STOCK UNITS
A Participant may be granted a number of Stock Units
determined by the Committee. The number of Stock Units, the
goals and objectives to be satisfied with respect to each grant
of Stock Units, the time and manner of payment for each Stock
Unit, and the other terms and conditions applicable to a grant of
Stock Units shall be determined by the Committee.
ARTICLE X
STOCK APPRECIATION RIGHTS
10.1 Persons Eligible. The Committee, in its sole discretion,
may grant Stock Appreciation Rights to Eligible Employees,
Eligible Directors or Eligible Consultants.
10.2 Terms of Grant. The Committee shall determine at the
time of the grant of a Stock Appreciation Right the time period
during which the Stock Appreciation Right may be exercised and
any other terms that shall apply to the Stock Appreciation Right.
10.3 Exercise. A Stock Appreciation Right shall entitle a
Participant to receive a number of shares of Stock (without any
payment to PMCI, except for applicable withholding taxes), cash,
or Stock and cash, as determined by the Committee in accordance
with Section 10.4 below. If a Stock Appreciation Right is issued
in tandem with an Option, except as may otherwise be provided by
the Committee, the Stock Appreciation Right shall be exercisable
during the period that its related Option is exercisable. A
Participant desiring to exercise a Stock Appreciation Right shall
give written notice of such exercise to PMCI, which notice shall
state the proportion of Stock and cash that the Participant
desires to receive pursuant to the Stock Appreciation Right
exercised. Upon receipt of the notice from the Participant, PMCI
shall deliver to the person entitled thereto (i) a certificate or
certificates for Stock and/or (ii) a cash payment, in accordance
with Section 10.4 below. The date PMCI receives written notice
of such exercise hereunder is referred to in this Article X as
the "exercise date". The delivery of Stock or cash received
pursuant to such exercise shall take place at the principal
offices of PMCI within 30 days following delivery of such notice.
10.4 Number of Shares or Amount of Cash. Subject to the
discretion of the Committee to substitute cash for Stock, or
Stock for cash, the number of Shares that may be issued pursuant
to the exercise of a Stock Appreciation Right shall be determined
by dividing: (a) the total number of Shares of Stock as to which
the Stock Appreciation Right is exercised, multiplied by the
amount by which the Fair Market Value of one share of Stock on
the exercise date exceeds the Fair Market Value of one Share of
Stock on the date of grant of one Share of Stock Appreciation
Right, by (b) the Fair Market Value of one Share of Stock on the
exercise date; provided, however, that fractional shares shall
not be issued and in lieu thereof, a cash adjustment shall be
paid. In lieu of issuing Stock upon the exercise of a Stock
Appreciation Right, the Committee in its sole discretion may
elect to pay the cash equivalent of the Fair Market Value of the
Stock on the exercise date for any or all of the Shares of Stock
that would otherwise be issuable upon exercise of the Stock
Appreciation Right.
10.5 Effect of Exercise. If a Stock Appreciation Right is
issued in tandem with an Option, the exercise of the Stock
Appreciation Right or the related Option will result in an equal
reduction in the number of corresponding Options or Stock
Appreciation Rights that were granted in tandem with such Stock
Appreciation Rights and Options.
10.6 Termination of Services. Upon the termination of the
services of a Participant, any Stock Appreciation Rights then
held by such Participant shall be exercisable within the time
periods, and upon the same conditions with respect to the reasons
for termination of services, as are specified in Section 7.2(d)
with respect to Options.
<PAGE>
ARTICLE XI
STOCK BONUSES
The Committee may award Stock Bonuses to such Participants,
subject to such conditions and restrictions, as it determines in
its sole discretion. Stock Bonuses may be either outright grants
of Stock, or may be grants of Stock subject to and conditioned
upon certain employment or performance related goals.
ARTICLE XII
OTHER COMMON STOCK GRANTS
From time to time during the duration of this Plan, the
Board may, in its sole discretion, adopt one or more incentive
compensation arrangements for Participants pursuant to which the
Participants may acquire shares of Stock, whether by purchase,
outright grant, or otherwise. Any such arrangements shall be
subject to the general provisions of this Plan and all shares of
Stock issued pursuant to such arrangements shall be issued under
this Plan.
ARTICLE XIII
RIGHTS OF PARTICIPANTS
13.1 Service. Nothing contained in the Plan or in any Award, or
other Award granted under the Plan shall confer upon any
Participant any right with respect to the continuation of his
employment by, or consulting relationship with, the Company, or
interfere in any way with the right of the Company, subject to
the terms of any separate employment agreement or other contract
to the contrary, at any time to terminate such services or to
increase or decrease the compensation of the Participant from the
rate in existence at the time of the grant of an Award. Whether
an authorized leave of absence, or absence in military or
government service, shall constitute a termination of service
shall be determined by the Committee at the time.
13.2 Nontransferability. Except as provided otherwise at the
time of grant, no right or interest of any Participant in an
Option, a Stock Appreciation Right, a Restricted Stock Award
(prior to the completion of the restriction period applicable
thereto), a Stock Unit, or other Award granted pursuant to the
Plan, shall be assignable or transferable during the lifetime of
the Participant, either voluntarily or involuntarily, or
subjected to any lien, directly or indirectly, by operation of
law, or otherwise, including execution, levy, garnishment,
attachment, pledge or bankruptcy. In the event of a
Participant's death, a Participant's rights and interests in
Options, Stock Appreciation Rights, Restricted Stock Awards,
other Awards, and Stock Units shall, to the extent provided in
Articles VII, VIII, IX, X and XI, be transferable by will or the
laws of descent and distribution, and payment of any amounts due
under the Plan shall be made to, and exercise of any Options may
be made by, the Participant's legal representatives, heirs or
legatees. Notwithstanding the foregoing, the Option Holder may
not transfer an Incentive Option during the Option Holder's
lifetime. If in the opinion of the Committee a person entitled
to payments or to exercise rights with respect to the Plan is
disabled from caring for his affairs because of mental condition,
physical condition or age, payment due such person may be made
to, and such rights shall be exercised by, such person's
guardian, conservator or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the
Committee of such status.
13.3 No Plan Funding. Obligations to Participants under the
Plan will not be funded, trusteed, insured or secured in any
manner. The Participants under the Plan shall have no security
interest in any assets of the Company, and shall be only general
creditors of the Company.
<PAGE>
ARTICLE XIV
GENERAL RESTRICTIONS
14.1 Investment Representations. PMCI may require any
person to whom an Option, Stock Appreciation Right, Restricted
Stock Award, Stock Unit, or Stock Bonus is granted, as a
condition of exercising such Option or Stock Appreciation Right,
or receiving such Restricted Stock Award, Stock Unit, or Stock
Bonus, to give written assurances in substance and form
satisfactory to PMCI and its counsel to the effect that such
person is acquiring the Stock for his own account for investment
and not with any present intention of selling or otherwise
distributing the same, and to such other effects as PMCI deems
necessary or appropriate in order to comply with Federal and
applicable state securities laws. Legends evidencing such
restrictions may be placed on the Stock certificates.
14.2 Compliance with Securities Laws. Each Option, Stock
Appreciation Right, Restricted Stock Award, Stock Unit, and Stock
Bonus grant shall be subject to the requirement that, if at any
time counsel to PMCI shall determine that the listing,
registration or qualification of the shares subject to such
Option, Stock Appreciation Right, Restricted Stock Award, Stock
Unit, or Stock Bonus grant upon any securities exchange or under
any state or federal law, or the consent or approval of any
governmental or regulatory body, is necessary as a condition of,
or in connection with, the issuance or purchase of shares
thereunder, such Option, Stock Appreciation Right, Restricted
Stock Award, Stock Unit or Stock Bonus grant may not be accepted
or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the Committee.
Nothing herein shall be deemed to require PMCI to apply for or to
obtain such listing, registration or qualification.
14.3 Changes in Accounting Rules. Except as provided
otherwise at the time an Award is granted, notwithstanding any
other provision of the Plan to the contrary, if, during the term
of the Plan, any changes in the financial or tax accounting rules
applicable to Options, Stock Appreciation Rights, Restricted
Stock Awards, Stock Units or other Awards shall occur which, in
the sole judgment of the Committee, may have a material adverse
effect on the reported earnings, assets or liabilities of PMCI,
the Committee shall have the right and power to modify as
necessary, any then outstanding and unexercised Options, Stock
Appreciation Rights, outstanding Restricted Stock Awards,
outstanding Stock Units and other outstanding Awards as to which
the applicable services or other restrictions have not been
satisfied.
ARTICLE XV
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a
Participant as a result of the exercise of an Option or Stock
Appreciation Right, the sale of shares received upon such
exercise, the vesting of any Restricted Stock Award, receipt of
Stock Bonuses, distributions with respect to Stock Units, or the
grant of Stock shall not constitute "earnings" or "compensation"
with respect to which any other employee benefits of such
employee are determined, including without limitation benefits
under any pension, profit sharing, 401(k), life insurance or
salary continuation plan.
<PAGE>
ARTICLE XVI
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time
may amend or modify the Plan provided, however, that no amendment
or modification may become effective without approval of the
amendment or modification by the shareholders if shareholder
approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if PMCI, on the advice
of counsel, determines that shareholder approval is otherwise
necessary or desirable.
No amendment, modification or termination of the Plan shall
in any manner adversely affect any Options, Stock Appreciation
Rights, Restricted Stock Awards, Stock Units, Stock Bonuses or
other Award theretofore granted under the Plan, without the
consent of the Participant holding such Options, Stock
Appreciation Rights, Restricted Stock Awards, Stock Units, Stock
Bonuses or other Awards.
ARTICLE XVII
WITHHOLDING
17.1 Withholding Requirement. PMCI's obligations to deliver
shares of Stock upon the exercise of any Option, or Stock
Appreciation Right, the vesting of any Restricted Stock Award,
payment with respect to Stock Units, or the grant of Stock shall
be subject to the Participant's satisfaction of all applicable
federal, state and local income and other tax withholding
requirements.
17.2 Withholding With Stock. At the time the Committee
grants an Option, Stock Appreciation Right, Restricted Stock
Award, Stock Unit, Stock Bonus, other Award, or Stock, it may, in
its sole discretion, grant the Participant an election to pay all
such amounts of tax withholding, or any part thereof, by electing
to transfer to PMCI, or to have PMCI withhold from shares
otherwise issuable to the Participant, shares of Stock having a
value equal to the amount required to be withheld or such lesser
amount as may be elected by the Participant. All elections shall
be subject to the approval or disapproval of the Committee. The
value of shares of Stock to be withheld shall be based on the
Fair Market Value of the Stock on the date that the amount of tax
to be withheld is to be determined (the "Tax Date"). Any such
elections by Participants to have shares of Stock withheld for
this purpose will be subject to the following restrictions:
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer or director of
PMCI within the meaning of Section 16 of the 1934 Act ("Section
16"), the Participant must satisfy the requirements of such
Section 16 and any applicable Rules thereunder with respect to
the use of Stock to satisfy such tax withholding obligation.
<PAGE>
ARTICLE XVIII
REQUIREMENTS OF LAW
18.1 Requirements of Law. The issuance of Stock and the
payment of cash pursuant to the Plan shall be subject to all
applicable laws, rules and regulations.
18.2 Federal Securities Law Requirements. If a Participant
is an officer or director of PMCI within the meaning of Section
16, Awards granted hereunder shall be subject to all conditions
required under Rule 16b-3, or any successor rule promulgated
under the 1934 Act, to qualify the Award for any exception from
the provisions of Section 16(b) of the 1934 Act available under
that Rule. Such conditions shall be set forth in the agreement
with the Participant which describes the Award or other document
evidencing or accompanying the Award.
18.3 Governing Law. The Plan and all agreements hereunder
shall be construed in accordance with and governed by the laws of
the State of Colorado.
ARTICLE XIX
DURATION OF THE PLAN
Unless sooner terminated by the Board of Directors, the Plan
shall terminate at the close of business on November 11, 2007,
and no Option, Stock Appreciation Right, Restricted Stock Award,
Stock Unit, Stock Bonus, other Award or Stock shall be granted,
or offer to purchase Stock made, after such termination.
Options, Stock Appreciation Rights, Restricted Stock Awards,
other Awards, and Stock Units outstanding at the time of the Plan
termination may continue to be exercised, or become free of
restrictions, or paid, in accordance with their terms.
Dated: To be effective November 12, 1997.
PMC INTERNATIONAL INC., a
Colorado corporation
By:________________________
Kenneth S. Phillips, President
