31
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PRECISION STANDARD, INC.
(Name of Registrant as Specified in Its Charter)
----------------------------------------
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
PRECISION STANDARD, INC.
12000 E. 47th Avenue, Suite 400
Denver, Colorado 80239
(303) 371-6525
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 1999
TO THE SHAREHOLDERS OF PRECISION STANDARD, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Precision Standard, Inc., a Colorado corporation (the "Company"), will be
held at the Embassy Suites, 4444 North Havana Street, Denver, Colorado
80239, on Monday, May 17, 1999, at 8:00 a.m. Mountain Daylight Time, and
at any and all adjournments thereof, for the purpose of considering and
acting upon the following matters:
1. The election of four (4) Directors of the Company to serve until
the next Annual Meeting of Shareholders and until their successors have
been duly elected and qualified;
2. The ratification of the appointment of Arthur Andersen LLP as
the independent public accountants of the Company for the calendar year
ending December 31, 1999;
3. The approval of amendments to the Nonqualified Stock Option Plan
which include an increase in the number of shares reserved under the Plan;
and
4. The transaction of such other business as may properly come
before the Meeting or any adjournment thereof.
A Proxy Statement explaining the matters to be acted upon at the
Meeting is enclosed. Please read it carefully.
Only holders of record of the $.0001 par value common stock of the
Company at the close of business on Wednesday, April 7, 1999, will be
entitled to notice of and to vote at the Meeting or at any adjournment or
adjournments thereof. The Proxies are being solicited by the Board of
Directors of the Company.
All Shareholders, whether or not they expect to attend the Annual
Meeting of Shareholders in person, are urged to sign and date the enclosed
Proxy and return it promptly in the enclosed postage-paid envelope which
requires no additional postage if mailed in the United States. The giving
of a Proxy will not affect your right to vote in person if you attend the
Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Denver, Colorado MATTHEW L. GOLD
April 15, 1999 PRESIDENT
PRECISION STANDARD, INC.
12000 E. 47th Avenue, Suite 400
Denver, Colorado 80239
(303) 371-6525
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 1999
GENERAL INFORMATION
THE ENCLOSED PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF
DIRECTORS OF PRECISION STANDARD, INC., A COLORADO CORPORATION (THE
"COMPANY"), FOR USE AT THE COMPANY'S ANNUAL MEETING OF SHAREHOLDERS (THE
"MEETING") TO BE HELD AT THE EMBASSY SUITES, 4444 NORTH HAVANA STREET,
DENVER, COLORADO 80239, ON MONDAY, MAY 17, 1999, AT 8:00 A.M., MOUNTAIN
DAYLIGHT TIME, AND AT ANY ADJOURNMENT THEREOF. IT IS ANTICIPATED THAT
THIS PROXY STATEMENT AND THE ACCOMPANYING PROXY WILL BE MAILED TO THE
COMPANY'S SHAREHOLDERS ON OR ABOUT APRIL 15, 1999.
Any person signing and returning the enclosed Proxy may revoke it at
any time before it is voted by (i) giving a later dated written revocation
of Proxy to the Company, or (ii) providing a later dated amended Proxy to
the Company, or (iii) voting in person at the Meeting. The expense of
soliciting Proxies, including the cost of preparing, assembling and
mailing this Proxy material to Shareholders, will be borne by the Company.
It is anticipated that solicitations of Proxies for the Meeting will be
made only by use of the mails; however, the Company may use the services
of its Directors, Officers and employees to solicit Proxies personally or
by telephone, without additional salary or compensation to them.
Brokerage houses, custodians, nominees and fiduciaries will be requested
to forward the Proxy soliciting materials to the beneficial owners of the
Company's shares held of record by such persons, and the Company will
reimburse such persons for the reasonable out-of-pocket expenses incurred
by them in that connection.
All shares represented by valid Proxies will be voted in accordance
therewith at the Meeting.
SHARES OUTSTANDING AND VOTING RIGHTS
All voting rights are vested exclusively in the holders of the
Company's $.0001 par value common stock (the "Common Stock"). Only
Shareholders of record at the close of business on Wednesday, April 7,
1999, are entitled to notice of and to vote at the Meeting or any
adjournment thereof. On April 7, 1999, the Company had 3,978,137 shares
of Common Stock outstanding, each share of which is entitled to one vote
on all matters to be voted upon at the Meeting, including the election of
Directors. Cumulative voting in the election of Directors is not
permitted.
A majority of the Company's outstanding Common Stock represented in
person or by Proxy and entitled to vote will constitute a quorum at the
Meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of post-
split shares of the Company's Common Stock owned beneficially, as of April
7, 1999 after giving effect to the reverse stock split which was effective
April 15, 1998, by any person who is known to the Company to be the
beneficial owner of 5% or more of such Common Stock, and, in addition, by
each Executive Officer and each Director and nominee for Director of the
Company, and by all Directors and the Executive Officer of the Company as
a group. Information as to beneficial ownership is based upon statements
furnished to the Company by such persons. For purposes of this disclosure,
the amount of the Company's Common Stock beneficially owned is the
aggregate number of shares of the Common Stock outstanding on such date
plus an amount equal to the aggregate amount of Common Stock which could
be issued upon the exercise of stock options within 60 days of such date.
<TABLE>
<CAPTION>
Amount and Nature Percent
Name of Beneficial Owner of Beneficial Ownership of Class
- ------------------------ ----------------------- --------
<S> <C> <C>
Matthew L. Gold 2,246,158 shares 53.7%
12000 E. 47th Street, Suite 400 directly and
Denver, Colorado 80202 indirectly(1)
Donald C. Hannah 29,282 shares *
6400 East Cactus Wren Road directly(2)
Paradise Valley, Arizona 85253
Admiral George E. R. Kinnear II 41,357 shares 1.0%
20 Roaring Rock Road directly(3)
York, Maine 03909
General Thomas C. Richards 17,594 shares *
29688 Softwind Circle directly(4
Fair Oaks Ranch, Texas 78015
Bank of America National 349,899 shares 8.8%
Trust and Savings Association directly(5)
315 Montgomery Street, 13th Floor
San Francisco, California 94104
All Directors and Executive 2,334,391 shares 54.8%
Officer as a Group directly and
(4 Persons) indirectly(6)
</TABLE>
- -----------------------
(1) Includes 250,000 shares held by Arapaho Capital Management, Inc., a
corporation controlled by Mr. Gold. Includes options to purchase
214,000 shares. See "Executive Compensation."
(2) Consists of options to purchase 29,282 shares. See "Compensation of
Directors."
(3) Includes options to purchase 24,282 shares. See "Compensation of
Directors."
(4) Consists of options to purchase 17,594 shares. See "Compensation of
Directors."
(5) In March 1996, the Company renegotiated the Senior Subordinated Loan
which it had obtained from Bank of America in 1988 pursuant to which
the Company had granted to the Bank a warrant to purchase 1,053,939
shares of the Company's Common Stock (the "Warrant"). The Warrant
was the subject of a repurchase agreement over a period of six
quarters ended October 31, 1998. The Company had the right to
repurchase the Warrant with cash or by the issuance of Common Stock
with a value equal to the difference between the approximate $0.95
Warrant exercise price and the fair market value of the Common Stock
on specified dates. With the final redemption of the Warrant on
October 31, 1998, the Company issued 825,399 shares of Common Stock
for the redemption of all 1,053,939 Warrant shares.
(6) Includes options to purchase 285,158 shares.
*Less than one percent.
Change in Control
- -----------------
As far as is known to the Board of Directors or the management of the
Company, there are no arrangements, including any pledge by any person of
securities of the Company, the operation of which might, at a subsequent
date, result in a change in control of the Company.
ELECTION OF DIRECTORS
The Board of Directors recommends the election as Directors of the
four (4) nominees listed below. The Board's recommendation as nominees
includes all of the Directors elected at the last annual meeting of
Shareholders. The four nominees, if elected, will hold office until the
next annual meeting of Shareholders and until their successors are elected
and qualified or until their earlier death, resignation or removal. IT IS
INTENDED THAT SHARES REPRESENTED BY PROXIES IN THE ACCOMPANYING FORM WILL
BE VOTED "FOR" THE ELECTION OF THE NOMINEES NAMED BELOW UNLESS A CONTRARY
DIRECTION IS INDICATED. If at the time of the Meeting any of the nominees
named below should be unable to serve, which event is not expected to
occur, the discretionary authority provided in the Proxy will be exercised
to vote for such substitute nominee or nominees, if any, as shall be
designated by the Board of Directors.
The following table sets forth the name and age of each nominee for
Director, indicating all positions and offices with the Company currently
held by him, and the period during which he has served as a Director:
<TABLE>
<CAPTION>
All Positions and Period Served as
Offices Held With Director of the
Name Age the Company Company
---- --- ----------------- ---------------
<S> <C> <C> <C>
Matthew L. Gold 56 Chairman, President, Since 12/31/86
Chief Executive
Officer and Director
Donald C. Hannah 66 Director Since 2/15/91
Admiral George E.R. 71 Director Since 3/2/93
Kinnear II
General Thomas C. Richards 69 Director Since 8/14/95
</TABLE>
Donald C. Hannah also serves as a Director of Franchise Finance
Company of America, a real estate investment trust company, which is a
publicly held company. Except for the foregoing, none of the nominees
hold directorships in any other company having a class of securities
registered under the Securities Exchange Act of 1934, as amended, or in
any company registered as an investment company under the Investment
Company Act of 1940, as amended.
MEETINGS AND COMMITTEES OF THE BOARD
The Company has an Executive Committee which has as its primary
function director-level review and approval of non-routine matters of
significance during the periods between scheduled meetings of the Board of
Directors. During 1998 the Committee consisted of Matthew L. Gold,
Admiral George E.R. Kinnear II and General Thomas C. Richards. The
Committee held no meetings during the last calendar year.
The Company has an Audit Committee which during 1998 was comprised of
Donald C. Hannah, General Thomas C. Richards and Admiral George E.R.
Kinnear II. The Audit Committee oversees the accounting controls for the
Company. This Committee held one meeting during the last calendar year
which was by unanimous written consent. Pursuant to the requirements of
the Company's Nasdaq SmallCap Market agreement, a majority of the Audit
Committee consists of outside Directors.
The Company also has a Compensation Committee, which Committee makes
recommendations on executive compensation and selects those persons
eligible to receive grants of stock, stock options and stock appreciation
rights under the Company's Incentive Stock Option and Appreciation Rights
Plan and its Nonqualified Stock Option Plan. In 1998, the Committee was
composed of Donald C. Hannah, Admiral George E. R. Kinnear II and General
Thomas C. Richards. This Committee held three meetings during the last
calendar year, one of which was by unanimous written consent.
The Board of Directors held seven meetings during the last calendar
year, two of which were by unanimous written consent. There were no
incumbent Directors who during the last fiscal year attended fewer than
75% of the aggregate of all meetings of the Board and of all committees of
the Board on which he serves.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names of all Directors and Executive Officers
of the Company, all positions and offices held by each such person, the
period during which he has served as such, and the principal occupations
and employment of such persons during the last five years:
MATTHEW L. GOLD. Mr. Gold has been Chairman, President and Chief
Executive Officer of the Company since December 1986. He has also been
Chairman of Pemco Aeroplex, Inc., Air International Incorporated and Space
Vector Corporation, wholly-owned subsidiaries of the Company, since
September 1988. He has also been President of the Company's subsidiaries,
Pemco Air Services System, Inc., Pemco Capital Corporation, Pemco Nacelle
Services, Inc. and Pemco World Air Services, Inc. since their inceptions
in November 1991, October 1992, January 1993 and April 1993, respectively.
From 1984 to 1986, he was President of Monarch Aviation, Inc., a company
primarily engaged in the business of modifying and maintaining large
transport aircraft, and later, Pemco Engineers, Inc., a company primarily
engaged in the business of manufacturing aircraft cargo systems, both of
which are predecessors of the Company.
DONALD C. HANNAH. Mr. Hannah was appointed as a member of the Board
of Directors in February 1991. He currently serves as Chairman and Chief
Executive Officer of U.S. Properties, Inc., a real estate acquisition and
marketing company, positions he has held since December 1992. Mr. Hannah
has been Chairman of the Board of Hannah Marine Corp. of Lemont, Illinois,
a marine transport company, since 1956. He serves on the Board of
Managers for American Bureau of Shipping, a classification society in the
marine industry, as Chairman of the Arizona Presidents Organization, and
as a Director of the Camper Clubs of America. He is also a Director of a
publicly traded company, Franchise Finance Corporation of America, a real
estate investment trust company.
GEORGE E. R. KINNEAR II. Admiral Kinnear was appointed as a member
of the Board of Directors in March 1993. He formed his own consulting
company, Kinnear & Associates, in January 1995. He was Chairman of the
Board and Chief Executive Officer of Energy Point, a gasoline servicing
company, from July 1992 until January 1995. He was Chairman of the Board
of The Retired Officers Association, a service company for retired
military officers, from October 1992 to October 1994. Prior to that time
he served briefly as Vice Chairman and Chief Executive Officer of New
England Digital, a computer company, from February 1992 to June 1992.
Admiral Kinnear was Executive Vice President and Interim President from
November 1988 to January 1992 of the University of New Hampshire. Before
that he was Senior Vice President and Vice President of Grumman Corp., an
aerospace company, from October 1982 to October 1988. He retired as a
four star Admiral from the U.S. Navy in September of 1982 after thirty-
seven years of service. Admiral Kinnear currently serves as a Director of
eVelocity Corp., a software company, and Aerospace Corp., an aerospace
development company. From August 1988 until May 1998, he also served as a
Trustee of the Aerospace Corp., the Naval Aviation Museum, the U.S. Navy
Heritage Foundation, the Strawbery Banke Historical District, and the
Center for the Study of the Presidency.
THOMAS C. RICHARDS. General Richards was appointed as a member of
the Board of Directors in August 1995. He was President of the National
Security Industrial Association of Washington, D.C., a nonprofit
corporation, from September 1995 until March 1997. He served as a
consultant and as a member of the Board of Directors of First American
Bank of Bryan, Texas from June 1991 to September 1995. General Richards
has served as a consultant to Cubic Defense Systems of San Diego,
California and Mantech International of Fairfax, Virginia, companies which
are involved in the aviation and defense industry, since January 1994. He
was appointed by the President as the Administrator of the Federal
Aviation Administration from May 1991 to January 1992, after having served
on the Aviation Security and Terrorism Commission which was formed by the
President to review the Pan Am 103 accident. General Richards retired as
a four star General from U.S. Air Force in November 1989 after 33 years of
service, the last three of which were spent commanding the day to day
operations of the U.S. European Command.
The Company's Executive Officers are elected by the Board of
Directors at the first meeting after each annual meeting of Shareholders,
and hold office until the next such meeting of Directors or their earlier
resignation or removal.
Other than the executive employment agreement with the Company's
President and Chief Executive Officer, there is no arrangement or
understanding between any Director or Executive Officer and any other
person or persons pursuant to which he was or is to be selected as a
Director or Executive Officer nor is there any family relationship between
or among any of the Company's Directors or Executive Officer. See
"Executive Compensation - Agreement with Executive Officer."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the executive compensation of the
Company's Chief Executive Officer for each of the Company's last three
fiscal years. There were no other Executive Officers serving at the end
of the last fiscal year whose compensation was greater than $100,000.
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Other Annual
Name and Salary Bonus Compensation
Principal Position Year ($)(1) ($)(2) ($)(3)
- ------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Matthew L. Gold, 1998 $517,000 $ 0 $ 0
President and CEO 1997 501,500 0 0
1996 506,500 200,000 0
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Awards
----------------------
Securities
Restricted Underlying
Name and Stock Options/
Principal Position Year Award(s)($) SARs (#)(4)
- ------------------- ---- ------------ -----------
<S> <C> <C> <C>
Matthew L. Gold, 1998 $ 0 350,000
President and CEO 1997 0 0
1996 0 220,000
</TABLE>
(1) The salaries for Mr. Gold include Directors' fees as follows: 1998,
$37,000, 1997, $21,500, and 1996, $26,500, respectively.
(2) The cash bonus awarded to Mr. Gold in 1996 has not been paid.
(3) The named Executive Officer did not receive perquisites or other
personal benefits the aggregate annual amount of which was the lesser
of either $50,000 or 10% of the total of annual salary and bonus
reported for him.
(4) Of Mr. Gold's grants for 1998, all of the options were nonqualified
stock options. 100,000 were immediately vested and the other 250,000
will only vest and become exercisable if certain performance goals
are met by the Company. Of Mr. Gold's grant for 1996, options to
purchase 128,015 shares were incentive stock options/SARs and options
to purchase 91,985 shares were nonqualified stock options.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth the information concerning the grants
of stock options and appreciation rights during the last fiscal year to
the named Executive Officer:
<TABLE>
<CAPTION>
Individual Grants
-----------------
Percent of
Number of of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/ Employees or Base
SARs in Fiscal Price Expiration
Name Granted(#) Year (S/Sh) Date
---- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
M. L. Gold 100,000(1) 28.6% $3.4278 7-31-08
250,000(2) 71.4% $3.4278 7-31-08
</TABLE>
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Option Term
----------------------
Name 5%($) 10%($)
---- ----- ------
<S> <C> <C>
M.L. Gold $215,951 $ 545,020
539,785 1,362,550
</TABLE>
(1) Represents ten-year nonqualified stock options.
(2) Represents ten-year nonqualified stock options which will only vest
and become exercisable if certain performance goals are met by the
Company.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth information concerning each exercise
of stock options during the last fiscal year by the named Executive
Officer and the fiscal year end value of unexercised options:
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexpected
Shares Exercised In-the-Money
Acquired Options/SARs Options/SARs
on Value at Fiscal at Fiscal
Exercise Realized Year-End Year-End
Name (#) ($) (#) ($)
---- -------- -------- ------------ ------------
Exercisable/ Exercisable/
unexercisable unexercisable
------------- ------------
<S> <C> <C> <C> <C>
M. L. Gold 0 N/A 230,000/0(1) $19,720/$0
</TABLE>
(1) Of Mr. Gold's options, exercisable options to purchase 181,996 shares
represent nonqualified stock options, and the remaining options are
incentive stock options granted in tandem with SARs.
PENSION PLANS
The Executive Officer named above is an eligible participant in the
Pemco Aeroplex, Inc. Pension Plan (the "Pension Plan"). The following
table sets forth the annual retirement benefits payable under the Pension
Plan upon retirement at age 65 based on an employee's assumed average
annual compensation for the five-year period preceding retirement and
assuming actual retirement on January 1, 1999. The Pension Plan is a tax
qualified defined benefit plan and is subject to certain maximum benefit
provisions. The retirement plan benefit formula is equal to (a) plus (b):
(a) Earnings portion of formula
- 1% of the employee's final average compensation for the last
five years of benefit service not to exceed $160,000 for 1999,
less $6,600,
TIMES
- the employee's years of credited service (not to exceed 30
years),
PLUS
(b) $144 times the employee's years of credited service (not to exceed 30
years).
The compensation utilized for the Pension Plan formula benefit
includes base pay and does not consider bonuses.
<TABLE>
<CAPTION>
Remuneration Years of Service
----------- ---------------------------------------
15 20 25 30
<S> <C> <C> <C> <C>
$125,000 $19,920 $26,560 $33,200 $39,840
150,000 23,670 31,560 39,450 47,340
175,000 25,170 33,560 41,950 50,340
200,000 25,170 33,560 41,950 50,340
225,000 25,170 33,560 41,950 50,340
250,000 25,170 33,560 41,950 50,340
300,000 25,170 33,560 41,950 50,340
400,000 25,170 33,560 41,950 50,340
450,000 25,170 33,560 41,950 50,340
500,000 25,170 33,560 41,950 50,340
</TABLE>
Assumes: 1. Remuneration is latest 5-year average annual salary.
2. Retirement is at age 65 or later.
3. No joint and survivor option elected.
To date, no Executive Officer has earned a material level of vested
benefits under the Pension Plan, although the named Executive Officer is
eligible to receive benefits thereunder.
Certain amendments to the tax laws reduced the amount of benefits
available to the named Executive Officer under the Pension Plan in plan
years beginning after December 1993. In recognition of these changes, the
Compensation Committee has agreed to provide supplemental pension benefits
to the Executive Officer to compensate him for the lost benefits under the
Pension Plan.
401(k) Plan
- -----------
On November 2, 1990, the Board of Directors adopted a 401(k) Savings
Plan for employees of the Company and its subsidiaries effective October
1, 1990 (the "401(k) Plan"), which is qualified under Subsection 401(k) of
the Internal Revenue Code. All employees of the Company and its
subsidiaries who (i) are not covered by any collective bargaining
agreement, (ii) have attained age 21, and (iii) have completed one year of
service, may join the 401(k) Plan. The 401(k) Plan provides a method for
employees to choose between receiving all their compensation now or
deferring some pre-tax income by investing in the 401(k) Plan until
retirement. Deferred amounts representing up to 15% of compensation per
calendar year (not to exceed $10,000 in 1999) are deposited into the Plan
where they may earn income tax-free until distribution. Although the
401(k) Plan allows for matching contributions by the Company, none have
been made as of the date of this Proxy Statement. The 401(k) Plan
currently is administered by an Administrative Committee composed of four
employees of the Company who are not Executive Officers or Directors of
the Company. Directors who are not also employees of the Company are not
eligible to participate. Mr. Gold is a participant in the 401(k) Plan and
his amounts of deferred compensation are included in the Summary
Compensation Table set forth above.
PERFORMANCE GRAPH
Set forth below is a line graph and a table comparing the yearly
percentage change in the cumulative total shareholder returns on the
Company's Common Stock with the cumulative total returns of the Standard &
Poor's 500 Stock Index, Standard & Poor's Aerospace/Defense Stock Index
and Standard and Poor's Airline Stock Index as prepared by Standard &
Poor's Compustat - Custom Business Unit. While there is no stock index
for companies engaged in the Company's primary business of commercial and
military aircraft maintenance and modification services, the Company's
performance may be influenced by the airline industry and the business
environment surrounding such industry. The line graph and table cover the
five year period from January 1994 through December 1998 and represent the
total value of a $100 investment in each security/market index on the last
trading day of December, 1993. All dividends are assumed to be
reinvested.
COMPARATIVE FIVE YEAR TOTAL CUMULATIVE RETURNS
PRECISION STANDARD, S&P AEROSPACE/DEFENSE INDEX,
S&P AIRLINES INDEX AND S&P 500 INDEX,
<TABLE>
<CAPTION>
Base Years Ending
Company / Index Period Dec94 Dec95 Dec96 Dec97 Dec98
Dec93
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRECISION STANDARD INC 100 44.44 22.22 30.56 12.49 20.14
S&P 500 INDEX 100 101.32 139.40 171.40 228.59 293.91
AEROSPACE/DEFENSE-500 100 108.17 179.00 239.44 246.34 188.83
AIRLINES-500 100 69.78 101.90 111.72 188.03 181.90
</TABLE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the Board of
Directors of Precision Standard, Inc. (the "Company") is composed of
outside directors who are not employees of the Company and who qualified
as "disinterested persons" under former Rule 16b-3 adopted under the
Securities Exchange Act of 1934. At the direction of the Board of
Directors, the Committee prepared the following report on April 13, 1999
for inclusion in this Proxy Statement to comply with the rules of the
Securities and Exchange Commission.
The Company's executive compensation program has been designed to
enable the Company to attract, motivate, and retain key senior management
by providing a fully competitive total compensation package based on
performance. It is intended to reward the key executive for long-term
strategic planning and management, enhancement of shareholder value and
improving Company performance compared to performance levels of comparable
companies in the industry. Of equal importance, it is designed to attract
and retain those key executives who are critical to the long-term success
and competitiveness of the Company.
The key components of the executive compensation program are:
salary, which is based on the individual officer's level of responsibility
and comparisons to the executive positions in the Company, its
subsidiaries and comparable companies in the industry; cash bonus awards,
which are based on individual performance and the performance of the
Company for the year, measured primarily, but not exclusively, in the
profitability of the Company; equity incentive, in the form of stock
options, stock appreciation rights and stock grants, which are intended to
increase the motivation for the Company to improve its financial position
and long-term success as measured by the Company's share price and book
value per share; and employment agreements, which are designed to provide
long-term security to the key executive in exchange for long-term
commitments and agreements not to enter into competition with the Company.
The overall objective of the program is to provide rewards to the key
executives commensurate with the benefits received by the shareholders
from the efforts of those executives.
The Compensation Committee recognizes that, as a result of the
resignations of Messrs. Moede and Groth in late 1996 and October of 1997,
respectively, the Company's President and Chief Executive Officer, Matthew
L. Gold, has been forced to bear an inordinate share of the burden of
management of the Company, and that he has been required to do so in
unusually difficult circumstances which were not the result of his
actions. Those unusually difficult circumstances included continuation of
the Company's cash flow problems (largely generated by extraordinary
difficulties in dealing with the Government on some of the Company's
larger contracts), and successive work stoppages by the United Auto
Workers and the International Association of Machinists unions. The
Committee continues to believe, as it did in 1998, that Mr. Gold's efforts
over the past few years have been extremely valuable to the Company and
its shareholders. Nevertheless, the Committee continues to believe that,
notwithstanding Mr. Gold's success in restoring the Company's
profitability in 1998, it would be inappropriate to grant any cash bonuses
to Mr. Gold at this time, while the Company still suffers under such a
dramatic cash flow crisis that many of the bonuses declared to Executive
Officers in prior years have still not been paid. The Committee again
reserves the right, however, to revisit the question of cash bonuses and
stock options or grants for Mr. Gold on account of his exemplary efforts
on the Company's behalf in 1998.
The Committee did determine, however, that a grant to Mr. Gold of
100,000 stock options at current market prices would be a fair reward for
his outstanding efforts in generating a profit of more than $10 million in
1998, reversing the losses of previous years. The Committee felt that a
stock option award would provide a better incentive to Mr. Gold to focus
his efforts in 1999 on improving the trading price of the Company's stock,
which has lagged considerably behind the improved financial results.
Finally, the Committee established certain goals for the Company and
granted Mr. Gold another 250,000 stock options on a contingent basis if
those goals were met by July 1, 1999. The Committee has taken these
actions with a view toward focusing management's efforts on increasing
shareholder value over the upcoming year.
Dated: April 13, 1999 DONALD C. HANNAH
ADMIRAL GEORGE E.R. KINNEAR II
GENERAL THOMAS C. RICHARDS
Compensation of Directors
- -------------------------
The Company currently has an arrangement whereby each Director earns
an annual retainer of $18,000, and $1,000 plus expenses for attendance at
each meeting of the Board of Directors and related activities. The
Directors also earn $1,000 plus expenses in connection with attendance at
each meeting of the Audit Committee, the Executive Committee and the
Compensation Committee, excepting when a Committee meets in conjunction
with a full Board meeting. Directors who are employees of the Company are
eligible to receive stock options under either of the Company's stock
option plans. Outside Directors are eligible to receive options under the
Company's Nonqualified Stock Option Plan (the "Nonqualified Plan") only.
Pursuant to the Nonqualified Plan, outside Directors receive fully
vested options on December 10 of each year. The number of shares subject
to options granted in any such year is equal to one share of Common Stock
for each two dollars of Director's base compensation (annual retainer plus
meeting fees for an assumed minimum of four meetings or, currently,
$22,000) paid to the Director during the calendar year in which the option
is granted.
In November 1990, the Board of Directors adopted a three-year
retirement benefit for the Directors of the Company, payable after they
retire or otherwise terminate their service as a Director of the Company.
In December 1993, the Board of Directors amended the retirement benefit.
Directors retiring from the Company after that date are entitled to
benefits as follows:
<TABLE>
<CAPTION>
Under Five Five or More
Retirement Benefit Payable Years of Service Years of Service
- -------------------------- ---------------- ----------------
<S> <C> <C>
-1st Year $4,500 $9,000
-2nd Year $3,000 $6,000
-3rd Year $1,500 $3,000
</TABLE>
All current Directors, as well as two former Directors, Admiral
Wesley L. McDonald (who retired as a Director effective May 16, 1995) and
Walter M. Moede (who resigned as a Director effective December 31, 1996),
are currently entitled to or are eligible for benefits according to the
benefits schedule in effect at the time of such Director's retirement.
For purposes of entitlement to the benefits schedule shown above, Messrs.
Gold, Hannah and Kinnear have or are deemed to have five years of service.
Upon retirement, this benefit is paid to former Directors on a quarterly
basis for the three-year term of the benefit. The Board of Directors has
determined that Directors are asked to retire from the Board at age 70-1/2
years. However, Admiral Kinnear was granted a waiver of the age
limitation by the Board of Directors in order that he may continue to
serve on the Board and on Committees of the Board.
Agreement with Executive Officer
- --------------------------------
Pursuant to an agreement effective June 1, 1993 and amended March 11,
1994, Mr. Gold is engaged as President, Chief Executive Officer and
Chairman of the Board for an initial term of five years commencing June 1,
1993. On each June 1 following 1993, the agreement is automatically
extended for an additional year unless the Company or Mr. Gold gives
notice more than ninety days before May 31 of such year. Because no such
notice was given in 1998, the agreement currently expires in 2003.
The agreement provides for an initial annual base salary of $440,000,
with the base salary for subsequent years to be determined by the Board of
Directors on the basis of merit and the Company's financial success and
progress, provided that the annual base salary in each year shall be at
least 5% higher than the previous year's annual base salary. Mr. Gold is
also entitled to bonuses as determined by the Board of Directors in its
sole discretion, and is entitled to vacation and other employee benefits
under the Company's employee benefit plans.
Under the agreement, Mr. Gold is entitled to various amounts on the
termination of his employment depending on the reasons for such
termination. Upon his death or disability Mr. Gold or his designated
beneficiary will be entitled to receive his then annual base salary for
the greater of two years or the remaining term of the agreement together
with any bonuses determined to be due and payable by the Board of
Directors. Upon Mr. Gold's voluntary or involuntary termination, he is
entitled to specified severance amounts. Upon voluntary termination
(i.e., resignation by Mr. Gold other than as a result of a change of
duties, compensation or benefits following a change in control of the
Company), Mr. Gold will be entitled to continue to receive his annual base
salary plus the average annual bonus awarded to him by the Board of
Directors during the three preceding years (the "Average Bonus") for a
period of one year. Upon involuntary termination (i.e. any termination
other than voluntary termination, termination by mutual agreement, or
termination as a result of death, disability or normal retirement), Mr.
Gold will be entitled to 2.99 times the sum of his then annual base salary
and the Average Bonus.
Other than as described above, the Company has no compensation plan
or arrangement with Mr. Gold whereby the implementation of such plan or
arrangement results or would result from the resignation, retirement or
other termination of his employment with the Company or from a change in
control of the Company.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company's former subsidiary, Consolidated Tire, previously leased
warehouse and office facilities from Monarch Properties, a sole
proprietorship owned by Matthew L. Gold, the Company's Chairman, President
and Chief Executive Officer. This lease was cancelled in December 1990.
Although the lease was not due to expire until December 1992, Mr. Gold
agreed to accept $147,000 to cancel the remaining term, which amount
represented 80% of the present value of the remaining rental payments.
The Company paid $26,840 of this obligation in cash and reduced the amount
of indebtedness of Mr. Gold and Monarch Properties to the Company, as
described below. As additional consideration to the Company, Mr. Gold
also waived and released claims that he may have had against the Company
at that time for certain expenses or advances paid by him on behalf of the
Company.
Prior to the surrender and exchange of the Consolidated Tire
warehouse lease discussed above, Mr. Gold and Monarch Properties were
indebted to the Company in the amount of $132,947 and $167,037,
respectively. These debts had been incurred as a result of various
advances made by the Company, and were repayable in equal installments
over five years beginning in 1990. After the application of the remaining
$120,160 reduction attributable to the surrender of the Consolidated Tire
lease, the total debt was reduced to $179,824. In November of 1991, Pemco
Engineers, Inc. completed the 1988 sale of its Stanton, California
facility to Monarch Properties by delivering the September 26, 1988 deed
to Monarch Properties in exchange for a promise to pay $90,000. The
$90,000 sales price was the same as the purchase price paid by Pemco
Engineers in 1988 shortly before the September 26, 1988 deed to Monarch
Properties. As a result of this new obligation, the total indebtedness of
Monarch Properties and Mr. Gold to the Company and its subsidiaries
increased to $269,824 as of December 31, 1991. The obligation remains
outstanding as of the date hereof and the Company has no arrangement or
understanding with Mr. Gold as to the timing of any repayment thereof.
The Company has for the past several years owed Mr. Gold various amounts
as the result of cash bonuses which were granted by the Compensation
Committee but never paid. There are, however, no plans or agreements to
set off the unpaid bonuses against Mr. Gold's obligations to the Company
at this time.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accounting firm of Arthur Andersen LLP has
been engaged by the Company since January 14, 1997, and has audited the
financial statements of the Company for the years ended December 31, 1996,
1997 and 1998.
At the direction of the Board of Directors, the ratification of the
appointment of Arthur Andersen LLP for the year ending December 31, 1999
is being presented to the Shareholders for approval at the Meeting. It is
expected that a representative of Arthur Andersen LLP will be present at
the Meeting to respond to appropriate questions, and will be given the
opportunity to make a statement if he so desires.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE CALENDAR YEAR ENDING DECEMBER 31, 1999.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
PROPOSAL TO AMEND THE NONQUALIFIED STOCK OPTION PLAN
The Nonqualified Stock Option Plan (the "NQSO Plan") was adopted by
the Company in September of 1989. in order to grant nonqualified stock
options and stock appreciation rights to employees, officers, directors,
consultants and independent contractors of the Company. It was
subsequently amended to also include stock grants. On April 2, 1999, the
Compensation Committee approved amendments to the NQSO Plan to (i) extend
the term of the NQSO Plan for an additional ten years from September 9,
1999 when it is due to expire, (ii) increase the number of shares reserved
under the NQSO Plan, and (iii) increase the maximum number of shares which
may be granted to any participant. The Company's Board of Directors and
its Compensation Committee (presently consisting of Admiral George E.R.
Kinnear II, Donald R. Hannah and General Thomas C. Richards, all of whom
are outside directors) believe that these amendments are necessary in
light of the April 15, 1998 reverse stock split of the Company's Common
Stock and are important to provide flexibility to the Compensation
Committee in its administration of the NQSO Plan, to encourage stock
ownership by employees and management, to permit the Company to attract
and retain officers, directors, consultants and independent contractors,
and to continue to provide incentives and promote the financial success
and progress of the Company. In addition, the grant of stock options in
particular can be made without the expenditure of the Company's cash or
other liquid resources, which are being preserved for the Company's
expansion of its customer base and exploration of strategic alternatives
to enhance shareholder value.
The reverse stock split of the outstanding shares of the Company's
Common Stock (approved by the shareholders and declared effective April
15, 1998) also effected the NQSO Plan and the Company's Incentive Stock
Option and Appreciation Rights Plan (the "Incentive Plan"). The Incentive
Plan was adopted by the Company in July of 1989 in order to grant
incentive stock options and stock appreciation rights to key employees
(within the meaning of Section 416(I)(1)(A) of the Internal Revenue Code).
The effect was a reduction in the number of shares available for grant
under each of the Plans from 1,500,000 to 375,000 shares and a reduction
in the maximum number of shares which could be granted to any participant
from 750,000 to 187,500. This meant that, after the grants of vested and
contingent options in 1998, the shares available for grant under the NQSO
Plan were already maximized, while the Incentive Plan still had available
over 275,000 shares available for grant. Since the Incentive Plan will
expire on July 10, 1999, the Board of Directors deems it appropriate to
reallocate the remaining shares reserved under the Incentive Plan to the
NQSO Plan and to further increase the total reserved under the NQSO Plan
to 1,000,000 shares effective July 1, 1999. Since the Compensation
Committee has approved the extension of the NQSO Plan's term for ten years
(which will be the Company's only stock option plan after the Incentive
Plan expires), the number of shares available for grant must be increased
sufficiently for the new ten year term. The same is true for the maximum
number of shares which may be granted to any participant. Since the NQSO
has already been in effect for almost ten years, the extension would
require that the maximum number of shares which would be granted to any
participant be enlarged for the new term period to 500,000. The maximum
number would not include options which have been granted and subsequently
expire or never became vested.
Accordingly, the shareholders are being asked to approve (i) the
extension of the term of the NQSO Plan for an additional ten years from
September 9, 1999, (ii) the increase in the number of shares reserved
under the NQSO Plan to 1,000,000 shares (which increase will be effective
upon the expiration of the Incentive Plan), and (iii) the increase in the
maximum of shares which may be granted to any participant to 500,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENTS TO THE NONQUALIFIED STOCK OPTION PLAN.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
REVERSE STOCK SPLIT AND NASDAQ SMALLCAP MARKET
On January 27, 1998, the Board of Directors approved a 4-for-1
reverse stock split of the Company's Common Stock which became effective
on April 15, 1998, and thereby kept the Common Stock eligible to be quoted
on The Nasdaq SmallCap Market ("Nasdaq"). The reverse stock split was
approved by the Shareholders and became effective on April 15, 1998.
However, the Company still failed to meet the net tangible assets/market
capitalization/net income requirement in NASD Rule 4310(c)(2) (the
"Rule"). Nasdaq granted to the Company an exception to the Rule if the
Company, on or before March 31, 1999, filed its 1998 Form 10-K
demonstrating compliance with Nasdaq's $500,000 net income requirement.
On March 31, 1999, the Company filed its Form 10-K reporting the Company's
net income as $10,053,796, well in excess of Nasdaq's requirement.
Accordingly, effective April 9, 1999, the Company's trading symbol was
changed back to PCSN from PCSNC, indicating that the Company was now in
full compliance with Nasdaq's listing criteria.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
OTHER BUSINESS
As of the date of this Proxy Statement, management of the Company was
not aware of any other matter to be presented at the Meeting other than as
set forth herein. However, if any other matters are properly brought
before the Meeting, the shares represented by valid Proxies will be voted
with respect to such matters in accordance with the judgment of the
persons voting them.
Under Colorado law, for the election of directors, of the shares
represented in person or by proxy at the meeting and entitled to vote,
that number of candidates equalling the number of directors to be elected
having the highest number of votes cast in favor of their election, are
elected to the board of directors. For the ratification of the
independent public accountants and the approval of the amendments to the
NQSO Plan, of the shares represented in person or by proxy at the meeting
and entitled to vote, the votes cast favoring the ratification or approval
of the amendments must exceed the votes opposing it. Abstentions and
broker non-votes will be counted for purposes of establishing a quorum
only. Only those votes cast for the election of directors, the
ratification of the accountants and the amendments to the NQSO Plan will
be counted as votes in favor or affirmative votes.
ANNUAL REPORT
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 accompanies this Proxy Statement. The audited financial
statements of the Company are included in such Form 10-K. Copies of the
exhibits to that Form 10-K are available from the Company upon written
request of a Shareholder and payment of the Company's out-of-pocket
expenses.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
FOR THE ANNUAL MEETING TO BE HELD IN MAY 2000
Any proposal from a Shareholder intended to be presented at the
Company's Annual Meeting of Shareholders to be held in May 2000, must be
received at the offices of the Company, 12000 E. 47th Avenue, Suite 400,
Denver, Colorado 80239 no later than December 16, 1999, in order to be
included in the Company's proxy statement and proxy relating to that
meeting.
MATTHEW L. GOLD
PRESIDENT
Denver, Colorado
April 15, 1999
APPENDIX
PROXY CARD
APPENDIX
PRECISION STANDARD, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Matthew L. Gold and Darryl Mazow,
each with the power to appoint his substitute, and hereby authorizes them
to represent and to vote as designated below, all the shares of common
stock of Precision Standard, Inc. held of record by the undersigned on
April 7, 1999, at the Annual Meeting of Shareholders to be held on May 17,
1999 or any adjournment thereof.
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed below (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all the nominees listed below
Matthew L. Gold Admiral George E.R. Kinnear II
Donald C. Hannah General Thomas C. Richards
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL
NOMINEE, CROSS OUT THAT NOMINEE'S NAME ABOVE.)
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE CALENDAR YEAR
ENDING DECEMBER 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE AMENDMENTS TO THE NONQUALIFIED STOCK OPTION
PLAN WHICH INCLUDE AN INCREASE IN THE NUMBER OF SHARES RESERVED
UNDER THE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To transact such other business as may properly come before the
Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT
THE TIME OF THE MAILING OF THE NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO
THE UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement furnished herewith.
Dated: , 1999
-------------------------------------
-------------------------------------
Signature(s) of Shareholder(s)
Signature(s) should agree with the name(s)
stenciled hereon. Executors, administrators,
trustees, guardians and attorneys should
indicate when signing. Attorneys should
submit powers of attorney.
PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED PRE-ADDRESSED
ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE MEETING OR TO SUBMIT A LATER DATED REVOCATION OR
AMENDMENT TO THIS PROXY ON ANY OF THE ISSUES SET FORTH ABOVE.
APPENDIX
PRECISION STANDARD, INC.
NONQUALIFIED STOCK OPTION PLAN
MARCH 29, 1996
AS AMENDED APRIL 2, 1999
Section 1. PURPOSE. The purpose of the PRECISION STANDARD, INC.
(the "Company") Nonqualified Stock Option Plan (the "Plan") is to provide
incentives for selected persons to promote the financial success and
progress of the Company by granting such persons awards ("Awards") of
incentives in the form of options to purchase shares of the Company's
Common Stock ("Options"), stock appreciation rights ("SARs"), and Common
Stock of the Company ("Stock Grants"). An Award may consist of one or a
combination of such incentives and may be made at any time or from time to
time.
Section 2. GENERAL PROVISIONS.
A. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee, which shall be comprised of two or more
independent outside directors appointed by the Board of Directors (the
"Committee"). Notwithstanding the foregoing, if it would be consistent
with all applicable laws, including, without limitation, Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Rule
16b-3"), and the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations promulgated thereunder (including, without limitation,
the regulations relating to Section 162(m) of the Code), then the Plan may
be administered by the Board of Directors, and if so administered all
subsequent references to the Committee shall refer to the Board of
Directors. Any action of the Committee shall be taken by majority vote or
the unanimous written consent of the Committee members.
B. AUTHORITY OF THE COMMITTEE. Subject to other provisions of
the Plan, and with a view towards furtherance of its purpose, the
Committee shall have sole authority and absolute discretion:
1. to construe and interpret the Plan;
2. to define the terms used herein;
3. to prescribe, amend and rescind rules and regulations
relating to the Plan;
4. to determine the persons to whom Awards are granted;
5. to determine the time or times at which Awards shall
be granted;
6. to determine the number of shares subject to each
Award;
7. to determine all of the other terms and conditions of
the Options, SARs, and Stock Grants awarded hereunder; and
8. to make all other determinations necessary or
advisable for the administration of the Plan and to do everything
necessary or appropriate to administer the Plan.
All decisions, determinations and interpretations made by the Committee
shall be binding and conclusive on all participants in the Plan and on
their legal representatives, heirs and beneficiaries.
C. MAXIMUM NUMBER OF SHARES SUBJECT TO THE PLAN. The maximum
aggregate number of shares of Common Stock subject to the Plan shall be
1,000,000, subject to adjustment as provided in Section 2.G of the Plan.
The Common Stock subject to the Plan may be divided among the various
types of Awards as the Committee determines in its sole discretion from
time to time. For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan, (a) all shares underlying
an Option (including the shares, if any, withheld for tax withholding
requirements) shall be counted when cash is used as full payment for
shares issued upon exercise of the Option; (b) in the case of net exercise
of an Option, only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when shares of
Common Stock are used as full or partial payment for shares issued upon
exercise of an Option; (c) all shares underlying an SAR (including the
shares, if any, withheld for tax withholding requirements) shall be
counted upon exercise of an SAR; and (d) all shares issued pursuant to a
Stock Grant (including the shares, if any, withheld for tax withholding
requirements) shall be counted when the shares are no longer subject to
any conditions, such as a vesting schedule, and certificates representing
such shares have been issued and delivered. If any Options or SARs
granted under the Plan expire or terminate for any reason before they have
been exercised, the shares subject to such Options or SARs shall again be
available under the Plan.
D. ELIGIBILITY AND PARTICIPATION. Subject to the terms of the
Plan, Awards may be granted to such employees, officers, directors,
consultants and independent contractors of the Company or any Parent,
Subsidiary or Affiliate of the Company, as defined below, as the Committee
may select from time to time in its sole discretion. Employees of the
Company are eligible to receive Awards for no more than an aggregate of
500,000 shares of the Company's Common Stock per employee under the Plan.
If any Options or SARs granted to an employee expire unexercised or
terminate before vesting, they shall not be included in the foregoing
maximum aggregate of 500,000 shares per employee. The Committee, in its
sole discretion, shall determine the number of shares of the Company's
Common Stock covered by any Award made to executive officers or other
employees under the Plan. Grants to non-employee directors of the Company
may only be made pursuant to formula grants in the manner and amounts set
forth in Section 7 hereof, provided that, if, and to the extent that, the
Committee or the Board of Directors could exercise authority to determine
the amount, price and timing of grants hereunder to its members,
consistent with all applicable laws, including, without limitation Rule
16b-3, grants to non-employee directors may be made by the Committee or
the Board of Directors as permitted by law. A person may be granted more
than one Award under the Plan. As used in the Plan, the following terms
shall have the following meanings:
1. "PARENT" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if,
at the time of the granting of an Award, each of such corporations other
than the Company owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
2. "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company
if, at the time of granting of an Award, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
3. "AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled
by, or is under common control with, another corporation, where "control"
(including the terms "controlled by" and "under common control with")
means the possession, direct or indirect, of the power to cause the
direction of the management and policies of the corporation, whether
through the ownership of voting securities, by contract or otherwise.
4. "COMMON STOCK" means shares of the Company's $.0001
par value common stock, or such other shares as are substituted pursuant
to Section 2.G hereof.
E. EFFECTIVE DATE OF PLAN. The Plan was adopted by the
Company in September 1989 and was amended April 17, 1992, May 17, 1994,
May 29, 1996 and May 12, 1997. On April 2, 1999, the Committee adopted
the most recent amendments to the Plan, which shall be submitted to the
shareholders of the Company for their approval and adoption at a meeting
to be held on May 17, 1999, or at any adjournment thereof. The
shareholders shall be deemed to have approved and adopted these most
recent amendments to the Plan only if they are approved and adopted at a
meeting of the shareholders duly held by vote taken in the manner required
by the laws of the State of Colorado.
F. TERMINATION AND AMENDMENT OF PLAN. The Plan shall
terminate on September 8, 2009. No Options, SARs, or Stock Grants shall
be granted under the Plan after that date. Subject to the limitation
contained in Section 2.H of the Plan, the Board or the Committee may at
any time amend or revise the terms of the Plan, including the form and
substance of the Options, SARs, and Stock Grants granted hereunder,
provided that no such amendment or revision shall (i) increase the maximum
aggregate number of shares that may be issued pursuant to Awards granted
under the Plan, except as permitted under Section 2.G of the Plan; or (ii)
effect any change to the Plan which is required to be approved by
shareholders by law, including without limitation the regulations
promulgated under Section 162(m) of the Code.
G. ADJUSTMENTS. If the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or
kind of shares or securities through merger, consolidation, combination,
exchange of shares, reorganization, recapitalization, reclassification,
stock dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of
shares as to which Options, SARs, and Stock Grants may be granted under
the Plan. A corresponding adjustment shall be made to the number or kind
of shares allocated to unexercised Options and SARs, or portions thereof,
and to unvested Options, SARs, and Stock Grants granted prior to any such
change. Any such adjustment in outstanding Options or SARs shall be made
without change in the aggregate purchase price applicable to the
unexercised portion of such Options or SARs, but with a corresponding
adjustment in the price for each share covered by the Options or SARs.
H. PRIOR OPTIONS AND OBLIGATIONS. No amendment, suspension or
termination of the Plan shall, without the consent of the person who has
received an Award, alter or impair any of that person's Options or
obligations under any Award granted under the Plan prior to that
amendment, suspension or termination.
I. PRIVILEGES OF STOCK OWNERSHIP. Notwithstanding the
exercise of any Option or SAR, or the receipt of any Stock Grant, granted
pursuant to the terms of the Plan, no person shall have any of the rights
or privileges of a shareholder of the Company with respect to any shares
of stock until certificates representing such shares have been issued and
delivered. No shares shall be required to be issued and delivered upon
exercise of any Option or SAR, or pursuant to a Stock Grant, until there
has been compliance with all of the requirements of law and of all
regulatory agencies having jurisdiction over the issuance and delivery of
the securities.
J. RESERVATION OF SHARES OF COMMON STOCK. During the term of
the Plan, the Company will at all times reserve and keep available such
number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Plan. In addition, the Company will from time to
time, as is necessary to accomplish the purposes of the Plan, seek or
obtain from any regulatory agency having jurisdiction any requisite
authority in order to issue shares of common stock hereunder. The
inability of the Company to obtain from any regulatory agency having
jurisdiction the authority deemed by the Company's counsel to be necessary
to the lawful issuance of any Award or shares of its stock hereunder shall
relieve the Company of any and all liability with respect to the
nonissuance of the Award or the shares of Common Stock as to which the
requisite authority shall not have been obtained.
K. TAX WITHHOLDING. The exercise of any Option or SAR, and
the receipt of any Stock Grant, is subject to the condition that if at any
time the Company shall determine, in its discretion, that the satisfaction
of withholding tax or other withholding obligations under any state or
federal law is necessary or desirable as a condition of, or in connection
with, such exercise or delivery or purchase of shares pursuant thereto,
then in such event, the exercise of an Option or SAR, or the receipt of a
Stock Grant, shall not be effective unless such withholding shall have
been effected or obtained in a manner acceptable to the Company.
L. FAIR MARKET VALUE. The "fair market value" of the Common
Stock means if there is an established market for the Company's Common
Stock on a stock exchange, in an over-the-counter market or otherwise, the
mean of the highest and lowest quoted selling prices on the valuation
date, or (b) if there were no such sales on the valuation date, then in
accordance with Treasury Regulation Section 20.2031-2 or successor
regulations. With respect to the grant of Options or SARs, unless
otherwise specified by the Committee at the time of grant, or in the Plan
(as in the case of automatic grants to non-employee directors pursuant to
Section 7 hereof), the valuation date for purposes of determining fair
market value shall be the date of grant. The Committee may, however,
specify in any grant of an Option or SAR that, instead of the date of
grant, the valuation date shall be a valuation period of up to ninety (90)
days preceding the date of grant, and fair market value for purposes of
such grant shall be the average over the valuation period of the mean of
the highest and lowest quoted selling prices on each date on which sales
were made in the valuation period, provided, however, that if the
Committee fails to specify a valuation period and there were no sales on
the date of grant then fair market value shall be determined as if the
Committee had specified a thirty (30) day valuation period for such
determination, unless there is no established market for the Company's
Common Stock in which case determination of fair market value shall be in
accordance with clause (b) above.
Section 3. OPTIONS.
A. OPTION PRICE. The option price for shares acquired
pursuant to the exercise of any Option, in whole or in part, shall be
determined by the Committee at the time of the grant of the Option. Such
option price may be less than the fair market value of the Company's
Common Stock on the date of grant, but in no event shall the option price
be less than fifty percent (50%) of the fair market value of the Common
Stock on the date of grant. The foregoing notwithstanding, the option
price of Options granted to officers or directors shall be 100% of the
fair market value of the Company's Common Stock on the date of grant.
B. EXERCISE OF OPTIONS. Each Option shall be exercisable in
one or more installments during its term, and the right to exercise may be
cumulative, as determined by the Committee. No Option may be exercised
for a fraction of a share of Common Stock. The option price shall be paid
at the time of exercise of the Option in cash or shares of the Company's
Common Stock, or in a combination thereof. If permitted by the Committee,
payment may also be made by delivering a properly executed notice together
with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds attributable to the purchased
shares needed to pay the exercise price. If any portion of the purchase
price at the time of exercise is paid in shares of Common Stock, those
shares shall be tendered at their fair market value on the date of
exercise. The Committee may also permit a participant to effect a net
exercise of an Option without tendering any shares of the Company's Common
Stock as payment for the Option. In such an event, the participant will
be deemed to have paid for the exercise of the Option with shares of the
Company's stock and shall receive from the Company a number of shares
equal to the difference between the shares that would have been tendered
and the number of Options exercised. The Committee may in its discretion
and subject to ratification by the entire Board of Directors, loan one or
more participants all or a portion of the exercise price, together with
the amount of any tax liability incurred by the participant as a result of
the exercise of the Option, for up to three (3) years with interest
payable at the prime rate quoted in the Wall Street Journal on the date of
exercise. Non- employee directors may receive such loans for the exercise
of their Options without Committee approval or Board ratification.
C. ACCELERATION OF OPTIONS. Notwithstanding the first
sentence of Section 3.B of the Plan, if the Company or its shareholders
enter into an agreement to dispose of all or substantially all of the
assets or stock of the Company by means of a sale, merger or other
reorganization, liquidation, or otherwise, any Option granted pursuant to
the Plan shall become immediately exercisable with respect to the full
number of shares subject to that Option during the period commencing as of
the date of the agreement to dispose of all or substantially all of the
assets or stock of the Company and ending when the disposition of assets
or stock contemplated by that agreement is consummated or the Option is
otherwise terminated in accordance with its provisions or the provisions
of the Plan, whichever occurs first; provided that no Option shall be
immediately exercisable under this Section on account of any agreement of
merger or other reorganization where the shareholders of the Company
immediately before the consummation of the transaction will own at least
50% of the total combined voting power of all classes of stock entitled to
vote of the surviving entity (whether the Company or some other entity)
immediately after the consummation of the transaction. In the event the
transaction contemplated by the agreement referred to in this Section is
not consummated, but rather is terminated, canceled or expires, the
Options granted pursuant to the Plan shall thereafter be treated as if
that agreement had never been entered into.
D. WRITTEN NOTICE REQUIRED. Any Option granted pursuant to
the Plan shall be exercised when written notice of that exercise has been
given to the Company at its principal office by the person entitled to
exercise the Option and full payment for the shares with respect to which
the Option is exercised has been received by the Company.
Section 4. RELOAD OPTIONS. Concurrently with the award of
Options under the Plan, the Committee may authorize reload options
("Reload Options") to purchase, for cash or shares, the number of shares
of Common Stock used to exercise the underlying Option.
A. RELOAD OPTION AMENDMENT. Each notice evidencing the grant
of an Option shall state whether the Committee has authorized Reload
Options with respect to the underlying Option. Upon the exercise of an
underlying Option, the Reload Option will be evidenced by an amendment to
the notice of grant of the underlying Option. Reload Options shall be
subject to the terms and conditions in the underlying option agreement and
shall be subject to the terms and conditions set forth in the Plan.
B. RELOAD OPTION PRICE. The option price per share of Common
Stock deliverable upon exercise of a Reload Option shall be the fair
market value of a share of Common Stock on the date of exercise of the
underlying Option.
C. TERM AND EXERCISE. Each Reload Option is fully exercisable
from the date of exercise of the underlying Option and shall remain
exercisable for the remaining term of the underlying Option. Reload
Options may be exercised in the same manner as the underlying Options in
accordance with the Plan.
D. TERMINATION OF EMPLOYMENT. No additional Reload Options
shall be granted to participants in the Plan when an Option or Reload
Option is exercised pursuant to the terms of the Plan following
termination of the participant's employment or the cessation of the
participant's service to the Company as a director, consultant or
independent contractor.
Section 5. STOCK APPRECIATION RIGHTS. The Committee may, from
time to time in its sole discretion, grant SARs in addition to or in
conjunction with Options granted hereunder, either at the time of the
grant of the Options or at any subsequent time during the term of the
Options. Subject to the terms of the Plan, the Committee shall determine
and designate the recipients of SARs, the dates SARs are granted, the
number of shares subject to SARs, the duration of each SAR, and whether
SARs are alternative to any previously or contemporaneously granted Option
or Reload Option ("Related Options"). SARs shall be subject to the terms
and conditions and evidenced by agreements in the form determined from
time to time by the Committee.
A. VALUE OF SARs. SARs shall entitle their holders to receive
a number of shares of the Company's Common Stock equal to (i) the excess
of the fair market value of a share of the Company's Common Stock on the
date of exercise over a specified price fixed by the Committee, which
price may not be less than 100% of the fair market value of a share of
Common Stock on the date of the grant, multiplied by (ii) the number of
shares as to which the holder is exercising the SAR.
B. DURATION. The term of an SAR granted as an alternative to
an Option will be the same as the term of its Related Option; upon
exercise of the SAR, the Related Option will terminate, and upon exercise
of the Related Option, the SAR will terminate. The term of an SAR granted
in addition to and separately from any Option shall be specified by the
Committee at the time such SAR is granted.
C. EXERCISE OF SARs. SARs may be exercised according to their
terms by providing written notice to the Company at any time prior to the
expiration of the SAR. No SAR may be exercised for a fraction of a share
of Common Stock. If the SAR is alternative to an Option, the Related
Option shall be deemed terminated to the extent the SAR is exercised.
Section 6. STOCK GRANTS. The Committee may, from time to time in
its sole discretion, grant shares of the Company's Common Stock under the
Plan. Such Stock Grants may be awarded with or without conditions, such
as vesting schedules or performance requirements. Recipients of Stock
Grants will not be required to pay for the acquisition of the Company's
Common Stock but will be subject to tax consequences and resale
restrictions.
Section 7. GRANTS TO OUTSIDE DIRECTORS. Except as provided in
Section 2.D hereof, the Committee shall have no discretion to determine
the amount, price or timing of grants of Awards to directors who are not
employees of the Company. Grants of Awards hereunder to directors who are
not employees of the Company shall be granted on December 10 of each year
without further action by the Committee. Each such grant shall be for one
share of Common Stock for each two dollars of director's compensation to
include retainer plus four Board meetings paid to the director during the
calendar year, but not to include any additional compensation for
committee meetings attended not held in conjunction with Board meetings or
for additional Board meetings attended beyond four; such amount to be
reduced accordingly if less than four Board meetings attended. The
exercise price for Options granted to outside directors shall be 100% of
the fair market value of the Common Stock on the date of grant calculated
in accordance with Section 2.L hereof with a valuation period of thirty
(30) days. Each Option granted in accordance with this Section shall
include authorization for a Reload Option in accordance with Section 4 of
the Plan.
Section 8. TERMS AND CONDITIONS MAY DIFFER. The terms and
conditions of Awards granted under the Plan may differ as the Committee
shall in its discretion determine so long as all Awards satisfy the
requirements of the Plan.
Section 9. DURATION OF OPTIONS AND SARs. Each Option and each
SAR granted pursuant to the Plan shall expire on the date determined by
the Committee which shall be not later than ten years after the date of
grant and shall be subject to early termination as provided in the Plan.
Subject to the foregoing, Options granted to outside directors pursuant to
Section 7 hereof shall be fully vested on the date of grant and shall be
exercisable for a period of ten years.
Section 10. LIMITATIONS ON ACQUIRING VOTING STOCK. No Award may
be granted to persons who are not officers or directors of the Company if
such Award would cause that person to hold, beneficially or of record, in
excess of 5% of the outstanding voting stock of the Company.
Section 11. COMPLIANCE WITH SECURITIES LAWS. Shares of Common
Stock shall not be issued with respect to any Award granted under the Plan
unless the issuance and delivery of the shares pursuant thereto shall
comply with all relevant provisions of state and federal law, including
without limitation the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance. Further, each recipient of an Award hereunder shall consent
to the imposition of a legend on the certificate representing the shares
of Common Stock issued hereunder restricting the transferability of such
shares as required by law, the Award, or by the Plan.
Section 12. EMPLOYMENT. Each recipient of an Award, if requested
by the Committee, must agree in writing as a condition of the granting of
his or her Award, to remain in the employ of the Company or to remain as a
consultant to the Company, or any of its Subsidiaries, following the date
of the granting of that Award for a period or periods specified by the
Committee, which period(s) shall in no event exceed an aggregate of four
years. Nothing in the Plan or in any Award granted hereunder shall confer
upon any Award recipient any right to continued employment or retainer by
the Company or any of its Subsidiaries, or limit in any way the right of
the Company or any Subsidiary at any time to terminate or alter the terms
of that employment or consulting arrangement.
Section 13. RIGHTS UPON TERMINATION OF EMPLOYMENT, DIRECTOR,
CONSULTANT OR INDEPENDENT CONTRACTOR STATUS. If an Award recipient ceases
to be employed by the Company or ceases to serve as a director, consultant
or independent contractor of the Company, or any Subsidiary, for any
reason other than death or retirement, his or her Award shall terminate
one year from the date of the Award recipient ceases to be employed by or
serve as a director, consultant or independent contractor of the Company;
provided that the Committee may, in its discretion, allow Options and SARs
to remain exercisable (to the extent exercisable on the date of
termination of employment or retainer) for up to one additional year for
each year of service to the Company by the Award recipient (up to a
maximum of five years after the date of termination), unless the Option,
SAR, or the Plan otherwise provides for earlier termination; and provided
further that, for purposes of determining when a director no longer serves
the Company, the period during which post-retirement or similar benefits
are paid to the director by the Company shall be deemed to be continued
service.
Section 14. RIGHTS UPON DEATH. Except as otherwise limited by the
Committee at the time of the grant of an Option or SAR, if the recipient
dies while he or she is an employee, director or consultant of the Company
or any Subsidiary, his or her Options and SARs shall remain exercisable
for one year after the date of death, unless the Options, SARs, or the
Plan otherwise provide for earlier termination. During such exercise
period after death, Options and SARs may be fully exercised, to the extent
that they remain unexercised on the date of the recipient's death, by the
person or persons to whom the recipient's rights to the Options or SARs
shall pass by will or by laws of descent and distribution.
Section 15. WAIVER OF VESTING RESTRICTIONS IN THE EVENT OF
RETIREMENT. Notwithstanding any provision of the Plan, in the event an
Award recipient retires as an employee or director of the Company, or any
Subsidiary, the Committee shall have the discretion to waive any vesting
restrictions on the retiree's Options, SARs, or Stock Grants.
Section 16. AWARDS NOT TRANSFERABLE. Awards granted pursuant to
the Plan may not be sold, pledged, assigned or transferred in any manner
otherwise than by will or the laws of descent and distribution. During
the lifetime of the Award recipient, Options and SARs may only be
exercised by that recipient or by his or her guardian or legal
representative.
Section 17. REPORTS TO SHAREHOLDERS. Upon written request, the
Company shall furnish to each Award recipient a copy of its most recent
Form 10-K Annual Report and each quarterly report to shareholders issued
since the end of the Company's most recent fiscal year.
