U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition to
period from:
---- ----
Commission file number 0-14937
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PMC INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0627374
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
555 17th Street, 14th Floor, Denver, Colorado 80202
(Address of principal executive offices)
(303) 292-1177
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90
days.Yes X No
---- ---
As of August 13, 1998, the issuer had outstanding 4,857,803 shares of
Common Stocks, par value $.01 per share.
Transitional Small Business Disclosure Format
Yes No X
---- ---
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page #
PART I Financial Information
Item 1 Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets 3
-- June 30, 1998 & December 31, 1997
Condensed Consolidated Statements of Income 5
-- Six months ended June 30, 1998 & June 30, 1997
Condensed Consolidated Statements of Cash Flow 6
-- Six months ended June 30, 1998 & June 30, 1997
Notes to Unaudited Condensed Consolidated
Financial Statements 7
Item 2Management's Discussion & Analysis of Financial Condition &
Results of Operations 9
PART II Other Information
Item 1 Legal Proceedings 15
Item 6 Exhibits & Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Notes 1 & 4)
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
1998 1997
--------- ---------
CURRENT ASSETS
Cash and cash equivalents (Note 2) $2,099,557 $2,953,740
RECEIVABLES:
Investment management fees 1,050,688 1,041,390
Other receivables 92,587 166,221
FURNITURE AND EQUIPMENT, at cost,
net of accumulated depreciation of
$1,318,697 and $1,277,801 (Note 1) 769,186 965,168
SOFTWARE AND PRODUCT DEVELOPMENT
at cost, net of accumulated
amortization of
$1,382,674 and $963,469 (Note 1) 1,090,023 1,208,713
PREPAID EXPENSES AND OTHER ASSETS 1,081,997 1,023,364
LONG TERM NOTE RECEIVABLE (Note 2) 319,948 623,115
GOODWILL, net of amortization
of $418,492 and $146,096 (Note 1) 5,122,209 5,394,606
--------- ---------
TOTAL ASSETS 11,626,195 13,376,317
========= =========
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONT'D)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
June 30, December
31,
1998 1997
---------- -----------
LIABILITIES
Accounts payable $2,126,991 $1,687,967
Accrued expenses 772,404 644,012
Other liabilities 102,597 104,125
Deferred revenue 1,368,377 1,307,382
Notes payable - current (Note 3) 724,696 166,158
Obligations under capital lease 323,264 384,986
Notes payable - long-term (Note 3) 40,000 200,000
---------- -----------
TOTAL LIABILITIES 5,458,329 4,494,630
---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value -
authorized
5,000,000 shares; issued and
outstanding,
138,182 shares and 138,182 345,455 345,455
shares
Common stock, $.01 par value -
authorized
50,000,000 shares; issued and
outstanding,
4,857,803 shares and 4,857,903 48,578 48,579
shares
Additional paid-in capital 22,969,211 22,977,526
Accumulated deficit (17,195,378) (14,489,873)
---------- -----------
TOTAL SHAREHOLDERS' EQUITY 6,167,866 8,881,687
---------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $11,626,195 $13,376,317
========== ===========
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
REVENUE
1998 1997 1998 1997
----------- ---------- ------------ -----------
Investment $5,305,228 $2,944,643 $10,721,563 $5,733,145
management
fees
Other 95,620 45,442 149,733 118,062
income
----------- ---------- ------------ -----------
Total 5,400,848 2,990,085 10,871,296 5,851,207
revenue
----------- ---------- ------------ -----------
DIRECT EXPENSES
Investment 3,209,421 1,343,952 6,558,222 2,734,674
manager
and other
fees
----------- ---------- ------------ -----------
GROSS MARGIN
$2,191,427 $1,646,133 $4,313,074 $3,116,533
----------- ---------- ------------ -----------
OPERATING
EXPENSES
Salaries 1,711,755 1,248,211 3,558,824 2,216,660
and
benefits
Clearing 154,758 120,447 309,242 277,655
charges
and user
fees
Advertising 224,247 203,281 488,248 416,729
and
promotion
General 372,336 255,227 726,647 482,575
and
administrative
Occupancy 553,216 331,509 1,152,828 607,754
and
equipment
costs
Professional 125,075 221,335 374,397 427,285
fees
Amortization 136,198 - 272,396 -
of goodwill
Amortization 89,612 - 135,997 -
of software
development
costs
----------- ---------- ------------ -----------
Total 3,367,197 2,380,010 7,018,579 4,428,658
operating
expenses
----------- ---------- ------------ -----------
NET LOSS $(1,175,770) $(733,877) $(2,705,505) $(1,312,125)
BEFORE INCOME
TAXES
INCOME TAXES - - - -
----------- ---------- ------------ -----------
NET LOSS $(1,175,770) $(733,877) $(2,705,505) $(1,312,125)
----------- ---------- ------------ -----------
NET LOSS PER $(0.25) $(0.21) $ (0.56) $(0.37)
COMMON SHARE
WEIGHTED
AVERAGE NUMBER
OF COMMON
SHARES 4,857,804 3,630,673 4,857,804 3,630,805
OUTSTANDING
----------- ---------- ------------ -----------
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1998 1997
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,705,505) $(1,312,125)
Adjustments to reconcile net loss
to net cash used in operating
activities
Accretion of discount on notes (19,111) (32,610)
receivable
Depreciation and amortization 709,976 310,500
Changes in operating assets and
liabilities
Investment management fees (9,298) (824,840)
receivable
Other receivables 73,634 19,989
Prepaid expenses and other (58,633) (373,114)
assets
Accounts payable 439,024 (84,402)
Accrued expenses 128,392 (24,039)
Other liabilities (1,528) (21,625)
SEC Settlement Distribution (13,986) (603,091)
Deferred revenues 60,995 (1,379)
---------- -----------
Net cash used in operating (1,396,040) (2,946,736)
activities
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, and (78,671) (441,610)
equipment
Disposal of furniture & equipment 261,949 -
- PMCIS
Decrease of long term note 322,278 38,871
receivable
Cost of product development (300,515) -
---------- -----------
Net cash provided by (used in)
investing activities 205,041 (402,739)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable 600,000 -
Principal payments on notes payable (201,462) (4,075)
Principal payments on obligations (61,722) (62,991)
under capital lease
Proceeds from exercise of stock - 26,875
options
---------- -----------
Net cash provided by financing 336,816 (40,191)
activities
---------- -----------
NET INCREASE (DECREASE) IN CASH (854,183) (3,389,666)
========== ===========
CASH, at beginning of period 2,953,740 6,499,390
---------- -----------
CASH, at end of period $2,099,557 $3,109,724
========== ===========
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the historical accounts of Portfolio Management Consultants,
Inc. ("PMC") for all periods, the accounts of PMCI since September 30,
1993, the accounts of Portfolio Brokerage Services, Inc., and Portfolio
Technology Services, Inc. since inception, and PMC Investment Services,
Inc. (formerly ADAM Investment Services, Inc.) since September 24,
1997. These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
Management, all adjustments (consisting of normal accruals and
elimination of intercompany accounts and transactions) considered
necessary for a fair presentation have been included. The unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB, as
amended, for the year ended December 31, 1997.
NOTE 2 - CASH AND CASH EQUIVALENTS
The Company holds cash of $2,100,000 of which $1,750,000 is restricted
as a result of the following transaction: In January, 1997, a company
(the "LLC") owned and controlled by the Company's president and CEO,
borrowed $1,750,000 from a bank with a due date of December 31, 1997.
The purpose of the loan was to finance payment of the deferred portion
of the purchase price of 410,961 shares of PMCI common stock owned by
the LLC that were purchased from a former officer of the Company at the
time of his departure in July 1995. In connection with this borrowing,
the Company agreed to collateralize the loan on behalf of the LLC and
the 410,961 shares of common stock owned by the LLC were pledged to the
Company. Accordingly, $1,890,000 of cash was originally restricted for
this purpose. In October 1997, the Company and the LLC renegotiated
the arrangement with another bank resulting in a $1,400,000 loan to the
LLC due and payable December 31, 1998, and collateralized by the
Company, and a $350,000 loan due March 31, 1998, collateralized with
87,500 shares of PMCI stock owned by the LLC and released from a pledge
to the Company. In April 1998, the $350,000 LLC loan due March 31,
1998, was again restructured with the Company providing cash
collateral, the loan being extended until December 31, 1998, and the
87,500 shares of PMCI stock owned by the LLC released from a pledge to
the bank and pledged to the Company. Accordingly, as of June 30, 1998,
$1,750,000 included in Cash and Cash Equivalents in the accompanying
balance sheet is restricted under this arrangement. The Company also
agreed to loan the LLC amounts sufficient to pay interest on the loan
so long as the amount of loans made and bank collateral provided would
not exceed $2,000,000. As of June 30, 1998, the Company has loaned the
LLC approximately $195,000 designated to pay the interest on the bank
loan. The LLC has agreed to reimburse the Company for any 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 410,961 shares of the Company's common stock
owned by it.
NOTE 3 - NOTES PAYABLE
Notes payable include a loan from a bank with an original amount of
$600,000 which was collateralized by accounts receivable and of which
$36,725 was paid on June 24, 1998. Principal payments are due as
follows: $363,725 on January 1, 1999, and $200,000 on April 1, 1999.
Interest on the note, 11%, is due and payable monthly.
NOTE 4 - SUBSEQUENT EVENTS
The Company is reorganizing its executive management and is in
discussions with its President and Chief Executive Officer regarding
his departure from the Company. In connection with the reorganization,
the Company expects that it would become obligated to pay the loan
obligations of the LLC (see Note 2) with cash held in restricted
accounts. The Company also expects it would take into its treasury
stock the 410,961 shares of PMCI common stock owned by the LLC and
pledged to the Company in support of its guarantee of the LLC loans.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion provides information that the Company believes
is relevant to an assessment and understanding of its results of
operations. It should be read in conjunction with the Financial
Statements and Notes included elsewhere herein and in the consolidated
financial statements and footnotes included in the Company's Annual
Report on Form 10-KSB, as amended, for the year ended December 31,
1997. The discussion below contains "forward looking statements"
within the meaning of the federal securities laws, including statements
regarding the Company's prospects, cash flows, liquidity, and potential
of the Company's products and services and similar expressions
concerning matters that are not historical facts. These statements are
subject to risks and uncertainties that could cause results to differ
materially from those expressed in the statements.
General
The Company and its subsidiaries develop, market, and manage
sophisticated investment management products and services. The Company
provides products and services to facilitate the selection and/or
monitoring of unaffiliated money managers or mutual funds for customers
of the Company's distribution channels depending upon the size,
sophistication and requirements of such customers. The Company's
products and services address investment suitability and
diversification, asset allocation recommendations, portfolio modeling
and rebalancing, comprehensive accounting and portfolio performance
reporting. The Company's revenues are realized primarily from fees
charged to clients based on a percentage of managed assets and to a
lesser extent from consulting fees for certain advisory services and
licensing fees from its software products. Fees based upon managed
assets typically range from 10 to 250 basis points per year, based upon
a number of factors such as the size of account and scope of services
provided. At the present time, the principal factors affecting the
Company's revenues are whether the Company adds or loses clients for
its investment management services, the performance of equity and fixed
income markets, and the type and size of accounts managed by the
Company and related differences in fees charged.
Corporate Restructuring
During the second quarter of 1998, the Company committed substantial
resources and efforts in seeking to find a strategic partner to assist
the Company with its capital needs as well as strengthen its positions
in the financial services arena. To this end, the Company engaged the
investment banking firm of Putnam, Lovell, de Guardiola & Thornton. On
July 7, 1998, after an extensive negotiation period, the Company
entered into a Letter of Intent with Dundee Bancorp Inc. ("Dundee"), a
Canadian investment management firm, for a proposed equity investment
in the Company of $24 million. In connection with the execution of the
Letter of Intent, Dundee provided a loan to the Company of $1.5 million
for working capital purposes. However, on August 7, 1998, the Company
and Dundee mutually agreed to terminate the Letter of Intent,
principally as a result of an internal change in Dundee's priorities.
Dundee concluded that a license for the use of the Company's products
and services in Canada, or other similar arrangements, may better suit
its business plan and strategic goals. The Company and Dundee are
currently in discussions regarding such an arrangement, however there
can be no assurance that an agreement will be reached. The Company,
along with its investment banking firm, continue to seek out strategic
relationships and sources of capital to meet the Company's working
capital needs.
In order to address its working capital deficit and capital needs, the
Company is implementing a wide reaching corporate restructuring. The
Company is reorganizing its executive management and is in discussions
with its President and Chief Executive Officer, Mr. Kenneth S.
Phillips, regarding his departure from the Company. The Company
intends to resolve this matter in the near term. The Company intends
to name Mr. Scott A. MacKillop, the Company's Executive Vice President
and Chief Operating Officer, as President and to name Mr. C.R. (Sonny)
Tucker, currently a consultant for the Company, as Interim Chief
Executive Officer. Mr. Tucker has held positions as Chief Executive
Officer of Shell Middle East and CFO/Controller of Shell Offshore Inc.
He also worked as Managing Director for Westridge Capital Management
and Director Investment Planning of the Shell Oil Retirement and
Savings plans.
The Company has established an executive management team consisting of
Mssrs. Tucker, MacKillop and Mr. Robert Brown, Executive Vice President
of the Company's subsidiary Portfolio Management Consultants, Inc.
("PMC"), to implement the Company's restructuring plans. An internal
leadership team of approximately 20 employees, including senior and
middle managers, has been created to make recommendations to the
executive management team and implement tactical changes to the
Company's method of operations. The goal of these teams is to
restructure and refocus the Company's efforts and to achieve profitable
operations. The Company intends to achieve this result by focusing on
and increasing profitable business channels, eliminating unprofitable
business channels, gaining efficiencies in operations and reducing
expenses.
As a result of this restructuring, the Company anticipates one-time
charges and write-offs in the third quarter of 1998 of approximately
$2,500,000.
In addition, the Company has taken or intends to take the following
actions:
Due to the PMCIS integration and related corporate reorganizations,
20 non-critical employees have departed the Company or are expected
to depart in the second half of 1998. The Company does not intend
to replace those employees.
In the second quarter of 1998, the Company outsourced the portfolio
accounting function for its separate account business. The Company
believes this outsourcing will allow it to deploy capital into other
areas and into supporting new business. This outsourcing decision
is expected to create annual savings by reducing system support,
payroll, licensing and maintenance fees, telecommunications and
pricing feeds.
The Company has implemented measures to control costs in all areas
and has made strategic improvements in promotion and advertising
spending.
The reorganization of its executive management and executive pay
cuts it intends to implement will reduce payroll and related
expenses.
The Company's Atlanta lease obligation terminates in April 1999.
The Company believes that all staff
will have relocated to Denver or will have left the Company at that
time. The Company expects there will be a reduction in one-time
relocation, training and employment agency fees and expenses.
The Company's sales and marketing group has been strategically
reorganized.
The customer service area has been reengineered and customers will
benefit from more timely and efficient support. The Company expects to
benefit from a re-energized sales effort and lower payroll and
travel costs as a result of the reorganization. The Company has
also gained capacity as a result of process flow improvements.
In connection with head count reductions, the Company is evaluating its
Denver office space options in order to further reduce overhead costs.
While Management believes that the implementation of the restructuring
plans will move the Company towards its goal of near term
profitability, there is no assurance that the plan will be successful
or that the Company will achieve profitable operations.
Results of Operations
The Quarter in Review
During the second quarter of 1998, the Company experienced
disappointing operating results primarily from the Company's activities
in non-core business and initiated the corporate restructuring
described above. Salaries, advertising and promotion, general and
administrative, occupancy and equipment, and professional fees are all
lower than the previous quarter. Operating expenses decreased from
$3,700,000 in the first quarter to $3,400,000 in the second quarter.
Management expects economies of scale and other benefits of the ongoing
integration of PMC and PMCIS to continue to emerge over the third and
fourth quarters. (See "Corporate Restructuring" above.) The Company's
relationship with Ernst & Young LLP ("E&Y") continues to progress.
Assets under management in the E&Y program increased $150 million in
the second quarter and E&Y added another $93 million in July.
Three Months Ended June 30, 1998 Compared to Three Months Ended June
30, 1997
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30,
1997
Revenues
Gross revenues were $5,400,000 for the quarter ended June 30, 1998,
compared to $3,000,000 for the corresponding period in 1997, an
increase of 80%. Revenues were $10,900,000 for the six months ended
June 30, 1998, compared to $5,900,000 for the corresponding period in
1997, an increase of 85%. The increases were attributable primarily to
the PMCIS contribution to investment fees of $2,000,000 and $4,300,000
respectively. PMCIS was acquired in September 1997, and consequently
no contribution from PMCIS is reflected through the second quarter of
1997. In addition, revenues in PMC's core wrap business increased
$750,000 (25%) for the quarter ended June 30, 1998, and $1,300,000
(22%) for the six months ended June 30, 1998. This increase was
attributable to both growth in new assets under management and market
appreciation. Negative impact on revenue for the quarter and six
months ended June 30, 1998, versus the prior periods were attributable
to not going forward with the Republic National Bank of New York
("Republic") relationship and a decrease of revenues of $100,000 and
$200,000 respectively, due to the lowered minimum guaranteed fee from
E&Y.
Investment Management and Other Fees
Investment Management and Other Fees were $3,300,000 for the quarter
ended June 30, 1998, compared to $1,400,000 for the corresponding
period in 1997, an increase of 136%. Investment management and other
fees were $6,600,000 for the six months ended June 30, 1998, compared
to $2,800,000 for the corresponding period in 1997, also an increase of
136%. These fee increases of $1,900,000 and $3,800,000 for the quarter
and six months ended June 30, 1998, respectively, were principally the
result of $1,300,000 and $2,900,000 increases attributable to the PMCIS
acquisition. Investment management and other fees related to PMC's
core wrap fee business increased $600,000 (43%) and $900,000 (32%) for
the quarter and six months ended June 30, 1998, respectively. These
increases are directly related to the increase in PMC core wrap fee
business as discussed above.
Net Revenues after Investment Manager and Other Fees
Net Revenues after Investment Manager and Other Fees were $2,200,000
for the quarter ended June 30, 1998, compared to $1,600,000 for the
corresponding period in 1997, an increase of 38%. Net revenues after
investment manager and other fees were $4,300,000 for the six months
ended June 30, 1998, compared to $3,100,000 for the corresponding
period in 1997, an increase of 39%. The increase was primarily
attributable to the PMCIS acquisition and increase in PMC core wrap fee
business as discussed above.
Operating Expenses
Operating expenses were $3,400,000 for the quarter ended June 30, 1998,
compared to $2,400,000 for the corresponding quarter in 1997, an
increase of 42%. Operating expenses were $7,000,000 for the six months
ended June 30, 1998, compared to $4,400,000 for the corresponding
period in 1997, an increase of 59%. The increases of $1,000,000 for
the quarter and $2,600,000 for the six months ended June 30, 1998, were
primarily due to increases in salaries and benefits of $500,000 (37%)
for the quarter and $1,300,000 (61%) for the six months ended June 30,
1998, as a result of the PMCIS acquisition and the increase in business
related to the E&Y relationship. Eighteen people were added to payroll
in conjunction with the PMCIS acquisition. Four people have been added
to support the E&Y program. General & administrative and occupancy &
equipment expenses increased $300,000 (58%) for the quarter and
$800,000 (73%) for the six months ended June 30, 1998, as a result of
the PMCIS acquisition and overlapping costs of maintaining duplicate
facilities. Amortization expense increased $200,000 (100%) for the
quarter and $300,000 (100%) for the six months ended June 30, 1998,
directly related to the PMCIS acquisition.
Income Taxes
The Company's effective tax rate for 1997 is 0 (zero).
Net Loss
The Company recorded a net loss of $1,200,000 for the quarter ended
June 30, 1998, as compared to $700,000 for the same period in 1997, an
increase of 71%. The net loss was $2,700,000 for the six months ended
June 30, 1998, as compared to $1,300,000 for the corresponding period
in 1997, an increase of 108%. The increase in net loss for the quarter
ended June 30, 1998, is directly related to:
1. decrease in revenues compared to the same period last year as a
result of not going forward with the Republic relationship
($250,000) and a reduction in revenues recognized from the E&Y
relationship ($100,000).
2. one-time expenses related to the PMCIS acquisition (e.g. relocation
costs, placement fees and duplicate facilities of $125,000). In
addition, the Company recognized amortization of $225,000 in 1998
with no corresponding amount in 1997.
The increase in loss for the six month period ended June 30, 1998, is
primarily related to:
1. Republic revenue decrease $400,000
2. reduction in E&Y minimum fee guarantee $200,000
3. relocation costs associated with PMCIS $100,000
4. maintenance of Atlanta office$100,000
5. PMCIS goodwill amortization $300,000
6. increase in depreciation/amortization$300,000
7. severance payments/employment agency fees$100,000
TOTAL $1,500,000
Liquidity and Capital Resources
The Company is actively investigating sources of capital in order to
support its working capital requirements. The Company's future
liquidity needs are dependent upon the Company's ability to generate
additional equity, to reduce expenses associated with its operations,
to achieve higher levels of cash flows or a combination of the above.
There can be no assurance that financing will be available to the
Company or that the Company will otherwise find sources to meet its
cash flow requirements.
The Company has historically incurred net losses and accordingly
experienced cash flow problems. As a result of the acquisition of
PMCIS, the Company is obligated to make a deferred purchase payment on
September 24, 1998, currently estimated at approximately $2,000,000.
On September 30, 1998, the Company will be required to set aside
$500,000 to meet increased regulatory capital requirements for its
broker/dealer operations. On December 31, 1998, the Company is
obligated to repay the Dundee note obligation of $1,500,000. However,
the Company is in negotiations with Dundee concerning an arrangement
whereby Dundee would license certain of the Company's products with
proceeds applied toward the loan. Also, the Company will be required
to use cash of approximately $1,750,000 to repay the obligation of KP3,
LLC, and write-off approximately $230,000 in notes receivable from the
LLC, in conjunction with the Separation and Consulting Agreement with
Mr. Phillips. In addition, continuing losses from operations have
resulted in the Company's cash balances decreasing further. The
Company's current working capital deficit is approximately $1,500,000.
The Company is continuing its efforts to reduce expenses. (See
"Corporate Restructuring" above.) Management believes that these
efforts, along with deferral of expenses and liabilities, should allow
the Company to continue operations while it seeks further capital.
While the Company is seeking out sources of short and long term capital
to meet its obligations, there is no assurance that sources of such
funds will be available to the Company. Should additional capital not
be raised, the Company will look to further reduce expenses associated
with its operations, sell non-core business or assets and otherwise
downsize its overhead, or a combination of the above. There is no
assurance that the Company's restructuring efforts will be successful.
If the Company is not able to raise additional capital or successfully
restructure its obligations, the business and financial condition of
the Company will be materially adversely affected.
At June 30, 1998, the Company had cash of $2,100,000, a substantial
portion of which was held in short-term interest bearing accounts,
including restricted cash of $1,800,000.
For the Quarter Ended June 30, 1998:
Cash used in operating activities was $1,400,000. This was due
primarily to the net loss from operations.
Cash provided by investing activities was $200,000. Cash provided by
investing activities was the result of payments received on a note
receivable.
Cash provided by financing activities of $340,000 was primarily related
to the borrowings to finance accounts receivable.
The Company anticipates that it will continue to experience operating
losses until such time as it can realize the benefits of the
restructuring and growth in assets under management and administration.
Year 2000.
Many existing computer programs use only two digits to identify a
specific year and therefore may not accurately recognize the upcoming
change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the year 2000. Due to
the Company's dependence on computer technology to operate its
business, and the dependence of the financial services industry on
computer technology, the nature and impact of Year 2000 processing
failures on the Company's business could be material. The Company is
currently modifying its computer systems in order to enable its systems
to process data and transactions incorporating year 2000 dates without
material errors or interruptions.
The success of the Company's plan depends in large part on parallel
efforts being undertaken by other entities, including third party
vendors, with which the Company's systems interact and therefore, the
Company is taking steps to determine the status of these other
entities' Year 2000 compliance. The Company is formulating contingency
plans to be implemented in the event that any other entity with which
the Company's systems interact, or the Company itself, fails to achieve
timely and adequate Year 2000 compliance.
The Company currently expects that costs to comply will be born
substantially by outside entities, and the Company anticipates that its
costs to achieve Year 2000 compliance will not exceed $250,000 over the
next 18 months. These costs exclude the time that may be spent by
management and administrative staff in guiding and assisting the
information technology effort described above or for bringing internal
systems into Year 2000 compliance.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In early June 1997, the Company received a letter from an attorney
representing a former employee which threatened litigation relating to
a dispute over such former employee's remuneration by the Company
unless the Company agreed to settle with him by a specified date. The
Company responded to the letter and stated its position that no amounts
are owed. By correspondence from The National Association of Security
Dealers ("NASD") dated December 19, 1997, PMC was notified that the
matter was submitted by the employee to the NASD for arbitration. The
employee is seeking damages for lost earnings from his prior employer,
lost commissions from PMC and other damages, totaling $1,190,000. PMC
has responded to the NASD Arbitration demand by denying that the NASD
has jurisdiction over the matter and seeking to have the matter
dismissed. The matter has been transferred to the NASD's regional
office in Denver. On May 13, 1998, the Company filed a verified
Application for Stay of Arbitration in Denver District Court, asking
for an order staying arbitration due to the fact that there is no
agreement for arbitration between the parties. The Company believes
that the claims described in the NASD Arbitration notice are without
basis and intends to defend the matter vigorously.
In August 1998, the Company settled a dispute with its former Executive
Vice President, Mr. David Andrus, concerning his entitlement to
severance under his Employment Agreement.
The Company is not aware of any other material legal proceedings or
investigations currently pending or threatened against the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1Change in Control Agreement between the Company and Kenneth S.
Phillips, dated May 15, 1998.
10.2Change in Control Agreement between the Company and Scott A.
MacKillop, dated May 15, 1998
10.3Change in Control Agreement between the Company and Stephen A.
Ash, dated May 15, 1998
10.4Change in Control Agreement between the Company and Maureen E.
Dobel, dated May 21, 1998
B. Reports on Form 8-K
None
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PMC INTERNATIONAL, INC.
REGISTRANT
Date: August 19, 1998 /s/ Scott A. MacKillop
Scott A. MacKillop
Executive Vice President
and Chief Operating Officer
Date: August 19, 1998 /s/ Stephen M. Ash
Stephen M. Ash
Chief Financial Officer
<PAGE>
PMC INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT INDEX
A. Number Exhibit
10.1Change in Control Agreement between the Company and Kenneth S.
Phillips, dated May 15, 1998.
10.2Change in Control Agreement between the Company and Scott A.
MacKillop, dated May 15, 1998
10.3Change in Control Agreement between the Company and Stephen A.
Ash, dated May 15, 1998
10.4Change in Control Agreement between the Company and Maureen E.
Dobel, dated May 21, 1998
<PAGE>
EXHIBIT 10.1
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Agreement"),
dated as of May 15, 1998, is made and entered by and between PMC
International, Inc., a Colorado corporation (the "Company"), and
Kenneth S. Phillips (the "Executive").
RECITALS
WHEREAS, the Executive is a senior executive and key employee of
the Company or one or more of its Subsidiaries and has made and is
expected to continue to make major contributions to the short-term and
long-term growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as
defined below) exists; and
WHEREAS, the Board (as defined below) has determined that it is in
the best interests of the Company and its stockholders to secure the
Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of,
or negotiation or other action that could lead to, or create the
possibility of, a Change in Control of the Company, without concern as
to whether Executive might be hindered or distracted by personal
uncertainties and risks created by any such possible Change in Control,
and to encourage Executive's full attention and dedication to the
Company.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements contained herein, the Company and
Executive hereby agree as follows:
AGREEMENT
1. Certain Defined Terms. In addition to terms defined elsewhere
herein, the following terms have the respective meanings set forth
below:
(a)"Base Pay" means the Executive's annual base salary at a rate
not less than the Executive's annual fixed or base compensation
as in effect for Executive immediately prior to the occurrence
of a Change in Control or such higher rate as may be determined
from time to time by the Board or a committee thereof.
(b)"Board" means the Board of Directors of the Company.
(c)"Cause" means that the Executive shall have:
(i) committed a breach of this Agreement or any employment
agreement between the Company or Subsidiary and the Executive
and either: (A) such breach is not cured within thirty (30)
days after notice from the Company specifying the action which
constitutes the breach and demanding its discontinuance, or
(B) such breach is cured and the breach recurs during or after
such 30-day period,
(ii) exhibited willful disobedience of or repeated failure to
perform reasonable directions of the Board,
(iii) committed gross malfeasance in performance of his duties
hereunder,
(iv) committed acts resulting in an indictment charging the
Executive with the commission of a felony,
(v) engaged in fraud, misappropriation, or embezzlement,
(vi) disclosed confidential information in violation of any
agreement between the Company or Subsidiary and the Executive,
or
(vii) willfully engaged in conduct materially injurious to the
Company.
(d) "Change in Control" occurs when any of the following events
occur during the Term of this Agreement:
(i) any person or entity other than the Executive or Bedford
Capital Financial Corporation becomes the record or beneficial
owner, directly or indirectly, of more than fifty percent
(50%) of the then outstanding voting stock of the Company,
(ii) the shareholders of the Company approve a merger or
consolidation of the Company with any other entity, other than
a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent at least eighty percent (80%)
of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after
such merger or consolidation, or
(iii) the shareholders approve an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) "Incentive Pay" means an annual amount equal to the average
of the annual bonus paid or payable in regard to services
rendered in any fiscal year during the three fiscal years
immediately preceding the fiscal year in which the Change in
Control occurs pursuant to any annual bonus plan, program or
arrangement (whether or not funded) of the Company or Subsidiary,
or any successor thereto. The computation of Incentive Pay shall
include any fiscal years or portions thereof in which no annual
bonus was paid or payable. If the Executive has been employed
for less than three (3) years at the Termination Date, the
denominator used to compute such average shall equal the
Executive's length of employment.
(f) "Severance Period" means the period of time commencing on the
date of the first occurrence of a Change in Control and
continuing until the earliest of (i) the second anniversary of
the occurrence of the Change in Control, (ii) the Executive's
death or termination by disability, or (iii) the Executive's
attainment of age 65.
(g) "Subsidiary" means a corporation, company or other entity
(i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors
or other managing authority are, or
(ii) which does not have outstanding shares or securities (as
may be the case in a partnership, joint venture or
unincorporated association), but more than 50% of whose
ownership interest representing the right generally to make
decisions for such other entity is,
owned or controlled, directly or indirectly, by the Company.
(h) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on December
31, 2000, or (ii) the expiration of the Severance Period;
provided, however, that (A) commencing on January 1, 2000 and
each January 1 thereafter, the term of this Agreement will
automatically be extended for an additional year unless, not
later than September 30 of the immediately preceding year, the
Company or the Executive shall have given notice that it or the
Executive, as the case may be, does not wish to have the Term
extended and (B) if, prior to a Change in Control, the Executive
ceases for any reason to be an employee of the Company or any
Subsidiary, thereupon without further action the Term shall be
deemed to have expired and this Agreement will immediately
terminate and be of no further effect. For purposes of this
Section 1(h), the Executive shall not be deemed to have ceased to
be an employee of the Company or any Subsidiary by reason of the
transfer of Executive's employment between the Company and any
Subsidiary, or among any Subsidiaries.
(i) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be
the date of termination, or such other date that may be specified
by the Executive if the termination is pursuant to Section 3(b)
or Section 3(c)).
2. Operation of Agreement. This Agreement will be effective and
binding immediately upon its execution, but, anything in this
Agreement to the contrary notwithstanding, this Agreement will not
be operative unless and until a Change in Control occurs. Upon the
occurrence of a Change in Control at any time during the Term,
without further action, this Agreement shall become immediately
operative.
3. Termination Following a Change in Control. (a) If the Executive's
employment is terminated by the Company or any Subsidiary during
the Severance Period, the Executive shall receive the benefits
described in Section 4 unless such termination is the result of the
occurrence of one or more of the following events:
(i) The Executive's death,
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits
pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in
Control,
(iii) Retirement of the Executive on or after age 65, or
(iv) Cause.
(b)If the Executive terminates his employment with the Company or
its Subsidiaries during the Severance Period while having Good
Reason (as defined below), the Executive shall receive the
benefits described in Section 4. The Executive shall have Good
Reason if such termination is not made in connection with any
reason described in Section 3(a) above, and if such termination
follows the occurrence of:
(i) a reduction in the Executive's Base Pay or Incentive Pay
as in effect immediately prior to the Change in Control
(including a change in performance criteria which impacts
negatively on the Executive's ability to achieve Incentive
Pay) under the Executive's employment agreement with the
Company or Subsidiary, the failure to continue the Executive's
participation in any incentive compensation plan in which he
was a participant immediately prior to the Change in Control
unless a plan providing a substantially similar opportunity is
substituted, or the termination or material reduction of any
employee benefit or perquisite enjoyed by him immediately
prior to the Change in Control, unless comparable benefits or
perquisites (determined in the aggregate) are substituted,
(ii) material diminution in the Executive's duties as in
effect immediately prior to the Change in Control or
assignment to the Executive of duties materially inconsistent
with his duties as in effect immediately prior to the Change
in Control,
(iii) the loss of any of the Executive's titles or positions
(in his capacity as an officer of the Company) held
immediately prior to the Change in Control,
(iv) the failure of the Company to obtain the assumption in
writing of its obligation to perform this Agreement by any
successor after a merger, consolidation, sale or similar
transaction, or
(v) the Company relocates its principal executive offices,
or requires the Executive to have his principal location of
work changed, to any location that is in excess of fifty (50)
miles from the location thereof immediately prior to the
Change in Control,
(vi) Notwithstanding anything contained in this Agreement to
the contrary, any circumstance described in clauses (i)
through (v) of this Section 3(b) shall not constitute Good
Reason unless the Executive gives written notice thereof to
the Company in accordance with Section 13 and the Company
fails to remedy such circumstance within fifteen (15) business
days following receipt of such notice.
(c)Notwithstanding anything contained in this Agreement to the
contrary, in the event of a Change in Control, the Executive may
terminate employment with the Company and any Subsidiary for any
reason, or without reason, during the sixty-day period
immediately following the date one year after the first
occurrence of a Change in Control with the right to severance
compensation as described in Section 4.
(d)Except as otherwise described in Section 4, a termination by the
Company pursuant to Section 3(a) or by the Executive pursuant to
Section 3(b) or Section 3(c) will not affect any rights that the
Executive may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing benefits, which
rights shall be governed by the terms thereof.
4. Severance Compensation. Any amounts and benefits to which the
Executive is entitled under this Agreement shall be offset and
reduced by any other amount of severance benefits to be received by
the Executive upon termination of employment under any employment
agreement between the Executive and the Company (or Subsidiary) or
any other severance plan, policy, agreement or arrangement of the
Company or Subsidiary. The amounts and benefits to which the
Executive is entitled pursuant to Section 3 of this Agreement are:
(a) A cash payment payable during each month of the Continuation
Period (as defined below) in an amount equal to 1/12 of the sum
of Base Pay and Incentive Pay, and commencing on the first day
of the month following the Termination Date,
(b) A lump-sum cash payment which the Company will pay within ten
(10) business days after the expiration of the Continuation
Period (as defined below) equal to the Company matching
contributions that would have been made under the Company's
401(k) savings plan(s) on the amounts described in Section 4(a)
if the Executive had continued in employment and participated to
the fullest extent under such plan(s). For this purpose, the
Company matching contribution rate shall be determined using the
rate of Company matching contribution in effect at the Change in
Control, or the rate in effect on the Termination Date if
greater.
(c) For a period of twenty-seven (27) months following the
Termination Date (the "Continuation Period"), the Company will
arrange to provide the Executive with continued medical, group
life, and dental benefits substantially similar, and subject to
the same employee contribution requirement, to those that the
Executive was receiving or entitled to receive immediately prior
to the Termination Date (or, if greater, immediately prior to
the Change in Control). If and to the extent that the Company
determines that any benefit described in this Section 4(c)
cannot be paid or provided under any policy, plan, or program or
arrangement of the Company or any Subsidiary, as the case may
be, then the Company will itself make a lump-sum payment to the
Executive equal to the actuarial value of the Company's cost of
providing such benefits. Benefits otherwise receivable by the
Executive pursuant to this Section 4(c) will be reduced to the
extent comparable welfare benefits are actually received by the
Executive from another employer during the Continuation Period
following the Executive's Termination Date, and any such welfare
benefits actually received by the Executive shall be reported by
the Executive to the Company.
Provided, however, notwithstanding any other agreement between the
Company or Subsidiary and the Executive to the contrary, any
payments due under this Section 4 that are rendered non-deductible
by the Company (or any Subsidiary) solely by virtue of the
$1,000,000 limit on applicable employee remuneration established
under 162(m) of the Internal Revenue Code of 1986, as amended,
during the tax year of the Change in Control, shall not be payable
until the next following tax year of the Company or its
successor. Such payment shall then be made within ten (10)
business days following the start of such tax year.
5. Excess Parachute Payment Limitations. In the event that the
Executive would be subject to a tax pursuant to Section 4999 of the
Internal Revenue Code, as amended, (the "Code"), as a result of an
excess parachute payment, or a deduction would not be allowed to
the Company or any Subsidiary for all or any part of such payment
by reason of Section 280G of the Code, such payment shall be
reduced. In the event such reduction is required, the amounts
payable to the Executive under this Agreement, or any other
agreement, plan or program, of the Company or any Subsidiary, shall
be reduced to an amount such that the present value of all payments
in the nature of compensation which are contingent upon a Change in
Control total an amount not greater than three (3) times the
Executive's base amount less one dollar, as any such terms are
defined or applied in Section 280G of the Code and the proposed
regulations thereunder. The determinations to be made with respect
to this Section 5 shall be made by the public accounting firm that
is retained by the Company as of the date immediately prior to the
Change in Control (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of being requested to
do so by the Company. All fees and expenses of the Accounting Firm
shall be borne solely by the Company.
6. No Mitigation Obligation. The Executive will not be required to
mitigate the amount of any payment provided for in this Agreement
by seeking other employment, nor will any profits, income, earnings
or other benefits from any source whatsoever create any mitigation,
offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in
Section 4 and Section 8 of this Agreement.
7. Legal Fees and Expenses. If any contest or dispute shall arise
under this Agreement involving the failure or refusal of the
Company to perform fully in accordance with the terms hereof, the
Company shall reimburse the Executive, on a current basis, for all
legal fees and expenses, if any, incurred by the Executive in
connection with such contest or dispute regardless of the result
thereof.
8. Competitive Activity.
(a) Notwithstanding any other provision of this Agreement or any
other agreement between the Company and the Executive to the
contrary, during the continuance of his employment by the
Company and for a period of twenty-four (24) months after
termination of his employment (the "Non-Compete Period"), the
Executive shall not (i) anywhere in the United States, engage in
any business which competes directly or indirectly with the
Company or (ii) directly or indirectly, use, disseminate, or
disclose for any purpose other than for the purposes of the
Company's business, any of the Company's confidential
information or trade secrets, unless such disclosure is
compelled in a judicial proceeding. Upon termination of his
employment, all documents, records, notebooks, and similar
repositories of records containing information relating to any
trade secrets or confidential information then in the
Executive's possession or control, whether prepared by him or by
others, shall be left with the Company or returned to the
Company upon its request. In the event the Executive violates
this Section 8, the remaining monthly payments provided for
under Section 4(a) and Section 4(c) shall cease.
(b)During the Non-Compete Period, the Executive will not (i)
directly or indirectly cause, or attempt to cause, to leave the
employ of the Company any employee of the Company that is an
employee of the Company at any time during the period beginning
six months before the date of this Agreement and ending at the
end of the Non-Compete Period, (ii) directly or indirectly
solicit any customer of the Company as to which the Executive
obtained knowledge during his affiliation with the Company as a
member of the leadership team of the Company or with any
affiliate of the Company, (iii) knowingly or recklessly
interfere or attempt to interfere with any transaction in which
the Company was involved during the term of this Agreement, or
(iv) in any other way knowingly or recklessly interfere with the
relationship between the Company and any of its employees,
customers or suppliers.
9. Employment Rights. Nothing expressed or implied in this Agreement
will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the
Company or any Subsidiary prior to or following any Change in
Control.
10. Release. Payment of the severance compensation set forth in
Section 4 hereto is conditioned upon the Executive executing and
delivering to the Company a general release to be provided by the
Company.
11. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other
taxes as the Company is required to withhold pursuant to any law or
government regulation or ruling.
12. Successors and Binding Effect. This Agreement is a personal
service agreement and may not be assigned by the Company or the
Executive, except that the Company may assign this Agreement to a
successor by merger, consolidation, sale of assets or other
reorganization. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors, assigns, and legal representatives.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be directed to the appropriate party in writing and
mailed or delivered, if to the Company, to 555 Seventeenth Street,
14th Floor, Denver, Colorado 80202 or to the Company's then
principal office, if different, and if to the Executive, to
766 16th Street, Boulder, Colorado 80302.
14. Applicable Law. This Agreement is entered into in the State of
Colorado and for all purposes shall be governed by the laws of the
State of Colorado.
15. Validity. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this
Agreement and the application of such provision to any other person
or circumstances will not be affected, and the provision so held to
be invalid, unenforceable or otherwise illegal will be reformed to
the extent (and only to the extent) necessary to make it
enforceable, valid or legal.
16. Representation by Counsel. The parties hereto acknowledge that
they have had the opportunity to consult with counsel and have done
so to the extent they deemed appropriate during the negotiation,
preparation and execution of this Agreement.
17. Counterparts. This instrument may be executed in one or more
counterparts, each of which shall be deemed an original.
18. Amendment. This Agreement may not be amended except by an
instrument in writing executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
PMC INTERNATIONAL, INC.
By: /s/ Scott A. MacKillop
Title: Executive Vice President and Chief
Operating Officer
/s/ Kenneth S. Phillips
KENNETH S. PHILLIPS
______________________________
<PAGE>
EXHIBIT 10.2
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Agreement"), dated as of
May 15, 1998, is made and entered by and between PMC International,
Inc., a Colorado corporation (the "Company"), and Scott A. MacKillop (the
"Executive").
RECITALS
WHEREAS, the Executive is a senior executive and key employee of the
Company or one or more of its Subsidiaries and has made and is expected to
continue to make major contributions to the short-term and long-term growth
and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined below)
exists; and
WHEREAS, the Board (as defined below) has determined that it is in the
best interests of the Company and its stockholders to secure the Executive's
continued services and to ensure the Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or
other action that could lead to, or create the possibility of, a Change in
Control of the Company, without concern as to whether Executive might be
hindered or distracted by personal uncertainties and risks created by any
such possible Change in Control, and to encourage Executive's full attention
and dedication to the Company.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements contained herein, the Company and
Executive hereby agree as follows:
AGREEMENT
1. Certain Defined Terms. In addition to terms defined elsewhere herein, the
following terms have the respective meanings set forth below:
(a) "Base Pay" means the Executive's annual base salary at a rate not less
than the Executive's annual fixed or base compensation as in effect
for Executive immediately prior to the occurrence of a Change in
Control or such higher rate as may be determined from time to time by
the Board or a committee thereof.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that the Executive shall have:
<PAGE>
(i) committed a breach of this Agreement or any employment
agreement between the Company or Subsidiary and the Executive and
either: (A) such breach is not cured within thirty (30) days after
notice from the Company specifying the action which constitutes the
breach and demanding its discontinuance, or (B) such breach is
cured and the breach recurs during or after such 30-day period,
(ii) exhibited willful disobedience of or repeated failure to
perform reasonable directions of the Board,
(iii) committed gross malfeasance in performance of his duties
hereunder,
(iv) committed acts resulting in an indictment charging the
Executive with the commission of a felony,
(v) engaged in fraud, misappropriation, or embezzlement,
(vi) disclosed confidential information in violation of any
agreement between the Company or Subsidiary and the Executive, or
(vii) willfully engaged in conduct materially injurious to the
Company.
(d) "Change in Control" occurs when any of the following events occur
during the Term of this Agreement:
(i) any person or entity other than the Executive or Bedford
Capital Financial Corporation becomes the record or beneficial
owner, directly or indirectly, of more than fifty percent (50%) of
the then outstanding voting stock of the Company,
(ii) the shareholders of the Company approve a merger or
consolidation of the Company with any other entity, other than a
merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent at least eighty percent (80%) of the combined voting
power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation,
or
(iii) the shareholders approve an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) "Incentive Pay" means an annual amount equal to the average of the
annual bonus paid or payable in regard to services rendered in any
fiscal year during the three fiscal years immediately preceding the
fiscal year in which the Change in Control occurs pursuant to any
annual bonus plan, program or arrangement <PAGE>
(whether or not
funded) of the Company or Subsidiary, or any successor thereto. The
computation of Incentive Pay shall include any fiscal years or portions
thereof in which no annual bonus was paid or payable. If the Executive
has been employed for less than three (3) years at the Termination
Date, the denominator used to compute such average shall equal the
Executive's length of employment.
(f) "Severance Period" means the period of time commencing on the date
of the first occurrence of a Change in Control and continuing until the
earliest of (i) the second anniversary of the occurrence of the Change
in Control, (ii) the Executive's death or termination by disability,
or (iii) the Executive's attainment of age 65.
(g) "Subsidiary" means a corporation, company or other entity
(i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors or
other managing authority are, or
(ii) which does not have outstanding shares or securities (as may
be the case in a partnership, joint venture or unincorporated
association), but more than 50% of whose ownership interest
representing the right generally to make decisions for such other
entity is,
owned or controlled, directly or indirectly, by the Company.
(h) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on December 31,
2000, or (ii) the expiration of the Severance Period; provided,
however, that (A) commencing on January 1, 2000 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the
Company or any Subsidiary, thereupon without further action the Term
shall be deemed to have expired and this Agreement will immediately
terminate and be of no further effect. For purposes of this Section
1(h), the Executive shall not be deemed to have ceased to be an
employee of the Company or any Subsidiary by reason of the transfer of
Executive's employment between the Company and any Subsidiary, or among
any Subsidiaries.
(i) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination, or such
<PAGE>
other date that may be specified by the
Executive if the termination is pursuant to Section 3(b) or Section
3(c)).
2. Operation of Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in
Control at any time during the Term, without further action, this
Agreement shall become immediately operative.
3. Termination Following a Change in Control. (a) If the Executive's
employment is terminated by the Company or any Subsidiary during the
Severance Period, the Executive shall receive the benefits described in
Section 4 unless such termination is the result of the occurrence of one
or more of the following events:
(i) The Executive's death,
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits
pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control,
(iii) Retirement of the Executive on or after age 65, or
(iv) Cause.
(b) If the Executive terminates his employment with the Company or its
Subsidiaries during the Severance Period while having Good Reason (as
defined below), the Executive shall receive the benefits described in
Section 4. The Executive shall have Good Reason if such termination
is not made in connection with any reason described in Section 3(a)
above, and if such termination follows the occurrence of:
(i) a reduction in the Executive's Base Pay or Incentive Pay as in
effect immediately prior to the Change in Control (including a
change in performance criteria which impacts negatively on the
Executive's ability to achieve Incentive Pay) under the Executive's
employment agreement with the Company or Subsidiary, the failure to
continue the Executive's participation in any incentive
compensation plan in which he was a participant immediately prior
to the Change in Control unless a plan providing a substantially
similar opportunity is substituted, or the termination or material
reduction of any employee benefit or perquisite enjoyed by him
immediately prior to the Change in Control, unless comparable
benefits or perquisites (determined in the aggregate) are
substituted,
(ii) material diminution in the Executive's duties as in effect
immediately prior to the Change in Control or assignment to the
Executive of duties materially inconsistent with his duties as in
effect immediately prior to the Change in Control,
(iii) the loss of any of the Executive's titles or positions (in
his capacity as an officer of the Company) held immediately prior
to the Change in Control,
(iv) the failure of the Company to obtain the assumption in
writing of its obligation to perform this Agreement by any
successor after a merger, consolidation, sale or similar
transaction, or
(v) the Company relocates its principal executive offices, or
requires the Executive to have his principal location of work
changed, to any location that is in excess of fifty (50) miles from
the location thereof immediately prior to the Change in Control,
(vi) Notwithstanding anything contained in this Agreement to the
contrary, any circumstance described in clauses (i) through (v) of
this Section 3(b) shall not constitute Good Reason unless the
Executive gives written notice thereof to the Company in accordance
with Section 13 and the Company fails to remedy such circumstance
within fifteen (15) business days following receipt of such notice.
(c) Notwithstanding anything contained in this Agreement to the contrary,
in the event of a Change in Control, the Executive may terminate
employment with the Company and any Subsidiary for any reason, or
without reason, during the sixty-day period immediately following the
date one year after the first occurrence of a Change in Control with
the right to severance compensation as described in Section 4.
(d) Except as otherwise described in Section 4, a termination by the
Company pursuant to Section 3(a) or by the Executive pursuant to
Section 3(b) or Section 3(c) will not affect any rights that the
Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company providing benefits, which rights shall be
governed by the terms thereof.
4. Severance Compensation. Any amounts and benefits to which the Executive
is entitled under this Agreement shall be offset and reduced by any other
amount of severance benefits to be received by the Executive upon
termination of employment under any employment agreement between the
Executive and the Company (or Subsidiary) or any other severance plan,
policy, agreement or arrangement of the Company or Subsidiary. The
amounts and benefits to which the Executive is entitled pursuant to
Section 3 of this Agreement are:
<PAGE>
(a) A cash payment payable during each month of the Continuation
Period (as defined below) in an amount equal to 1/12 of the sum of
Base Pay and Incentive Pay, and commencing on the first day of the
month following the Termination Date,
(b) A lump-sum cash payment which the Company will pay within ten (10)
business days after the expiration of the Continuation Period (as
defined below) equal to the Company matching contributions that would
have been made under the Company's 401(k) savings plan(s) on the
amounts described in Section 4(a) if the Executive had continued in
employment and participated to the fullest extent under such plan(s).
For this purpose, the Company matching contribution rate shall be
determined using the rate of Company matching contribution in effect
at the Change in Control, or the rate in effect on the Termination
Date if greater.
(c) For a period of twenty-seven (27) months following the Termination
Date (the "Continuation Period"), the Company will arrange to provide
the Executive with continued medical, group life, and dental benefits
substantially similar, and subject to the same employee contribution
requirement, to those that the Executive was receiving or entitled to
receive immediately prior to the Termination Date (or, if greater,
immediately prior to the Change in Control). If and to the extent
that the Company determines that any benefit described in this Section
4(c) cannot be paid or provided under any policy, plan, or program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will itself make a lump-sum payment to the Executive equal
to the actuarial value of the Company's cost of providing such
benefits. Benefits otherwise receivable by the Executive pursuant to
this Section 4(c) will be reduced to the extent comparable welfare
benefits are actually received by the Executive from another employer
during the Continuation Period following the Executive's Termination
Date, and any such welfare benefits actually received by the Executive
shall be reported by the Executive to the Company.
Provided, however, notwithstanding any other agreement between the
Company or Subsidiary and the Executive to the contrary, any payments
due under this Section 4 that are rendered non-deductible by the Company
(or any Subsidiary) solely by virtue of the $1,000,000 limit on
applicable employee remuneration established under 162(m) of the
Internal Revenue Code of 1986, as amended, during the tax year of the
Change in Control, shall not be payable until the next following tax
year of the Company or its successor. Such payment shall then be made
within ten (10) business days following the start of such tax year.
5. Excess Parachute Payment Limitations. In the event that the Executive
would be subject to a tax pursuant to Section 4999 of the Internal Revenue
Code, as amended, (the "Code"), as a result of an excess parachute
payment, or a deduction would not
<PAGE>
be allowed to the Company or any
Subsidiary for all or any part of such payment by reason of Section 280G
of the Code, such payment shall be reduced. In the event such reduction
is required, the amounts payable to the Executive under this Agreement, or
any other agreement, plan or program, of the Company or any Subsidiary,
shall be reduced to an amount such that the present value of all payments
in the nature of compensation which are contingent upon a Change in
Control total an amount not greater than three (3) times the Executive's
base amount less one dollar, as any such terms are defined or applied in
Section 280G of the Code and the proposed regulations thereunder. The
determinations to be made with respect to this Section 5 shall be made by
the public accounting firm that is retained by the Company as of the date
immediately prior to the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of being requested to do so by
the Company. All fees and expenses of the Accounting Firm shall be borne
solely by the Company.
6. No Mitigation Obligation. The Executive will not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment, nor will any profits, income, earnings or other benefits from
any source whatsoever create any mitigation, offset, reduction or any
other obligation on the part of the Executive hereunder or otherwise,
except as expressly provided in Section 4 and Section 8 of this Agreement.
7. Legal Fees and Expenses. If any contest or dispute shall arise under
this Agreement involving the failure or refusal of the Company to perform
fully in accordance with the terms hereof, the Company shall reimburse the
Executive, on a current basis, for all legal fees and expenses, if any,
incurred by the Executive in connection with such contest or dispute
regardless of the result thereof.
8. Competitive Activity.
(a) Notwithstanding any other provision of this Agreement or any other
agreement between the Company and the Executive to the contrary,
during the continuance of his employment by the Company and for a
period of twenty-four (24) months after termination of his employment
(the "Non-Compete Period"), the Executive shall not (i) anywhere in
the United States, engage in any business which competes directly or
indirectly with the Company or (ii) directly or indirectly, use,
disseminate, or disclose for any purpose other than for the purposes
of the Company's business, any of the Company's confidential
information or trade secrets, unless such disclosure is compelled in a
judicial proceeding. Upon termination of his employment, all
documents, records, notebooks, and similar repositories of records
containing information relating to any trade secrets or confidential
information then in the Executive's possession or control, whether
prepared by him or by others, shall be left with the Company or
returned to the Company upon its request. In the event the
<PAGE>
Executive violates this Section 8, the remaining monthly
payments provided for under Section 4(a) and Section 4(c) shall cease.
(b) During the Non-Compete Period, the Executive will not (i) directly or
indirectly cause, or attempt to cause, to leave the employ of the
Company any employee of the Company that is an employee of the Company
at any time during the period beginning six months before the date of
this Agreement and ending at the end of the Non-Compete Period, (ii)
directly or indirectly solicit any customer of the Company as to which
the Executive obtained knowledge during his affiliation with the
Company as a member of the leadership team of the Company or with any
affiliate of the Company, (iii) knowingly or recklessly interfere or
attempt to interfere with any transaction in which the Company was
involved during the term of this Agreement, or (iv) in any other way
knowingly or recklessly interfere with the relationship between the
Company and any of its employees, customers or suppliers.
9. Employment Rights. Nothing expressed or implied in this Agreement will
create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control.
10. Release. Payment of the severance compensation set forth in Section 4
hereto is conditioned upon the Executive executing and delivering to the
Company a general release to be provided by the Company.
11. Withholding of Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government
regulation or ruling.
12. Successors and Binding Effect. This Agreement is a personal service
agreement and may not be assigned by the Company or the Executive, except
that the Company may assign this Agreement to a successor by merger,
consolidation, sale of assets or other reorganization. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns, and legal
representatives.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be directed to the appropriate party in writing and mailed
or delivered, if to the Company, to 555 Seventeenth Street, 14th Floor,
Denver, Colorado 80202 or to the Company's then principal office, if
different, and if to the Executive, to
2648 S. Kittridge Park Road, Evergreen, Colorado 80437.
14. Applicable Law. This Agreement is entered into in the State of
Colorado and for all purposes shall be governed by the laws of the State
of Colorado.
<PAGE>
15. Validity. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances
will not be affected, and the provision so held to be invalid,
unenforceable or otherwise illegal will be reformed to the extent (and
only to the extent) necessary to make it enforceable, valid or legal.
16. Representation by Counsel. The parties hereto acknowledge that they
have had the opportunity to consult with counsel and have done so to the
extent they deemed appropriate during the negotiation, preparation and
execution of this Agreement.
17. Counterparts. This instrument may be executed in one or more
counterparts, each of which shall be deemed an original.
18. Amendment. This Agreement may not be amended except by an instrument
in writing executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
PMC INTERNATIONAL, INC.
By: /s/ Kenneth S. Phillips
Kenneth S. Phillips
Title: President & CEO
SCOTT A. MacKILLOP
/s/ Scott A. MacKillop
<PAGE>
EXHIBIT 10.3
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Agreement"), dated as of
May 15, 1998, is made and entered by and between PMC International,
Inc., a Colorado corporation (the "Company"), and Stephen M. Ash (the
"Executive").
RECITALS
WHEREAS, the Executive is a senior executive and key employee of the
Company or one or more of its Subsidiaries and has made and is expected to
continue to make major contributions to the short-term and long-term growth
and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined below)
exists; and
WHEREAS, the Board (as defined below) has determined that it is in the
best interests of the Company and its stockholders to secure the Executive's
continued services and to ensure the Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or
other action that could lead to, or create the possibility of, a Change in
Control of the Company, without concern as to whether Executive might be
hindered or distracted by personal uncertainties and risks created by any
such possible Change in Control, and to encourage Executive's full attention
and dedication to the Company.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements contained herein, the Company and
Executive hereby agree as follows:
AGREEMENT
1. Certain Defined Terms. In addition to terms defined elsewhere herein, the
following terms have the respective meanings set forth below:
(a) "Base Pay" means the Executive's annual base salary at a rate not less
than the Executive's annual fixed or base compensation as in effect
for Executive immediately prior to the occurrence of a Change in
Control or such higher rate as may be determined from time to time by
the Board or a committee thereof.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that the Executive shall have:
<PAGE>
(i) committed a breach of this Agreement or any employment
agreement between the Company or Subsidiary and the Executive and
either: (A) such breach is not cured within thirty (30) days after
notice from the Company specifying the action which constitutes the
breach and demanding its discontinuance, or (B) such breach is
cured and the breach recurs during or after such 30-day period,
(ii) exhibited willful disobedience of or repeated failure to
perform reasonable directions of the Board,
(iii) committed gross malfeasance in performance of his duties
hereunder,
(iv) committed acts resulting in an indictment charging the
Executive with the commission of a felony,
(v) engaged in fraud, misappropriation, or embezzlement,
(vi) disclosed confidential information in violation of any
agreement between the Company or Subsidiary and the Executive, or
(vii) willfully engaged in conduct materially injurious to the
Company.
(d) "Change in Control" occurs when any of the following events occur
during the Term of this Agreement:
(i) any person or entity other than the Executive or Bedford
Capital Financial Corporation becomes the record or beneficial
owner, directly or indirectly, of more than fifty percent (50%) of
the then outstanding voting stock of the Company,
(ii) the shareholders of the Company approve a merger or
consolidation of the Company with any other entity, other than a
merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent at least eighty percent (80%) of the combined voting
power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation,
or
(iii) the shareholders approve an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) "Incentive Pay" means an annual amount equal to the average of the
annual bonus paid or payable in regard to services rendered in any
fiscal year during the three fiscal years immediately preceding the
fiscal year in which the Change in Control occurs pursuant to any
annual bonus plan, program or arrangement
<PAGE>
(whether or not funded) of
the Company or Subsidiary, or any successor thereto. The computation of
Incentive Pay shall include any fiscal years or portions thereof in
which no annual bonus was paid or payable. If the Executive has been
employed for less than three (3) years at the Termination Date, the
denominator used to compute such average shall equal the Executive's
length of employment.
(f) "Severance Period" means the period of time commencing on the date
of the first occurrence of a Change in Control and continuing until the
earliest of (i) the second anniversary of the occurrence of the Change
in Control, (ii) the Executive's death or termination by disability,
or (iii) the Executive's attainment of age 65.
(g) "Subsidiary" means a corporation, company or other entity
(i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors or
other managing authority are, or
(ii) which does not have outstanding shares or securities (as may
be the case in a partnership, joint venture or unincorporated
association), but more than 50% of whose ownership interest
representing the right generally to make decisions for such other
entity is,
owned or controlled, directly or indirectly, by the Company.
(h) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on December 31,
2000, or (ii) the expiration of the Severance Period; provided,
however, that (A) commencing on January 1, 2000 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the
Company or any Subsidiary, thereupon without further action the Term
shall be deemed to have expired and this Agreement will immediately
terminate and be of no further effect. For purposes of this Section
1(h), the Executive shall not be deemed to have ceased to be an
employee of the Company or any Subsidiary by reason of the transfer of
Executive's employment between the Company and any Subsidiary, or among
any Subsidiaries.
(i) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination, or such
<PAGE>
other date that may be specified by the
Executive if the termination is pursuant to Section 3(b)).
2. Operation of Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in
Control at any time during the Term, without further action, this
Agreement shall become immediately operative.
3. Termination Following a Change in Control. (a) If the Executive's
employment is terminated by the Company or any Subsidiary during the
Severance Period, the Executive shall receive the benefits described in
Section 4 unless such termination is the result of the occurrence of one
or more of the following events:
(i) The Executive's death,
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits
pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control,
(iii) Retirement of the Executive on or after age 65, or
(iv) Cause.
(b) If the Executive terminates his employment with the Company or its
Subsidiaries during the Severance Period while having Good Reason (as
defined below), the Executive shall receive the benefits described in
Section 4. The Executive shall have Good Reason if such termination
is not made in connection with any reason described in Section 3(a)
above, and if such termination follows the occurrence of:
(i) a reduction in the Executive's Base Pay or Incentive Pay as in
effect immediately prior to the Change in Control (including a
change in performance criteria which impacts negatively on the
Executive's ability to achieve Incentive Pay) under the Executive's
employment agreement with the Company or Subsidiary, the failure to
continue the Executive's participation in any incentive
compensation plan in which he was a participant immediately prior
to the Change in Control unless a plan providing a substantially
similar opportunity is substituted, or the termination or material
reduction of any employee benefit or perquisite enjoyed by him
immediately prior to the Change in Control, unless comparable
benefits or perquisites (determined in the aggregate) are
substituted,
<PAGE>
(ii) material diminution in the Executive's duties as in effect
immediately prior to the Change in Control or assignment to the
Executive of duties materially inconsistent with his duties as in
effect immediately prior to the Change in Control,
(iii) the loss of any of the Executive's titles or positions (in
his capacity as an officer of the Company) held immediately prior
to the Change in Control,
(iv) the failure of the Company to obtain the assumption in
writing of its obligation to perform this Agreement by any
successor after a merger, consolidation, sale or similar
transaction, or
(v) the Company relocates its principal executive offices, or
requires the Executive to have his principal location of work
changed, to any location that is in excess of fifty (50) miles from
the location thereof immediately prior to the Change in Control,
(vi) Notwithstanding anything contained in this Agreement to the
contrary, any circumstance described in clauses (i) through (v) of
this Section 3(b) shall not constitute Good Reason unless the
Executive gives written notice thereof to the Company in accordance
with Section 13 and the Company fails to remedy such circumstance
within fifteen (15) business days following receipt of such notice.
(c) Except as otherwise described in Section 4, a termination by the
Company pursuant to Section 3(a) or by the Executive pursuant to
Section 3(b) will not affect any rights that the Executive may have
pursuant to any agreement, policy, plan, program or arrangement of the
Company providing benefits, which rights shall be governed by the
terms thereof.
4. Severance Compensation. Any amounts and benefits to which the Executive
is entitled under this Agreement shall be offset and reduced by any other
amount of severance benefits to be received by the Executive upon
termination of employment under any employment agreement between the
Executive and the Company (or Subsidiary) or any other severance plan,
policy, agreement or arrangement of the Company or Subsidiary. The
amounts and benefits to which the Executive is entitled pursuant to
Section 3 of this Agreement are:
(a) A cash payment payable during each month of the Continuation
Period (as defined below) in an amount equal to 1/12 of the sum of
Base Pay and Incentive Pay, and commencing on the first day of the
month following the Termination Date,
<PAGE>
(b) A lump-sum cash payment which the Company will pay within ten (10)
business days after the expiration of the Continuation Period (as
defined below) equal to the Company matching contributions that would
have been made under the Company's 401(k) savings plan(s) on the
amounts described in Section 4(a) if the Executive had continued in
employment and participated to the fullest extent under such plan(s).
For this purpose, the Company matching contribution rate shall be
determined using the rate of Company matching contribution in effect
at the Change in Control, or the rate in effect on the Termination
Date if greater.
(c) For a period of twenty-seven (27) months following the Termination
Date (the "Continuation Period"), the Company will arrange to provide
the Executive with continued medical, group life, and dental benefits
substantially similar, and subject to the same employee contribution
requirement, to those that the Executive was receiving or entitled to
receive immediately prior to the Termination Date (or, if greater,
immediately prior to the Change in Control). If and to the extent
that the Company determines that any benefit described in this Section
4(c) cannot be paid or provided under any policy, plan, or program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will itself make a lump-sum payment to the Executive equal
to the actuarial value of the Company's cost of providing such
benefits. Benefits otherwise receivable by the Executive pursuant to
this Section 4(c) will be reduced to the extent comparable welfare
benefits are actually received by the Executive from another employer
during the Continuation Period following the Executive's Termination
Date, and any such welfare benefits actually received by the Executive
shall be reported by the Executive to the Company.
Provided, however, notwithstanding any other agreement between the
Company or Subsidiary and the Executive to the contrary, any payments
due under this Section 4 that are rendered non-deductible by the Company
(or any Subsidiary) solely by virtue of the $1,000,000 limit on
applicable employee remuneration established under 162(m) of the
Internal Revenue Code of 1986, as amended, during the tax year of the
Change in Control, shall not be payable until the next following tax
year of the Company or its successor. Such payment shall then be made
within ten (10) business days following the start of such tax year.
5. Excess Parachute Payment Limitations. In the event that the Executive
would be subject to a tax pursuant to Section 4999 of the Internal Revenue
Code, as amended, (the "Code"), as a result of an excess parachute
payment, or a deduction would not be allowed to the Company or any
Subsidiary for all or any part of such payment by reason of Section 280G
of the Code, such payment shall be reduced. In the event such reduction
is required, the amounts payable to the Executive under this Agreement, or
any other agreement, plan or program, of the Company or any Subsidiary,
shall be reduced to an amount such that the present value of all
<PAGE>
payments
in the nature of compensation which are contingent upon a Change in
Control total an amount not greater than three (3) times the Executive's
base amount less one dollar, as any such terms are defined or applied in
Section 280G of the Code and the proposed regulations thereunder. The
determinations to be made with respect to this Section 5 shall be made by
the public accounting firm that is retained by the Company as of the date
immediately prior to the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of being requested to do so by
the Company. All fees and expenses of the Accounting Firm shall be borne
solely by the Company.
6. No Mitigation Obligation. The Executive will not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment, nor will any profits, income, earnings or other benefits from
any source whatsoever create any mitigation, offset, reduction or any
other obligation on the part of the Executive hereunder or otherwise,
except as expressly provided in Section 4 of this Agreement.
7. Legal Fees and Expenses. If any contest or dispute shall arise under
this Agreement involving the failure or refusal of the Company to perform
fully in accordance with the terms hereof, the Company shall reimburse the
Executive, on a current basis, for all legal fees and expenses, if any,
incurred by the Executive in connection with such contest or dispute
regardless of the result thereof.
8. Non-Solicitation. During the continuance of his employment by the
Company and for a period of twenty-four (24) months after termination of
his employment (the "Non-Solicitation Period"), the Executive will not (i)
directly or indirectly cause, or attempt to cause, to leave the employ of
the Company any employee of the Company that is an employee of the Company
at any time during the period beginning six months before the date of this
Agreement and ending at the end of the Non-Solicitation Period, (ii)
directly or indirectly solicit any customer of the Company as to which the
Executive obtained knowledge during his affiliation with the Company as a
member of the leadership team of the Company or with any affiliate of the
Company, (iii) knowingly or recklessly interfere or attempt to interfere
with any transaction in which the Company was involved during the term of
this Agreement, or (iv) in any other way knowingly or recklessly interfere
with the relationship between the Company and any of its employees,
customers or suppliers.
9. Employment Rights. Nothing expressed or implied in this Agreement will
create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control.
<PAGE>
10. Release. Payment of the severance compensation set forth in Section 4
hereto is conditioned upon the Executive executing and delivering to the
Company a general release to be provided by the Company.
11. Withholding of Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government
regulation or ruling.
12. Successors and Binding Effect. This Agreement is a personal service
agreement and may not be assigned by the Company or the Executive, except
that the Company may assign this Agreement to a successor by merger,
consolidation, sale of assets or other reorganization. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns, and legal
representatives.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be directed to the appropriate party in writing and mailed
or delivered, if to the Company, to 555 Seventeenth Street, 14th Floor,
Denver, Colorado 80202 or to the Company's then principal office, if
different, and if to the Executive, to
10746 E. Maplewood Dr., Englewood, Colorado 80111.
14. Applicable Law. This Agreement is entered into in the State of
Colorado and for all purposes shall be governed by the laws of the State
of Colorado.
15. Validity. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances
will not be affected, and the provision so held to be invalid,
unenforceable or otherwise illegal will be reformed to the extent (and
only to the extent) necessary to make it enforceable, valid or legal.
16. Representation by Counsel. The parties hereto acknowledge that they
have had the opportunity to consult with counsel and have done so to the
extent they deemed appropriate during the negotiation, preparation and
execution of this Agreement.
17. Counterparts. This instrument may be executed in one or more
counterparts, each of which shall be deemed an original.
18. Amendment. This Agreement may not be amended except by an instrument
in writing executed by each of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
PMC INTERNATIONAL, INC.
By: /s/ Kenneth S. Phillips
Kenneth S. Phillips
Title: President & CEO
STEPHEN M. ASH
/s/ Stephen M. Ash
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Agreement"), dated as of
May 21, 1998, is made and entered by and between PMC International, Inc., a
Colorado corporation (the "Company"), and Maureen Dobel (the "Executive").
RECITALS
WHEREAS, the Executive is a senior executive and key employee of the
Company or one or more of its Subsidiaries and has made and is expected to
continue to make major contributions to the short-term and long-term growth
and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined below)
exists; and
WHEREAS, the Board (as defined below) has determined that it is in the
best interests of the Company and its stockholders to secure the Executive's
continued services and to ensure the Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or
other action that could lead to, or create the possibility of, a Change in
Control of the Company, without concern as to whether Executive might be
hindered or distracted by personal uncertainties and risks created by any
such possible Change in Control, and to encourage Executive's full attention
and dedication to the Company.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements contained herein, the Company and
Executive hereby agree as follows:
AGREEMENT
1. Certain Defined Terms. In addition to terms defined elsewhere herein, the
following terms have the respective meanings set forth below:
(a) "Base Pay" means the Executive's annual base salary at a rate not less
than the Executive's annual fixed or base compensation as in effect
for Executive immediately prior to the occurrence of a Change in
Control or such higher rate as may be determined from time to time by
the Board or a committee thereof.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that the Executive shall have:
<PAGE>
(i) committed a breach of this Agreement or any employment
agreement between the Company or Subsidiary and the Executive and
either: (A) such breach is not cured within thirty (30) days after
notice from the Company specifying the action which constitutes the
breach and demanding its discontinuance, or (B) such breach is
cured and the breach recurs during or after such 30-day period,
(ii) exhibited willful disobedience of or repeated failure to
perform reasonable directions of the Board,
(iii) committed gross malfeasance in performance of his duties
hereunder,
(iv) committed acts resulting in an indictment charging the
Executive with the commission of a felony,
(v) engaged in fraud, misappropriation, or embezzlement,
(vi) disclosed confidential information in violation of any
agreement between the Company or Subsidiary and the Executive, or
(vii) willfully engaged in conduct materially injurious to the
Company.
(d) "Change in Control" occurs when any of the following events occur
during the Term of this Agreement:
(i) any person or entity other than the Executive or Bedford
Capital Financial Corporation becomes the record or beneficial
owner, directly or indirectly, of more than fifty percent (50%) of
the then outstanding voting stock of the Company,
(ii) the shareholders of the Company approve a merger or
consolidation of the Company with any other entity, other than a
merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent at least eighty percent (80%) of the combined voting
power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation,
or
(iii) the shareholders approve an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) "Incentive Pay" means an annual amount equal to the average of the
annual bonus paid or payable in regard to services rendered in any
fiscal year during the three fiscal years immediately preceding the
fiscal year in which the Change in Control occurs pursuant to any
annual bonus plan, program or arrangement
<PAGE>
(whether or not funded) of
the Company or Subsidiary, or any successor thereto. The computation of
Incentive Pay shall include any fiscal years or portions thereof in
which no annual bonus was paid or payable. If the Executive has been
employed for less than three (3) years at the Termination Date, the
denominator used to compute such average shall equal the Executive's
length of employment.
(f) "Severance Period" means the period of time commencing on the date
of the first occurrence of a Change in Control and continuing until the
earliest of (i) the second anniversary of the occurrence of the Change
in Control, (ii) the Executive's death or termination by disability,
or (iii) the Executive's attainment of age 65.
(g) "Subsidiary" means a corporation, company or other entity
(i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors or
other managing authority are, or
(ii) which does not have outstanding shares or securities (as may
be the case in a partnership, joint venture or unincorporated
association), but more than 50% of whose ownership interest
representing the right generally to make decisions for such other
entity is,
owned or controlled, directly or indirectly, by the Company.
(h) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on December 31,
2000, or (ii) the expiration of the Severance Period; provided,
however, that (A) commencing on January 1, 2000 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the
Company or any Subsidiary, thereupon without further action the Term
shall be deemed to have expired and this Agreement will immediately
terminate and be of no further effect. For purposes of this Section
1(h), the Executive shall not be deemed to have ceased to be an
employee of the Company or any Subsidiary by reason of the transfer of
Executive's employment between the Company and any Subsidiary, or among
any Subsidiaries.
(i) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination, or such
<PAGE>
other date that may be specified by the
Executive if the termination is pursuant to Section 3(b)).
2. Operation of Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in
Control at any time during the Term, without further action, this
Agreement shall become immediately operative.
3. Termination Following a Change in Control. (a) If the Executive's
employment is terminated by the Company or any Subsidiary during the
Severance Period, the Executive shall receive the benefits described in
Section 4 unless such termination is the result of the occurrence of one
or more of the following events:
(i) The Executive's death,
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits
pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control,
(iii) Retirement of the Executive on or after age 65, or
(iv) Cause.
(b) If the Executive terminates his employment with the Company or its
Subsidiaries during the Severance Period while having Good Reason (as
defined below), the Executive shall receive the benefits described in
Section 4. The Executive shall have Good Reason if such termination
is not made in connection with any reason described in Section 3(a)
above, and if such termination follows the occurrence of:
(i) a reduction in the Executive's Base Pay or Incentive Pay as in
effect immediately prior to the Change in Control (including a
change in performance criteria which impacts negatively on the
Executive's ability to achieve Incentive Pay) under the Executive's
employment agreement with the Company or Subsidiary, the failure to
continue the Executive's participation in any incentive
compensation plan in which he was a participant immediately prior
to the Change in Control unless a plan providing a substantially
similar opportunity is substituted, or the termination or material
reduction of any employee benefit or perquisite enjoyed by him
immediately prior to the Change in Control, unless comparable
benefits or perquisites (determined in the aggregate) are
substituted,
<PAGE>
(ii) material diminution in the Executive's duties as in effect
immediately prior to the Change in Control or assignment to the
Executive of duties materially inconsistent with his duties as in
effect immediately prior to the Change in Control,
(iii) the loss of any of the Executive's titles or positions (in
his capacity as an officer of the Company) held immediately prior
to the Change in Control,
(iv) the failure of the Company to obtain the assumption in
writing of its obligation to perform this Agreement by any
successor after a merger, consolidation, sale or similar
transaction, or
(v) the Company relocates its principal executive offices, or
requires the Executive to have his principal location of work
changed, to any location that is in excess of fifty (50) miles from
the location thereof immediately prior to the Change in Control,
(vi) Notwithstanding anything contained in this Agreement to the
contrary, any circumstance described in clauses (i) through (v) of
this Section 3(b) shall not constitute Good Reason unless the
Executive gives written notice thereof to the Company in accordance
with Section 13 and the Company fails to remedy such circumstance
within fifteen (15) business days following receipt of such notice.
(c) Except as otherwise described in Section 4, a termination by the
Company pursuant to Section 3(a) or by the Executive pursuant to
Section 3(b) will not affect any rights that the Executive may have
pursuant to any agreement, policy, plan, program or arrangement of the
Company providing benefits, which rights shall be governed by the
terms thereof.
4. Severance Compensation. Any amounts and benefits to which the Executive
is entitled under this Agreement shall be offset and reduced by any other
amount of severance benefits to be received by the Executive upon
termination of employment under any employment agreement between the
Executive and the Company (or Subsidiary) or any other severance plan,
policy, agreement or arrangement of the Company or Subsidiary. The
amounts and benefits to which the Executive is entitled pursuant to
Section 3 of this Agreement are:
(a) A cash payment payable during each month of the Continuation
Period (as defined below) in an amount equal to 1/12 of the sum of
Base Pay and Incentive Pay, and commencing on the first day of the
month following the Termination Date,
<PAGE>
(b) A lump-sum cash payment which the Company will pay within ten (10)
business days after the expiration of the Continuation Period (as
defined below) equal to the Company matching contributions that would
have been made under the Company's 401(k) savings plan(s) on the
amounts described in Section 4(a) if the Executive had continued in
employment and participated to the fullest extent under such plan(s).
For this purpose, the Company matching contribution rate shall be
determined using the rate of Company matching contribution in effect
at the Change in Control, or the rate in effect on the Termination
Date if greater.
(c) For a period of twelve (12) months following the Termination Date
(the "Continuation Period"), the Company will arrange to provide the
Executive with continued medical, group life, and dental benefits
substantially similar, and subject to the same employee contribution
requirement, to those that the Executive was receiving or entitled to
receive immediately prior to the Termination Date (or, if greater,
immediately prior to the Change in Control). If and to the extent
that the Company determines that any benefit described in this Section
4(c) cannot be paid or provided under any policy, plan, or program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will itself make a lump-sum payment to the Executive equal
to the actuarial value of the Company's cost of providing such
benefits. Benefits otherwise receivable by the Executive pursuant to
this Section 4(c) will be reduced to the extent comparable welfare
benefits are actually received by the Executive from another employer
during the Continuation Period following the Executive's Termination
Date, and any such welfare benefits actually received by the Executive
shall be reported by the Executive to the Company.
Provided, however, notwithstanding any other agreement between the
Company or Subsidiary and the Executive to the contrary, any payments
due under this Section 4 that are rendered non-deductible by the Company
(or any Subsidiary) solely by virtue of the $1,000,000 limit on
applicable employee remuneration established under 162(m) of the
Internal Revenue Code of 1986, as amended, during the tax year of the
Change in Control, shall not be payable until the next following tax
year of the Company or its successor. Such payment shall then be made
within ten (10) business days following the start of such tax year.
5. Excess Parachute Payment Limitations. In the event that the Executive
would be subject to a tax pursuant to Section 4999 of the Internal Revenue
Code, as amended, (the "Code"), as a result of an excess parachute
payment, or a deduction would not be allowed to the Company or any
Subsidiary for all or any part of such payment by reason of Section 280G
of the Code, such payment shall be reduced. In the event such reduction
is required, the amounts payable to the Executive under this Agreement, or
any other agreement, plan or program, of the Company or any Subsidiary,
shall be reduced to an amount such that the present value of all
<PAGE>
payments
in the nature of compensation which are contingent upon a Change in
Control total an amount not greater than three (3) times the Executive's
base amount less one dollar, as any such terms are defined or applied in
Section 280G of the Code and the proposed regulations thereunder. The
determinations to be made with respect to this Section 5 shall be made by
the public accounting firm that is retained by the Company as of the date
immediately prior to the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of being requested to do so by
the Company. All fees and expenses of the Accounting Firm shall be borne
solely by the Company.
6. No Mitigation Obligation. The Executive will not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment, nor will any profits, income, earnings or other benefits from
any source whatsoever create any mitigation, offset, reduction or any
other obligation on the part of the Executive hereunder or otherwise,
except as expressly provided in Section 4 of this Agreement.
7. Legal Fees and Expenses. If any contest or dispute shall arise under
this Agreement involving the failure or refusal of the Company to perform
fully in accordance with the terms hereof, the Company shall reimburse the
Executive, on a current basis, for all legal fees and expenses, if any,
incurred by the Executive in connection with such contest or dispute
regardless of the result thereof.
8. Non-Solicitation. During the continuance of his employment by the
Company and for a period of twenty-four (24) months after termination of
his employment (the "Non-Solicitation Period"), the Executive will not (i)
directly or indirectly cause, or attempt to cause, to leave the employ of
the Company any employee of the Company that is an employee of the Company
at any time during the period beginning six months before the date of this
Agreement and ending at the end of the Non-Solicitation Period, (ii)
directly or indirectly solicit any customer of the Company as to which the
Executive obtained knowledge during his affiliation with the Company as a
member of the leadership team of the Company or with any affiliate of the
Company, (iii) knowingly or recklessly interfere or attempt to interfere
with any transaction in which the Company was involved during the term of
this Agreement, or (iv) in any other way knowingly or recklessly interfere
with the relationship between the Company and any of its employees,
customers or suppliers.
9. Employment Rights. Nothing expressed or implied in this Agreement will
create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control.
<PAGE>
10. Release. Payment of the severance compensation set forth in Section 4
hereto is conditioned upon the Executive executing and delivering to the
Company a general release to be provided by the Company.
11. Withholding of Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government
regulation or ruling.
12. Successors and Binding Effect. This Agreement is a personal service
agreement and may not be assigned by the Company or the Executive, except
that the Company may assign this Agreement to a successor by merger,
consolidation, sale of assets or other reorganization. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns, and legal
representatives.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be directed to the appropriate party in writing and mailed
or delivered, if to the Company, to 555 Seventeenth Street, 14th Floor,
Denver, Colorado 80202 or to the Company's then principal office, if
different, and if to the Executive, to
1542 Mayfield Lane, Longmont, COlorado 80501.
14. Applicable Law. This Agreement is entered into in the State of
Colorado and for all purposes shall be governed by the laws of the State
of Colorado.
15. Validity. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances
will not be affected, and the provision so held to be invalid,
unenforceable or otherwise illegal will be reformed to the extent (and
only to the extent) necessary to make it enforceable, valid or legal.
16. Representation by Counsel. The parties hereto acknowledge that they
have had the opportunity to consult with counsel and have done so to the
extent they deemed appropriate during the negotiation, preparation and
execution of this Agreement.
17. Counterparts. This instrument may be executed in one or more
counterparts, each of which shall be deemed an original.
18. Amendment. This Agreement may not be amended except by an instrument
in writing executed by each of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
PMC INTERNATIONAL, INC.
By: /s/ Scott A. MacKillop
Scott A. MacKillop
Title: Executive Vice President/Chief
Operating Officer
MAUREEN DOBEL
/s/ Maureen E. Dobel
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