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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
Progressive Asset Management, Inc.
(Name of Small Business Issuer in its charter)
California 90- 804853
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1814 Franklin Street, Suite 710, Oakland, CA 94612
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (510) 834-3722
Securities to be registered pursuant to Section 12(b) of the Act.
NONE
Securities to be registered pursuant to Section 12(g) of the Act.
1,631,626 shares of Common Stock
Common stock
(Title of Class)
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Cover Page 1
Table of Contents 2
PART I 3
PART II 14
PART F/S 18
PART III 19
</TABLE>
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PART I
The Issuer has elected to follow Form 10-SB, Disclosure Alternative 2.
ITEM 6. DESCRIPTION OF BUSINESS
(a) Narrative Description of Business.
(1) Business of Progressive Asset Management, Inc., ("PAM")
(i) Basic Brokerage Services and Relationship with Financial West
Group.
(A) Introduction.
PAM was incorporated in California on July 14, 1987. It is registered as a
broker-dealer with the NASD and registered with the State of California as an
investment adviser. PAM is a member of SIPC and the MSRB. It was the first
full-service broker-dealer concentrating on socially-responsible investments.
(B) Recent Alliance with Financial West Group, Inc.
In March 1999, PAM formed a strategic alliance with Financial West Group, Inc.,
("FWG") to form the PAM Network. FWG is a rapidly growing broker-dealer,
registered with the NASD, with 60 offices and approximately 300 registered
representatives. FWG is a wholly-owned subsidiary of Paradox Holdings, Inc.
Association with FWG provides PAM with a much stronger technology platform,
enhanced back office capacity, and significantly expanded registered
representative recruitment opportunities. FWG handles licensing and transactions
for the registered representatives affiliated with the PAM Network. Linking with
PAM gives FWG access to the field of socially-responsible investing. The
agreement among the parties is attached as Exhibit 12(a).
The PAM Network provides individuals and institutions with a way to invest for
financial return and social progress at the same time.
The PAM Network offers a complete range of investment services for every
portfolio size, large or small, including:
* Access to all major markets and types of investments
* Socially responsible mutual funds and retirement plans
* Identification of socially responsible investment managers
* Social screening, shareholder advocacy, and community investments
* Offices in California, Iowa, Maryland, Massachusetts, Michigan, New Hampshire,
New York, and Oregon
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The PAM Network serves as the socially responsible investment division of FWG.
PAM provides the PAM Network with state of the art socially responsible
investment services - social screening, shareholder advocacy, and community
investing.
Members of the PAM Network are registered representatives of FWG and securities
are offered through FWG a NASD, SIPC, and MSRB member. FWG is also registered as
a investment adviser with the State of California. FWG has applied for
registration as an investment adviser with the Securities and Exchange
Commission. Financial transactions are processed through Correspondent Services
Corporation ("CSC"), a wholly owned, fully guaranteed subsidiary of PaineWebber,
Inc. PAM Network offers no-load socially responsible mutual funds through
Charles Schwab & Co., Inc., on an advisory-fee basis.
PAM receives an override on all commissions earned by members of the PAM
Network. Paradox Holdings, Inc., has purchased a minority equity stake in PAM.
Under the agreement, PAM transferred all of its customer accounts and
relationships with client representatives to FWG. FWG will receive gross
commission income generated by the transferred representatives. In consideration
for the transfer, FWG will pay PAM 2.5% of future gross commissions up to a
total of $875,000. FWG will retain 2.25% of gross commissions until the $875,000
is paid. After payment of the $875,000 by FWG to PAM, FWG will retain 4.75% of
gross commissions and PAM will receive the net after commission payments are
made to the representatives.
(C) Socially Responsible Investing; Identifying Socially Positive
Companies and Avoiding Liabilities.
PAM believes corporations that combine positive financial and social performance
make the best long-term investments. According to PAM's perspective, companies
that do not follow socially and environmentally responsible practices, such as
polluters and tobacco manufacturers, will tend to have greater liabilities and
charges against earnings due to regulatory pressures, fines, strikes, and
boycotts.
PAM maintains relationships with other major providers of social research and
conducts its own proprietary research to screen portfolios for clients' social
and environmental concerns.
Social screens frequently requested include:
* Environment.
* Employee relations.
* Quality of products and services.
* Nuclear weapons or nuclear power.
* Tobacco, alcohol, or gambling.
* Relations with repressive regimes.
Customized screens are also developed according to clients'
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specific needs.
(D) Investment Services; Offering a Full Range of Investment
Opportunities.
Socially responsible investing can be practiced by anyone, from modest investors
to individuals and institutions with substantial wealth.
The PAM Network offers socially responsible investors a full range of investment
opportunities. The most popular investments and services include:
* Mutual funds -- the full range of socially responsible mutual funds.
* Stocks -- access to all major markets and exchanges.
* Bonds -- municipal, government agency, corporate, and convertible bonds.
* Insurance.
* Financial and estate planning.
* Retirement planning for individuals and businesses.
(E) Financial Consulting; Selecting Investment Managers.
The PAM Network provides complete financial consulting services to institutions
and individuals with larger investment portfolios.
Asset allocation and investment manager selection are keys to financial
performance. PAM Network Investment Consultants assist clients with investment
plan design and implementation, including:
* Financial objectives and social goals.
* Asset allocation.
* Assessment of portfolio performance.
* Investment manager evaluation, searches, and selection advice.
* Ongoing social screening.
* Regular performance monitoring.
* Shareholder advocacy.
* Custodial services.
(F) Social Purpose Investing; Shareholder Advocacy and Community
Investments.
PAM assists PAM Network clients to accomplish their social objectives through
the strategies of shareholder advocacy and community investing.
Through shareholder advocacy, clients can use their ownership of the stock of a
company to pursue change in PAM's social or environmental performance. PAM
collaborates with the Interfaith
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Center for Corporate Responsibility and other advocates of corporate
responsibility to:
* Engage in dialogue with company officials.
* Introduce or co-sponsor social shareholder resolutions.
* Build shareholder advocacy networks and wage shareholder campaigns.
PAM also works with the PAM Network to provide community investing to enable
clients to invest in companies that have a high community impact. PAM has served
as the placement agent for investments that promote:
* Economic development in inner city and rural poverty areas in the United
States.
* Sustainable development in the developing world.
* Low income housing.
* Energy self-reliance and alternative energy production.
PAM has joined with the Calvert Social Investment Foundation to create PAM
Community Investments. PAM Community Investments are offered by Information
Guide. Through this national program, investors can direct capital to community
development loan funds that help low-income families and neighborhoods work
their way out of poverty.
(ii) Status of New Products or Services. PAM established in the last quarter of
1999 a relationship with Trainer Wortham & Company, Inc. ("Trainer Wortham") to
offer socially-screened management of short-term funds of cities and other
institutional investors. Trainer Wortham is registered with the SEC as an
investment adviser and has over $4.4 billion in management. It is the investment
management subsidiary of First Republic Bankcorp, a regional bank with its
headquarters in San Francisco, CA. Under the arrangement with Trainer Wortham,
PAM will be responsible for socially-screening investments and marketing this
service while Trainer Wortham manages the such investments, making the ultimate
investment decisions. For its services, PAM will receive a portion of the
advisory fees charged by Trainer Wortham.
(iii) Estimated Amount Spent on Research. Less than $20,000 has been spent on
company-sponsored research to develop new products or services during the last
two years and no money has been spent on customer-sponsored research to develop
new products or services.
(iv) Number of Employees.
PAM has two full-time employees and five part-time employees for a total of
seven employees, including three who are registered representatives with FWG.
Peter Camejo, Eric Leenson, Cathy Cartier, and James Nixon remain as registered
principals of PAM.
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Staff in the offices of the 10 affiliates of the PAM Network are employees of
the independent contractor offices which make up the PAM Network.
(v) Environmental Expenditures.
PAM discharges no material into the environment and requires no environmental
control facilities. Therefore there have been no expenditures and no effects or
expected effects from compliance with federal, state, and local provisions
regulating discharge of materials into the environment or from environmental
control facilities.
(2) Future Financial Performance.
Distinctive or special characteristics of the financial services industry, which
may have a material impact upon Progressive Asset Management's financial
performance, include:
* Changes in information technology, which are having a significant impact on
the securities industry by offering internet trading, lowering commissions, and
offering direct consumer access to larger and larger quantities of research
information.
* Shifts in financial services compensation from transaction- based commissions,
to asset-based fee structures.
* Rapid growth of socially responsible investment up 82% to $2.16 trillion with
screened portfolios up 183% to $1.49 trillion, according to the 1999 SRI Trends
Report of the Social Investment Forum, the professional association of socially
responsible investment professionals.
One of the reasons for the rapid growth of socially responsible investing is the
positive financial performance of socially responsible investment. For example,
both the Domini Social Index and the Citizens Index have outperformed the S&P
500 in 1999 and since inception, which was in May of 1990 for the Domini Social
Index and March of 1995 for the Citizens Index.
The rapid growth of socially responsible investment is both positive, in that
the market for the services of PAM and the PAM Network is expanding, and also
negative in that competition within that market is also increasing. The number
of individual socially responsible investment practitioners is growing and some
of the major brokerage houses are adding socially responsible investment
divisions.
(b) Segment Data.
Progressive Asset Management, Inc. does not segment data in its
financial statement.
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ITEM 7. DESCRIPTION OF PROPERTY
PAM's corporate office is located at 1814 Franklin Street, Suite 710, Oakland,
CA 94612. The premises occupy approximately 1974 square feet, at a rental of
$3,277.38 per month. The lease terminates January 11, 2001, and there are no
escalation provisions to increase the rent before that date. PAM is currently in
negotiations with the landlord to continue renting the current office space or
comparable space in the same building. However, the office space requirements
for PAM's corporate office are so modest, its precise location in the San
Francisco Bay area is not a material consideration.
PAM remains liable for office space at 150 Broadway, Suite 1717, New York, NY
10038. The office space is utilized by persons who were registered
representatives of PAM and who are now registered with FWG. The premises occupy
approximately 2,377 square feet, at a rental of $2,387.93 per month. The lease
terminates July 1, 2000, and there are no escalation provisions to increase the
rent before that date.
Progressive Asset Management Housing, Inc., a California corporation, is a
wholly-owned subsidiary of PAM. It is a general partner along with Rental
Housing, Inc., the managing general partner, of Magnolia Apartment Associates
Limited Partnership, an Idaho limited partnership. The limited partnership owns
two apartment complexes in the Boise, Idaho area. The units in these two
apartment complexes are leased to low-income families. The limited partnership
will dissolve December 31, 2021, unless earlier terminated under limited
circumstances as provided in the limited partnership agreement. While
Progressive Asset Management Housing, Inc., was instrumental in the organization
of the limited partnership and acquisition of the apartment complexes in 1991
and retains a .50% partnership interest, it has never been involved in the
operation of the limited partnership or the apartment complexes. Other than its
position as a general partner of Magnolia Apartment Associates Limited
Partnership, Progressive Asset Management Housing, Inc., is not a general
partner nor a manager of any other real estate investments. These real estate
investments generate less than $7000 per year income to PAM.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The members of the board of directors of PAM are elected at the annual meeting
of shareholders and serve until the next annual meeting of shareholders or until
their successors are elected. The most recent annual meeting was held January
28, 2000.
(a) Names, Ages, and Experience of Directors and Executive
Officers.
Peter Camejo, Chair of the Board and Chief Executive Officer of
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PAM. Peter Camejo has served as CEO and Board member since PAM's inception in
1987. Before co-founding PAM, he was an investment broker at Merrill Lynch and
Prudential Bache. Mr. Camejo has, in addition to his Series 7 General Securities
license, a Series 24 General Principal license, a Series 4 Options license, and
a Series 3 Commodities license.
Active in the environmental movement, Mr. Camejo has served as a member of the
Board of Directors of EarthShare and the Chair of the Council for Responsible
Public Investment. He is also a member of the Board of the Contra Costa County
Employee Retirement Association. Mr. Camejo, originally from Venezuela, is a
naturalized U.S. citizen. He is 60 years old, married and has two children.
Catherine Cartier, Secretary, Chief Administrative Officer and Director. Ms.
Cartier joined PAM at its inception in 1987 and has served as a Board member and
Corporate Secretary since 1994.
Prior to joining PAM she worked for Lehman Brothers and Prudential Bache. Ms.
Cartier earned a BA from St. Mary's College and holds her Series 7 General
Securities license, Series 24 General Principal license, Series 53 Municipal
Principal license. Ms. Cartier is 50 years old.
Eric Leenson, President, Chief Financial Officer and Director. Eric Leenson has
been a member of the Board since 1989. He has been CFO since 1990 and President
since 1992. In his positions, he is responsible for the day-to-day oversight of
the firm's operations. He is also responsible for its financial accounting and
reporting. He holds a Series 7 General Securities license, a Series 24 General
Principal license, and a Series 4 Options license.
Mr. Leenson left his position as a financial consultant at Merrill Lynch to join
PAM in October 1987. Prior to joining Merrill Lynch, he was co-founder and long
time Managing Director of La Pena Cultural center in Berkeley, CA. Mr. Leenson
is 51 years old.
Peggy Saika, Director. Ms. Saika has been a member of the Board since 1995. Ms.
Saika is the Executive Director of the Asian Pacific Environmental Network in
Oakland, CA. From 1983 to 1991 she was the Executive Director of the Asian Law
Caucus. Prior to that, she helped create and direct non-profit organizations in
Sacramento, CA and New York City.
Ms. Saika was appointed to the National Environmental Justice Advisory Council
of the US Environmental Protection Agency. She was also appointed by Secretary
Donna Shelala to the Advisory Council of the National Institute of Environmental
Health
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Sciences, and elected to the Board of Directors of the Wellness Foundation. Ms.
Saika is 52 years old.
Kalman Stein, Director. Mr. Stein has been a director since 1997. Mr. Stein has
been the President of EarthShare since its inception in 1989. EarthShare now
represents more than 40 leading national environmental and conservation
organizations, and has raised more than $60 million for its member agencies
during its first eight years of operation. In addition Mr. Stein is a founder of
the Council of Foundations and has served as Chair of that organization.
Mr. Stein's business experience includes management consulting with the United
Research Company, founding Kalman Stein Associates, a management consulting firm
in Berkeley, CA and establishing and managing the Strong Foundation for
Environmental Values. He was also the Executive Director of the Environmental
Federation of California for many years. Mr. Stein is 47 years old.
Michael S. Wyman, Director. Mr. Wyman is a Board member of PAM, serving in his
second term. Mr. Wyman is a graduate of Pomona College, class of 1972 and
Hastings College of Law, class of '81. He is member in good standing of the
California State Bar Association.
Mr. Wyman has worked as a lettuce picker, dishwasher, writer, editor, corporate
director, and CEO of It's Electric!, an electric car dealership. Before his
involvement with It's Electric, he was a private investor in the field of
socially responsible investing. Earlier he held the positions of editor,
associate director, and director for the Center for Democracy in the Americas in
Washington, D.C. Prior to his tenure at the Center, Mr. Wyman was an attorney in
private practice. Mr. Wyman is 49 years old.
Nina Lau-Branson, Director. Nina Lau-Branson is serving her first term on the
Board. After receiving her MBA in Finance from the University of Wisconsin, Ms.
Lau-Branson was employed by Price Waterhouse Coopers. As the first Corporate
Controller for Wind River Systems in Alameda, CA, Ms. Lau-Branson was an
integral part of the team that brought PAM public. During her tenure with Wind
River Systems they grew to a company with over $50 million in revenues and
operations in over ten countries. Ms. Lau-Branson lives in Oakland, California
and is 44 years old.
Joseph Sturdivant, Director. Mr. Sturdivant is serving his first term on the
Board. Mr. Sturdivant has served as Senior Vice President with Paine Webber Inc.
in San Francisco CA since 1989. Prior to joining Paine Webber he was a Senior
Vice President with Merrill Lynch Inc. Mr. Sturdivant received a BA in
government and economics from the University of Arkansas and an MA in
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international business from the University of Southern California. He currently
makes his home in Jackson Hole, WY and is 56 years old.
Gene Valentine, Director. Gene Valentine is serving his first full one-year term
on the Board. He joined the Board in June 1998. Mr. Valentine is Chairman of the
Board and Chief Executive Officer of FWG. Mr. Valentine has a BS degree from
Bethany College and also attended the University of Vienna. Mr. Valentine is
also the President and Founder of Second Byte Foundation which provides
computers to at-risk children. Mr. Valentine is 50 years old.
Edward L. Price, Director. Mr. Price is serving his first term. Mr. Price is
Director and Chief Administrative Officer of FWG. Mr. Price has a BA from the
U.S. Naval Academy and a MBA from the University of California, Berkeley.
Previously a CPA with Touche Ross, Mr. Price joined FWG in 1998. Mr. Price is 49
years old.
James Nixon, Senior Vice President for Social Research and Sustainable
Development. Mr. Nixon joined PAM in 1988 and coordinates social screening,
shareholder advocacy, community investments, and media relations. Mr. Nixon is
also Chair of the Board of Directors of Sustainable Systems, Inc., a
specializing in business incubators and regional development strategies. Mr.
Nixon is 59 years old.
(b) Family Relationships. No director, person nominated to be a director,
executive officer, or significant employee have family relationships with any
other director, executive officer, or significant employee.
(c) Business Experience. The business experience of each director, executive
officer, and significant employee is described under (a) above.
(d) Involvement in Certain Legal Proceedings. No director, person nominated to
be a director or executive officer of PAM has been in the last five years
involved in any action under the Bankruptcy Act, any state insolvency law, or
convicted in a criminal proceeding (excluding traffic violations and other minor
offenses).
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
(a) Aggregate Annual Remuneration.
<TABLE>
<CAPTION>
Capacities in
which Remuneration Aggregate
Name Was Received Remuneration
- --------------------------------------------------------------------------------
<S> <C> <C>
Peter Camejo Chair, CEO, Broker $99,559
- --------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Eric Leenson President, CFO, $98,211
Broker
- --------------------------------------------------------------------------------
Catherine Cartier Corporate $43,032
Secretary,
Operations Manager
- --------------------------------------------------------------------------------
</TABLE>
This information was prepared on a cash basis.
(b) Future Remuneration.
Peter Camejo will receive $15,000 per year in salary. Eric Leenson will receive
$30,000 per year in salary. Catherine Cartier will receive $15,000 per year in
salary. Subsequent to the strategic alliance with FWG each of these corporate
officers is a registered representative with FWG and receives commission income
through Financial West Group, but that income is not generated through
Progressive Asset Management, Inc.
ITEM 10. SECURITY OWNERSHIP
(a) Principal Holders of Voting Securities.
<TABLE>
<CAPTION>
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Amount of Percent of
Title of Class Name and Address Shares Class
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Shares Peter Camejo 360,718 22.1
Camejo Group
1470 Maria Lane #101
Walnut Creek, CA 94596
- ---------------------------------------------------------------------------------------------
Common Shares Eric Leenson 78,358 4.8
Leenson and Associates
1814 Franklin Street
Oakland, Ca 94612
- ---------------------------------------------------------------------------------------------
Common Shares Catherine Cartier 41,000 2.51
Camejo Group
1470 Maria Lane #101
Walnut Creek, CA 94596
- ---------------------------------------------------------------------------------------------
Common Shares All Officers and 561,342 34
Directors
- ---------------------------------------------------------------------------------------------
Series B Paradox Holdings, Inc. 25,000 100
Preferred 2663 Townsgate Rd.
Shares Westlake Village, CA
91361
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</TABLE>
The Series B Preferred Shares, held by Paradox Holdings, Inc., when combined
with the common stock, has voting power equal to 40% of the total shares that
can be cast. Consequently, the following is the voting power of the following
persons when factoring in the voting power of the Series B Preferred Shares:
Peter Camejo 13.47% ; Eric Leenson 2.92%, Catherine Cartier
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1.53%; and all Officers and Directors, 20.96%. Under the Standstill Agreement
between PAM and Paradox, until January 1, 2002, neither party can take steps to
change the relative voting power of Paradox. A copy of this agreement is
attached as Exhibit 6(b).
(b) Other Holders of 10% Voting Securities.
None.
(c) Certain holders of Non-Voting Securities.
<TABLE>
<CAPTION>
Amount of Percent of
Title of Class Name and Address Shares Class
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred A Lakshmima Inc. 17,272 18.2%
Shares 36 Rosebery Ave.
Ottawa, ON K1S 1W2
Canada
- ---------------------------------------------------------------------------------------------
</TABLE>
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Peter Camejo, Chair of the Board of Directors and Chief Executive Officer has
entered into an agreement whereby certain holders of notes of Earth Trade, Inc.,
in which PAM held an interest, may exchange such notes for shares of PAM held by
Mr. Camejo. The notes are payable by PAM. This transaction is explained in more
detail under "PART II, Item 5. Recent Sales of Unregistered Securities (b)
Securities Being Offered, Shares issued in settlement with creditors of Earth
Trade, Inc."
ITEM 12. SECURITIES BEING OFFERED
There are 1,631,626 shares of common stock issued and a total of 5,000,000 are
authorized. Holders of the common stock are entitled to one vote for each share
held by them of record on the books of PAM in all matters to be voted on by the
stockholders. Holders of the common stock are entitled to receive such dividends
as may be declared from time to time by the Board out of funds legally
available. The shares of common stock are non- assessable.
In the event of liquidation, dissolution or winding up of PAM, shares of common
stock share ratably in all assets remaining after payment of liabilities, and
after payment of preferences to the Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock. The Series A Preferred Stock is entitled
to an amount equal to $7.00 per share, and no more, before any payment shall be
made or any assets distributed to the holders of any other class or series of
stock. An amount equal to $1.00 per Series B Preferred Stock, plus an amount
equal to any dividends
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on those Series B Preferred Stock declared and unpaid on the date of that
distribution, and no more, shall be made before any payment shall be made or any
assets distributed to the holders of the PAM's Common Shares.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS
(a) Market Information.
PAM's common stock has been reported on the OTCBB under the symbol PAMI since
1997 and the following are the highs and lows reported on the OTCBB for the
periods listed.
<TABLE>
<CAPTION>
Quarter High Low
<S> <C> <C>
July-September 1997 NA NA
October-December 1.125 .50
1997
January-March 1998 .5625 .25
April-June 1998 .5625 .34375
July-September 1998 .7500 .21875
October-December .3750 .12500
1998
January-March 1999 .50 .15625
April-June 1999 .43750 .24
July-September 1999 .68750 .375
October-December .50 .40925
1999
</TABLE>
The quotations reflect inter-dealer prices, without retail mark- up, mark-down
or commission and may not represent actual transactions. Market makers who
posted bids or offers during the period listed above are Herzog, Heine, Geduld,
Inc., Wien Securities Corp., Hill, Thompson, Magid & Co., Sherwood, Sharpe
Capital, Inc., Citadel Securities Corp., and Paragon Capital Corporation.
(b) Holders of Common Stock.
The number of holders of common stock are 145.
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(c) Dividends.
Declaration of dividends on common stock is subject to the discretion of the
Board and will depend upon a number of factors, including the future earnings,
capital requirements and financial condition of PAM. In December 1995, PAM
declared a common stock dividend of one share for each 20 shares of common stock
held as of March 1, 1995. PAM has not declared any cash dividends on its Common
Stock in the past and does not anticipate declaring dividends in any form in the
near future.
ITEM 2. LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against PAM, except the
following. Rita Maran v. PAM and Peter Camejo, NASD Arbitration, Case No.
99-00017. Claimant has alleged breach of fiduciary duty, negligence and breach
of contract relating to investments made in claimant's securities account.
Claimant is seeking approximately $45,000 in actual losses and lost interest of
approximately $35,000. PAM has denied the allegations and no date has been set
for hearing of this matter.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no changes in or disagreements with accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
(a) Warrants issued to shareholders holding Series A Cumulative Convertible
Preferred Stock.
In December 1995, PAM authorized 200,000 common stock warrants to those persons
who were holders of shareholders of Series A Cumulative Convertible Preferred
Stock on December 31, 1991, and common shareholders on March 1, 1995. Each
warrant enabled the holder to purchase one share of common stock for $1.00 until
December 31, 1996, $1.50 in 1997, and $2.00 in 1998. Of the 185,000 warrants
issued, 35,000 during the fiscal year ending June 30, 1997, were exercised and
none were exercised after that date. The warrants expired on December 31, 1998.
All shares of this Series A Cumulative Convertible Preferred Stock have been
redeemed and this series has been eliminated. A total of 49 persons received
these warrants.
The warrants and shares were issued pursuant to Section 4(2) of the Securities
Act of 1933. The recipients of the warrants were shareholders of PAM since at
least December 31, 1995, received quarterly and annual reports from PAM, and had
access to the principals of PAM for any further information. These warrants were
issued without the recipients paying additional compensation to PAM. They were
issued by PAM because at the time of issuance, the management of PAM believed
the return on investment as of that date had not met the expectations of
management or the investors.
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(b) Series A Convertible Preferred Stock and Common Stock issued to 43 creditors
of Earth Trade, Inc.
Earth Trade, Inc., was incorporated in 1992 to promote sustainable development
by marketing both organic and conventional food products from farm cooperatives
in the developing world. Principally as a result of continuing losses, the
shareholders of Earth Trade voted in May 1997 to voluntarily dissolve and
liquidate Earth Trade's net assets.
In April 1997, the Board of Directors, with consideration to PAM's mission and
standards of social responsibility, its thirty percent ownership of Earth Trade
and its role as placement agent for commercial paper issued by Earth Trade,
offered a settlement agreement to the Earth Trade noteholders. Under the
agreement, in exchange for their residual Earth Trade debt and a general release
of liability, the note holders could receive either preferred shares of PAM with
a stated value of $7 or PAM common shares with a stated value of $5. The
settlement agreement was accepted by all but three of the Earth Trade
noteholders in January 1998.
During the year ended June 30, 1998, PAM completed the first closing under the
settlement agreement pursuant to which common and Series A Preferred Shares were
issued equivalent to 70% of the principal expected to be owed. The remaining 30%
were issued following the final liquidation of Earth Trade and payments to the
note holders in June 1999.
In February, 1999, the shareholders approved an additional settlement with the
three remaining Earth Trade noteholders who had not agreed to the first
settlement. Under this second agreement, in exchange for their residual Earth
Trade debt and a general release of liability, the remaining Earth Trade note
holders were entitled to receive a total of $380,000, payable in one installment
of $186,000 upon approval of the settlement agreement, and the remainder in
annual installments and future maximum installments of $50,000 until paid in
full. Of the settlement amount, approximately $83,000 was provided from the
final liquidation of Earth Trade. The exact amount of future payments will
depend upon various factors, including NASD net capital requirements and PAM's
gross revenues.
The three remaining noteholders, may elect to exchange their debt for shares of
PAM held by PAM's chairman, Mr. Peter Camejo. Outstanding amounts owed to the
remaining noteholders will be subordinated debt of PAM. Outstanding amounts, if
any, owed to Mr. Camejo as a result of any exchange of debt for stock are
further subordinated to debt owed the remaining noteholders.
The Series A convertible preferred shares issued during the years ended June 30,
1998 and 1999, in connection with the Earth Trade
16
<PAGE> 17
settlement, do not pay dividends, are non-voting, and are convertible share for
share into common stock at the option of the holder after two years or
automatically upon the occurrence of certain events.
The preferred shares are subject to mandatory redemption annually each November
1. The redemption price is $7 per share. The amount to be redeemed is based on
1% of PAM's revenues for its prior fiscal year. The amount to be redeemed may be
reduced to the extent that the redemption would cause PAM to fail to meet its
net capital requirement under the Securities and Exchange Act of 1934. The
preferred shares have a preference in liquidation of $7 per share aggregating
$664,153 at June 30, 1999 (1998 - $576,716).
These shares were issued pursuant to a non-public offering under Section 4(2) of
the Securities Act of 1933. The offers and sales were limited solely to those
persons who held Earth Trade notes, all persons who received any shares of PAM
stock received disclosure documents and executed subscription agreements and
settlement agreements that reviewed by legal counsel representing the plaintiffs
in the various actions.
(c) Incentive Stock Option Plan.
In December 1995, PAM adopted a stock option and incentive plan that allows for
the issuance of up to 200,000 shares of common stock. A copy of the plan is
attached as Exhibit 6(a). The plan provides for the award of stock options,
employee stock purchases and restricted stock grants. Of the shares awarded, all
were immediately vested and are subject to a holding period restriction of up to
two years from the date of grant.
The award of additional stock options, vesting, exercise prices and other option
terms are determined by the Board. Options have been granted to employee and
non-employee Board members for the purchase of common shares. The exercise
prices have not been less than the fair market value of the stock as determined
by the Board of Directors at the date of grant. The options expire at various
dates during the years 1997 to 2002. Of the options granted, all were
exercisable at June 30, 1999. The number of shares issued under the stock option
plan is set out in Note 8 to the Consolidated Financial Statements for year
ending June 30, 1999, included under PART F/S. The value of any stock options
are determined by taking the average of the high and low of the common stock
during the final calendar quarter of the year as reported on the OTCBB. The
shares were issued pursuant to Section 4(2) of the Securities Act of 1933.
(d) Series B Convertible Preferred Stock issued to Paradox Holdings, Inc.
17
<PAGE> 18
Under PART I, ITEM 6, DESCRIPTION OF BUSINESS, is described the operating
provisions of the agreement between PAM and FWG entered into in March 1999.
Under this same agreement, Paradox Holdings, Inc. ("Paradox Holdings") received
25,000 shares of PAM's Series B Convertible Preferred Stock, subject to approval
by the NASD of this arrangement, which approval was given in June 1999. No other
person can be issued these shares.
The Series B Convertible Preferred Stock can be converted to PAM's common stock,
and the ratio of exchange is such that Paradox Holdings will hold an amount
equal to 40% of the voting power of the common stock after the conversion. In
addition, the Series B Convertible Preferred Stock has voting rights equal to
40% of the total shares eligible to be voted as well as all other rights of the
common stock, including dividend rights. Paradox Holdings is a California
corporation with its principal place of business and its legal council located
in California. All discussions and negotiations between the parties occurred in
California. Consequently, the shares were issued pursuant to the exemption for
intrastate offerings under Section 3(a)(11) of the Securities Act of 1933, in
compliance with California Corporations Code section 25102(f).
Contemporaneously with the agreement between FWG and PAM, PAM and Pardox
Holdings entered into a separate "Standstill" Agreement under which the parties
agreed not to alter before January 1, 2002, the ownership ratio between the
parties in PAM. The Standstill Agreement is attached as Exhibit 6(b).
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As provided under the California Corporations Code, and Article III, Section 12
of PAM's bylaws, PAM is empowered to indemnify directors and officers of PAM.
However, the power to indemnify does not include any indemnification of any
breach of duty to PAM or its shareholders. This restriction on indemnification
is set out in sections 204 and 317 of the California Corporations Code.
PART F/S
FINANCIAL STATEMENTS
18
<PAGE> 19
PROGRESSIVE ASSET MANAGEMENT, INC.
Consolidated Financial Statements
and
Supplemental Information
Years ended June 30, 1999 and 1998
with
Reports of Independent Auditors
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements
Report of Independent Auditors F-1
Consolidated Statement of Financial Condition F-2-3
Consolidated Statement of Operations F-4
Consolidated Statement of Stockholders' Equity F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7-16
Supplemental Information
Report of Independent Auditors on
Supplemental Information F-17
Statement of Changes in Liabilities
Subordinated to Claims of General Creditors F-18
Computation of Net Capital under Rule 15c3-1 of the
Securities and Exchange Commission F-19
Reconciliation Pursuant to Rule 17a-5(d)(4) F-20
Computation for Determination of Reserve
Requirements F-21
Information Relating to
Possession or Control Requirements F-21
Reconciliation With Respect to Methods of
Consolidation F-22
Report of Independent Auditors on Internal
Accounting Control Required by SEC Rule 17a-5 F-23-24
</TABLE>
i
<PAGE> 20
Report of Independent Auditors
Board of Directors
Progressive Asset Management, Inc.
We have audited the accompanying consolidated statement of financial condition
of Progressive Asset Management, Inc. as of June 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Progressive Asset
Management, Inc. as of June 30, 1999 and 1998, and the results of its operations
and cash flows for the years then ended, in conformity with generally accepted
accounting principles.
MARKLE STUCKEY HARDESTY & BOTT
Markle Stuckey Hardesty & Bott
July 22, 1999
F-1
<PAGE> 21
PROGRESSIVE ASSET MANAGEMENT, INC.
Consolidated Statement of Financial Condition
June 30, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 422,354 $ 573,078
Deposits with clearing broker -- 227,409
Commissions and other receivables 89,824 89,761
Short-term investments 12,489 --
Employee advances 25,229 19,967
Prepaid expenses 15,462 93,731
----------- -----------
Total current assets 565,358 1,003,946
Deposits 13,048 --
Property and equipment, at cost
Furniture 10,600 102,687
Office equipment 10,473 318,700
Leasehold improvements -- 39,889
----------- -----------
21,073 461,276
Less accumulated depreciation and amortization (10,732) (327,426)
----------- -----------
Net property and equipment 10,341 133,850
Investment in and advances to
affiliated companies 16,592 66,592
Organization costs, net of accumulated
amortization 4,740 6,116
----------- -----------
Total assets $ 610,079 $ 1,210,504
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE> 22
PROGRESSIVE ASSET MANAGEMENT, INC.
Consolidated Statement of Financial Condition
June 30, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current liabilities
Accounts payable $ 22,400 $ 33,957
Commissions payable 11,103 122,762
Accrued liabilities -- 16,513
Payable to clearing broker -- 2,787
----------- -----------
Total current liabilities 33,503 176,019
Liability - Earth Trade settlement -- 41,800
Subordinated liability - Earth Trade settlement 194,000 --
Commitments and contingencies
Stockholders' equity
Preferred stock, $7 par value; 200,000
shares authorized, 92,156 shares
issued and outstanding
(1998 - 82,388) 64,510 57,672
Common stock, no par value; 5,000,000
shares authorized, 1,631,626 shares
issued and outstanding
(1998 - 1,614,059) 1,490,180 1,484,146
Accumulated deficit (1,172,114) (549,133)
----------- -----------
Total stockholders' equity 382,576 992,685
----------- -----------
Total liabilities and stockholders' equity $ 610,079 $ 1,210,504
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 23
PROGRESSIVE ASSET MANAGEMENT, INC.
Consolidated Statement of Operations
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues
Commissions $ 2,762,324 $ 3,468,961
Investment and advisory fees 72,233 75,117
Investment banking fees 19,150 24,867
Interest and dividend income 21,468 29,725
Other brokerage income 30,731 34,697
----------- -----------
Total revenues 2,905,906 3,633,367
Costs and expenses
Commissions 1,966,764 1,738,632
Security clearing charges 137,203 372,452
Employee compensation and benefits 383,947 468,004
Communications 92,849 174,241
Promotional costs 12,253 46,818
Occupancy 102,124 189,207
Regulatory 47,524 33,424
Professional fees 121,752 138,089
Office expenses 14,128 25,693
Administrative and other 265,521 381,106
Loss on disposal of assets 60,657 --
Depreciation and amortization 61,279 52,838
----------- -----------
Total costs and expenses 3,266,001 3,620,504
----------- -----------
Income before charitable contributions,
income taxes and extraordinary loss (360,095) 12,863
Charitable contributions 3,650 3,650
----------- -----------
Income before income taxes and extraordinary loss (363,745) 9,213
Taxes on income 1,600 2,400
----------- -----------
Income before extraordinary loss (365,345) 6,813
Extraordinary loss 240,621 139,363
----------- -----------
Net income (loss) $ (605,966) $ (132,550)
=========== ===========
Net income (loss) per share
Income (loss) before extraordinary loss $ (0.21) $ 0.01
Extraordinary loss (0.14) (0.09)
----------- -----------
Net income (loss) $ (0.35) $ (0.08)
=========== ===========
Shares used to compute per share amounts 1,711,476 1,602,447
=========== ===========
</TABLE>
See accompanying notes.
-4-
<PAGE> 24
PROGRESSIVE ASSET MANAGEMENT, INC.
Consolidated Statement of Stockholders' Equity
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Total
Preferred stock Common stock stock-
---------------------------- ---------------------------- Accumulated holders'
Shares Amount Shares Amount deficit equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances,
June 30, 1997 -- $ -- 1,533,162 $ 1,444,255 $ (416,583) $ 1,027,672
Issuance of common and
preferred stock in
Earth Trade settlement 82,388 57,672 79,785 39,891 -- 97,563
Adjustment to issued shares -- -- 1,112 -- -- --
Net loss (132,550) (132,550)
----------- ----------- ----------- ----------- ----------- -----------
Balances,
June 30, 1998 82,388 57,672 1,614,059 1,484,146 (549,133) 992,685
Redemption of
preferred stock (2,723) (1,906) -- -- (17,155) (19,061)
Issuance of common and
preferred stock in
Earth Trade settlement 12,491 8,744 12,067 6,034 140 14,918
Issuance of common stock -- -- 5,500 -- -- --
Net loss -- -- -- -- (605,966) (605,966)
----------- ----------- ----------- ----------- ----------- -----------
Balances,
June 30, 1999 92,156 $ 64,510 1,631,626 $ 1,490,180 $(1,172,114) $ 382,576
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 25
PROGRESSIVE ASSET MANAGEMENT, INC.
Statement of Cash Flows
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(605,966) $(132,550)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities
Depreciation and amortization 61,279 52,838
Change in deposits with clearing broker 227,409 167,854
Change in trading securities -- 33,519
Change in commissions and other receivables (63) 22,099
Change in other current assets 59,959 34,815
Change in short-term investments (12,489) --
Change in accounts payable
and accrued liabilities (142,516) (74,227)
Loss on disposal of assets 60,657 --
Change in Earth Trade settlement liability 152,200 139,363
--------- ---------
Net cash provided (used) by operating activities (199,530) 243,711
Cash flows from investing activities
Purchase of furniture and equipment -- (21,194)
Proceeds from sale of furniture and equipment 3,089
Change to note receivable -- 16,667
Investment in and advances to affiliates, net 50,000 38,500
--------- ---------
Net cash provided (used) by investing activities 53,089 33,973
Cash flows from financing activities
Issuance of common stock 8,744 --
Issuance of preferred stock 6,034 --
Redemption of preferred stock (19,061) --
Reduction in note payable -- (51,750)
--------- ---------
Net cash provided (used) by financing activities (4,283) (51,750)
--------- ---------
Net increase (decrease) in cash (150,724) 225,934
Cash and cash equivalents,
Beginning of year 573,078 347,144
--------- ---------
End of year $ 422,354 $ 573,078
========= =========
Supplemental disclosures of cash flow Information
Cash paid during the year for income taxes $ 1,600 $ 2,400
========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 26
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 1 Summary of significant accounting policies
Basis of presentation
Progressive Asset Management, Inc., (the Company) was incorporated in California
in 1987, and registered as a broker-dealer under the Securities and Exchange Act
of 1934. Through May 1999, the Company was a full-service investment firm
specializing in socially responsible investing. As more fully discussed in Note
12, in May 1999 the Company entered into an agreement transferring all customer
accounts and relationships with client representatives to another broker-dealer.
The Company remains registered as a broker-dealer and will continue to provide
research and referrals in consideration for commission based fees.
In its policies, practices and programs, the Company is committed to providing
its clients with the highest quality financial products and investment services
and to operating as a strong, positive force for social justice and
environmental protection. The Company's principal office is in Oakland,
California.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, none of which had significant activity during the
years ended June 30, 1999 or 1998. Progressive Asset Management Housing, Inc.
has assisted in the sale and structuring of housing limited partnerships. Until
its dissolution on June 30, 1998, Progressive Asset Management Futures, Inc.
engaged in certain limited futures trading activities. All intercompany balances
and transactions have been eliminated in the accompanying consolidated financial
presentation.
The Company clears all trades with a clearing broker on a fully disclosed basis.
Accordingly, the Company claims exemption from Securities Exchange Commission
Rule 15c3-3 because it does not carry customer funds or handle customer
securities.
Security transactions and commissions
Security transactions and related commission revenue and expense are recorded on
a settlement date basis. Net commission revenue on unsettled transactions at
year-end is not significant.
F-7
<PAGE> 27
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 1 - Summary of significant accounting policies (continued)
Depreciation and amortization
Depreciation of property and equipment is computed using accelerated methods
over useful lives of 3 to 7 years. Leasehold improvements are amortized over the
term of the related lease.
Cash and cash equivalents
For purposes of the accompanying statement of cash flows, cash and cash
equivalents consist of amounts on deposit with a commercial bank and with a
financial institution, all available on demand. The carrying amount of such cash
equivalents approximates fair value due to the short-term nature of these
instruments.
Earnings per share
Earnings per share is based on the weighted average number of common and common
stock equivalent shares outstanding during the year.
Organization costs
Organization costs are amortized by the straight-line method over a five-year
period.
Estimated fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires the disclosure of the fair value of
financial instruments, including assets and liabilities recognized on the
Statement of Financial Condition. Management estimates that the aggregate net
fair value of financial instruments recognized on the Statement of Financial
Condition (including receivables, payables and accrued expenses) approximates
their carrying value, as such financial instruments are short-term in nature,
bear interest at current market rates or are subject to repricing.
Income taxes
The Company has adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" which requires
recognition of deferred tax liabilities and assets for the
expected future tax
F-8
<PAGE> 28
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 1 - Summary of significant accounting policies (continued)
Income taxes (continued)
consequences of events that are included in the financial statements and tax
returns in different periods. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. At June 30, 1999 and
1998, there were no significant deferred tax assets or liabilities.
Advertising costs
Costs incurred for producing and communicating advertising are expensed when
incurred.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principle requires management to make estimates and assumptions that
effect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
Note 1 - Extraordinary loss
Earth Trade, Inc. (Earth Trade) was organized in 1992 to promote sustainable
development by marketing both organic and conventional food products from farm
cooperatives in the developing world. Principally as a result of continuing
losses, the shareholders of Earth Trade voted in May 1997 to voluntarily
dissolve and liquidate Earth Trade's net assets. In April 1997, the Board of
Directors, with consideration to the Company's mission and standards of social
responsibility, its thirty percent ownership of Earth Trade and its role as
placement agent for commercial paper issued by Earth Trade, offered a settlement
agreement to the Earth Trade noteholders. Under the agreement, in exchange for
their residual Earth Trade debt and a general release of liability, the note
holders could receive either preferred shares of the Company with a stated value
of $7 or Company common shares with a stated value of $5. The settlement
agreement was accepted by substantially all of the Earth Trade note
F-9
<PAGE> 29
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 2 Extraordinary loss (continued)
holders in January 1998.
During the year ended June 30, 1998, the Company completed the first closing
under the settlement agreement pursuant to which common and preferred shares
were issued equivalent to 70% of the principal expected to be owed. The closing
of the remaining 30% took place following the final liquidation of Earth Trade
and payments to the note holders in June, 1999.
In February, 1999, the shareholders approved an additional settlement with
certain remaining Earth Trade note holders. Under the agreement, in exchange for
their residual Earth Trade debt and a general release of liability, the note
holders are entitled to receive a total of $380,000, payable in one installment
of $186,000 upon approval of the settlement agreement, and the remainder in
annual installments, with a maximum of $75,000 due before September 30, 1999,
and future maximum installments of $50,000 until paid in full. Of the settlement
amount, approximately $83,000 was provided from the final liquidation of Earth
Trade. The exact amount of future payments will depend upon various factors,
including NASD net capital requirements and the Company's gross revenues. The
remaining noteholders, after the initial installment of $186,000 is paid, may
elect to exchange their debt for shares of the Company held by the Company's
chairman. Outstanding amounts owed to the remaining noteholders will be
subordinated debt of the Company. Outstanding amounts, if any, owed to the
Company's chairman as a result of any exchange of debt for stock are further
subordinated to debt owed the remaining noteholders.
Note 3 Taxes on income
The Company's income tax provision for the years ended June 30, 1999 and 1998
consisted of minimum state franchise taxes.
At June 30, 1999, the Company has a carryforward of unused tax credits related
to low-income housing of approximately $49,000 from several partnerships in
which the Company has invested or received participating interests.
F-10
<PAGE> 30
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 2 - Taxes on income (continued)
At June 30, 1999, the Company had available net operating loss carryforwards to
reduce future federal taxes on income of approximately $890,000. The
carryforwards expire in the years ending June 30, 2012, 2013 and 2019, if not
utilized. At June 30, 1999, the Company had available net operating loss
carryforwards from the State of California of approximately $360,000. These net
operating loss carryforwards are available to offset future taxable income in
California through the years ending June 30, 2002, 2003 and 2004.
Under certain 1986 Tax Reform Act provisions, the availability of the Company's
operating loss carryforward is subject to limitation if there has been a change
in ownership of more than 50 percent of the Company's stock.
Note 4 - Market risk and credit risk
In the normal course of its business, the Company enters into financial
transactions where it is exposed to potential loss due to changes in market
conditions (market risk) or failure of the other party to perform (credit risk).
Additionally, pursuant to the terms of the agreement between the Company and its
clearing broker, the clearing broker has the right to charge the Company for
losses that result from a counterparty's failure to fulfill its obligations. The
Company's policy is to continuously monitor its exposure to market and credit
risk through the use of a variety of reporting and control procedures. In
addition, the Company has a policy of reviewing the credit standing of each
broker-dealer with which it conducts business.
At June 30, 1999 and 1998, the Company maintained deposit balances at a
commercial bank in excess of federally insured amounts. Amounts on deposit with
a financial institution were not federally insured.
Deposits and commissions receivable from clearing broker and net securities
owned in the accompanying balance sheet are due or held by a single clearing
broker.
F-11
<PAGE> 31
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 5 - Commitments
The company leases its office and operating facilities under operating leases.
Rent expense was $102,124 for the year ended June 30, 1999 (1998 - $189,207). At
June 30, 1999, remaining future minimum rental payments for the Company's
Oakland office facility was as follows for the years ending
<TABLE>
<S> <C>
2000 2001
$ 39,867 $ 20,324
</TABLE>
The Company's remaining commitment for its New York office is approximately
$29,000 for the year ending June 30, 2000.
Note 6 Employee benefit plan
The Company has a 401(k) profit sharing plan for the benefit of employees. The
plan allows for both Company and employee elective contributions. Company
contributions to the plan are determined annually by the Board of Directors
subject to certain maximum amounts allowable under the Internal Revenue Code. No
Company contributions were made to the plan for the years ended June 30, 1999
and 1998.
Note 7 Preferred stock
The Series A convertible preferred shares issued during the years ended June 30,
1998 and 1999, in connection with the Earth Trade settlement (Note 2), do not
pay dividends, are non-voting, and are convertible share for share into common
stock at the option of the holder after two years or automatically upon the
occurrence of certain events. The preferred shares are subject to mandatory
redemption annually each November 1. The redemption price is $7 per share. The
amount to be redeemed will be based on 1% of the Company's revenues for its
prior fiscal year. The amount to be redeemed may be reduced to the extent that
the redemption would cause the Company to fail to meet its net capital
requirement under the Securities and Exchange Act of 1934. The preferred shares
have a preference in liquidation of $7 per share aggregating $664,153 at June
30, 1999 (1998 - $576,716).
On March 23, 1999, the Board of Directors amended the Articles of Incorporation
to cancel the Series A Preferred Stock, previously authorized at 25,000 shares.
F-12
<PAGE> 32
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 8- Common stock
In December 1995, the Company authorized 200,000 common stock warrants and on
December 31, 1991, issued 185,000 common stock warrants to shareholders of
conversion "A" stock, who were also common shareholders on March 1, 1995. Each
warrant enabled the holder to purchase one share of common stock for $1.00 until
December 31, 1996, $1.50 in 1997, and $2.00 in 1998. The warrants expired on
December 31, 1998. Of the warrants issued, no shares were exercised in the year
ended June 30, 1999 or 1998.
In December 1995, the Company adopted a stock option and incentive plan that
allows for the issuance of up to 200,000 shares of common stock. The plan
provides for the award of stock options, employee stock purchases and restricted
stock grants. Of the shares awarded, all were immediately vested and are subject
to a holding period restriction of up to two years from the date of grant.
The award of additional stock options, vesting, exercise prices and other option
terms are determined by the Board of Directors. Options have been granted to
employee and non-employee board members for the purchase of common shares. The
exercise prices have not been less than the fair market value of the stock as
determined by the Board of Directors at the date of grant. The options expire at
various dates during the years 1997 to 2002. Of the options granted, all were
exercisable at June 30, 1999.
The following is a summary of shares under the option arrangements
<TABLE>
<CAPTION>
Price Shares
----------- --------
<S> <C> <C>
Outstanding, June 30, 1997 $.85 - 2.20 72,581
Granted $ 1.00 45,128
Lapsed or cancelled --
--------
Outstanding, June 30, 1998 117,709
Granted $.85 - 2.20 2,500
Lapsed or cancelled (9,873)
--------
Outstanding, June 30, 1999 110,336
========
</TABLE>
F-13
<PAGE> 33
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 8- Common stock (continued)
The Company records its stock-based awards using the intrinsic value method of
accounting in accordance with Accounting Principles Board No. 25, "Accounting
for Stock Issued to Employees" and its related interpretations. Accordingly, no
compensation expense has been recognized in the accompanying financial
statements. Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation (SFAS 123)," requires the disclosure of pro forma net
income had the Company adopted the fair value method of accounting beginning
with its year ended June 30, 1998. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differs from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which significantly affect the calculated values. The Company
has not completed the pro forma calculations to determine the fair value of its
option awards.
Note 9 - Net capital requirement
Pursuant to the net capital provisions of Rule 15c3-1 of the Securities and
Exchange Act of 1934, the Company is required to maintain both minimum net
capital, as defined under such provisions, and a ratio of aggregate indebtedness
to net capital not to exceed 15 to 1. At June 30, 1999, the Company has net
capital of $392,486, which is $292,486 in excess of its required net capital of
$100,000. The Company's ratio of aggregate indebtedness to net capital was .0853
to 1.
Note 10 - Contingencies
The Company, in the ordinary course of business, is named in matters arising
from its activities as a broker/dealer. In the opinion of management, based upon
discussions with legal counsel, the resolution of these matters will not have a
material adverse effect on the financial condition of the Company.
F-14
<PAGE> 34
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 11 - Quarterly financial results (unaudited)
The Company's revenues and income (loss) before extraordinary item for the four
quarters in the years ended June 30, 1999 and 1998 were as follows
<TABLE>
<CAPTION>
Revenues Income (loss)
---------- -------------
<S> <C> <C>
Quarter ended:
September 30, 1998 $ 804,285 $ (45,691)
December 31, 1998 732,643 (187,622)
March 31, 1999 849,107 (94,894)
June 30, 1999 519,871 (37,138)
Quarter ended:
September 30, 1997 $ 897,125 $ (44,674)
December 31, 1997 836,813 (46,051)
March 31, 1998 955,207 49,115
June 30, 1998 944,222 48,423
</TABLE>
Note 12 Subsequent event
In May 1999 the Company entered into agreement with Paradox Holdings, Inc.,
parent of Financial West Investment Group, Inc. (FWG), in which the Company
transferred all of its customer accounts and relationships with client
representatives to FWG. FWG will receive gross commission income generated by
the transferred representatives. In consideration for the transfer, FWG will pay
the Company 2.5% of future gross commissions up to a total of $875,000. FWG will
retain 2.25% of gross commissions until the $875,000 is paid. After payment of
the $875,000 by FWG to the Company, FWG will retain 4.75% of gross commissions
and the Company will receive the net after commission payments are made to the
representatives.
The Company will record payments from FWG in connection with the transfer as
commission income. The Company recorded in revenues for the year ended June 30,
1999, $41,154 in commissions received from FWG since May 1, 1999. Of that
amount, $7,328 represents payment against the $875,000. Paradox Holdings, Inc.
has guaranteed payments to the Company by FWG, Inc.
F-15
<PAGE> 35
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 12 Subsequent event (continued)
FWG further agreed to acquire a 40% ownership interest in the Company, to be
represented by Class B preferred shares, for $25,000. Following approval by the
NASD in June 1999, the Company received payment and issued the Class B preferred
shares in July 1999.
F-16
<PAGE> 36
Report of Independent Auditors
on Supplemental Information
Board of Directors
Progressive Asset Management, Inc.
We have audited the consolidated financial statements of Progressive Asset
Management, Inc. for the year ended June 30, 1999, and have issued our report
thereon dated July 22, 1999. Our audit was made primarily for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
accompanying supplemental information presented hereinafter is presented for
purposes of additional analysis and is not a required part of the basic
financial statements, but is supplementary information required by Rule 17a-5 of
the Securities and Exchange Commission. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
MARKLE STUCKEY HARDESTY & BOTT
Markle Stuckey Hardesty & Bott
July 22, 1999
F-17
<PAGE> 37
PROGRESSIVE ASSET MANAGEMENT, INC.
Statement of Changes in Liabilities Subordinated to Claims
of General Creditors
Year ended June 30, 1999
<TABLE>
<S> <C>
Balance, beginning of year $ 0
Increase (decrease) 194,000
--------
Balance, end of year $194,000
========
</TABLE>
F-18
<PAGE> 38
PROGRESSIVE ASSET MANAGEMENT, INC.
Computation of Net Capital under Rule 15c3-1 of the
Securities and Exchange Commission
June 30, 1999
<TABLE>
<S> <C>
Aggregate indebtedness
Total liabilities $ 227,503
Less subordinated liabilities (194,000)
----------
Aggregate indebtedness $ 33,503
==========
Net capital
Stockholders' equity $ 382,576
Add subordinated liabilities 194,000
Deductions and/or charges
Accounts receivable 64,636
Employee advances 25,229
Prepaid expenses 15,462
Deposits 13,048
Property and equipment, net 10,341
Securities haircuts 5,773
Investment in and advances to affiliates 16,592
Net assets of consolidated subsidiary 33,009
----------
Net capital $ 392,486
==========
Net capital requirements/ratio
Minimum net capital requirements
(6-2/3% x aggregate indebtedness) $ 2,235
Minimum dollar net capital requirement $ 100,000
Net capital requirement $ 100,000
Excess net capital $ 292,486
Aggregate indebtedness to net capital .0853 to 1
</TABLE>
F-19
<PAGE> 39
PROGRESSIVE ASSET MANAGEMENT, INC.
Reconciliation Pursuant to Rule 17a-5(d)(4)
June 30, 1999
<TABLE>
<S> <C>
RECONCILIATION WITH COMPANY'S COMPUTATION
(Included in Part IIA of Form X-17A-5
as of June 30, 1999)
Net capital, as reported in Company's Part IIA
(Unaudited) FOCUS Report 332,000
Audit adjustments 60,486
---------
Net capital, as adjusted $ 392,486
=========
Aggregate indebtedness, as reported in Company's Part IIA
(Unaudited) FOCUS Report$ 197,702
Audit adjustments (164,199)
---------
Aggregate indebtedness, as adjusted $ 33,503
=========
</TABLE>
F-20
<PAGE> 40
PROGRESSIVE ASSET MANAGEMENT, INC.
Computation for Determination of Reserve Requirements
Under Rule 15c3-3 of the Securities and Exchange Commission
June 30, 1999
The computation for determination of the reserve requirements under Exhibit A of
Rule 15c3-3 of the Securities and Exchange Commission has not been prepared
because the exemption under Reg. Section 240, 15c3-3 (k)(i)(C) is met.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PROGRESSIVE ASSET MANAGEMENT, INC.
Information Relating to Possession or Control Requirements
Under Rule 15c3-3 of the Securities and Exchange Commission
June 30, 1999
A supplementary report pursuant to Rule 17a-5(d)(4) and the information relating
to possession or control requirements under Rule 15c3-3 are not required under
Rule 17a-5(e)(1)(i)(A) and Rule 15c3-3(k), respectively.
F-21
<PAGE> 41
PROGRESSIVE ASSET MANAGEMENT, INC.
Reconciliation With Respect to Methods of Consolidation
June 30, 1999
<TABLE>
<CAPTION>
Total
Total Total Stockholders'
Assets Liabilities Equity
--------- ----------- -------------
<S> <C> <C> <C>
Progressive Asset
Management, Inc. 553,244 $ 227,503 $ 325,741
Progressive Asset Management
Housing, Inc. 77,426 591 76,835
--------- --------- ---------
630,670 228,094 402,576
Intercompany
eliminations (20,591) (591) (20,000)
--------- --------- ---------
Consolidated amounts,
as reported herein $ 610,079 $ 227,503 $ 382,576
========= ========= =========
</TABLE>
Report of Independent Auditors on Internal
F-22
<PAGE> 42
Accounting Control Required by SEC Rule 17a-5
Board of Directors
Progressive Asset Management, Inc.
We have audited the consolidated financial statements of Progressive Asset
Management, Inc. for the year ended June 30, 1999, and have issued our report
thereon dated July 22, 1999. As part of our audit, we made a study and
evaluation of the Company's system of internal accounting control (internal
control structure) to the extent we considered necessary to evaluate the system
as required by generally accepted auditing standards. The purpose of our study
and evaluation, which included obtaining an understanding of the accounting
system, was to determine the nature, timing and extent of the auditing
procedures necessary for expressing an opinion on the financial statements.
We also made a study of the practices and procedures followed by the Company in
making the periodic computations of aggregate indebtedness and net capital under
rule 17a- 3(a)(11) and the procedures for determining compliance with the
exemptive provisions of rule 15c3-3. We did not review the practices and
procedures followed by the Company in making the quarterly securities
examinations, counts, verifications and comparisons, and the recordation of
differences required by rule 17a-13 or in complying with the requirements for
prompt payment for securities under section 8 of Regulation T of the Board of
Governors of the Federal Reserve System, because the Company does not carry
security accounts for customers or perform custodial functions relating to
customer securities.
The management of the Company is responsible for establishing and maintaining a
system of internal accounting control and the practices and
F-23
<PAGE> 43
procedures referred to in the preceding paragraph. In fulfilling this
responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs of control procedures and of the practices
and procedures referred to in the preceding paragraph and to assess whether
those practices and procedures can be expected to achieve the Commission's
above-mentioned objectives.
The objectives of a system and the practices and procedures are to provide
management with reasonable, but not absolute, assurance that assets for which
the Company has responsibility are safeguarded against loss from unauthorized
use or disposition, and that transactions are executed in accordance with
management's authorization and recorded properly to permit the preparation of
financial statements in accordance with generally accepted accounting
principles. Rule 17a-5(g) lists additional objectives of the practices and
procedures listed in the preceding paragraph.
Because of inherent limitations in any internal accounting control procedure or
the practices and procedures referred to above, errors or irregularities may
nevertheless occur and not be detected. Also, projection of any evaluation of
them to future periods is subject to the risk that they may become inadequate
because of changes in conditions or that the degree of compliance with them may
deteriorate. Our study and evaluation made for the limited purpose described in
the first paragraph would not necessarily disclose all material weaknesses in
the system. Accordingly, we do not express an opinion on the system of internal
accounting control of Progressive Asset Management, Inc. taken as a whole.
However, our study and evaluation disclosed no condition that we believed to be
a material weakness.
We understand that practices and procedures that accomplish the objectives
referred to in the second paragraph of this report are considered by the
Commission to be adequate for its purposes in accordance with the Securities
Exchange Act of 1934 and related regulations, and that practices and procedures
that do not accomplish such objectives in all material respects indicate a
material inadequacy for such purposes. Based on this understanding and on our
study, we believe that the Company's practices and procedures were adequate at
June 30, 1999, to meet the Commission's objectives.
This report is intended solely for the use of management, the Securities and
Exchange Commission and the National Association of Securities Dealers and
should not be used for any other purpose.
MARKLE STUCKEY HARDESTY & BOTT
Markle Stuckey Hardesty & Bott
July 22, 1999
F-24
<PAGE> 44
PROGRESSIVE ASSET MANAGEMENT, INC. CONSOLIDATED BALANCE SHEET
(UNAUDITED) FOR SIX MONTHS ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
December 31 December 31
1999 1998
----------- -----------
<S> <C> <C>
Cash $ 389,672 $ 348,631
Receivables 99,880 459,212
Securities purchased 0 0
Securities borrowed 0 0
Financial instruments owned 0 0
Property and equipment 13,971 107,436
---------- ----------
Total assets $ 503,523 $ 915,279
========== ==========
Short term borrowings $ 0 $ 0
Payables 30,172 16,1195
Securities sold 0 0
Securities loaned 0 0
Instruments sold 0 0
Long term debt 119,000 0
Preferred stock mandatory redemption 0 0
Preferred stock no mandatory redemption 58,366 55,766
Common stock 1,479,250 1,484,146
Other stockholders' equity - accumulated deficit -1,183,265 -785,828
---------- ----------
Total liabilities and stockholders' equity $ 503,523 $ 915,279
========== ==========
Revenue from trading activities $ 0 $ 0
Interest and dividends 1,394 1,354
Commissions 249,602 1,533,924
Revenue from investment banking 0 1,650
Interest expense 0 0
Compensation and employee benefits 96,158 1,119,058
Other expenses 109,154 597,663
---------- ----------
Income (loss) before taxes 45,684 -179,793
Extraordinary items, net of tax 0 0
</TABLE>
F-25
<PAGE> 45
<TABLE>
<S> <C> <C>
Cumulative effect of accounting change 0 0
---------- ----------
Net income (loss) $ 45,684 -$179,793
---------- ----------
Earnings (loss) per share primary $ 0.03 -$0.11
========== ==========
Earnings (loss) per share fully diluted $ 0.02 -$0.11
========== ==========
</TABLE>
Note 1 This is a condensed and consolidated financial summary which includes PAM
and its wholly-owned subsidiary, PAM Housing.
Note 2 Total number of shares as of December 31 1999 and 1998 is 2,810,793.
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the requirements of Form 10-SB and Item 310 of
Regulation S-B, and in the opinion of management of PAM, include all normal
adjustments considered necessary to present fairly the financial position as of
December 31, 1999, and the six months ended December 31, 1999, and December 31,
1998. These results have been determined on the basis of generally accepted
accounting principals and practices and applied consistently with those used in
the preparation of PAM's audited consolidated financial statements and notes for
the year ended June 30, 1999.
F-26
<PAGE> 46
PART III
Exhibit 2 (a) Restated Articles of Incorporation
(b) Bylaws
Exhibit 6 (a) Stock Option Plan
(b) Standstill Agreement between PAM and Paradox Holdings
Exhibit 12 (a) Purchase Agreement Among Paradox Holdings, PAM and FWG,
Exhibit 27 Financial Data Schedule
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, who is duly authorized.
Progressive Asset Management, Inc.
Date: February 28, 2000 /s/ ERIC LEENSON
by Eric Leenson, President
19
<PAGE> 1
EXHIBIT 2(a)
RESTATED
ARTICLES OF INCORPORATION
OF
PROGRESSIVE ASSET MANAGEMENT, INC.
Eric D. Leenson and Catherine Cartier certify that:
1. They are the President and Secretary, respectively, of Progressive Asset
Management, Inc., a California Corporation.
2. The Articles of Incorporation of this Corporation as amended to the date of
filing of this certificate, including amendments set forth herein but not
separately filed (and with the omissions required by Section 910 of the
Corporations Code) are restated as follows:
I
The name of the Corporation is Progressive Asset Management, Inc.
II
The purpose of the Corporation is to engage in any lawful act or activity
for which a Corporation may be organized under the General Corporation Law of
California, other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
The Corporation is authorized to issue three classes of shares, designated
"Common Stock," "Preferred Stock," and "Class A Conversion Stock." The total
number of shares of Common Stock that the Corporation is authorized to issue is
FIVE MILLION (5,000,000), the total number of shares of Preferred Stock that the
Corporation is authorized to issue is ONE MILLION (1,000,000), and the total
number of shares of Class A Conversion Stock that the Corporation is authorized
to issue is FIVE MILLION (5,000,000). The Preferred Stock and Class A Conversion
Stock may be issued in one or more series, and the Board of Directors of the
Corporation is authorized to determine the designation and to fix the number of
shares of each series.
The Board of Directors of the Corporation is further authorized to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and Class A
Conversion Stock, and to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any such series
of Preferred Stock subsequent to the issue of
1
<PAGE> 2
shares of that series.
IV
If any statute or regulation applicable to the Corporation requires that
any class of shares of the Corporation have a par value, or bases its regulation
or fee on a specified par value, then such shares shall have a par value of one
dollar ($1.00) per share for purposes of such statute or regulation.
V
The number of Series A Convertible Preferred Shares is 82,388. The rights,
preferences, privileges, restrictions and other matters relating to such 82,388
shares of Series A Preferred Stock are as follows:
1. Dividends. The Series A Preferred Stock shall not be entitled to receive
dividends.
2.Voting Rights. The Series A Preferred Stock shall have no voting rights,
except as required by law.
3. Liquidation. On any voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation, the holders of the Series A Preferred Stock,
shall be entitled to receive, out of the assets of the Corporation, whether
those assets are capital or surplus of any nature, an amount equal to $7.00 per
share, of the Series A Preferred Stock, and no more, before any payment shall be
made or any assets distributed to the holders of any other class or series of
stock.
A consolidation or merger of the Corporation with or into any other business
entity or entities, or a sale of all or substantially all of the assets of the
Corporation, shall not be deemed to be a liquidation, dissolution, or winding up
of the Corporation within the meaning of this paragraph 3. So long as shares of
Series A Preferred Stock are issued and outstanding, no shares of any class of
preferred stock of the Corporation shall be issued with a liquidation preference
senior to the Series A Preferred Stock
4. Conversion. Each holder of the Series A Preferred Stock will have the right
to convert all or any portion of his or her Series A Preferred Stock, at the
option of the holders, after two years, into shares of Common Stock of The
Corporation. The conversion ratio shall be one share of Series A Preferred for
one share of common stock. The total number of shares of Common Stock into which
the Preferred Stock may be converted will be the unredeemed number of shares
held by the shareholder.
5. Automatic Conversion. The Series A Preferred Stock shall automatically be
converted into Common Stock at the then-effective Conversion Ratio for the
Series A Preferred Stock,
2
<PAGE> 3
in the event that the bid for shares of the Common Stock of The Corporation
remains at $7.00 or higher for a period of six months, as reflected on the
relevant market of exchange.
6. Mandatory Redemption. The Corporation covenants that, on or before November
1, 1999, and annually on or before November 1 of each year thereafter, or until
The Corporation redeems all outstanding Series A Preferred Stock, whichever
occurs first, it will apply at least 1% of its revenue based upon its audited
financial statements to retire by redemption a pro rata portion of the
outstanding Series A Preferred Stock; provided however, that in any such year in
which November 1 is not a business day, such payments shall be made on the
business day succeeding such November 1. The redemption price per share is
$7.00.
(a) In addition to the required redemptions, The Corporation may at its
option and without penalty, accelerate the redemption of the Preferred Stock.
(b) If the Corporation cannot meet its net capital requirements, as defined
under the Securities and Exchange Act of 1934 and/or the California Corporations
Code, The Corporation may reduce its obligation to redeem the Series A Preferred
Stock under this Section. On or before October 15 in each applicable year, The
Corporation shall deliver to the Series A Preferred Stock holder notice stating
its intention to reduce the amount to be redeemed because of any net capital
constraints.
7. Termination of Rights After Redemption. From and after each Redemption Date,
all rights with respect to the shares of the Preferred Stock called for
redemption shall be extinguished. Such shares shall not thereafter be
transferred and shall not be deemed outstanding for any purposes whatsoever.
VI
The number of Series B Convertible Preferred Shares is 25,000. The rights,
preferences, privileges, restrictions and other matters relating to such 25,000
shares of Series B Preferred Stock are as follows:
1. Dividends. The Series B Preferred Stock shall have no dividend preference
over either the Series A Preferred Stock or the Common Stock. If the Board of
Directors shall elect to declare dividends, out of funds legally available
therefor, such dividends shall be declared on the Common Stock and Series B
Preferred Stock, and the Series B Preferred Stock shall be entitled to receive
40% of the dividends.
2. Voting Rights. The Series B Preferred Stock shall have the right to vote upon
all matters voted upon by holders of the Common Stock, with each share of Series
B Preferred Stock having a vote equal to the number of shares of Common Stock
into which each share of Series B Preferred Stock may be converted as
3
<PAGE> 4
provided in Section 4(b), below. Except as otherwise provided by law or
expressly provided in the Articles of Incorporation, and any amendments thereto,
including any certificates of determination, the Series B Preferred Stock and
all other shares of voting capital stock of the Corporation shall vote together
as a class.
3. Liquidation. On any voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation, the holders of the Series B Preferred Stock,
shall be entitled to receive, out of the assets of the Corporation, whether
those assets are capital or surplus of any nature, an amount equal to $1.00 per
Series B Preferred Stock, plus an amount equal to any dividends on those Series
B Preferred Stock declared and unpaid on the date of that distribution, and no
more, before any payment shall be made or any assets distributed to the holders
of the Corporation's Common Shares. If on liquidation, dissolution, or winding
up of the Corporation, the assets so distributed among the holders of the Series
B Preferred Stock shall be insufficient to permit full payment to those
shareholders of the full preferential amounts, then the entire assets of the
Corporation shall be distributed ratably among the holders of Preferred Shares.
The full preferential amount to which the Series B Preferred Stock is
entitled is subordinate to the amounts to which the Series A Preferred Stock are
entitled. After payment or distribution to the holders of Series A Preferred
Stock and of Series B Preferred Stock of the full preferential amounts, the
holders of Common shares shall be entitled to receive, ratably, all remaining
assets of the Corporation.
A consolidation or merger of the Corporation with or into any other
business entity or entities, or a sale of all or substantially all of the assets
of the Corporation, shall not be deemed to be a liquidation, dissolution, or
winding up of the Corporation within the meaning of this paragraph 3. So long as
shares of Series B Preferred Stock are issued and outstanding, no shares of any
class of preferred stock of the Corporation shall be issued with a liquidation
preference senior to the Series B Preferred Stock, except the Series A
Convertible Preferred Stock.
4. Conversion.
(a) Conversion by Holders. The Series B Preferred Stock shall be
convertible at the option of the holders thereof into such number of shares of
Common Stock as is determined under the Conversion Ratio (as defined below).
(b) Conversion Ratio. Upon a conversion of Series B Preferred Stock in
accordance herein, each share of Series B Preferred Stock shall be converted
into the number of shares of Common Stock resulting from the following formula
(the "Conversion Ratio"):
4
<PAGE> 5
X = [2/3(Y)]/25,000
where: X = the number of shares of Common Stock receivable upon the
conversion of one share of Series B Preferred Stock; and
Y = the number of shares of Common Stock outstanding plus those shares
deemed to be Additional Shares of Common Stock (as defined below) at the date of
conversion.
(c) Fractional Shares Upon Conversion. Fractional shares of Common Stock
will be issued upon conversion of Series B Preferred Stock.
(d) Deemed Issue of Additional Shares of Common Stock. In the event the
Corporation, on or after the date of the adoption of this resolution, shall
issue any rights, options or warrants to purchase either Common Stock or
Convertible Securities (as defined below) ("Options") or any evidences of
indebtedness, shares (other than Common Stock) or other securities convertible
into Common Stock ("Convertible Securities"), then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and options therefor, the shares into which such
Convertible Securities may be converted, shall be deemed to be "Additional
Shares of Common Stock" issued as of the time of such issue, provided that:
(i) no further adjustment in the Conversion Ratio shall be made upon the
subsequent issue of such Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion of such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise. for any increase in the number of shares of
Common Stock issuable. upon the exercise, conversion or exchange thereof, the
Conversion Ratio computed upon the original issue thereof. and any subsequent
adjustments based thereon, shall. upon any such increase or decrease becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
(iii) upon the expiration of any such Options or any rights of conversion
under such Convertible Securities which shall not have been exercised, the
Conversion Ratio computed upon the original issue thereof, and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options for Common Stock
the only Additional Shares of Common Stock issued were the shares of Common
Stock actually issued upon the
5
<PAGE> 6
exercise of such Options or the conversion of such Convertible Securities, and
(B) in the case of Options for Convertible Securities only the
Convertible Securities actually issued upon the exercise thereof were issued at
the time of issue of such options.
(e) Stock Dividends and Subdivisions. In the event the Corporation at any
time or from time to time on or after the date of the adoption of this
resolution shall pay any dividend on the Common Stock payable in Common Stock,
or effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares, Additional Shares of Common Stock shall be deemed to have been
issued:
(i) in the case of any such dividend, immediately after the close of
business on the record date for the determination of holders of any class of
securities entitled to receive such dividend, or
(ii) in the case of any such subdivision, at the close of business on the
date immediately prior to the date upon which such corporate action becomes
effective.
(f) Mechanics of Conversion. Any holder of Series B Preferred Stock may
exercise its conversion right by delivery to the Corporation of a notice (a
"Conversion Notice"), stating the number of shares of Series B Preferred Stock
to be converted, which may be delivered by facsimile for purposes of fixing the
date of conversion so long as the certificates for the Series B Preferred Stock
to be converted are in physical custody of the Corporation or its transfer agent
not later than the fifth business day after the facsimile is sent. Before any
holder of Series B Preferred Stock will be entitled to convert the same into
shares of Common Stock, it will surrender the certificate or certificates
therefor. duly endorsed in blank, at the office of the Corporation or of any
transfer agent for the Series B Preferred Stock, and it will give written notice
to the Corporation stating the name or names in which it wishes the certificate
or certificates for shares of Common Stock to be issued. The Corporation, as
soon as practicable but in any event no later than five business (5) days after
the date of receipt by the Corporation of the Conversion Notice provided the
Corporation has physical custody of the certificates for the Series B Preferred
Stock on such date, will issue and deliver to such holder of Series B Preferred
Stock or to its nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which it will be entitled as aforesaid. Such
conversion will be deemed to have been made immediately prior to the close of
business on the date that the Corporation has received such notice and
certificate(s), and the person or persons entitled to receive the shares of
Common Stock issuable upon conversion will be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
6
<PAGE> 7
(g) No Impairment. The Corporation, whether by amendment of its Articles of
Incorporation, or through any reorganization, transfer of assets, merger,
dissolution, issue or sale of securities or any other voluntary action, will not
avoid or seek to avoid the observance or performance of any of the terms to be
observed hereunder by the Corporation, but at all times in good faith will
assist in the carrying out of all of such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred Stock against impairment.
(h) Reservation of Stock Issuable Upon Conversion. The Corporation at all
times will reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purposes of effecting the conversion of the
shares of the Series B Preferred Stock, such number of its shares of Common
Stock as from time to time will be sufficient to effect the conversion of all of
the then outstanding shares of the Series B Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock is not sufficient
to effect the conversion of all of the then outstanding shares of the Series B
Preferred Stock, in addition to such other remedies as may be available to the
holders of Series B Preferred Stock for such failure, the Corporation will take
such actions as, in the opinion of its counsel, may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as will
be sufficient for such purposes.
(i) Percentage of Common Stock. Notwithstanding anything herein to the
contrary, the shares of Series B Preferred Stock shall at all times in the
aggregate, upon conversion into Common Stock and combined with any shares of
Common Stock into which any shares of the Series B Preferred Stock have already
been converted, constitute 40% of the aggregate of the outstanding Common Stock
of the Corporation plus the shares of Common Stock underlying Options,
Convertible Securities and the Series B Preferred Stock.
5. Automatic Conversion. The Series B Preferred Stock shall automatically be
converted into Common Stock at the then-effective Conversion Ratio for the
Series B Preferred Stock, upon the earlier of (a) the receipt of $875,000 by the
Corporation from Financial West Group, Inc., and/or Paradox Holdings, Inc., as
provided under section 1.1(c) of the Purchase and Agreement, dated March 5,
1999, entered into by the Corporation, Financial West Group, Inc., and Paradox
Holdings, Inc., or (b) June 30, 2002.
3. The Restated Articles of Incorporation have been duly approved by its Board
of Directors.
4. The statement of rights, preferences, privileges, and restrictions relating
to the Class A Conversion Stock were set forth in the Certificate of
Determination filed February 21, 1990
7
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(document number A382782), which by its terms were converted to common stock on
December 31, 1991, and consequently, none of the Class A Conversion Stock is
outstanding. The effect of this Amendment (other than omissions required by
Section 910 of the Corporations Code) decreases the authorized number of the
Class A Conversion Stock with the rights, preferences, privileges, and
restrictions as set forth in the Certificate of Determination to zero. As
provided under Corporations Code Section 401(f), the prior certificate of
determination establishing the Series A Cumulative Convertible Preferred Stock
and the amendment thereto, are no longer in effect and the Class A Conversion
Stock with the rights, preferences, privileges, and restrictions as set forth in
the Certificate of Determination, is no longer authorized.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge
Date: February 17, 2000
ERIC D. LEENSON
Eric D. Leenson, President
CATHERINE CARTIER
Catherine Cartier, Secretary
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EXHIBIT 2(b)
BYLAWS
OF
PROGRESSIVE ASSET MANAGEMENT, INC.
a California corporation
AMENDED AND RESTATED AS OF JANUARY 21, 2000
ARTICLE I
Offices
Section 1. Principal Executive Office.
The Board of Directors (the "Board") shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside California and
the corporation has one or more business offices in California, the Board shall
fix and designate a principal business office in California.
Section 2. Other Offices.
Branch or subordinate offices may be established at any time and at any place
where the corporation is qualified to do business by the Board or President.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings.
All meetings of shareholders shall be held at the principal executive office of
the corporation, or at any other place, within or without the State of
California, specified by the Board of Directors.
Section 2. Annual Meeting.
An annual meeting of the shareholders shall be held each year on a date and at a
time designated by the Board of Directors. At that meeting, directors shall be
elected and any other proper business within the power of the shareholders may
be transacted. The date so designated shall be within fifteen (15) months after
the last annual meeting. If the annual meeting of the shareholders is not held,
election of directors may be held at any meeting thereafter called pursuant to
these bylaws.
Section 3. Notice of Annual Meeting.
Written notice of each annual meeting shall be given to each shareholder
entitled to vote, either personally or by first-class mail, or, if the
corporation has outstanding shares held of
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record by 500 or more persons (determined in accordance with Section 605 of the
General Corporation Law) on the record date for the meeting, by third-class
mail, or by other means of written communication, charges prepaid, addressed to
such shareholder at the shareholder's address appearing on the books of the
corporation or given by such shareholder to the corporation for the purpose of
notice. If any notice or report addressed to the shareholder at the address of
such shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available for
the shareholder upon written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice or report to all other shareholders. If a shareholder
gives no address, notice shall be deemed to have been given to such shareholder
if addressed to the shareholder at the place where the principal executive
office of the corporation is situated, or if published at least once in some
newspaper of general circulation in the county in which said principal executive
office is located.
All such notices shall be given to each shareholder entitled thereto not less
than ten (10) days (or, if sent by third-class mail, thirty (30) days) nor more
than sixty (60) days before each annual meeting. Any such notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by other means of written communication. An affidavit of mailing of
any such notice in accordance with the foregoing provisions, executed by the
Secretary, Assistant Secretary or any transfer agent of the corporation shall be
prima facie evidence of the giving of the notice. Such notice shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters that the Board of Directors, at the time of the mailing
of the notice, intends to present for action by the shareholders (but, subject
to the provisions of subsection (d) below, any proper matter may be presented at
the meeting for such action);
(c) if directors are to be elected, the names of nominees
intended at the time of the notice to be presented by the Board
of Directors for election;
(d) the general nature of a proposal, if any, to take action with respect
to approval of (i) a contract or other transaction with an interested director,
(ii) amendment of the
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Articles of Incorporation, (iii) a reorganization of the corporation as defined
in Section 181 of the General Corporation Law, (iv) voluntary dissolution of the
corporation, or (v) a distribution in dissolution other than in accordance with
the rights of outstanding preferred shares, if any; and
(e) such other matters, if any, as may be expressly required by statute.
Section 4. Special Meetings.
Special meetings of the shareholders for any purpose or purposes whatsoever may
be called at any time by the Chairman of the Board (if there be such an officer
appointed), by the President, by the Board of Directors, or by one or more
shareholders entitled to cast not less than ten percent (10%) of the votes at
the meeting.
Section 5. Notice of Special Meetings.
Upon request in writing that a special meeting of shareholders be called for any
proper purpose, directed to the Chairman of the Board (if there be such an
officer appointed), President, Vice President or Secretary by any person (other
than the Board of Directors) entitled to call a special meeting of shareholders,
the officer forthwith shall cause notice to be given to the shareholders
entitled to vote that a meeting will be held at a time requested by the person
or persons calling the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. Except in special cases where
other express provision is made by statute, notice of any special meeting of
shareholders shall be given in the same manner as for annual meetings of
shareholders. In addition to the matters required by Section 3(a) and, if
applicable, Section 3(c) of this Article II of these Bylaws, notice of any
special meeting shall specify the general nature of the business to be
transacted, and no other business may be transacted at such meeting.
Section 6. Quorum.
The presence in person or by proxy of persons entitled to vote a majority of the
voting shares at any meeting shall constitute a quorum for the transaction of
business. If a quorum is present, the affirmative vote of a majority of the
shares represented and voting at the meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders unless the vote of a greater number of voting by classes is
required by the General Corporation Law or the Articles of Incorporation. Any
meeting of shareholders, whether or not a quorum is present, may be adjourned
from time to time by the vote of the holders of a majority of the shares present
in person or represented by proxy thereat and entitled to
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vote, but in the absence of a quorum no other business may be transacted at such
meeting, except that the shareholders present or represented by proxy at a duly
called or held meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. Adjourned Meeting and Notice.
When any shareholders' meeting, either annual or special, is adjourned for more
than forty-five (45) days, or if after adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given as in
the case of an original meeting. Except as provided above, it shall not be
necessary to give any notice of the time and place of the adjourned meeting or
of the business to be transacted thereat, other than by announcement of the time
and place thereof at the meeting at which such adjournment is taken.
Section 8. Record Date.
(a) The Board of Directors may fix a time in the future as a record date
for the determination of the shareholders entitled to notice of and to vote at
any meeting of shareholders or entitled to give consent to corporate action in
writing without a meeting, to receive any report, to receive any dividend or
other distribution, or allotment of any rights, or to exercise rights in respect
of any other lawful action. The record date so fixed shall be not more than
sixty (60) days nor less than ten (10) days prior to the date of such meeting
nor more than sixty (60) days prior to any other action. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting unless the Board of
Directors fixes a new record date for the adjourned meeting, but the Board of
Directors shall fix a new record date if the meeting is adjourned for more than
forty-five (45) days from the date set for the original meeting. When a record
date is so fixed, only shareholders of record at the close of business on that
date are entitled to notice of and to vote at any such meeting, to give consent
without a meeting, to receive any report, to receive the dividend, distribution,
or allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Articles of Incorporation
or these Bylaws.
(b) If no record date is fixed:
(1) The record date for determining shareholders
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entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day
preceding the day on which the meeting is held.
(2) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given.
(3) The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto, or the sixtieth (60th) day prior to the
date of such other action, whichever is later.
Section 9. Voting.
(a) Except as provided below with respect to cumulative voting and except
as may be otherwise provided in the Articles of Incorporation, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote of shareholders. Any holders of shares entitled to vote on
any matter may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or vote them against the proposal, other than
elections to office, but, if the shareholder fails to specify the number of
shares such shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
such shareholder is entitled to vote.
(b) Subject to the provisions of Sections 702 through 704 of the General
Corporation Law (relating to voting of shares held by a fiduciary, receiver,
pledgee, or minor, in the name of a corporation, or in joint ownership), persons
in whose names shares entitled to vote stand on the stock records of the
corporation at the close of business on the record date shall be entitled to
vote at the meeting of shareholders. Such vote may be viva voce or by ballot;
provided, however, that all elections for directors must be by ballot upon
demand made by a shareholder at any election and before the voting begins.
Shares of this corporation owned by a corporation more than twenty-five percent
(25%) of the voting power of which is owned directly by this corporation, or
indirectly through one or more majority-owned subsidiaries of this corporation,
shall not be entitled to vote on any matter.
(c) Subject to the requirements of the next sentence, every shareholder
entitled to vote at any election for directors shall
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have the right to cumulate such shareholder's votes and give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which such shareholder's shares are normally entitled, or to
distribute votes on the same principle among as many candidates as such
shareholder thinks fit. No shareholder shall be entitled to cumulate votes
unless such candidate's name or candidates' names have been placed in nomination
prior to the voting and the shareholder has given notice at the meeting, prior
to the voting, of the shareholder's intention to cumulate such shareholder's
votes. If any one shareholder has given such notice, all shareholders may
cumulate their votes for candidates in nomination. The candidates receiving the
highest number of affirmative votes of shares entitled to be voted for them, up
to the number of directors to be elected by such shares, shall be elected. Votes
against a director and votes withheld shall have no legal effect.
Section 10. Proxies.
(a) Every person entitled to vote shares may authorize another person or
other persons to act by proxy with respect to such shares. "Proxy" means a
written authorization signed by a shareholder or the shareholder's
attorney-in-fact giving another person or persons power to vote with respect to
the shares of such shareholder. "Signed" for the purpose of this Section means
the placing of the shareholder's name on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. Any proxy duly executed is not revoked and
continues in full force and effect until (i) a written instrument revoking it is
filed with the Secretary of the corporation prior to the vote pursuant thereto,
(ii) a subsequent proxy executed by the person executing the prior proxy is
presented to the meeting, (iii) the person executing the proxy attends the
meeting and votes in person, or (iv) written notice of the death or incapacity
of the maker of such proxy is received by the corporation before the vote
pursuant thereto is counted; provided that no such proxy shall be valid after
the expiration of eleven (11) months from the date of its execution, unless
otherwise provided in the proxy. Notwithstanding the foregoing sentence, a proxy
that states that it is irrevocable, is irrevocable for the period specified
therein to the extent permitted by Section 705(e) of the General Corporation
Law. The dates contained on the forms of proxy presumptively determine the order
of execution, regardless of the postmark dates on the envelopes in which they
are mailed.
(b) As long as no outstanding class of securities of the corporation is
registered under Section 12 of the Securities Exchange Act of 1934, or is not
exempted from such registration
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by Section 12(g)(2) of such Act, any form of proxy or written consent
distributed to ten (10) or more shareholders of the corporation when outstanding
shares of the corporation are held of record by 100 or more persons shall afford
an opportunity on the proxy or form of written consent to specify a choice
between approval and disapproval of each matter or group of related matters
intended to be acted upon at the meeting for which the proxy is solicited or by
such written consent, other than elections to office, and shall provide, subject
to reasonable specified conditions, that where the person solicited specifies a
choice with respect to any such matter the shares will be voted in accordance
therewith. In any election of directors, any form of proxy in which the
directors to be voted upon are named therein as candidates and which is marked
by a shareholder "withhold" or otherwise marked in a manner indicating that the
authority to vote for the election of directors is withheld shall not be voted
for the election of a director.
Section 11. Validation of Defectively Called or Noticed Meetings.
The transactions of any meeting of shareholders, however called and noticed, and
wherever held, are as valid as though had at a meeting duly held after regular
call and notice, if a quorum is present either in person or by proxy, and if,
either before or after the meeting, each of the persons entitled to vote, not
present in person or by proxy, signs a written waiver of notice or a consent to
the holding of the meeting or an approval of the minutes thereof. All such
waivers, consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. Attendance of a person at a meeting
shall constitute a waiver of notice of and presence at such meeting, except when
the person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by these Bylaws or by the General Corporation
Law to be included in the notice if such objection is expressly made at the
meeting. Neither the business to be transacted at nor the purpose of any regular
or special meeting of shareholders need be specified in any written waiver of
notice, consent to the holding of the meeting or approval of the minutes
thereof, unless otherwise provided in the Articles of Incorporation or these
Bylaws, or unless the meeting Involves one or more matters specified in Section
3(d) of this Article II of these Bylaws.
Section 12. Action Without Meeting.
(a) Directors may be elected without a meeting by a consent in writing,
setting forth the action so taken, signed by all of
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the persons who would be entitled to vote for the election of directors,
provided that, without notice except as hereinafter set forth, a director may be
elected at any time to fill a vacancy not filled by the directors (other than a
vacancy created by removal of a director) by the written consent of persons
holding a majority of the outstanding shares entitled to vote for the election
of directors.
Any other action that may be taken at a meeting of the shareholders, may be
taken without a meeting, and without prior notice except as hereinafter set
forth, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
(b) Unless the consents of all shareholders entitled to vote have been
solicited in writing:
(1) notice of any proposed shareholder approval of (i) a contract or
other transaction with an interested director, (ii) indemnification of an agent
of the corporation, (iii) a reorganization of the corporation as defined in
Section 181 of the General Corporation Law, or (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, if any, without a meeting by less than unanimous written consent, shall
be given at least ten (10) days before the consummation of the action authorized
by such approval; and
(2) prompt notice shall be given of the taking of any other corporate
action approved by shareholders without a meeting by less than unanimous written
consent;
to those shareholders entitled to vote who have not consented in writing. Such
notices shall be given in the manner provided in Section 3 of this Article II of
these Bylaws.
(c) Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
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Section 13. Inspectors of Election.
(a) In advance of any meeting of shareholders, the Board of Directors may
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed, or if any persons so
appointed fail to appear or refuse to act, the chairman of any such meeting may,
and on the request of any shareholder or the holder of such shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
or refuse) at the meeting. The number of inspectors shall be either one or
three. If inspectors are appointed at a meeting on the request of one or more
shareholders or holders of proxies, the majority of shares represented in person
or by proxy shall determine whether one inspector or three inspectors are to be
appointed.
(b) The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies;
receive votes, ballots or consents; hear and determine all challenges and
questions in any way arising in connection with the right to vote; count and
tabulate all votes or consents; determine when the polls shall close; determine
the result; and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders.
(c) The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein.
ARTICLE III
Board of Directors
Section 1. Powers; Approval of Loans to Officers.
(a) Subject to the provisions of the General Corporation Law and any
limitations in the Articles of Incorporation relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board of
Directors.
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(b) The corporation may, upon approval of the Board of Directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
(whether or not a director) of the corporation or of its parent, or adopt an
employee benefit plan authorizing such loans or guaranties provided that:
(1) the Board of Directors determines that such a loan, guaranty, or
plan may reasonably be expected to benefit the corporation;
(2) the corporation has outstanding shares held of record by 100 or
more persons (determined as provided in Section 605 of the General Corporation
Law) on the date of approval by the Board of Directors;
(3) the approval by the Board of Directors is by a vote sufficient
without counting the vote of any interested director(s); and
(4) the loan is otherwise made in compliance with Section 315 of the
General Corporation Law.
Section 2. Number and Qualification of Directors.
The number of directors of the corporation shall not be less than six (6) nor
more than eleven (11) until changed by amendment of the Articles of
Incorporation or by a bylaw amending this Section 2 duly adopted by the vote or
written consent of holders of a majority of the outstanding shares, provided
that if the minimum number of directors is five or more, any proposal to reduce
the minimum number of directors to a number less than five cannot be adopted if
the votes cast against its adoption at a meeting, or the shares not consenting
in the case of action by written consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled to vote. The
exact number of directors shall be fixed from time to time, within the limits
specified in the Articles of Incorporation or in this Section 2, by a bylaw or
amendment thereof duly adopted by the vote of a majority of the shares entitled
to vote represented at a duly held meeting at which a quorum is present, or by
the written consent of the holders of a majority of the outstanding shares
entitled to vote, or by the Board of Directors.
Section 3. Election and Term of Office.
The directors shall be elected at each annual meeting of shareholders, but, if
any such annual meeting is not held or the directors are not elected thereat,
the directors may be elected at any special meeting of shareholders held for
that purpose. Each director, including a director elected to fill a vacancy
shall hold office until the expiration of the term for which
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elected and until a successor has been elected and qualified.
Section 4. Vacancies.
A vacancy on the Board of Directors shall be deemed to exist in case of the
death, resignation or removal of any director, if a director has been declared
of unsound mind by order of court or convicted of a felony, if the authorized
number of directors is increased, if the incorporator or incorporators have
failed to appoint the authorized number of directors in any resolution for
appointment of directors upon the initial organization of the corporation, or if
the shareholders fail, at any annual or special meeting of shareholders at which
any director or directors are elected, to elect the full authorized number of
directors to be voted for at that meeting.
Vacancies on the Board of Directors, except for a vacancy created by the removal
of a director, may be filled by a majority of the directors then in office,
whether or not less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until his or her successor is elected at
an annual or a special meeting of the shareholders. A vacancy in the Board of
Directors created by the removal of a director may be filled only by the vote of
a majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present, or by the written consent of all of the holders of
the outstanding shares.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent other than to fill a vacancy created by removal shall require the
consent of holders of a majority of the outstanding shares entitled to vote. Any
such election by written consent to fill a vacancy created by removal shall
require the unanimous written consent of all shares entitled to vote for the
election of directors.
Any director may resign effective upon giving written notice to the Chairman of
the Board (if there be such an officer appointed), the President, the Secretary
or the Board of Directors of the corporation, unless the notice specifies a
later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of the director's term of office.
Section 5. Time and Place of Meetings.
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The Board of Directors shall hold a regular meeting immediately after the
meeting of shareholders at which it is elected and at the place where such
meeting is held, or at such other place as shall be fixed by the Board of
Directors, for the purpose of appointing officers of the corporation and
otherwise organizing and for the transaction of other business, and notice of
such meeting is hereby dispensed with. Other regular meetings of the Board of
Directors shall be held without notice at such times and places as are fixed by
the Board of Directors. Special meetings of the Board of Directors may be held
at any time whenever called by the Chairman of the Board (if there be such an
officer appointed), the President, any VicePresident, the Secretary or any two
directors. In the absence of a designation, regular meetings shall be held at
the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone, electronic
video screen communication, or other communications equipment. Participation in
such a meeting by telephone conference constitutes presence in person at such a
meeting provided that all directors participating can hear one another.
Participation in a meeting through communications equipment other than
conference telephone constitutes presence in person provided that (i) each
member participating can communicate with all other members concurrently, (ii)
each member is provided the means of participating in all matters before the
Board, including the capacity to propose, or interpose an objection to, a
specific action to be take by the Corporation, and (ii) the Corporation confirms
the identity of the participants and allows only members to cast votes.
Except as hereinabove provided in this Section 5, all meetings of the Board of
Directors may be held at any place within or without the State of California
that has been designated by resolution of the Board of Directors as the place
for the holding of regular meetings, or by written consent of all directors. In
the absence of such designation, meetings of the Board of Directors shall be
held at the principal executive office of the corporation. Special meetings of
the Board of Directors may be held either at a place so designated or at the
principal executive office of the corporation.
Section 6. Notice of Special Meetings.
Notice of the time and place of special meetings shall be delivered personally
to each director or communicated to each director by telephone, including voice
messaging system or other system or technology designed to record and
communicate messages, telegraph, facsimile, electronic mail, or other electronic
means or mail, charges prepaid, addressed to the director at the director's
address as it is shown upon the records of the
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corporation or, if it is not so shown on such records or is not readily
ascertainable, at the place at which the meetings of the directors are regularly
held.
In case such notice is mailed, it shall be deposited in the United States mail
in the place in which the principal executive office of the corporation is
located at least four (4) days prior to the time of the holding of the meeting.
In case such notice is delivered personally or by telephone, including voice
messaging system or other system or technology designed to record and
communicate messages, telegraph, facsimile, electronic mail, or other electronic
means or by telegraph, as above provided, it shall be so delivered at least
forty-eight (48) hours prior to the time of the holding of the meeting. Such
mailing, electronic delivery or delivery, personally or by telephone, as above
provided, shall be due, legal and personal notice to such director.
Notice of a meeting need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meetings.
Section 7. Action at a Meeting: Quorum and Required Vote.
Presence of a majority of the authorized number of directors at a meeting of the
Board of Directors constitutes a quorum for the transaction of business, except
as hereinafter provided. Members of the Board of Directors may participate in a
meeting through use of conference telephone or similar communications equipment,
so long as all members participating in such meeting can hear one another.
Participation in a meeting as permitted in the preceding sentence constitutes
presence in person at such meeting. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present is the act of the Board of Directors, unless a greater number, or the
same number after disqualifying one or more directors from voting, is required
by law, by the Articles of Incorporation, or by these Bylaws. A meeting at which
a quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 8. Action Without a Meeting.
Any action required or permitted to be taken by the Board of Directors may be
taken without a meeting, if all members of the
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Board of Directors shall individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board of Directors. Such action by written consent shall have
the same force and effect as a unanimous vote of such directors.
A majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. If the meeting is adjourned for
more than twenty-four (24) hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the directors
who were not present at the time of the adjournment.
Section 9. Adjourned Meeting and Notice.
A majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. If the meeting is adjourned for
more than twenty-four (24) hours, notice of any adjournment to another adjourned
meeting to the directors who were not present at the time of the adjournment.
Section 10. Fees and Compensation.
Directors and members of committees may receive such compensation, if any, for
their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
Section 11. Appointment of Executive and Other Committees.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the Board of
Directors. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any such committee, to the extent provided in the resolution of the Board of
Directors or in these Bylaws, shall have all the authority of the Board of
Directors, except with respect to:
(a) The approval of any action for which the General Corporation Law also
requires shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any committee.
(c) The fixing of compensation of the directors for serving
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on the Board of Directors or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of new Bylaws.
(e) The amendment or repeal of any resolution of the Board of Directors
that by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation, except at a
rate, in a periodic amount or within a price range determined by the Board of
Directors.
(g) The appointment of other committees of the Board of
Directors or the members thereof.
The provisions of Sections 5 through 9 of this Article III apply also to
committees of the Board of Directors and action by such committees, mutatis
mutandis (with the necessary changes having been made in the language thereof).
Section 12. Indemnification of Agents of the Corporation; Purchase of
Liability Insurance.
(a) For the purposes of this Section 12 and of Section 12(b)(l)(ii) of
Article II, 'agent means any person who is or was a director, officer, employee
or other agent of the corporation, or Is or was serving at the request of the
corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director, officer, employee or agent of a foreign or domestic corporation
that was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation; 11proceeding1t means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and 1texpenses it include without limitation
attorneys' fees and any expenses of establishing a right to indemnification
under subsection (d) or subsection (e)(3) of this Section 12.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or in
the right of the corporation to procure a judgment in its favor) by reason of
the fact that such person is or was an agent of the corporation, against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if such person acted in
good faith and in a manner such person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, if such
person had no
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reasonable cause to believe that such person's conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nob contendere or its equivalent shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which
such person reasonably believed to be in the best interests of the corporation
or that such person had reasonable cause to believe that such person's conduct
was unlawful.
(c) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that such person is or was an agent of the corporation, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such action if such person acted in good faith, in a
manner such person believed to be in the best interests of the corporation and
with such care, including reasonable inquiry, as an ordinarily prudent person in
a like position would use under similar circumstances. No indemnification shall
be made under this subsection (c):
(1) In respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation in the performance of
such person's duty to the corporation, unless and only to the extent that the
court in which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for the expenses which such court
shall determine;
(2) of amounts paid in settling or otherwise disposing
of a threatened or pending action, with or without court
approval; or
(3) of expenses incurred in defending a threatened or pending action
which is settled or otherwise disposed of without court approval.
(d) To the extent that an agent of the corporation has been successful on
the merits in defense of any proceeding referred to in subsection (b) or (c) of
this Section 12 or in defense of any claim, issue or matter therein, the agent
shall be indemnified against expenses actually and reasonably incurred by the
agent in connection therewith.
(e) except as provided in subsection (d) of this Section 12, any
indemnification under this Section 12 shall be made by the corporation only if
authorized in the specific case, upon a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard
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of conduct set forth in subsection (b) or (c) of this Section 12, by:
(1) A majority vote of a quorum consisting of directors who are not
parties to such proceeding;
(2) Approval or ratification by the affirmative vote of a majority of
the shares of the corporation represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also constitute at
least a majority of the required quorum) or by the written consent of holders of
a majority of the outstanding shares entitled to vote; for such purpose, the
shares owned by the person to be indemnified shall not be considered outstanding
or entitled to vote thereon; or
(3) The court in which such proceeding is or was pending, upon
application made by the corporation or the agent or the attorney or other person
rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by the
corporation.
(f) Expenses incurred in defending any proceeding may be advanced by the
corporation prior to the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the agent to repay such amount unless it shall be
determined ultimately that the agent is entitled to be indemnified as authorized
in this Section 12.
(g) Nothing contained in this Section 12 shall affect any right to
indemnification to which persons other than directors and officers of the
corporation or any subsidiary thereof may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this Section 12,
except as provided in subsection (d) or (e)(3) of this Section 12, in any
circumstance where it appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, a resolution of the shareholders or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
(i) Upon and in the event of a determination by the Board of Directors of
the corporation to purchase such insurance, the corporation shall purchase and
maintain insurance on behalf of any agent of the corporation against any
liability asserted
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against or incurred by the agent in such capacity or arising out of the agent's
status as such whether or not the corporation would have the power to indemnify
the agent against such liability under the provisions of this Section 12 or
otherwise.
(j) This Section 12 does not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan in such
person's capacity as such, even though such person may also be an agent of this
Corporation as defined in subsection (a) of this Section 12. The corporation
shall have the power to indemnify such trustee, investment manager or other
fiduciary to the extent permitted by subdivision (f) of Section 207 of the
General Corporation Law.
ARTICLE IV
Officers
Section 1. Officers.
The officers of the corporation shall consist of the President, the Secretary
and the Treasurer, and each of them shall be appointed by the Board of
Directors. The corporation may also have a Chairman of the Board, one or more
Vice-Presidents, a Controller, one or more Assistant Secretaries and Assistant
Treasurers, and such other officers as may be appointed by the Board of
Directors, or with authorization from the Board of Directors by the President.
The order of the seniority of the Vice-Presidents shall be in the order of their
nomination, unless otherwise determined by the Board of Directors. Any two or
more of such offices may be held by the same person. The Board of Directors
shall designate one officer as the chief financial officer of the corporation.
In the absence of such designation, the Treasurer shall be the chief financial
officer. The Board of Directors may appoint, and may empower the President to
appoint, such other officers as the business of the corporation may require,
each of whom shall have such authority and perform such duties as are provided
in these Bylaws or as the Board of Directors may from time to time determine.
All officers of the corporation shall hold office from the date appointed to the
date of the next succeeding regular meeting of the Board of Directors following
the meeting of shareholders at which the Board of Directors is elected, and
until their successors are elected; provided that all officers, as well as any
other employee or agent of the corporation, may, subject to any claim for breach
of contract based on any contractual arrangements between any such person and
the corporation, be removed at any time at the pleasure of the Board of
Directors, or, except in the case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors, and upon the removal,
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resignation, death or incapacity of any officer, the Board of Directors or the
President, in cases where he or she has been vested by the Board of Directors
with power to appoint, may declare such office vacant and fill such vacancy.
Any officer may resign at any time by giving written notice to the Board of
Directors, the President, the Secretary of the corporation, without prejudice,
however, to the rights, if any, of the corporation under contract to which such
officer is a party. Any such resignation shall take effect at the date of the
receipt such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
The salary and other compensation of the officers shall be fixed from time to
time by resolution of or in the manner determined by the Board of Directors.
Section 2. The Chairman of the Board.
The Chairman of the Board (if there be such an officer appointed) shall, when
present, preside at all meetings of the Board of Directors and shall perform all
the duties commonly incident to that office. The Chairman of the Board shall
have authority to execute in the name of the corporation bonds, contracts,
deeds, leases and other written instruments to be executed by the corporation
(except where by law the signature of the President is require), and shall
perform such other duties as the Board of Directors may from time to time
determine.
Section 3. The President.
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board, the President shall be the chief
executive officer of the corporation and shall perform all the duties commonly
incident to that office. The President shall have authority to execute in the
name of the corporation bonds, contracts, deeds, leases and other written
instruments to be executed by the corporation. The President shall preside at
all meetings of the shareholders and, in the absence of the Chairman of the
Board or if there is none, at all meetings of the Board of Directors, and shall
perform such other duties as the Board of Directors may from time to time
determine.
Section 4. Vice-Presidents.
The Vice-Presidents (if there be such officers appointed), in the order of their
seniority, unless otherwise established by the Board of Directors, may assume
and perform the duties of the President in the absence or disability of the
President or
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whenever the offices of the Chairman of the Board and President are vacant. The
Vice-Presidents shall have such titles, perform such other duties, and have such
other powers as the Board of Directors or the President may designate from time
to time.
Section 5. The Secretary.
The Secretary shall record or cause to be recorded, and shall keep or cause to
be kept, at the principal executive office and such other place as the Board of
Directors may order, a book of minutes of actions taken at all meetings of
directors and committees thereof and of shareholders, with the time and place of
holding, whether regular or special, and, if special, how authorized, the notice
thereof given, the names of those present at directors' meetings, the number of
shares present or represented at shareholders' meetings, and the proceedings
thereof
The Secretary shall keep, or cause to be kept, at the principal executive office
or at the office of the corporation's transfer agent, a share register or a
duplicate share register in a form capable of being converted into written form,
showing the names of the shareholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings of
the shareholders and of the Board of Directors and committees thereof required
by these Bylaws or by law to be given, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or by
these Bylaws.
The President may direct any Assistant Secretary to assume and perform the
duties of the Secretary in the absence or disability of the Secretary, and each
Assistant Secretary shall perform such other duties and have such other powers
as the Board of Directors or the President may designate from time to time.
Section 6. The Treasurer.
The Treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation. The books of account shall at all reasonable times be open to
inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and to
the credit of the corporation with such depositaries
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as may be designated by the Board of Directors. The Treasurer shall disburse the
funds of the corporation as may be ordered by the Board of Directors, shall
render to the President and directors, whenever they request it, an account of
all of the Treasurer's transactions as Treasurer and of the financial condition
of the corporation, and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or these Bylaws.
The President may direct any Assistant Treasurer to assume and perform the
duties of the Treasurer in the absence or disability of the Treasurer, and each
Assistant Treasurer shall perform such other duties and have such other powers
as the Board of Directors or the President may designate from time to time.
Section 7. The Controller.
The Controller (if there be such an officer appointed) shall be responsible for
the establishment and maintenance of accounting and other systems required to
control and account for the assets of the corporation and provide safeguards
therefor, and to collect information required for management purposes, and shall
perform such other duties and have such other powers as the Board of Directors
or the President may designate from time to time. The President may direct any
Assistant Controller to assume and perform the duties of the Controller, in the
absence or disability of the Controller, and each Assistant Controller shall
perform such other duties and have such other powers as the Board of Directors,
the Chairman of the Board (if there be such an officer appointed) or the
President may designate from time to time.
ARTICLE V
Execution of Corporate Instruments, Ratification, and
Voting of Stocks Owned by the Corporation
Section 1. Execution of Corporate Instruments.
The Board of Directors may, in its discretion, determine the method, and
designate the signatory officer or officers or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or otherwise
required by law or permitted by these Bylaws, formal contracts of the
corporation, promissory notes, deeds of trust, mortgages and other evidences of
indebtedness of the corporation and other corporate instruments or documents,
and certificates of shares of stock owned by the corporation, shall
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be executed, signed or endorsed by the Chairman of the Board (if there be such
an officer appointed), the President, any Vice-President and by the Secretary,
the Treasurer, any Assistant Secretary, any Assistant Treasurer or the
Controller.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation, or in special accounts of the corporation, shall be
signed by such person or persons as the Board of Directors shall authorize to do
so.
The Board of Directors shall designate an officer who personally, or through his
representative, shall vote shares of other corporations standing in the name of
this corporation. The authority to vote shares shall include the authority to
execute a proxy in the name of the corporation for purposes of voting the
shares.
Section 2. Ratification by Shareholders.
The Board of Directors may, in its discretion, submit any contract or act for
approval or ratification of the shareholders at any annual meeting of
shareholders, or at any special meeting of shareholders called for that purpose;
and any contract or act that shall be approved or ratified by the holders of a
majority of the voting power of the corporation shall be as valid and binding
upon the corporation and upon the shareholders thereof as though approved or
ratified by each and every shareholder of the corporation, unless a greater vote
is required by law for such purpose.
Section 3. Voting of Stocks Owned by the Corporation.
All stock of other corporations owned or held by the corporation for itself, or
for other parties in any capacity, shall be voted, and all proxies with respect
thereto shall be executed, by the person authorized to do by resolution of the
Board of Directors, or in the absence of such authorization, by the Chairman of
the Board (if there be such an officer appointed), the President or any
Vice-President, or by any other person authorized to do so by the Chairman of
the Board, the President or any Vice President.
ARTICLE VI
Annual and Other Reports
Section 1. Reports to Shareholders.
The Board of Directors of the corporation shall cause an annual report to be
sent to the shareholders not later than 120 days after the close of the fiscal
year, and at least fifteen (15) days (or, if sent by third-class mail,
thirty-five (35) days) prior to the annual meeting of shareholders to be held
during the
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next fiscal year. Such report shall contain a balance sheet as of the end of
such fiscal year and an income statement and statement of changes in financial
position for such fiscal year, accompanied by any report thereon of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that such statements were prepared without audit from
the books and records of the corporation. Such report shall also contain such
other matters as required by Section 1501(b) of the General Corporation Law,
unless the corporation is subject to the reporting requirements of Section 13 of
the Securities Exchange Act of 1934, and is not exempted therefrom under Section
12(g)(2) thereof. As long as the corporation has less than 100 holders of record
of its shares (determined as provided in Section 605 of the General Corporation
Law), the foregoing requirement of an annual report is hereby waived, unless
such report is required by the Securities Exchange Act of 1934.
If no annual report for the last fiscal year has been sent to shareholders, the
corporation shall, upon the written request of any shareholder made more than
120 days after the close of such fiscal year, deliver or mail to the person
making the request within thirty (30) days thereafter the financial statements
for such year as required by Section 1501(a) of the General Corporation Law. A
shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than thirty
(30) days prior to the date of the request and a balance sheet of the
corporation as of the end of such period and, in addition, if no annual report
for the last fiscal year has been sent to shareholders, the annual report for
the last fiscal year, unless such report has been waived under these Bylaws. The
statements shall be delivered or mailed to the person making the request within
thirty (30) days thereafter. A copy of any such statements shall be kept on file
in the principal executive office of the corporation for twelve (12) months, and
they shall be exhibited at all reasonable times to any shareholder demanding an
examination of them, or a copy shall be mailed to such shareholder.
The quarterly income statements and balance sheets referred to in this Section
shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that such financial statements were prepared without
audit from the books and records of the corporation.
Section 2. Reports to the Secretary of State.
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(a) Every year, during the calendar month in which the original articles of
incorporation were filed with the California Secretary of State, or during the
preceding five calendar months, the corporation shall file a statement with the
Secretary of State on the prescribed form, setting forth the authorized number
of directors; the names and complete business and residence addresses of all
incumbent directors; the names and complete business or resident addresses of
the chief executive officer, the secretary, and the chief financial officer; the
street address of the corporation's principal executive office or principal
business office in this state; a statement of the general type of business
constituting the principal business activity of the corporation; and a
designation of the agent of the corporation for the purpose of service of
process, all in compliance with Section 1502 of the Corporations Code of
California.
(b) Notwithstanding the provisions of paragraph (a) of this section, if
there has been no change in the information contained in the corporation's last
annual statement on file in the Secretary of State's office, the corporation
may, in lieu of filing the annual statement described in paragraph (a) of this
section, advise the Secretary of State, on the appropriate form, that no changes
in the required information have occurred during the applicable period.
ARTICLE VII
Shares of Stock
Every holder of shares in the corporation shall be entitled to have a
certificate signed in the name of the corporation by the Chairman or Vice
Chairman of the Board (if there be such officers appointed) or the President or
a Vice-President and by the chief financial officer or any Assistant Treasurer
or the Secretary or any Assistant Secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if such person were an officer, transfer agent or registrar at the
date of issue.
Any such certificate shall also contain such legends or other statements as may
be required by Sections 417 and 418 of the General Corporation Law, the
Corporate Securities Law of 1968, federal or other state securities laws, and
any agreement between the corporation and the issuee of the certificate.
Certificates for shares may be issued prior to full payment,
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under such restrictions and for such purposes as the Board of Directors or these
Bylaws may provide; provided, however, that any such certificate so issued prior
to full payment shall state on the face thereof the amount remaining unpaid and
the terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old certificate
unless the latter is surrendered and cancelled at the same time; provided,
however, that a new certificate will be issued without the surrender and
cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for the issuance of
the new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction, or theft; (3) the request for
the issuance of a new certificate is made prior to the receipt of notice by the
corporation that the old certificate has been acquired by a bona fide purchaser;
(4) the owner of the old certificate files a sufficient indemnity bond with or
provides other adequate security to the corporation; and (5) the owner satisfies
any other reasonable requirement imposed by the corporation. In the event of the
issuance of a new certificate, the rights and liabilities of the corporation,
and of the holders of the old and new certificates, shall be governed by the
provisions of Sections 8104 and 8405 of the California Commercial Code.
ARTICLE VIII
Inspection of Corporate Records
Section 1. General Records.
The accounting books and records, the record of shareholders, and the minutes of
proceedings of the shareholders, the Board of Directors and committees thereof
of the corporation and any subsidiary of the corporation shall be open to
inspection upon the written demand on the corporation of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of such voting trust certificate. Such inspection
by a shareholder or holder of a voting trust certificate may be made in person
or by agent or attorney, and the right of inspection includes the right to copy
and make extracts.
A shareholder or shareholders holding at least five percent (5%) in the
aggregate of the outstanding voting shares of the corporation or who hold at
least one percent (1%) of such voting shares and have filed a Schedule 14B with
the United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have (in person, or by agent or attorney) the
right to inspect and copy the record of
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shareholders' names and addresses and shareholdings during usual business hours
upon five (5) business days' prior written demand upon the corporation or to
obtain from the transfer agent for the corporation, upon written demand and upon
the tender of its usual charges for such list, a list of the shareholders' names
and addresses, who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which it has been compiled
or of a date specified by the shareholder subsequent to the date of demand. The
list shall be made available on or before the later of five (5) business days
after the demand is received or the date specified therein as the date as of
which the list is to be compiled.
Every director shall have the absolute right at any reasonable time to inspect
and copy all books, records and documents of every kind and to inspect the
physical properties of the corporation and its subsidiaries. Such inspection by
a director may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts.
Section 2. Inspection of Bylaws.
The corporation shall keep at its principal executive office in California, or
if its principal executive office is not in California, then at its principal
business office in California (or shall otherwise provide upon written request
of any shareholder if it has no such office in California) the original or a
copy of these Bylaws as amended to date, which shall be open to inspection by
the shareholders at all reasonable times during office hours.
ARTICLE IX
Amendments
Section 1. Power of Shareholders.
New bylaws may be adopted or these Bylaws may be amended or repealed by the
affirmative vote of a majority of the outstanding shares entitled to vote, or by
the written assent of shareholders entitled to vote such shares, except as
otherwise provided by law or by the Articles of Incorporation.
Section 2. Power of Directors.
Subject to the right of shareholders as provided in Section 1 of this Article IX
to adopt, amend or repeal these Bylaws, these Bylaws (other than a bylaw or
amendment thereof providing for the approval by the Board, acting alone, of a
loan or guarantee to any officer or an employee benefit plan providing for the
same) may be adopted, amended or repealed by the Board of Directors; provided,
however, that the Board of Directors may adopt a bylaw
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or amendment thereof changing the authorized number of directors only for the
purpose of fixing the exact number of directors within the limits specified in
the Articles of Incorporation or in Section 2 of Article III of these Bylaws.
ARTICLE X
Definitions
Unless the context otherwise requires, the general provisions, rules of
construction and definitions contained in the General Corporation Law as amended
from time to time shall govern the construction of these Bylaws. Without
limiting the generality of the foregoing, the masculine gender includes the
feminine and neuter, the singular number includes the plural and the plural
number includes the singular, and the term 'person' includes a corporation as
well as a natural person.
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CERTIFICATE OF SECRETARY
The undersigned, Secretary of PROGRESSIVE ASSET MANAGEMENT, INC., a California
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of the corporation with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned this 24th day of January 2000.
CATHERINE CARTIER
Catherine Cartier, Secretary of the
Corporation
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EXHIBIT 6(a)
PROGRESSIVE ASSET MANAGEMENT
STOCK OPTION AND INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of the plan is to promote the interests of the Company and its
shareholders by aiding the Company in attracting personnel capable of assuring
the future success of the Company, by offering such personnel incentives to put
forth maximum efforts for the success of the Company's business, and by
affording such personnel an opportunity to acquire a proprietary interest in
the Company.
SECTION 1. DEFINITIONS.
As used in the plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is
under common control with the Company and (ii) any entity in which the
Company has a significant equity interest, in each case as determined by
the committee.
(b) "Award" shall mean any stock purchase, option, or restricted stock
granted under the plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any award granted under the plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the board of directors of the
Company designated by such board to administer the plan, which shall
consist of members appointed from time to time by the chairman of the
board of directors and shall be comprised of not fewer than such number of
directors as shall be required to permit the plan to satisfy the
requirements of Rule 16b-3. At such time as the company first registers a
class of equity securities under Section 12 of the Securities Exchange Act
of 1934, as amended, each member of the committee shall be a
"disinterested person" within the meaning of Rule 16b-3. Each member of
the committee shall be an "outside director" within the meaning of Section
162(m) of the Code.
(f) "Company" shall mean PROGRESSIVE ASSET MANAGEMENT INC., a California
corporation, and any successor corporation.
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(g) "Eligible Person" shall mean any persons (as determined by the
committee) providing services to the Company or any affiliate who the
committee determines to be an eligible person. A non-employee director
shall not be an eligible person.
(h) "Employee Stock Purchase" shall mean stock purchased pursuant to
options granted under section 6.1(b) of the plan.
(i) "Fair Market Value" shall mean with respect to any shares or options,
the fair market value determined by such methods or procedures shall be
established from time to time by the committee.
(j) "Incentive Stock Option" shall mean an option granted under Section
6.1(c) of the plan that is intended to meet the requirements of Section
422 of the Code or any successor provision.
(k) "Non-Employee Director" shall have the meaning provided in Section 6.1
of the plan.
(l) "Non-Qualified Stock Option" shall mean an option granted under
Section 7.3 of the plan that is not intended to be incentive stock option.
(m) "Option" shall mean an incentive stock option or a non-qualified stock
option.
(n) "Participant" shall mean an eligible person designated to be granted
an award under the plan.
(o) "Person" shall mean any individual, corporation, partnership,
association or trust.
(p) "Plan" shall mean this stock incentive plan, as amended from time to
time.
(q) "Restricted Stock" shall mean any share granted under Section 6.2 of
the plan.
(r) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation.
(s) "Shares" shall mean shares of common stock of the Company.
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SECTION 3. ADMINISTRATION.
Power and Authority of the Committee. The plan shall be administered by the
committee. Except as provided in Section 7 and subject to the express provisions
of the plan and to applicable law, the committee shall have full power and
authority to: (i) designate participants; (ii) determine the type or types of
awards to be granted to each participant under the plan; (iii) determine the
number of shares to be covered by each award; (iv) determine the terms and
conditions of any award or award agreement; (v) amend the terms and conditions
of any award or award agreement and accelerate the exercisability of options or
the lapse of restrictions relating to restricted stock awards; (vi) determine
whether, to what extent and under what circumstances awards may be exercised in
cash, shares, or other securities, or canceled, forfeited or suspended; (vii)
determine whether, to what extent and under with circumstances cash, shares, and
other amounts payable with respect to an award under the plan shall be deferred
either automatically or at the election of the holder thereof or the committee;
(viii) interpret and administer the plan and any instrument or agreement
relating to, or award made under, the plan; (ix) establish, amend, suspend or
waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the plan; and (x) make any other
determination and take any other action that the committee deems necessary or
desirable for the administration of the plan. Unless otherwise expressly
provided in the plan, all designations, determinations, interpretations and
other decisions under or with respect to the plan or any award shall be within
the sole discretion of the committee, may be made at any time and shall be
final, conclusive and binding upon any participant, any holder or beneficiary of
any award and any employee of the Company or any affiliate.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) Shares Available. The number of shares available for granting awards
under the plan shall be 200,000. Shares to be issued under the plan shall be
authorized but unissued shares (including without limitation shares reacquired
and restored to the status of authorized but unissued shares). If any shares
covered by an award or to which an award relates are not purchased or are
forfeited, or if an award otherwise terminates without delivery of any shares,
then the number of shares counted against the aggregate number of shares
available under the plan with respect to such award, to the extent of any such
forfeiture or termination, shall again be available for grants under the plan.
(b) Accounting for Awards. For purposes of this Section 4, if an award
entitles the holder thereof to receive or purchase shares, the number of shares
covered by such award or to which such award relates shall be counted on the
date of grant of such award against the aggregate number of shares available
for grants under the plan.
(c) Awards Limitation Under the Plan. No eligible person may be granted
any award or awards under the plan or more than 5,000 shares, in the aggregate,
in any calendar year. Furthermore, no more than 50,000 shares, in the
aggregate, may be issued under the plan in the form of restricted stock.
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SECTION 5. ELIGIBILITY
Any eligible person, including any eligible person who is an officer or
director of the Company or any affiliate, shall be eligible to be designated a
participant. In determining which eligible persons shall receive an award and
the terms of any awards, the committee may take into account the nature of the
services rendered by the respective eligible persons, their present and
potential contributions to the success of the Company, and such other factors
as the committee, in its discretion shall deem relevant. Notwithstanding the
foregoing, and incentive stock option shall not be granted to an employee of an
affiliate unless such affiliate is also a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.
SECTION 6. AWARDS.
6.1 (1) Options. Generally. Effective January 1, 1995, the committee is
hereby authorized to grant options to participants subject to terms and
conditions set forth below, and with such additional terms and conditions not
inconsistent with the provisions of the plan as the committee shall determine.
(i) Exercise Price. The purchase price per share purchasable under an
option shall be determined by the committee; provided, however, that except as
provided in section 6.1(b)(iii), such purchase price shall not be less than 100
percent of the fair market value of a share on the date of grant of such option
and in the case of options granted to holders of ten percent or more of the
company's common stock, shall be at least 110% of the fair market value of a
share on the date of grant of such option.
(ii) Holding Period. Shares purchased under this plan shall be held for
three years after the exercise date.
(iii) Method of Exercise. The committee shall determine the method or
methods by which, and the form or forms (including, without limitation, cash,
shares, promissory notes, other securities, other awards or other property, or
any combination thereof, having a fair market value on the exercise date equal
to the relevant exercise price) in which payment of the exercise price with
respect thereto may be made or deemed to have been made.
(iv) Death. If an optionee shall die while an employee or consultant of
the Company or within three months after termination of his or her employment
or engagement with the Company because of permanent disability or retirement,
his or her options may be exercised, to the extent that the optionee shall have
been entitled to do so on the date of death or such termination of employment
or engagement, by the person or person to whom the optionee's rights under the
option pass by will or applicable law, or if no such person has such right, by
his or her executors or administrators, at any time, or from time to time, but
not later than the expiration date specified in the option agreement or one
year after the optionee's death, whichever date is earlier.
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(v) Disability. If an optionee's employment or engagement by the Company
terminates because of permanent disability or retirement and such optionee has
not died within the following three months, he or she may exercise his or her
options, to the extent that the optionee shall have been entitled to do so at
the date of the termination of his or her employment or engagement, at any
time, or from time to time, but not later than the expiration date specified in
the option agreement or three months after termination of employment or
engagement, whichever date is earlier.
(vi) Termination. If an optionee's employment or engagement terminates for
any reason other than death, permanent disability or retirement, all right to
exercise his or her options shall (except as the Committee may determine
generally or in a particular case) terminate at the date of such termination of
employment or engagement.
(vii) Forfeiture. Option rights shall be suspended by the committee
immediately upon receipt of notice of any proposed disciplinary action against
an optionee until the issue has been resolved to the satisfaction of the
Company. The committee may in its discretion cancel or revoke any of the
options granted by the Company to an optionee if such optionee is terminated by
the Company for good cause.
(viii) Incentive stock options. Each option agreement which provides for
the grant of an Incentive Stock Option shall contain such terms and conditions
as the Committee may determine to be necessary or desirable to qualify such
option as an Incentive Stock Option within the meaning of section 422 of the
Code.
(b) Employee Stock Purchase. Eligible employees may participate in a stock
purchase plan conforming to section 423 of the code under the following
conditions:
(i) Eligibility. Employees who have worked 2000 hours or more during a
continuous 24 month period are eligible to participate. Employees who own, or
after granting of options will own, 5% or more of the voting shares shall not
be eligible to participate.
(ii) Allocation. On January 1, after the close of any fiscal year that the
net income of the company exceeds 2% of revenues, and revenues grow by 10% or
more, each eligible employee shall be granted options to purchase shares worth
1% of the employee's previous calendar year's pay. In any year that the net
income of the company exceeds 5% of revenues, and revenues grow by 15% or more,
each eligible employee shall be granted options to purchase shares worth 2% of
the employee's previous calendar year's pay. In no case may the options granted
in any year to any employee exceed in the aggregate $25,000 in value.
(iii) Exercise Price. The purchase price per share purchasable under this
section (b) shall not be less than 85 percent of the fair market value of a
share on the date of grant of such option.
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(iv) Vesting and Exercise Period. Options are exercisable six months after
the grant date and expire two years after the grant date, or on resignation or
termination of employment, whichever is earlier. Ownership of all shares
purchased hereunder vests one year after exercise of the options or two years
after the grant date, whichever is later.
(c) Discretionary Stock Options. Eligible Key employees, officers,
directors, advisors, and consultants may, at the discretion of the committee,
participate in a stock option plan under the following conditions:
(i) Eligibility. Key employees, officers, and directors, who have been
employed for at least two years, and independent advisors and consultants, are
eligible to participate, provided that they are ineligible to participate under
section 7.3.
(ii) Allocation. On January 1, after the close of any fiscal year that the
net income of the company exceeds 2% of revenues, and revenues grow by 10% or
more, each eligible person may be granted options to purchase shares from a
pool of shares worth 2% of the previous year's profit as determined by the
committee. In any year that the net income of the company exceeds 5% of
revenues, and revenues grow by 15% or more, each eligible person may be granted
options to purchase shares from a pool of shares worth 5% of the previous
year's profit as recommended by the committee. The committee shall consider
individual performance, contribution to increase company revenue or profit,
completion of special projects, or other exceptional work.
(iii) Vesting and Exercise Period. Options are exercisable two years after
the grant date and expire five years after the grant date, or upon resignation
or termination, whichever date is earliest. Ownership of all shares purchased
hereunder vests three years after exercise of the options.
(d) Retroactive Stock Options. Eligible employees, officers, directors,
advisors, and consultants may, at the discretion of the committee, participate
in a stock option plan under the following conditions:
(i) Eligibility. Employees, officers, and directors, who were employed by
the company on December 31, 1993, and independent advisors and consultants who
rendered services prior to the effective date of this plan are eligible to
participate, provided that they are ineligible to participate under section 7.3.
(ii) Allocation. Each eligible person may be granted options to purchase
shares worth 2% of the person's pay for each of the 1991, 1992, and 1993
calendar years, or in the case of independent advisors and consultants, options
to purchase shares worth an amount determined by the committee.
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SECTION 5. ELIGIBILITY
Any eligible person, including any eligible person who is an officer or
director of the Company or any affiliate, shall be eligible to be designated a
participant. In determining which eligible persons shall receive an award and
the terms of any awards, the committee may take into account the nature of the
services rendered by the respective eligible persons, their present and
potential contributions to the success of the Company, and such other factors
as the committee, in its discretion shall deem relevant. Notwithstanding the
foregoing, and incentive stock option shall not be granted to an employee of an
affiliate unless such affiliate is also a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.
SECTION 6. AWARDS.
6.1 (a) Options, Generally. Effective January 1, 1995, the committee is
hereby authorized to grant options to participants subject to terms and
conditions set forth below, and with such additional terms and conditions not
inconsistent with the provisions of the plan as the committee shall determine.
(i) Exercise Price. The purchase price per share purchasable under an
option shall be determined by the committee; provided, however, that except as
provided in section 6.1(b) (iii), such purchase price shall not be less than
100 percent of the fair market value of a share on the date of grant of such
option and in the case of options granted to holders of ten percent or more of
the company's common stock, shall be at least 110% of the fair market value of
a share on the date of grant of such option.
(ii) Holding period. Shares purchased under this plan shall be held for
three years after the exercise date.
(iii) Method of Exercise. The committee shall determine the method or
methods by which, and the form of forms (including, without limitation, cash,
shares, promissory notes, other securities, other awards or other property, or
any combination thereof, having a fair market value on the exercise date equal
to the relevant exercise price) in which, payment of the exercise price with
respect thereto may be made or deemed to have been made.
(iv) Death. If an optionee shall die while an employer or consultant of
the Company or within three months after termination of his or her employment
or engagement with the Company because of permanent disability or retirement,
his or her options may be exercised, to the extent that the optionee shall have
been entitled to do so on the date of death or such termination of employment
engagement, by the person or person to whom the optionee's rights under the
option pass by will or applicable law, or if no such person has such right, by
his or her executors or administrators, at any time, or from time to time, but
not later than the expiration date specified in the option agreement or one
year after the optionee's death, whichever date is earlier.
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(iii) Vesting and Exercise Period. Options are exercisable on the grant
date and expire five years after the grant date, or upon resignation or
termination, whichever date is earliest. Ownership of all shares purchased
hereunder vests three years after the exercise of the options.
6.2 (a) Restricted Stock Grants. The committee is hereby authorized to
grant awards of restricted stock to participants with the following terms and
conditions and with such additional terms and conditions not inconsistent with
the provisions of the plan as the committee shall determine:
(i) Restrictions. Shares of restricted stock shall be subject to such
restrictions as the committee may impose, which restrictions may lapse
separately or in combination at such time or times, in such installments or
otherwise as the committee may deem appropriate.
(ii) Stock Certificates. Any restricted stock granted under the plan shall
be evidenced by issuance of a stock certificate or certificates, which
certificate or certificates shall be held by the Company. Such certificate or
certificates shall be registered in the name of the participant and shall bear
an appropriate legend referring to the terms, conditions and restrictions
applicable to such restricted stock.
(iii) Forfeiture; Delivery of Shares. Except as otherwise determined by
the committee, upon termination of employment (as determined under criteria
established by the committee) during the applicable restriction period, all
shares of restricted stock at such time subject to restriction shall be
forfeited and reacquired by the Company; provided, however, that the committee
may, when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all remaining restrictions with respect to
shares of restricted stock. Any share representing restricted stock that is no
longer subject to restrictions shall be delivered to the holder thereof
promptly after the applicable restrictions lapse or are waived.
(b) Retroactive Stock Grant. Effective January 1, 1995, eligible
employees, officers, directors, advisors, and consultants may, at the
discretion of the committee, participate in a stock grant plan under the
following conditions:
(i) Eligibility. Employees, officers, and directors, who were employed by
the company prior to January 1, 1994, and independent advisors and consultants
who rendered services prior to the effective date of this plan are eligible to
participate, provided that they are ineligible to participate under section 7.
(ii) Allocation. Each eligible person employed prior to January 1, 1994,
may be granted an award of restricted shares worth 1% of the person's pay for
each of the 1991, 1992, and 1993 calendar years, or in the case of independent
advisors and consultants, an award of restricted shares worth an amount
determined by the committee.
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6.3 General Award Provisions.
(a) No Cash Consideration for Awards. Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law.
(b) Forms of Payments Under Awards. Subject to the terms of the plan and
of any applicable award agreement payments or transfers to be made by the
Company or an affiliate upon the grant exercise or payment of an award may be
made in such form or forms as the committee shall determine and may be made in
a single payment or transfer, in installments or on a deferred basis, in each
case in accordance with rules and procedures established by the committee. Such
rules and procedures may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred payments or the
grant or crediting of dividend equivalents with respect to installment or
deferred payments.
(c) Limits on Transfer of Awards. No award and no right under any such
award shall be transferable by a participant otherwise than by will or by the
laws of descent and distribution; provided, however, that if so determined by
the committee, a participant may, in the manner established by the committee
(i) designate a beneficiary or beneficiaries to exercise the rights of the
participant and receive any property distributable with respect to any award
upon the death of the participant, or (ii) transfer an award (other than an
incentive stock option) to any member of such participant's "immediate family"
(as such term is defined in Rule 16a-1(e) promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
any successor rules or regulation) or to a trust who beneficiaries are members
of such a participant's "immediate family". Each award or right under any
award shall be exercisable during the participant's lifetime only by the
participant, or by a member of such participant's immediate family or a trust
for members of such immediate family pursuant to a transfer as described above,
or if permissible under applicable law, by the participant's guardian or legal
representative. No award or right under any such award may be pledged,
alienated, attached or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and unenforceable
against the Company or any affiliate.
(d) Restrictions: Securities Exchange Listing. All certificates for
shares delivered under the plan pursuant to any award or the exercise thereof
shall be subject to such stop transfer orders and other restrictions as the
committee may deem advisable under the plan or the rules, regulations and other
requirements of the Securities and Exchange Commission and any applicable
federal or state securities laws, and the committee may cause a legend or
legends to be placed on any such certificates to make appropriate reference to
such restrictions. If the shares or other securities are traded on a securities
exchange, the Company shall not be required to deliver any shares covered by an
award unless and until such shares or other securities have been admitted for
trading on such securities exchange.
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SECTION 7. AWARDS TO NON-EMPLOYEE DIRECTORS.
7.1 Eligibility. If this plan is approved by the shareholders of the
Company at the special meeting of the shareholders in 1995 (the 1995 special
meeting), shares of restricted stock and options shall be granted automatically
under the plan to each member of the board of directors who is not an employee
of the Company or of any affiliate of the Company (a non-employee director)
under the terms and conditions contained in this Section 7. The authority of
the committee under this Section 7 shall be limited to the ministerial and
non-discretionary matters.
7.2 Award of Restricted Stock. Upon the date of the 1994 annual meeting,
each non-employee director in office following the meeting shall receive an
award of 1,000 shares of restricted stock for each of the prior years that the
director held office as a non-employee director. These shares shall vest in two
equal installments, on the dates of the annual shareholders meeting in each of
the two succeeding years, if such director remains in office immediately
following such meeting. In the event that any director is not nominated for
reelection, all restricted shares so awarded which have not then vested shall
immediately vest in full upon the director's retirement from the board.
Subsequent to the date of the 1994 annual meeting, each non-employee director
shall, upon the date of his or her re-election to the board, receive an award
of 500 shares of restricted stock subject to the same vesting restrictions. If
a director ceases to be a director prior to the date on which the award is
fully vested for any other reason, any uninvested portion of the award shall
terminate and be irrevocably forfeited. Except as otherwise provided in this
section, such awards shall be subject to Section 6.2(a), 9 and 10 of this plan.
7.3 Option Grants. Upon the date of the 1994 annual meeting, each
non-employee director in office following the meeting shall be granted an option
to purchase 1,000 shares for each of the 1991, 1992, and 1993 years that the
director was in office following the annual meetings as a non-employee director.
Each non-employee director shall be granted an option to purchase 500 shares on
the date of the annual meeting of shareholders each year, commencing with the
1994 annual meeting, if the director will remain in office immediately following
such meeting. The exercise price of each option shall be equal to 100 percent of
the fair market value per share on the date of grant. Such options shall be
non-qualified stock options, shall become exercisable six months after the date
of grant, and shall terminate on the sixth anniversary of the date of grant,
unless previously exercised or terminated. Except as provided in this section
7.3, such options shall be subject to the terms and conditions of Sections
6.1(a), 9 and 10 of the plan and to other standard terms and conditions
contained in the form of non-qualified stock option used by the Company from
time to time. Such options shall also terminate three months following the date
upon which the participant ceases to be a director of the Company except that:
(i) In the event that a director who is granted an option shall cease to
be a director of the Company by reason of such director's willful and material
misconduct, the option shall terminate as of the date of such misconduct, and
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(ii) If a director who is granted an option shall die while a director of
the Company for any reason other than willful and material misconduct, or if
such director ceases to be a director of the Company by reason of his or her
disability, and he or she shall not have fully exercised the option, the option
may be exercised at any time within 12 months after such director's death, or
12 months after cessation of directorship, by such director's legal
representatives, or devisees, but only to the extent of the full number of
shares such director was entitled to purchase under the option on the date of
death or cessation of directorship.
7.4 Amendments to Section 7. The provisions of this Section 7 may not be
amended more often than once every six months other than to comply with changes
in the Code or the Employee Retirement Income Security Act of 1974, as amended,
or the respective rules promulgated under either statute.
SECTION 8. AMENDMENT AND TERMINATION: ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an award agreement or in the plan:
(a) Amendments to the Plan. The board of directors of the Company may
amend, alter, suspend, discontinue or terminate the plan; provided, however,
that, notwithstanding any other provision of the plan or any award agreement,
without the approval of the shareholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:
(i) would cause Rule 16b-3 to become unavailable with respect to the plan
if at such time the Company has a class of equity securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended;
(ii) would cause the Company to be unable, under the Code, to grant
incentive stock options under the plan.
(b) Waivers. The committee may waive any conditions of or rights of the
Company under any outstanding award, prospectively or retroactively.
(c) Limitations on Amendments. Neither the committee nor the Company may
amend, alter, suspend, discontinue or terminate any outstanding award,
prospectively or retroactively, without the consent of the participant or
holder or beneficiary thereof, except as otherwise provided herein or in the
award agreement.
(d) Correction of Defects, Omissions and Inconsistencies. The committee
may correct any defect, supply any omission or reconcile any inconsistency in
the plan or any award in the manner and to the extent it shall deem desirable
to carry the plan into effect.
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SECTION 9. INCOME TAX WITHHOLDING.
In order to comply with all applicable federal or state income tax laws or
regulations, the committee may establish such policy or policies as it deems
appropriate with respect to such laws and regulations, including without
limitation the establishment of policies to ensure that all applicable federal
or state payroll, withholding, income or other taxes, which are the sole and
absolute responsibility of a participant, are withheld or collected from such
participant. In order to assist a participant in paying all or a portion of the
federal and state taxes to be withheld or collected upon exercise or receipt of
(or the lapse of restrictions relating to) an award, the committee, in its
discretion and subject to such additional terms and conditions as to may adopt,
may permit the participant to satisfy such tax obligation by (i) electing to
have the Company withhold a portion of the payment or transfer otherwise to be
made upon exercise or receipt of (or the lapse of restrictions relating to)
such award with a fair market value equal to the amount of such taxes or (ii)
delivering to the company shares or other property other than shares issuable
upon exercise with a fair market value equal to the amount of such taxes. The
election, if any, must be on or before the date that the amount of tax to be
withheld is determined.
SECTION 10. GENERAL PROVISIONS.
(a) No Rights to Awards. No eligible person, participant or other person
shall have any claim to be granted any award under the plan, and there is no
obligation for uniformity of treatment of eligible persons, participants or
holders or beneficiaries of awards under the plan. The terms and conditions of
awards need not be the same with respect to any participant or with respect to
different participants.
(b) Award Agreements. No participant will have rights under an award
granted to such participant unless and until an award agreement shall have been
duly executed on behalf of the company and, if requested by the Company, signed
by the participant.
(c) No limit on other Compensation Arrangements. Nothing contained in the
plan shall prevent the Company or any affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(d) No Right to Employment. The grant of an award shall not be construed as
giving a participant the right to be retained in the employ of the Company or
any affiliate, nor will it affect in any way the right of the Company or the
affiliate to terminate such employment at any time, with our without cause. In
addition, the Company or an affiliate may at any time dismiss a participant from
employment free from any liability or any claim under the plan, unless otherwise
expressly provided in the plan or in any award agreement.
(e) Governing Law. The validity, construction and effect of the plan or
any award, shall be determined in accordance with the laws of the State of
California.
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(f) Severability if any provision of the plan or any award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would disqualify the plan or any award under any law deemed applicable by the
committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the committee, materially altering the purpose or intent
of the plan or the award, such provision shall be stricken as to the plan or
such jurisdiction or award, and the remainder of the plan or any such award
shall remain in full force and effect.
(g) No trust or Fund Created. Neither the plan nor any award shall
created or be construed to create a trust or separate fund of any kind or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any affiliate and participant or any other
person. To the extent that any person acquires a right to receive payments from
the Company or any affiliate pursuant to an award, such right shall be no
greater than the right of any unsecured general creditor of the Company or
affiliate.
(h) No Fractional Shares. No fractional shares shall be issued or
delivered pursuant to the plan or any award and the committee shall determine
whether cash shall be pain in lieu of any fractional shares of whether such
fractional shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(i) Headings. Headings are given to the sections and subsections of the
plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of the plan or any provision thereof.
(j) Other Benefits. No compensation or benefit awarded to or realized by
any participant under the plan shall be included for the purpose of computing
such participant's compensation under any compensation-based retirement,
disability, or similar plan of the Company unless required by law or otherwise
provided by such other plan.
SECTION 11. SECTION 16(b) COMPLIANCE.
The plan is intended to comply in all respects with Rule 16b-3 or any
successor provision, as in effect from time to time and in all events that plan
shall be construed in accordance with the requirements of Rule 16b-3. If any
plan provision does not comply with rule 16b-3 as hereafter amended or
interpreted, the provision shall be deemed inoperative. The board of directors,
in its absolute discretion, may bifurcate the plan so as to restrict, limit or
condition the use of any provision of the plan to participant who are officers
or directors subject to Section 16 of the Securities and Exchange Act of 1934,
as amended, without so restricting, limiting or conditioned the plan with
respect to other participants.
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<PAGE> 14
SECTION 12. EFFECTIVE DATE OF THE PLAN.
The plan shall be effective as of December 2, 1994, subject to approval by
the shareholders of the Company.
SECTION 13. TERM OF THE PLAN.
Unless the plan shall have been discontinued or terminated as provided in
Section 8(a), the plan shall terminate on December 31, 1999. No award shall be
granted after the termination of the plan. However, unless otherwise expressly
provided in the plan or in an applicable award agreement, any award therefor
granted may extend beyond the termination of the plan, and the authority of the
committee provided for hereunder with respect to the plan and any awards, and
the authority of the board of directors of the Company to amend the plans,
shall extend beyond the termination of the plan.
14
<PAGE> 1
EXHIBIT 6(b)
STANDSTILL AND RESTRICTIONS
ON TRANSFER AGREEMENT
BETWEEN AND AMONG PROGRESSIVE ASSET MANAGEMENT,
PARADOX INC.,AND FINANCIAL WEST GROUP
This Agreement is made and entered into effective March 5, 1999, by and among
Progressive Asset Management ("PAM"), Paradox Holdings, Inc. ("Paradox"), and
Financial West Group, ("FWG"), each a California Corporation, with reference to
the following facts:
Recitals
WHEREAS the parties have entered into a "Purchase Agreement" of this same date
(hereinafter the "Purchase Agreement");
WHEREAS under the Purchase Agreement, Paradox is acquiring 25,000 shares of
stock of PAM, designated Series B Convertible Preferred Stock ("Series B
Stock");
WHEREAS the parties seek to ensure the percentage ownership of Paradox in PAM
remains constant until at least January 1, 2002; and
WHEREAS the Purchase Agreement provides that the parties will enter into this
shareholder's agreement;
Agreement
NOW, THEREFORE, In consideration of the promises and mutual covenants contained
herein, the Parties agree as follows;
1. STAND-STILL AGREEMENT. Prior to January 1, 2002, the parties agree that
Paradox will not attempt to directly or indirectly acquire shares of PAM such
that Paradox would hold more than 40% of the common stock of PAM, nor will PAM
attempt to directly or indirectly reduce Paradox's holding of shares of PAM such
that it would hold less than 40%, nor issue any other class or series of
Securities without approval of Paradox.
2. RESTRICTION ON TRANSFERS. To accomplish the purposes of this Agreement, any
transfer, sale, assignment, hypothecation, encumbrance, or alienation of any of
the stock of PAM other than according to the terms of this Agreement is void and
transfers no right, title, or interest in or to those Securities, or any of them
to the purported transferee, buyer, assignee, pledgee, or encumbrance holder.
a. Prior to January 1, 2002, Paradox will not transfer sell, assign,
hypothecate, encumber, or alienate of any Securities of PAM it holds.
1
<PAGE> 2
b. On or after January 1, 2002, if Paradox elects to make a tender offer to
purchase Securities of PAM not owned by Paradox, directly or indirectly, Paradox
shall be deemed to make an offer to PAM to repurchase the Securities held by
Paradox. PAM shall have the right for 120 days after the date of receipt of
notice of the proposed tender offer, to purchase any or all of the shares of the
Securities of PAM held by Paradox at the same price per Security, as Paradox has
offered to purchase the outstanding Securities, plus $1.00 to the total purchase
price. Example: Paradox offers to purchase 60% of the common stock of PAM not
already held by Paradox for a total price of $2,400,000; then PAM may counter by
purchasing the shares of common stock held by Paradox at $1,600,001.
c. In the event Paradox elects to make a tender offer under subsection b,
above, the following procedures shall apply.
i. Paradox shall first serve written notice on PAM at least 120 days
prior to the commencement of such proposed tender offer. The notice must
specify: (1) the number of securities, or the interest in Securities, Paradox
proposes to acquire; (2) the price or amount per each of the Securities to be
paid by Paradox for the proposed purchase; and (3) all other terms and
conditions of the proposed transaction.
ii. Within 48 hours after actual physical receipt of any notice given
pursuant to this Agreement, the Secretary of PAM shall also cause a special
meeting of PAM's Board of Directors to be called for a 10 o'clock a.m. Pacific
Time on the following (which is at least 48 hours after the giving of notice)
Monday, or at 10 o'clock a.m. Pacific Time on the following Tuesday if the
following Monday be a legal holiday, and shall promptly give telephonic notice
to each member of PAM's Board of Directors at the address then shown for each
such member on the books and records of PAM of the time, place, and purpose of
the meeting.
iii. PAM shall have 120 days after a notice given to it, to purchase
the Securities held by Paradox at the price specified in the notice. Should PAM,
within the time specified in this Section, elect to purchase any Securities held
by Paradox, the Secretary of PAM shall promptly give written notice of that fact
to Paradox. Within seven days thereafter, on delivery to it of the certificate
representing the Securities held by Paradox, PAM shall deliver to Paradox the
cash or instruments required to consummate its purchase of such Securities, in
accordance with this Agreement. Paradox shall then commence the tender offer.
iv. Should PAM fail to purchase within the time and in the manner
specified any or all of the Securities held by Paradox, the Secretary of PAM
shall promptly give written notice, herein called "the rejection notice," of
that fact to Paradox. Paradox shall then commence the tender offer.
d. Transfers to PAM on Repurchase of Securities Held by Officers, Directors
and Employees. Any purchase by PAM of
2
<PAGE> 3
Securities of a Paradox who is an officer, director or employee of PAM if such
purchase is made pursuant to an employment agreement, or other agreement for the
services and/or compensation of such Paradox, made between PAM and the officer,
director, or employee, is not a sale or transfer that is subject to the
provisions of this Agreement.
3. MISCELLANEOUS PROVISIONS
a. Legend on Securities. All certificates evidencing securities now or
hereafter owned by any Shareholder shall be endorsed substantially as follows:
The securities represented by this certificate are subject to and
may be transferred only in compliance with a Shareholders Agreement effective as
of March 5, 1999, made by and among the Shareholder hereof and PAM issuing this
certificate and certain other Shareholders of PAM's securities therein named or
referred to.
All certificates evidencing securities hereafter issued, for any
reason or purpose to any Shareholder shall, when issued, be similarly endorsed.
b. Execution of Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original as to its signatory, but
all of which together shall constitute one and the same instrument.
c. Injunctive Relief and Provisional Remedies. PAM and each Shareholder
agrees that remedies at law in the event of any breach or threatened breach of
this Agreement are not and will not be adequate, and that this Agreement may be
specifically enforced by a decree for the specified performance of any of its
terms, or by an injunction against a violation of any such terms. The Parties to
this Agreement acknowledge that it would be difficult to measure the damage from
any breach of the covenants set forth in this Agreement, that injury from any
such breach would be impossible to calculate, and that money damages would
therefore be an inadequate remedy for any such breach. It is further agreed that
any breach of this Agreement may render irreparable harm. Accordingly, in the
event of such a breach, a party shall be entitled to commence legal action and
shall have available to it all remedies provided by law, including, but not
limited to, permanent injunctive relief to restrain a party or other person from
violating this Agreement notwithstanding the arbitration provision contained
herein, without demonstrating any actual damage. Further, by submitting a
dispute to arbitration, the parties do not waive the right to seek other
provisional remedies from a court, such as attachment and receivership.
d. Governing Law. This Agreement and any disputes arising
3
<PAGE> 4
hereunder shall be interpreted and construed under, and be governed by, the
local, internal laws of the State of California as such laws are applied to any
act or agreement entered into in California, between California residents and
performed entirely within California, and not the conflict laws of the State of
California.
e. Entire Agreement. The parties acknowledge receipt of this Agreement and
agrees that, with respect to the subject matter hereof, this Agreement is the
entire agreement between the parties, superseding any previous oral or written
communications, representations, understandings, or agreements between the
parties or any officer or other representative thereof.
f. Severability of Provisions. In case any one or more of the provisions or
part of a provision, or any word, phrase, clause or sentence thereof contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect in a jurisdiction in which enforcement is sought,
this Agreement shall be reformed and construed in any such jurisdiction as if
such invalid or illegal or unenforceable provision or part of a provision, or
any word, phrase, clause or sentence thereof had never been contained herein and
such provision or part reformed so that it would be valid, legal and enforceable
to the maximum extent permitted in such jurisdiction.
g. Modification. This Agreement may not be changed, modified, released,
discharged, abandoned, or otherwise amended, in whole or in part, except by an
instrument in writing signed by the parties to this Agreement, and where
necessary, that is approved by majority of the Shareholders of each Series,
class and type of securities affected by the modification.
h. Additional Necessary Actions. Each of the parties hereto agrees to
execute all such further instruments and documents and to take all such further
action as any other party may reasonably require in order to effectuate the
terms and purposes of this Agreement. The parties recognize that the Articles of
Incorporation must be amended to ensure the effectiveness of certain provisions
of this Agreement and each party to this Agreement represents and warrants that
each has not taken any actions that would violate the terms of the Agreement and
will not take any such action prior to the amendment of the Articles of
Incorporation.
i. Binding on Heirs and Successors. This Agreement shall be binding upon
and shall inure to the benefit of each Shareholder and the Shareholder's
respective heirs, executors, administrators, assigns, successors and legal
representatives.
j. Non-Waiver of Rights. The Parties agree that no failure to exercise or
delay in exercising any right, power, or privilege
4
<PAGE> 5
on the part of either party shall operate as a waiver of any right, power or
privilege under this Agreement. The Parties further agree that no single or
partial exercise of any right, power, or privilege hereunder shall preclude
further exercise thereof.
In witness whereof, the Parties have executed this Agreement on the date first
written above.
Progressive Asset Management, Inc.
PETER CAMEJO
by Peter Camejo, Chief Executive Officer
Paradox Holdings, Inc.
GENE C. VALENTINE
by Gene C. Valentine, Chief Executive
Officer
5
<PAGE> 1
EXHIBIT 12(a)
PURCHASE AGREEMENT
among Paradox Holdings, Inc.
Financial West Group. Inc.,
and
Progressive Asset Management, Inc.
THIS AGREEMENT is made and entered into as of March 5, 1999, by and
among FINANCIAL WEST GROUP, INC., a California corporation ("FWG"), PARADOX
HOLDINGS, INC. (Paradox," and together with FWG "Buyers"), and PROGRESSIVE ASSET
MANAGEMENT, INC., a California corporation ("Seller"), with reference to the
following facts:
Recitals:
A. Seller is a securities broker-dealer member of the NASD and has
agreements with registered representatives who sell securities to members of the
public.
B. The parties desire to effect a transfer to FWG of certain of Seller's
registered representatives (the "Representatives") and customer accounts.
C. The Seller also desires to sell to Paradox shares of its Class B
Preferred Stock.
Agreement:
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations, warranties and agreements herein contained, the Parties hereto
agree as follows:
ARTICLE 1
TRANSFER OF REPRESENTATIVES
1.1 Transfer and Purchase.
(a) On the Closing Date, subject to satisfaction of the conditions
contained herein, Seller shall sell, assign, transfer and convey to FWG, and FWG
shall purchase from Seller, all of the following:
(i) All of Seller's rights under the agreements between Seller and the
Representatives evidencing the Representatives' independent contractor status
with Seller.
(ii) copies or originals of all computer data, books, records, account
statements, correspondence and other data and documents of every nature relating
to the Representatives and their business, including, without limitation, all
NASD registration files, licensing files, complaint files and disciplinary
files; and
1
<PAGE> 2
(iii) customer accounts, including any data and documents relating
thereto which accounts will be transferred to FWG as reflected on the books of
CSC;
(b) (i) Seller shall cooperate with FWG and use its best efforts to cause
the Representatives to be transferred pursuant to the individual license
transfer program of the NASD, including all actions required with the CRD and
state regulators. Seller shall use its best efforts to cause each Representative
to deliver, prior to the Closing, a Form U-4 in which he or she agrees to the
transfer of FWG and to execute, prior to the Closing, a new independent
contractor agreement with FWG. Any such new agreement with FWG shall be in FWG's
standard form. Seller shall use its best efforts during the period commencing on
the date of this Agreement and ending on the Closing Date to preserve and
maintain, for the benefit of FWG, Seller's relationship with the
Representatives.
(ii) To the extent any Representative is a licensed insurance agent,
Seller shall also cooperate with FWG and use its best efforts to cause such
Representative to be contracted under the fixed insurance master general agent
agreements between FWG and insurance carriers.
(iii) Seller shall cooperate with FWG and use its best efforts to cause,
and shall cause, all accounts of the Representatives at Seller's clearing firm
to be modified to indicate that FWG shall be the introducing broker.
(c) FWG shall pay to Seller as consideration for transfer of the
Representatives and related items the sum equal to 2.5% of gross commission
revenue produced by the Representative for each month hereafter, provided,
however, the aggregate amount of such payments shall not exceed $875,000.
(d) Purchase Price shall be payable as follows: no later than the 10th day
of each month, FWG shall pay to Seller by check the amount due for the
immediately preceding month.
(e) Buyers expressly do not, and shall not, assume or be deemed to assume or
pay or agree to pay, under this Agreement or otherwise by reason of the
transactions contemplated hereby, any liability, obligation, commitment,
undertaking, expense or agreement of Seller of any nature whatsoever, whether
known or unknown or absolute or contingent. Without limiting the generality of
the foregoing, it is understood and agreed that neither Buyer is agreeing to
assume or pay, and shall not assume or pay, (i) any liability or obligation of
Seller to Seller's employees, including, without limitation, any such liability
or obligation in respect of wages, salaries, bonuses, accrued vacation or sick
pay or any liability under employee benefit plans, (ii) any obligation or
liability of, or claim against, Seller of any kind or nature whatsoever (A)
relating to commissions or other amounts payable to the Representatives earned
or incurred prior to the Closing Date, whether payable before or after the
Closing Date, (B) arising out of, associated with, or relating to, any facts or
circumstances regarding any customer account prior to the Closing.
(f) Seller acknowledges and agrees that FWG is not obligated to retain any
Representatives and such Person may be terminated for any reason and without
regard to the effect such
2
<PAGE> 3
termination may have on any payment due to Seller under the transactions
contemplated hereunder.
1.2 Paradox Guaranty. Effective at the Closing, Paradox hereby guarantees to
Seller payment of the Purchase Price, and Seller hereby agrees to seek recourse
for any portion of the Purchase Price first from Paradox if FWG is unable to
make payment of any portion of the Purchase Price due to net capital
requirements of any Governmental Authority.
ARTICLE 2
PURCHASE OF STOCK
2.1 Purchase. On the Closing Date, subject to satisfaction of the conditions
contained herein, Seller shall sell, transfer and issue to Paradox, and Paradox
shall purchase from Seller, 25,000 shares of Preferred Stock (the "Shares") for
$25,000 payable by check.
2.2 Certificate of Determination. Prior to the Closing, Seller shall file
with the California Secretary of State a Certificate of Determination in the
form of Exhibit A attached hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyers as follows:
3.1 Organization and Qualification.
(a) Each Seller Entity is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation and has
the requisite corporate authority and power to carry on its business as it is
now being conducted.
3.2 Authority.
(a) Seller has all requisite corporate power and authority to enter into
and perform its obligations thereunder, and to consummate the transactions
contemplated thereby.
(b) No Governmental Approval is necessary in connection with the
execution and delivery or consummation by the Seller of the transactions
contemplated herein.
(c) Following the closing, Pam will not engage in the retail securities
business.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers represent and warrant to Seller as follows:
4.1 Organization, Standing and Power. Each Buyer is a corporation duly
organized, validly
3
<PAGE> 4
existing and in good standing under the laws of the State of its incorporation
and has the requisite corporate power to carry on its business as it is now
being conducted.
4.2 Authority.
(a) Each Buyer has all requisite corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Buyers and the consummation by Buyers of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Buyers. This Agreement has been duly executed and delivered by Buyers and
constitutes a valid and binding obligation of Buyer, enforceable against Buyers
in accordance with its terms.
4.3 Investment Intent. Paradox is purchasing the Shares solely for
investment, with no present intention to resell the Shares. Paradox hereby
acknowledges that the Shares have not been registered pursuant to the Securities
Act and may not be transferred in the absence of such registration or an
exemption therefrom under the Securities Act.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Access to Information; Due Diligence.
(a)(i) Seller shall afford, and shall cause Seller's officers,
directors, employees and agents to afford, to Buyers and to the officers,
employees, agents and representatives of Buyers or Affiliates of buyers complete
access at all reasonable times to Seller Personnel and the properties, books,
records and contracts of each Seller Entity, and shall furnish Buyers all
financial, operating and other data and information as Buyers, through its
Affiliates, officers, employees, agents or representatives, may reasonably
request.
(ii) Buyer shall afford, and shall cause Buyer's officers, directors,
employees and agents to afford, to Sellers and to the officers, employees,
agents and representatives of Sellers or Affiliates of sellers complete access
at all reasonable times to Buyer Personnel and the properties, books, records
and contracts of each Buyer Entity, and shall furnish Seller all financial,
operating and other data and information as Sellers, through its Affiliates,
officers, employees, agents or representatives, may reasonably request.
(b) No investigation pursuant to Section 5.1(a) shall affect any
representations or warranties of the Parties herein or the conditions to the
obligations of the Parties hereto.
5.2 Additional Agreements. Subject to the terms and conditions of this
Agreement, each of the Parties agrees to use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable Law to consummate and make
effective the transactions contemplated by this Agreement. Without limiting the
foregoing, each Party will, as promptly as practicable, file or supply, or cause
to be filed or
4
<PAGE> 5
supplied, all applications, notifications and information required to be filed
or supplied by it pursuant to applicable Law in connection with this Agreement,
the purchase and transfer of the Rights and Information and the transfer of the
Representatives pursuant to this Agreement or the consummation of the other
transactions contemplated hereby.
5.3 Commissions and Fees.
(a) If Seller receives payment of any commissions or fees in connection
with any Products sold by or on account of FWG, or an Affiliate of FWG, or any
representative of FWG, or an Affiliate of FWG, subsequent to the Closing Date,
then Seller shall hold such commissions and fees in trust for the account of FWG
and shall promptly pay such commissions or fees to FWG.
(b) If FWG receives payment of any commissions or fees (except Other
Commissions) in connection with any Products sold by or on account of Seller or
any representative of Seller prior tot he Closing Date, then FWG shall hold such
commissions and fees in trust for the account of Seller and shall promptly pay
such commissions or fees to Seller.
(c) On the Closing Date Seller shall provide notice to all Product
sponsors regarding Other Commissions that all Other Commissions shall be paid to
FWG from and after the Closing.
5.4 Errors and Omissions Coverage. On the Closing Date, Seller shall
purchase errors and omissions tail insurance which shall have the coverage
mutually acceptable to FWG and Seller (which coverage shall be at least the same
coverage as the errors and omissions insurance currently maintained by Seller)
and which shall cover claims arising out of facts or circumstances relating to
any Transferred Representative prior to the Closing Date which are made during
the period commencing on the Closing Date and ending no earlier than six (6)
years after the Closing Date. FWG and its Affiliates, including Paradox, shall
be named as additional insureds for such tail insurance. Seller shall be
responsible for paying the premium for such tail insurance and shall make such
payment at the Closing. So long as Paradox is a shareholder of Seller, Seller
shall maintain errors and omissions insurance which shall have the coverage
mutually acceptable to Paradox and Seller.
ARTICLE 6
CLOSING
6.1 Closing. Unless this Agreement shall have been terminated, the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place within five (5) business days after all of the conditions set forth in
Article 8 (other than those conditions which are to be satisfied at the Closing)
have been satisfied. The Closing shall take place at a place mutually acceptable
to Buyers and Sellers. The date the Closing takes place is referred to herein as
the "Closing Date."
6.2 Deliveries at the Closing. At the Closing, the parties shall deliver the
following:
(a) All payments required to be paid to Seller at closing pursuant to
Section 2.1.
5
<PAGE> 6
(b) An agreement regarding the use of Seller's services by
Representatives and the use of Seller's name and service mark by FWG in the form
attached hereto as the "Agreement" executed by FWG.
(c) An opinion of counsel to Seller, dated the Closing Date, in a form
satisfactory to Buyers covering the matters set forth in Article 4 attached
hereto.
(d) Resolution of the Board of Directors of Seller authorizing the
execution, delivery and performance by Seller, certified by the corporate
secretary of Seller.
(g) A certificate for the shares registered in the name of Paradox.
(h) Certificate for the shares.
(i) List of Transferred Representatives.
(j) Associates Persons Payout Schedule.
(k) Clearing Schedule.
(l) Standstill and Restriction on Transfer Agreement.
(m) Use of Name Agreement.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification of Buyers.
(a) From and after the Closing, Seller shall indemnify and hold each
Buyer and its Affiliates, officers, directors, agents, successors and assigns
harmless from and against any Damages resulting from, arising out of or incurred
with respect to (i) a breach of any representation, warranty, covenant or
agreement of Seller contained in any Seller Document, subject to notice of a
claim being given to Seller with respect to the representations and warranties
made by Seller, or (ii) any events occurring or circumstances existing with
respect to Seller prior to or on the Closing Date or any acts or omissions of
Seller or any Company Personnel occurring prior to or on the Closing Date,
including, without limitation, claims relating to the sales of products or the
provision of advisory services prior to the Closing.
(b) In addition, Seller shall indemnify FWG and its Affiliates (other
than Paradox), officers, directors, agents, successors and assigns harmless from
and against any Damages resulting from. Arising out of or incurred with respect
to (i) any events occurring or circumstances existing with respect to Seller
after the Closing Date or any acts or omissions of Seller or any Company
personal occurring after the Closing Date, including, without limitation, claims
relating to the sales of products of the provision of advisory services after
the Closing, provided, however,
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<PAGE> 7
Seller shall have no obligation to indemnify FWG for actions or omissions of the
Transferred Representatives occurring after the Closing, or (ii) any Retained
Liabilities.
7.2 Indemnification of Seller. From and after the Closing, Buyers shall
indemnify and hold Seller harmless from and against any Damages resulting from,
arising out of, or incurred with respect to a breach of any representation,
warranty, covenant or agreement by Buyer contained herein, subject to notice of
a claim being given to Buyer with respect to the representations and warranties
made by Buyers herein. In addition, FWG shall indemnify and hold Seller harmless
from and against any Damages resulting from, arising out of, or incurred with
respect to any and all events occurring or circumstances existing with respect
to the Purchased Rights and Information and/or the Transferred Representatives
after the Closing Date; provided, however, FWG shall have no obligation to
indemnify Seller for Damages relating to actions or omissions of shareholders or
actions or omissions of a Transferred Representative occurring at a time when
such Transferred Representative is not an independent contractor or employee of
FWG or an Affiliate of FWG; and provided further, however, FWG shall not have
any obligation to indemnify Seller for damages related to acts or omissions of
Transferred Representatives which occur prior to the Closing.
ARTICLE 8
OVER-RIDE COMPENSATION
8.1 With respect to commission revenue received by FWG through the efforts
of representatives or any additional representatives recruited to FWG after the
Closing, FWG will pay the customary pay out schedule to the registered
representatives and retain 4.75% for itself. The remaining revenues will be paid
to PAM as an over-ride. FWG will also pay 2 1/2% to PAM as the base payment
until $875,000 has been paid from the base payments. After that, FWG will make
no further base payments. FWG shall provide PAM with a monthly commission
reconciliation statement calculating the foregoing amounts.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
Paradox Holdings,
Financial West Group, Inc.
By GENE C. VALENTINE
Gene C. Valentine, Chief Executive Officer
Progressive Asset Management, Inc.
By PETER CAMEJO
Peter Camejo
Chief Executive Officer
7
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<PERIOD-END> DEC-31-1999 JUN-30-1999
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