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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 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 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 28, 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 28, 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
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION......................................................................................................1
Shares Outstanding and Voting Rights.....................................................................1
Annual Report............................................................................................2
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE
OFFICERS AND CERTAIN BENEFICIAL OWNERS...................................................................3
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...................................................................................6
Options Granted..........................................................................................7
Option Exercises and Year End Option Values..............................................................8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................................8
Employment Agreements....................................................................................8
Other Agreements.........................................................................................8
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.........................................................................13
Treatment of Fractional Shares..........................................................................13
The Company's Capital Structure.........................................................................14
The Company's Common Stock..............................................................................15
Federal Income Tax Consequences of the Conversion Amendment.............................................16
Voting Requirements.....................................................................................16
PROPOSAL 3--REVERSE STOCK SPLIT...................................................................................17
General.................................................................................................17
Purpose and Effect of Reverse Stock Split...............................................................17
Treatment of Fractional Shares and Script...............................................................19
Federal Income Tax Consequences of the Conversion Amendment.............................................19
Vote Required...........................................................................................20
PROPOSAL 4--THE COMPANY'S EQUITY INCENTIVE PLAN...................................................................20
SHAREHOLDER PROPOSALS............................................................................................26
OTHER BUSINESS...................................................................................................26
</TABLE>
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 November 28, 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 is necessary to
constitute a quorum for purposes of approving the Plan Proposal and other
matters.
1
<PAGE>
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.
2
<PAGE>
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.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Class
<S> <C> <C>
Kenneth S. Phillips(1).................................... 2,999,767(10) 15.4%
Scott A. MacKillop(1)..................................... 32,000(18) *
J.W. Nevil Thomas(2)...................................... 20,000(12) *
D. Porter Bibb(3)......................................... 20,000(13) *
Emmett J. Daly(4)......................................... 210,000(17)(18) 1.1
Richard C. Hyde(5)........................................ 10,000(17) *
Vali Nasr(1).............................................. 120,497(14) *
David L. Andrus(6)........................................ 887,000(11) 4.4
Bedford Capital Financial Corporation(7).................. 2,971,250(15) 15.2
KP3, LLC(1)............................................... 1,643,845(16) 8.5
OCH ZIFF Capital Management(19)........................... 1,866,666 9.6
Bay Pond Partners, L.P.(8)................................ 1,463,333 7.5
Bay Pond Investors (Bermuda), Ltd.(8)..................... 1,081,000 5.6
Wheatley Partners, L.P.(9)................................ 1,607,666 8.3
All Officers and Directors as a group (7 persons). . . . . . . . 3,422,264 17.4
- -----------------------
</TABLE>
* Less than 1%.
(1) The address of Mr. Phillips, Mr. Nasr, Mr. MacKillop and KP3, LLC is 555
Seventeenth Street, 14th Floor, Denver, Colorado 80202.
(2) The address of Mr. Thomas is Scotia Plaza, Suite 4712, 40 King Street West,
Toronto, Ontario M5H 3Y2. (3) The address of Mr. Bibb is 540 Madison Avenue, New
York, New York 10022. (4) The address of 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 787,000 shares underlying presently exercisable options.
(12) Does not include shares owned by Bedford of which Mr. Thomas is a
director and a 6.31% shareholder, includes 20,000 shares underlying
presently exercisable options.
(13) Does not include 200,000 shares underlying presently exercisable options
granted to Ladenburg, Thalmann & Co., Inc., of which Mr. Bibb is a
managing director, includes 20,000 shares underlying presently
exercisable options.
(14) Includes 50,000 shares underlying presently exercisable option.
(15) 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.
(16) 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.
(17) Includes 10,000 shares underlying presently exercisable options.
(18) Includes 25,000 shares jointly owned with Regina Daly and 135,000 shares
underlying presently exercisable options. (19) The address of OCH ZIFF Capital
Management is 153 E. 53rd Street, 43rd Floor, New York, NY 10022.
3
<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.
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.
4
<PAGE>
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
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 three independent directors who are not
employees of the Company. Messrs. Daly, Thomas and Phillips currently serve as
the members of the Audit Committee. 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.
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.
5
<PAGE>
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. n each case, an appropriate report 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.
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.
6
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
Name and Principal Position Fiscal Year Salary Options Granted(1)
<S> <C> <C> <C>
Kenneth S. Phillips 1996 $252,000 50,000
President, Chief Executive Officer 1995 228,124
1994 241,774
David L. Andrus(2) 1996 $240,000 1,050,000
Executive Vice President 1995 40,000
Vali Nasr 1996 $139,015 50,000
Chief Financial Officer & Treasurer 1995 126,475
1994 128,262
</TABLE>
(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. Until October 13, 1997, Mr. Andrus was Executive Vice
President of the Company. On October 13, 1997,
he was notified by the Company that his affiliation with the Company as an
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.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Percentage of Total
Options Granted to
Number of Shares Employees in
Underlying Options Fiscal Year
Name Granted Exercise Price Expiration Date
---- -------------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Kenneth S. Phillips 50,000 4.2% $1.00 6/7/2001
David L. Andrus 800,000 87.5% $1.5625 (1)
200,000 $2.125 12/17/2002
50,000 $1.00 6/7/2001
Vali Nasr 50,000 4.2% $1.00 3/31/2001
</TABLE>
- -----------------------
(1) Options will expire 24 months after Mr. Andrus leaves the employ of the
Company, anticipated to be January 11, 1998.
7
<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.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Acquired on Options at FY End Money Options at FY End
Name Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Kenneth S. Phillips 0 0 20,000/30,000 $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
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 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.
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
8
<PAGE>
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 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 ).
Mr. Emmett Daly, a Director of the Company since February 1997, is Senior Vice
President of Corporate Finance of KBW, the placement agent in the December 1996
Offering.
9
<PAGE>
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 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% and has granted the Company
a security interest in the KP3 Shares. Such loan was restructured through a
different broker 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
10
<PAGE>
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 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. Scott A. MacKillop, a Director and the Company's Executive
Vice President since September 24, 1997, was a 5% shareholder of ADAM.
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.
PROPOSAL TWO--CONVERSION OF PREFERRED 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
11
<PAGE>
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 could have a negative effect
on the Company's ability to borrow money necessary to finance its operations and
could make the Company less attractive to investors, resulting in reduced prices
of and limited 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
Preferred Stock dividend.
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 may 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. Moreover, if both Proposal 2 and Proposal
3 are approved, the Company could potentially list the Common Stock on the
Nasdaq Small Cap Market, potentially furthering the marketability of the Common
Stock. (See "Proposal Three--Reverse Split of the Common Stock")
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 certain 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
12
<PAGE>
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
The Company believes that the Conversion will be exempted from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), under Section 3(a)(9) of 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.
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.
Treatment of Fractional Shares
No fraction of a share will be issued upon the conversion of the
Preferred Stock. In lieu of issuing any fraction of a share, each holder of
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. The Company anticipates that payment for fractional shares will be made as
soon as practicable after consummation of the Conversion. In the event that
Proposal Two and Proposal Three are both approved, payment for fractional shares
will be made after consummation of both the Conversion and the Reverse Stock
Split. (See "Proposal Three--Reverse Split of the Common Stock")
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<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:
<TABLE>
<CAPTION>
Number of Shares of Capital Stock
Before Conversion After Conversion
<S> <C> <C>
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 Issuance 4,861,818 5,000,000
</TABLE>
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.
<TABLE>
<CAPTION>
As of September
30, 1997 ($) Pro Forma
Liabilities:
<S> <C> <C>
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, authorized 5,000,000 shares; issued 345,455 0
and outstanding, 138,182 and 0 shares
Common stock, $.01 par value, authorized, 50,000,000 shares, 415,475 417,375
issued and outstanding, 19,431,610 and 19,621,610 shares
14
<PAGE>
As of September
30, 1997 ($) Pro Forma
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
</TABLE>
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) $1.875 $1.50
(1) Through November 24, 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,
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<PAGE>
financial condition and capital requirements and of general business conditions
and other factors that cannot now be predicted.
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,
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<PAGE>
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.
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.
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 either cash in
lieu of a fractional share or 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
17
<PAGE>
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 23,
1997, the last reported sale price for the Common Stock was $1.8125. 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.
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
18
<PAGE>
Company after the record date of the Meeting). In the event Proposal Two is
approved and the Conversion of the Preferred Stock has been effected, the
Reverse Stock Split would have the effect of decreasing the number of shares of
Common Stock outstanding from 19,621,610 to approximately 4,905,400. The Common
Stock will continue to be par value, $.01 per share, common stock following any
Reverse Stock Split.
If Proposal Three is approved, at least ten days prior to the Reverse
Stock Split Effective Date, the Company intends to issue a press release
regarding the planned Reverse Stock Split, notify its primary market makers, and
notify its transfer agent. 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.
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.
19
<PAGE>
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.
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.
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.
20
<PAGE>
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 26, 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.
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
21
<PAGE>
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.
(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
22
<PAGE>
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.
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.
23
<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.
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
24
<PAGE>
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.
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
25
<PAGE>
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 29, 1997
26
<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.
o For all nominees listed (except as marked
to the contrary)
o 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.
o FOR
o AGAINST
o ABSTAIN
3. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO EFFECT A
1 FOR 4 REVERSE SPLIT OF THE COMMON STOCK.
o FOR
o AGAINST
o 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.
o FOR
o AGAINST
o ABSTAIN
PLEASE DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE 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.
o FOR
o AGAINST
o ABSTAIN
PLEASE DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE 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
______ ___, 199_ (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.
A-1
<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 ________ __, 199_ (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.]
B-1
<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.
(f) "Company" means PMCI and the Affiliated Corporations.
C-1
<PAGE>
(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.
(v) "Share" means a share of Stock.
(w) "Stock" means the $0.01 par value common stock of PMCI.
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(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.
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.
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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.
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.
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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.
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
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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.
(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.
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(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.
(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.
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(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.
(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.
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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.
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.
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.
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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.
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.
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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.
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
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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.
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
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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.
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 Delaware.
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
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