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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
PORTER MCLEOD, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 for each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction (Set forth the
amount on which the filing fee is calculated and state how it was
determined):
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form
or Schedule and date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Number:
3) Filing Party:
4) Date Filed:
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PRELIMINARY PROXY MATERIALS
__________, 1996
Dear Fellow Stockholders:
You are cordially invited to attend our Annual Meeting of Stockholders
which will be held on ____day, ________, 1996 at 9:00 A.M., local time, at
__________________________________________________________.
The Secretary's formal notice of the meeting and Proxy Statement appear on
the following pages and describe the matters to be acted upon. During the
meeting, time will be made available for a discussion of these items as well as
for other questions about the business affairs of the Company.
CERTAIN PROPOSALS WILL BE PRESENTED AT THE MEETING WHICH REQUIRE APPROVAL
OF A MAJORITY OF ALL OF THE OUTSTANDING SHARES OF COMMON STOCK. THEREFORE, IT IS
VERY IMPORTANT THAT YOU BE REPRESENTED AT THE MEETING. Even if you plan to
attend the meeting, I urge you to please take a moment to sign, date, and return
your proxy in the enclosed envelope. If you do not have a proxy, please call
your broker or the Company, and ask that a proxy be mailed to you. Your
cooperation in mailing your proxy promptly will not only be greatly appreciated.
Sincerely yours,
BRUCE M. PORTER
Chairman of the Board
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PORTER McLEOD NATIONAL RETAIL, INC.
5895 EAST EVANS AVENUE
DENVER, COLORADO 80222
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held _____day, ______________, 1996
To the Holders of Common Stock of
PORTER MCLEOD NATIONAL RETAIL, INC.
The Annual Meeting of the holders of the common stock of Porter McLeod
National Retail, Inc. (the "Company") will be held at _________________________
on _____day, __________________, 1996 at 9:00 A.M., local time, for the
following purposes:
1. To elect three (3) persons to serve as directors of the Company
until the Annual Meeting to be held in 1997;
2. To ratify the transactions pursuant to which the Company advanced
an aggregate of $[770,123] to an affiliate; to authorize the Company to
assume the bank indebtedness of such affiliate in the amount of $616,066,
and to authorize the Company to accept, in satisfaction of such
indebtedness and in consideration of such debt assumption, shares of the
common stock of Porter McLeod Colorado, Inc., a corporation indirectly
wholly owned by Messrs. Bruce Porter and Joseph McLeod, the Chairman and
President, respectively, and controlling stockholders of the Company,
having a fair market value of $[1,386,189].
3. If Proposal 2 is adopted, to consider and vote upon an Agreement of
Merger pursuant to which (a) Porter McLeod Holdings Inc., a corporation
jointly owned by Messrs. Porter and McLeod, which presently holds 48.82% of
the outstanding shares of the Company's common stock, Porter Mcleod
Colorado, Inc. and Porter McLeod Management, Inc., both of which are
presently wholly owned subsidiaries of Porter McLeod Holdings, Inc., would
each be merged with and into the Company; (b) all of the outstanding shares
of common stock of Porter McLeod Holdings, Inc. would be converted into
shares of the Company's common stock; and (c) the shares of the Company's
common stock held by stockholders other than Porter McLeod Holdings, Inc.
would be unaffected.
4. To consider and vote upon a proposal to increase the aggregate
number of shares which the Company is authorized to issue to 11,000,000
shares, of which 9,000,000 shares shall be Common Stock, par value $.0001
per share, and 2,000,000 shares shall be Preferred Stock, par value $.0001
per share.
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5. To ratify the Company's appointment of Ehrhardt Keefe Steiner &
Hottman, PC as the Company's independent accountants for the fiscal year
ended December 31, 1995; and to ratify the selection of Ehrhardt Keefe
Steiner & Hottman, PC as the Company's independent accountants for the
fiscal year ending December 31, 1996; and
6. To transact such other business as may properly come before the
meeting.
Only holders of record of the Company's common stock at the close of
business on __________, 1996, are entitled to notice of or to vote at this
meeting and any adjournment or adjournments thereof. Stockholders are entitled
to vote upon all business as may properly be presented for consideration at the
meeting.
By Order of the Board of Directors
Michael P. Mitchell, Secretary
Denver, Colorado
__________, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. THIS IS IMPORTANT FOR
THE PURPOSE OF ENSURING A QUORUM AT THE MEETING.
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PROXY STATEMENT
PORTER McLEOD NATIONAL RETAIL, INC.
5895 EAST EVANS AVENUE
DENVER, COLORADO 80222
--------------------
ANNUAL MEETING OF STOCKHOLDERS
--------------------
SOLICITATION OF PROXIES
The enclosed proxy is solicited by the Board of Directors of Porter McLeod
National Retail, Inc. (the "Company") for use at the Annual Meeting of the
Company's stockholders (the "Stockholders") to be held , 1996, and at any
adjournment or adjournments thereof (the "Annual Meeting"). A proxy may be
revoked by notice in writing to the President at any time prior to the exercise
thereof. Each valid proxy received in time will be voted at the Annual Meeting,
and, if a choice is specified on the proxy, it will be voted in accordance with
such specifications. If no such specification is made, the persons named in the
accompanying proxy have advised the Company of their intention to vote the
shares of the Company's common stock represented by the proxies received by them
(i) in favor of the election as directors, the persons named in the proxy as
nominees for directors; (ii) in favor of Proposals 2, 3, 4 and 5; and (iii) in
accordance with their best judgment on any other matters that may come before
the meeting.
The cost of solicitation of proxies, including the reimbursement to banks
and brokers for reasonable expenses in sending proxy material to their
principals, will be borne by the Company. Proxies may be solicited by officers
of the Company by mail, in person or by telephone, telegraph or telex. In
addition, the Company has also retained the firm of Hill & Knowlton, Inc. to aid
in the solicitation of brokers, banks, institutional and other Stockholders for
a fee of approximately $10,000. The Company will also reimburse Hill & Knowlton,
Inc. for expenses which it incurs in connection with the solicitation. It is
anticipated that on or about ___________, 1996, this proxy statement and the
enclosed form of proxy will be mailed to Stockholders.
The outstanding voting securities of the Company on ___________, 1996 (the
"Record Date") consisted of [1,970,886] shares of common stock, $.0001 par value
(the "Common Stock"). Only Stockholders of record at the close of business on
the Record Date are entitled to notice of or to vote at the Annual Meeting.
Each share of Common Stock is entitled to one vote with respect to each
proposal which shall properly come before the Annual Meeting for consideration
by the Stockholders. The holders of a majority of the outstanding
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shares entitled to vote must be present at the Annual Meeting in person or by
proxy to constitute a quorum. No other class of securities will be entitled to
vote at the meeting. There are no cumulative voting rights. Only votes cast
"For" a matter constitute an affirmative vote. Proxy cards which are voted by
marking "Withheld" or "Abstain" on a particular matter are counted for quorum
purposes, but, since they are not cast "For" a particular matter, they will have
the same effect as negative votes or votes "Against" a particular matter. If a
validly executed proxy card is not marked to indicate a vote on a particular
matter and the proxy granted thereby is not revoked before it is voted, it will
be voted "For" such matter. Where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not provided voting
instructions (commonly referred to as "broker non-votes") such broker non-votes
will be treated as shares that are present for purposes of determining the
presence of a quorum and will also be treated as present for purposes of
determining the outcome of any matter as to which the broker does not have
authority to vote and, therefore, will have the same effect as negative votes or
votes "Against" a particular matter.
To be elected, a director must receive a plurality of the votes of the
holders of the Common Stock present in person or by proxy at the Annual Meeting
and entitled to vote on the election of directors. The affirmative vote of the
holders of at least a majority of the Common Stock present in person or by proxy
and entitled to vote at the Annual Meeting is necessary for the approval of
Proposal 5. The affirmative vote of a majority of the outstanding Common Stock
is necessary for the approval of Proposals 2, 3 and 4.
PROPOSAL 1:
ELECTION OF DIRECTORS
Three directors are to be elected at the meeting to hold office until the
Annual Meeting to be held in 1997, and until their respective successors have
been elected and qualified.
The persons named as proxies intend (unless authority is withheld) to vote
for the election of the persons hereinafter named as directors for terms
expiring in 1997 upon their nomination for such office at the Annual Meeting.
The affirmative vote of the holders of a plurality of the outstanding shares of
Common Stock represented in person or by proxy at the Annual Meeting is required
for election of each director.
If any nominee should become unavailable to serve, the proxy may be voted
for the election of another person designated by the Board of Directors. The
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Board of Directors has no reason to believe any of the nominees will be unable
to serve if elected.
The Board of Directors recommends a vote FOR each of the nominees for
election as directors.
Pertinent information concerning the nominees for directors follows:
Nominees for Election as Directors
Bruce M. Porter, Age 36
Mr. Porter has served as the Chairman of the Board of Directors of the
Company since its formation in March 1992. He also served as Chief Executive
Officer of the Company from May 1993 to January 1995. He served as Chief
Executive Officer, Chairman of the Board, and Secretary of Porter McLeod, Inc.
("PMI") during the period commencing with its inception in 1985 through November
30, 1994, the date when involuntary proceedings under Chapter 7 of the
Bankruptcy Act were commenced against PMI. Mr. Porter serves as the President
and Chairman of the Board of Porter McLeod Holdings, Inc. ("PMH"), and served as
an officer and director of the subsidiaries of PMI and PMH(1). Mr. Porter also
serves as a general contractor and estimator for the Company and concentrates on
business development for the Company. Mr. Porter spends approximately one-third
of his time on the business of the Company. From July 1983 until 1985, Mr.
Porter served as Manager of Sales for C. Lombardi Construction where he assisted
with estimating and contract negotiations. Prior to 1983, Mr. Porter was
associated with Amoco Production from December 1982 to July 1983 as a Field
Operator and with the Magcobar Division of Dresser Industries from July 1981 to
December 1982 as a Sales Engineer. Mr. Porter received a B.S. degree in Geology
from Adams State College in Alamosa, Colorado with a minor in Marketing. Mr.
Porter is a member of the Associated General Contractors of America, the
National Association of Industrial and Office Parks, the Denver Metro Building
Owners and Managers Association, the
- - - --------
(1) Mr. Porter and Joseph R. McLeod are the sole stockholders and
co-equal owners of PMH, a Colorado corporation. PMH is the sole stockholder of
PMI, Porter McLeod Management, Inc. ("PMM"), a Colorado corporation and Porter
McLeod Colorado, Inc. ("PMC"), a Colorado corporation. PMH also is the owner and
holder of 48.2% of the Company's outstanding Common Stock. See the "Description
of the Company's Business - Corporate History" set forth at Annex A hereto for a
discussion of the affiliations between and among Mr. Porter, Mr. McLeod, the
Company, PMI, PMH, PMM and PMC. See also "Certain Relationships and Related
Transactions" and "Security Ownership of Certain Beneficial Owners and
Management."
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International Counsel of Shopping Centers, the Greater Denver Chamber of
Commerce, and the Colorado Association of Commerce and Industry. Mr. Porter also
is involved in many civic organizations, including Denver Rotary Club, Capitol
Hill Community Services, Special Wish Foundation, and Anchor Center For The
Blind.
Joseph R. McLeod, Age 36
Mr. McLeod has served as President and Chief Executive Officer of the
Company since January 1995 and as a director of the Company since its formation
in March 1992. Mr. McLeod also serves as the Vice President and a director of
PMH, and is an officer and a director of its subsidiaries. In addition, Mr.
McLeod was the President and a director of PMI, and an officer and director of
its subsidiaries during the period commencing with their inception through
commencement of Chapter 7 proceedings against it. In addition to his duties as
an officer and director, Mr. McLeod served as a general contractor and project
manager for the Company and is responsible for overall direction of the
construction operations of the Company. From 1984 until 1985, Mr. McLeod served
as a Regional Construction Manager with Lerner Corp. Stores of America in New
York. From 1982 until 1984, Mr. McLeod served as a Field Operations Manager for
C. Lombardi Construction in Colorado, and from 1981 until 1982 in an operations
training program of Halliburton Services, the parent company of Brown & Root
Construction, in Rock Springs, Wyoming. Mr. McLeod received a B.S. degree in
Construction Management from Montana State University. Mr. McLeod is a member of
the Associated General Contractors of America, the Retail Contractors
Association, of which he is a Charter Member, Secretary and Treasurer, the
Greater Denver Chamber Of Commerce, and the Colorado Association Of Commerce And
Industry for which he served as the "50 For Colorado" representative in 1991.
Michael P. Mitchell, Age 36
Mr. Mitchell served as the Vice President For Business Development of the
Company since the Company's formation in March 1992 until January 1995. Mr.
Mitchell now serves as Vice President - Sales/Estimating. Mr. Mitchell spends
substantially all his business time on the affairs of the Company. From December
1988 through March 1992, Mr. Mitchell served as the Vice President For Business
Development of PMI. From June 1987 through December 1988, Mr. Mitchell served as
the Manager of Business Development for PMI. Mr. Mitchell received a B.S. degree
in Business Administration from the University of Montana. Mr. Mitchell is a
member of the Building Owners Management Association, the International Council
Of Shopping Centers, and the National Association Of Industrial And Office
Parks.
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No family relationships exist between or among any of the Company's
officers and directors.
The Board of Directors; Committees and Attendance
The Board of Directors held _________ meetings during the fiscal year ended
December 31, 1995. All of the directors attended each of such meetings. The
Board of Directors acted once by unanimous written consent in lieu of a meeting.
There are no committees of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by or paid
to the Chief Executive Officer. No other executive of the Company earned a
salary and bonus of more than $100,000. Information with respect to salary,
bonus, other annual compensation, restricted stock and options is included for
the years ended December 31, 1995, 1994 and 1993. No executive of the Company
has received a grant of restricted stock, options or SARs, or received payments
which may be categorized as "LTIP Payouts."
Summary Compensation Table
Other Securities
Name and Annual Restricted Underlying
Principal Compen- Stock Options/
Position Year Salary($) Bonus($) sation ($)(1) Awards ($) SARs (#)
- - - ---------- ---- --------- -------- ------------- ---------- --------
Joseph R.
McLeod,
CEO (2) 1995 $30,000 -- $14,054 -- --
Bruce
Porter,
CEO (3) 1994 $32,693 -- 7,500
1993 28,435 -- 8,410 -- --
- - - --------------------
(1) Other annual compensation includes health insurance premiums and other
benefit payments.
(2) Assumed positions of President and Chief Executive Officer in January 1995.
Mr. McLeod's compensation for services rendered to the Company for the year
ended December 31, 1995 was allocated to the Company pursuant to the
Administrative Services Agreement. The aggregate compensation paid to Mr.
McLeod during said year was salary in the amount of $60,000, plus other
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compensation in the amount of $28,108, of which $30,000 and $14,054,
respectively, were allocated to the Company. No other compensation was paid
to Mr. McLeod for services rendered to the Company.
(3) Mr. Porter's compensation for services rendered to the Company for the two
years ended December 31, 1993 and 1994 was paid by PMM and was allocated to
the Company pursuant to the Administrative Services Agreement. Mr. Porter
also received compensation from PMI and PMM for services performed for
those entities during the same two years, and from PMM for services
performed for that entity in 1995. The aggregate amount of salary and other
annual compensation paid to Mr. Porter by PMI and PMM in 1993 and 1994 was
$71,509 and $74,843, respectively, of which $28,435 and $32,693 of salary,
respectively, and $8,410 and $7,500, of other compensation, respectively,
was allocated to the Company, and paid by the Company to PMI and/or PMM.
The aggregate amount of salary and other annual compensation paid to Mr.
Porter by PMM in 1995 was $60,000 and $28,108, respectively, of which
$30,000 and $14,054, respectively, were allocated to the Company, and paid
by the Company to PMI and/or PMM. No other compensation was paid to Mr.
Porter for services rendered to the Company.
Option/SAR Grants in Last Fiscal Year
No options were granted during 1995 to the Company's executive officers
named in the Summary Compensation Table.
Fiscal Year End Option Values
The Company's executive officers named in the Summary Compensation Table
did not hold unexercised options during the fiscal year ended December 31, 1995.
1993 Stock Option Plan
The Company adopted the 1993 Stock Option Plan (the "Plan") to permit the
grant of awards to officers and employees of the Company (including employees
who are also directors of the Company or a subsidiary of the Company) of
restricted shares of the Company's Common Stock, stock appreciation rights
relative to the Company's Common Stock and non-qualified options to purchase
shares of the Company's Common Stock. A maximum of 150,000 shares of Common
Stock may be issued under the Plan. As of December 31, 1995, no options were
granted pursuant to the Plan. The Plan was adopted in order that the
participants in the Plan will have financial incentives to contribute to the
Company's growth and
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profitability, and to enhance the ability of the Company to attract and retain
in its employ individuals of outstanding ability.
DIRECTORS' COMPENSATION
The Company has no standard or other arrangement pursuant to which
directors of the Company are compensated for any services provided as a
director.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the holdings of the Common Stock of the
Company as of May 1, 1996 by (1) each person or entity known to the Company to
be the beneficial owner of more than five percent (5%) of the outstanding shares
of Common Stock of the Company; (2) each director and executive officer; and (3)
all directors and executive officers as a group. All of the holders of the
Company's Common Stock are entitled to one vote per share.
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned Owned
- - - ---------------- ------------------ -----
Porter McLeod Holdings, Inc. 962,166 48.82%
5895 East Evans Avenue
Denver, CO 80222
Directors and Executive Officers
- - - --------------------------------
Joseph R. McLeod 962,166(1) 48.82%
5895 East Evans Avenue
Denver, CO 80222
Michael P. Mitchell 35,000 1.76%
5895 East Evans Avenue
Denver, CO 80222
Bruce M. Porter 962,166(1) 48.82%
5895 East Evans Avenue
Denver, CO 80222
All Directors
and Executive Officers
as a Group (4 Persons) 997,166 50.59%
- - - --------------------
(1) Mr. McLeod is President, a director and a 50% shareholder of PMH. Mr.
Porter is Chief Executive Officer, a director and a 50% shareholder of PMH.
Each of Messrs. McLeod and Porter is deemed to be the beneficial owner of
the shares of the Company's Common Stock owned by PMH. The shares of PMH
owned by Messrs. McLeod and Porter have been pledged to secure certain
commercial loan obligations of PMM. In the event PMM defaults under such
loan obligations, or in the event that Proposal 3 is adopted, if the
Company were to so default, the lender would be entitled to foreclose on
its security interest in these shares. If this were to occur, it would
result in a change in control of the Company.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The related transactions described below ("Related Transactions") arose
from various transactions and arrangements between and among the Company, PMH,
PMC, PMM and PMI. However, as a consequence of the involuntary petition filed
against PMI pursuant to Chapter 7 of the United States Bankruptcy Code, all
agreements between PMI and the Company were either terminated or the obligations
of PMI were assumed by PMM, PMC or PMH. Under Delaware law, transactions such as
the Related Transactions may be authorized or ratified in two ways. If any
members of the Board are "disinterested(2)" (a "Disinterested Director"), a
majority thereof may approve the transaction. If there are no Disinterested
Directors on the Board, transactions such as the Related Transactions may be
approved or ratified by a majority of the Company's outstanding shares of Common
Stock. Due to the fact that Messrs. Porter and McLeod are the Company's sole
directors and are deemed not to be Disinterested Directors due to their
ownership of all of the outstanding common stock of PMH (as a result of their
holdings in PMH, Messrs. Porter and McLeod are each deemed to be the beneficial
owner of 48.82% of the Company's Common Stock), the Company is asking its
stockholders to ratify the Related Transactions at the Annual Meeting. See
"Proposal 2 - Ratification of Related Transactions With Affiliates and Approval
of Method of Repayment of Advances." In the event that Proposals 2 and 3 are
approved by the Company's Stockholders, the relationships described below will
be discontinued upon consummation of the merger of PMH, PMM and PMC with and
into the Company.
Transactions Between the Company And Affiliates
Following its incorporation in March 1992, the Company entered into a
series of transactions and arrangements with affiliated corporations in order to
establish and operate its business. These transactions and arrangements are
described below. There has been no independent determination of the fairness and
reasonableness of the terms of these transactions. However, the Company's
management believes that the terms of these transactions are fair and reasonable
due to the fact that the Company would be required to pay at least as much to
third parties as the Company pays to PMM for rent, equipment, services, and
overhead expenses pursuant to these arrangements and because management believes
the
- - - --------------------
(2) A disinterested director under Delaware law is a director who neither
directly nor indirectly through any other entity in which such director is
an officer or director or possesses a financial interest, undertakes any
contract or transaction with the corporation.
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other terms of the arrangements are at least as favorable to the Company as the
terms that would be available from third parties.
The Company heretofore acknowledged that its arrangements with PMM, PMH
and/or PMC (collectively, the "affiliates") could lead to conflicts in the
fiduciary obligations of the officers and directors who serve on behalf of those
corporations. In an effort to reconcile both the potential conflicts of interest
and the usurping of corporate opportunities among the Company and one or more of
the affiliates, the Company and those entities entered into a conflicts of
interest agreement concerning the division of the types of construction business
that would be performed by each of them. This agreement is described below. The
Company and said affiliates have no other agreements or procedures in place
concerning the exercise of the fiduciary obligations of the officers and
directors of the respective corporations. In the event that a conflict were to
arise that is not covered by the conflicts of interest agreement, the Company
believes that the exercise of the fiduciary obligations of the officers and
directors of the Company will resolve any conflicts of interest between it and
its affiliates in a manner consistent with their respective fiduciary
obligations to the Company.
Conflicts Of Interest Agreement. PMH and PMC have committed to refer to the
Company any construction business with the Company's customers, including
customers of the Company with operations both within and without Colorado. A
conflicts of interest agreement to this effect has been entered into between the
Company and each of PMH and PMC.
Agreement To Provide Services. Pursuant to an Agreement to Provide Services
which the Company executed with PMM, the Company is obligated to supply certain
project management, administration and other forms of labor requested by PMM, in
order to supervise and undertake various construction projects which PMM has
agreed to complete as agent for other parties. As compensation for its services,
the Company agreed to receive an amount equal to the actual labor costs incurred
by the Company, including actual wages, salaries, insurance, taxes,
subcontractor costs, and other direct labor costs associated with the personnel
performing services in connection with the contract, together with an amount
equal to 15 percent of the aggregate amount of those costs and of any other
subcontractor costs incurred with respect to the project.
Administrative Services Agreement. PMM provides the Company and PMC with
certain services including project cost estimating, project management,
accounting, billing, invoicing, marketing, business development, personnel
services, banking, debt service and interest, bonding, insurance, overhead
administration, and providing use of computer hardware and software. For these
services, PMM charges the Company and PMC for PMM's actual costs to provide
these services, including allocations of all overhead items such as telephone,
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electricity, rent, salaries, insurance, taxes and other items. The aggregate
allocable cost to the Company for these services was $195,048 for 1994 and 1995.
In addition, the Company is obligated to reimburse PMM for amounts paid to third
parties by PMM on behalf of the Company; such amounts were $91,058 in 1994 and
$228,750 in 1995. Allocations of PMM's costs are made between PMC and the
Company each month based on the ratio of their respective revenues.
Office Lease. The building in which the Company's offices are located is
owned by The Intermountain Companies ("Intermountain"), a general partnership of
which Bruce Porter and Joseph McLeod are the general partners. The offices of
PMH, PMM and PMC also are located in the building. The building consists of
approximately 7,065 square feet of office space and 6,000 square feet of
warehouse space. PMM leases the building from Intermountain at the rate of
$6,580 per month. PMH, PMC and the Company have agreed that the cost of the
space should be allocated 50% to PMC, 25% to PMM and 25% to the Company. The
rental charge to the Company is $1,645 per month for its 25% share of the lease.
The obligations of the Company, PMC and PMM are on a month-to-month basis.
Assumption by the Company of Certain PMC Contracts. The Company agreed to
assume all obligations under certain contracts previously entered into by PMC
with clients with national operations. The respective Boards Of Directors of the
Company and PMC determined that because future construction projects for these
clients would likely be in various locations throughout the United States, the
Company would be better suited to undertake any such projects and that by having
the Company assume the current contracts the clients would have an opportunity
to become familiar with the Company. Pursuant to the agreement between PMC and
the Company, the Company has agreed to complete all obligations under these
current contracts, effective as of the commencement date of each respective
contract. The Company will pay PMC a fee for each contract equal to 75% of the
profit from that contract. Profit is to be determined by subtracting from all
revenues received with respect to each contract all costs and expenses incurred
in connection with each contract, including material, labor, subcontractor and
other costs, as well as all costs, including overhead, that are allocable to the
Company under the Administrative Services Agreement (described above) as a
result of the Company's performance of the contracts assigned from PMC. If,
after application of these costs, there is no profit from a contract, PMC will
not receive any fee from the Company. To the extent that there is a loss for a
particular contract, that loss is to be borne by the Company and not by PMC.
Transactions with Aurora National Bank. During 1991, PMI entered into two
separate loan agreements with Aurora National Bank ("Aurora"). On February 4,
1991, PMI entered into a Credit Line Agreement with Aurora pursuant to which PMI
borrowed an aggregate of $1,000,000 (the "Credit Loan"). The Credit Loan is
partially guaranteed by the Small Business Administration ("SBA") and is
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evidenced by PMI's promissory note in the principal amount of $1,000,000. The
promissory note is payable seven years from February 4, 1991 with monthly
installments of principal and interest of $17,922. Interest accrues at the rate
of 12.5% per annum and is adjusted up or down on the first business day of each
quarter following the disbursement of funds to PMI under the Credit Loan and on
the first business day of each quarter thereafter by adding two and one-half
percentage points to the lowest New York prime rate as published in the Wall
Street Journal. In the event of PMI's default under the Credit Loan, upon the
SBA's purchase of its guaranteed portion of the Credit Loan, the rate of
interest is fixed at the rate in effect as of the initial date of default. The
Credit Loan is guaranteed by PMC, PMH, PMM and certain affiliates of PMI.
On March 11, 1991 PMI entered into a Term Loan Agreement with Aurora
pursuant to which PMI borrowed an aggregate of $252,528 (the "Term Loan," the
Credit Loan and the Term Loan are sometimes referred to hereinafter as the
"Aurora Loans"). The Term Loan was refinanced in November, 1994, and, as a
consequence thereof, the principal amount of the Term Loan was reduced to
$247,500 and the maturity date was extended to November 11, 1995. The Term Loan
is evidenced by PMI's promissory note in the principal amount of $247,500. The
promissory note provides for monthly payments of interest only charged at
Aurora's index rate as announced from time to time with the initial monthly rate
set at 9.75%. The promissory note was guaranteed by PMM, PMC, PMH, Bruce Porter,
Joseph McLeod and certain affiliates of PMI.
On November 30, 1994, involuntary proceedings under Chapter 7 of the United
States Bankruptcy Code were commenced against PMI and its subsidiaries. As a
consequence of the commencement of such proceedings, PMM and PMC, in their
capacities as guarantors of the Aurora Loans, assumed PMI's payment obligations.
The Company has advanced PMM the necessary funds to enable it to meet the
periodic payment obligations under the Aurora Loans. See "--Advances to PMC and
PMM." Subsequent to November 11, 1995, the maturity date of the Term Loan, PMM
advised Aurora that it did not have sufficient funds to pay the principal
balance of the Term Loan and accrued interest. Although PMM is in default with
respect to the Term Loan, Aurora has informally agreed to accept quarterly
payments of interest with respect to the Term Loan pending approval by its loan
committee of PMM's request to extend the maturity date of the Term Loan up to
and including December 31, 1996. Upon consummation of the Merger, the Company
will assume the obligations of PMM and PMC with respect to the Aurora Loans. The
aggregate amount of such obligations as of [April ], 1996 was $616,066. See
"Proposal 3 - Approval of Agreement of Merger Among the Company PMH, PMM and PMC
- - - - Terms of the Agreement; Manner and Basis of Converting PMH Shares."
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Advances to PMC And PMM. During the months of July through November 1993,
the Company paid certain expenses on behalf of PMM and made certain cash
advances to PMC which, after deducting the amount of other transactions between
each of them, resulted in PMC's owing $380,150, and PMM's owing $405,010, to the
Company. In December 1993, a number of transactions occurred between and among
the Company, PMC and PMM by which various accounts and notes were assigned,
consolidated and offset. As a result of these transactions, PMM owed the Company
$605,928, which amount is represented by a promissory note from PMM to the
Company dated as of December 31, 1993 (the "Note"). This Note, which accrues
interest at the rate of seven percent per annum, is payable in three equal
payments of principal, together with all accrued interest to the respective
dates of payment, which are March 31, 1995, March 31, 1996, and March 31, 1997.
PMM is in default with respect to the March 31, 1995 and 1996 principal
payments. The Company does not intend to exercise the rights granted to it in
the event of a default under the Note. Payment of the Note has been secured by
the personal guarantees of Bruce Porter and Joseph McLeod. In addition to its
indebtedness under the Note which, as of [April ], 1996 amounted to $677,126,
PMM is also indebted to the Company for an additional $92,997 incurred as a
result of advances made by the Company to PMM during the year ended December 31,
1995 in order to enable PMM to meet its obligations with respect to the Aurora
Loans. As a result of the foregoing, at ________________, 1996, PMM was indebted
to the Company in the aggregate amount of $[770,123] (the "Advances").
The Company has received an opinion from Appleby Partners, Ltd.
("Appleby"), an independent investment banking firm, that valuation of PMC's
common stock at $1,700,000 would be fair and reasonable to the Company and its
shareholders. In the event that Proposals 2 and 3 are approved by the
shareholders, PMH has agreed to fully compensate the Company with respect to the
amount of the Advances which will be extinguished upon consummation of the
merger of PMM with and into the Company, and the amount of the Aurora Loans
which the Company will be assuming in connection with such merger, by
transferring to the Company shares of PMC's common stock having a fair market
value of $[1,386,189]. See "Proposal 2 - Ratification of Related Transactions
with Affiliates and Approval of the Method of Repayment of Advances Made to
Affiliates".
Compliance with Section 16(a) of The Securities
Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's Directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and reports of changes in ownership of the Company's Common Stock.
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Officers, Directors and greater than ten percent Stockholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1995, the
Company's officers, Directors and greater than ten-percent beneficial owners
complied with all applicable Section 16(a) filing requirements.
PROPOSAL 2:
RATIFICATION OF RELATED TRANSACTIONS WITH
AFFILIATES AND APPROVAL OF THE
METHOD OF REPAYMENT OF ADVANCES MADE TO AFFILIATES
The Company's Stockholders are being asked to ratify the Related
Transactions pursuant to which the Company advanced an aggregate of $[770,123]
to PMM which has provided the Company with key administrative services including
management, bidding data processing, accounting, marketing and cash management
services. The Company asked PMM to provide these services based upon its belief
that the relationship would be economically beneficial due to the reduction it
would receive with respect to is overall administrative costs (PMM does not
profit as a result of the services which it provides on the Company's behalf).
The Company issued the Advances to PMM in order to provide it with
sufficient capital to meet its operating expenses as well as to enable it to
satisfy certain debt obligations. The Company made the Advances based upon the
belief that by enabling PMM to continue its business operations, the economic
benefits which the Company derived from the services provided to it by PMM would
be protected.
The Company's Stockholders are also being asked to authorize the Company to
assume the Aurora Bank indebtedness of PMM in the amount of $616,066 which will
become the Company's obligation by operation of law upon consummation of the
merger transactions which are the subject of Proposal 3.
During the first calendar quarter of 1995, (prior to PMM's default with
respect to the March 1, 1995 payment under the Note) Messrs. Porter and McLeod,
in their capacities as directors of PMH, PMC, PMM and the Company, determined
that it would be in the best interests of such corporations to consider the
consolidation of the business operations of PMH and its wholly owned
subsidiaries with and into the Company.
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The directors were of the view that maintaining the operations of PMH and
its subsidiaries was unwieldy, created duplication of expenses and, as such, was
not cost efficient. The directors believed that a consolidation would provide
economies of scale and the overhead reductions essential for the Company's
achievement and maintenance of profitable operations. Moreover, the elimination
of the Advances which would result from the consolidation, would provide the
Company with a stronger balance sheet, thereby enhancing its ability to obtain
sufficient funding, either through loans or equity financings, to enable it to
meet its future capital needs.
After consideration of numerous alternatives, the directors of PMH and the
Company determined to pursue the following consolidation plan:
1. In order to fully compensate the Company with respect to (a) the amount
of the Advances which will be extinguished upon consummation of a merger of PMM
with and into the Company, and (b) the amount of the Aurora Loans which the
Company will be assuming in connection with such merger, PMH will transfer to
the Company shares of PMC's common stock having a fair market value of
$[1,386,189]. As a result of such transaction, the Company will become the owner
of approximately 82% of PMC's outstanding common stock.
2. PMH, PMC and PMM will thereupon be merged with and into the Company. In
connection therewith, Messrs. Porter and McLeod will receive additional shares
of the Company's common stock equal in value to the approximately 18% of PMC
which the Company will be acquiring as a result of the merger, i.e.,
approximately $314,000.
The stockholders of PMH (which is the sole stockholder of PMM and PMC) and
the Boards of Directors of PMC, PMM, PMH and the Company, pursuant to their
respective unanimous written consents, have authorized the foregoing
transactions, subject to, and conditioned upon, the passage of Proposals 2 and 3
by the Company's Stockholders.
Under Delaware law, the Related Transactions were required to have been
approved by either a majority of the Company' Disinterested Directors or by a
majority of the Company's Common Stock. Due to the fact that Messrs. Porter and
McLeod are the Company's sole directors and are deemed not to be Disinterested,
and that the requisite approval from the Company's Stockholders was not obtained
at the time of initiation of the Related Transactions, the Company will request
that its Stockholders ratify the Related Transactions at the Annual Meeting.
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The Company engaged Appleby to review, from a financial point of view, the
fairness to the Company's stockholders of (a) the terms of the consideration
which the Company will receive for the extinguishment of PMM's indebtedness with
respect to the Advances which will occur upon consummation of the merger of PMM
with and into the Company, and for the Company's assumption of the Aurora Loans;
and (b) the consideration to be issued to the stockholders of PMH, i.e., Messrs.
Porter and McLeod, in connection with such merger transactions. Appleby is a
private firm which specializes in the investment banking requirements of small
to mid sized companies. Appleby was founded in 1994 by four former principal
partners of Asset Growth Partners, Inc., a private investment banking firm which
was founded in 1983. Appleby's principals have regularly provided investment
banking services such as those performed for the Board of Directors of the
Company for more than 12 years. Appleby had no prior relationship with PMH, PMC,
PMM or the Company or members of any of their respective Board of Directors.
The directors of both PMH and the Company met with representatives of
Appleby for the purposes of discussing the terms of the merger transaction and
the consideration which PMH intends to pay to the Company in satisfaction of the
amount due to it for its Advances and in consideration of its assumption of the
Aurora Loans. As a result of such discussions, as well as investigations
conducted by Appleby, it issued its opinion (see Annex A hereto) to the effect
that (a) the delivery by PMH of shares of PMC's common stock having an aggregate
value of $[1,386,189] in consideration for the extinguishment of the Advances
and assumption of the Aurora Loans would be fair to the Company and its
Stockholders; and (b) delivery by the Company to Messrs. Porter and McLeod of
shares of its Common Stock having an aggregate value of $313,811 in connection
with the consummation of the merger of PMH, PMM and PMC with and into the
Company also would be fair to the Company and its Stockholders. In rendering its
opinion, Appleby undertook certain reviews and analyses and inquiries including,
among other things the following factors: (i) the Company's and PMC's historical
income statement and balance sheet information; (ii) the current and historical
prices and trading volume of the Company's Common Stock; (iii) selected
financial information of certain publicly traded companies in similar business
lines; (iv) merger transactions involving companies in similar business lines;
(v) certain transactions involving equity investments in companies with similar
financial difficulties; and (vi) discussions with senior management regarding
the Company's historical and current operations, financial condition and future
prospects. Appleby received a fee of $35,000 (plus reimbursement of its out of
pocket expenses) in connection with its services described above.
Based upon its discussions with Appleby and Appleby's opinion, the
Company's Board of Directors determined that it would be in the Company's best
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interests to go forward with the merger transaction and to accept the shares of
PMC's common stock to be delivered by PMH for the above-mentioned purposes.
Consequently, the Board of directors determined to request that the
Company's Stockholders ratify the Related Transactions and approve the
acceptance of the Common Stock to be delivered by PMH to the Company in
satisfaction of the amount due to it for its Advances and in consideration of
its assumption of the Aurora Loans.
Vote Required for Approval
The affirmative vote of the holders of at least a majority of all
outstanding shares of Common Stock present at the Annual Meeting in person or by
proxy is required for approval of Proposal 2. By reason of the fact that all of
the members of the Company's Board of Directors have an interest in the outcome
of the vote on this proposal, the Board is not making any recommendation to the
Stockholders with respect thereto.
In the event that a majority of the outstanding shares of Common Stock does
not approve Proposal 2, Proposal 3 will be deemed to have been withdrawn from
consideration at the Annual Meeting. In the event that a majority of the
outstanding shares of Common Stock does not approve Proposal 3, the transactions
contemplated pursuant to Proposal 2 will not be consummated, and such proposal
will be deemed to have been withdrawn from consideration at the Annual Meeting.
PROPOSAL 3:
APPROVAL OF PLAN OF MERGER AMONG THE
COMPANY, PMH, PMM AND PMC
At the Annual Meeting, Stockholders will be asked to consider and take
action upon a proposal, to adopt an Agreement of Merger (the "Merger Agreement")
between and among the Company, PMH, PMM and PMC, pursuant to which PMH, PMM and
PMC would merge with and into the Company (the "Merger"), all of the outstanding
shares of capital stock of PMM and PMC would be canceled, all of the outstanding
shares of capital stock of PMH would be converted into shares of the Company's
$.0001 par value Common Stock having an aggregate fair market value of $313,811,
and the shares of Common Stock held by Stockholders
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other than PMH would be unaffected. A copy of the Merger Agreement is set forth
in Annex B to this Proxy Statement.
THE MERGER AGREEMENT AND THE MERGER
Background of and Reasons for the Merger Agreement and the Merger
The Company was formed in 1992 as a subsidiary of PMH. PMH currently holds
962,166 shares of Common Stock, representing approximately 48.82% of the
outstanding Common Stock. One-half of the outstanding voting stock of PMH is
owned by Bruce M. Porter with the remaining half being owned by Joseph R.
McLeod.
The purpose for the Merger Agreement and the Merger is to eliminate PMH as
a separate legal entity, thereby enabling the present stockholders of PMH to
hold their interests in Common Stock directly rather than indirectly through
ownership of stock of PMH, a closely-held corporation. In addition, the
amalgamation of PMM and PMC with the Company will, in the opinion of the
Company's management, provide economies of scale and overhead reductions
essential for the Company's achievement and maintenance of profitable
operations, and strengthen the Company's financial condition, thereby enhancing
its ability to obtain sufficient funding, either through loans or equity
financings, to enable it to meet its future capital needs. See "Proposal 2 -
Ratification of Company Advances and Approval of the Method of Repayment."
The Merger is not intended to serve as an anti-takeover measure. To the
extent effectuation of the Merger may have the incidental effect of rendering
more difficult or discouraging certain possible takeover proposals to acquire
control of the Company, removal of management of the Company may be more
difficult. Management of the Company has no present intention to adopt, or to
propose to Stockholders for adoption, any other measure that could be viewed as
having an anti-takeover effect.
Vote Required for Approval
PMH, PMM and PMC have advised the Company that their respective
stockholders have approved the Merger Agreement.
The Merger Agreement was approved by the directors of the Company at a
special meeting held on ________________________, 1996.
The affirmative vote of the holders of at least a majority of the Company's
outstanding shares of Common Stock is required for adoption of the
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Merger Agreement. PMH owns 962,166 shares of Common Stock or approximately
48.82% of the shares of Common Stock outstanding on the Record Date. PMH has
informed the Company that in the event Proposal 2 is adopted, it intends to
cause such shares held by it to be voted in favor of the Merger Agreement and
the Merger.
Neither the Merger Agreement nor the Merger will be implemented unless the
conditions thereto are satisfied.
By reason of the fact that all of the members of the Company's Board of
Directors have an interest in the outcome of the vote on this proposal, the
Board is not making any recommendation to the Stockholders with respect thereto.
In the event that a majority of the outstanding shares of Common Stock does
not approve Proposal 3, Proposal 2 will be deemed to have been withdrawn from
consideration at the Annual Meeting. In the event that a majority of the
outstanding shares of Common Stock does not approve Proposal 2, Proposal 3 will
be deemed to have been withdrawn from consideration at the Annual Meeting.
Terms of the Merger Agreement; Manner and Basis of Converting PMH Shares
If approved, the Merger shall become effective on the date specified in the
Certificate of Merger to be filed by the Company with the Secretary of State of
Delaware (the "Effective Date"). It is anticipated that the Effective Date will
be in or about the month of ______________________, 1996.
Pursuant to the Merger Agreement, on the Effective Date, PMH, PMM and PMC,
following the satisfaction of the conditions to consummation of the Merger, will
be merged with and into the Company with the Company continuing as the surviving
corporation; the Company's entitlement to receive payment with respect to the
Advances will be extinguished; the Company will, by operation of law, succeed to
and assume any and all assets, liabilities and obligations of PMH, PMM and PMC
(including their obligations under the Aurora Loans; and the separate corporate
existence of PMH, PMM and PMC will terminate. See "Certain Pro Forma Financial
Information" and "Proposal 1 - Election of Directors Certain Relationships and
Related Transactions - Transactions with Aurora National Bank."
Also, pursuant to the Merger Agreement, the shares of Common Stock held by
Stockholders other than PMH would not be affected and would remain outstanding.
On the Effective Date (a) all of the outstanding shares of the capital stock of
PMM, PMC and PMH shall be canceled; (b) the Company will issue 481,083 shares of
Common Stock to each of Messrs. Porter and McLeod in exchange for the 962,166
shares of Common Stock held by PMH (which shall be returned to the Company and
canceled); and (c) the Company will issue a block of its Common
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Stock to each of Messrs. Porter and McLeod having a fair market value of
$156,905.50 (each of such blocks of Common Stock is hereinafter referred to as a
"PMH Block"). The PMH Blocks will account for the transfer of ownership to the
Company, pursuant to the Merger, of all of the assets and business of PMM and
PMH, subject to all of their respective liabilities, and the transfer of
ownership to the Company of the approximately 18% portion of PMC's assets and
business, subject to its liabilities, that the Company will not own at such
time. The number of shares of Common Stock to be issued as a PMH Block shall be
calculated by dividing $156,905.50 by the average of the mean between the bid
and asked prices of the Common Stock for the most recent period of ten trading
days preceding the Effective Date on which trading in the Common Stock shall
have occurred. Based upon the mean between the bid and asked prices of the
Common Stock on [April ], 1996, i.e., [$x.xx], each PMH Block would
consist of [15x,xxx] shares.
The Merger Agreement also provides that any term, provision or condition
thereof (other than the requirement for Stockholder approval) may be waived in
writing by the party which is, or the party the Stockholders of which are,
entitled to the benefits thereto. The Merger Agreement also provides that,
subject to the provisions of applicable law, it may be amended or supplemented
at any time before or after approval of the Merger by Stockholders of the
Company, PMH, PMM and PMC by action taken by the boards of directors of such
corporations. In addition, the Merger Agreement may be terminated at any time on
or prior to the effective date of the Merger, whether before or after approval
thereof by the Stockholders of the Company, PMH, PMM and PMC, by mutual consent
of the respective boards of directors of such corporations. See Section 11 of
the Merger Agreement set forth in Annex B hereto.
Federal Income Tax Consequences of the Merger
The following is only a general description of certain of the Federal
income tax consequences of the Merger to holders of shares of Common Stock
without reference to the particular facts and circumstances of any particular
Stockholder or to any state, local or foreign tax laws that may be applicable in
a particular case. IN VIEW OF THE INDIVIDUAL NATURE OF EACH STOCKHOLDER'S TAX
SITUATION, STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER.
Tax Consequences to Holders of PMH, PMM and PMC Stock
The holders of PMH, PMM and PMC stock will recognize no gain or loss as a
result of the Merger. The foregoing does not apply, however, with respect to any
cash received in lieu of a fractional share of Common Stock.
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Tax Consequences to Holders of Common Stock
Except with respect to dissenters, the holders of Common Stock will not
recognize gain or loss as a result of the Merger. A holder of Common Stock who
receives cash in exchange for his shares of Common Stock pursuant to an exercise
of dissenters' rights (see "Dissenters' Rights" below) generally will recognize
gain or loss in an amount equal to the difference between the cash received by
him and his adjusted basis in the Common Stock surrendered therefor. Assuming
such Common Stock was held as a capital asset, such gain or loss will be capital
gain or loss and will be a long-term capital gain or loss if such holder's
holding period exceeds one year as of the effective date of the Merger. Under
certain circumstances, however, the amount of cash received by such a dissenting
holder will be treated as a dividend (taxable as ordinary income) if the holder
is deemed to own the Common Stock that is owned or deemed to be owned by certain
related parties or that is subject to being acquired by such holder or a related
party by the exercise of an option. Each holder of Common Stock who may consider
dissenting from the Merger is urged to consult his own tax advisor with respect
to the tax consequences to him of the exercise of dissenters' rights, including
the application of the constructive ownership rules of the Internal Revenue Code
to his particular circumstances.
Tax Consequences to the Company, PMH, PMM and PMC
No gain or loss will be recognized by the Company, PMH, PMM or PMC as a
result of the Merger.
Rights of Dissenting Stockholders
Pursuant to Section 262 of the Delaware General Corporation Law, the holder
of record of any shares of Common Stock who does not vote such holder's shares
in favor of adoption and approval of the Merger Agreement may assert dissenters'
rights and elect to have the "fair value" of such holder's shares of Common
Stock determined and paid in cash to such holder, provided that such holder
complies with the requirements of Section 262 of the Delaware General
Corporation Law, summarized below. All references to and summaries of the rights
of the dissenting Stockholders are qualified in their entirety by reference to
the text of Section 262 of the Delaware General Corporation Law which is
attached to this Proxy Statement as Annex C.
Any Stockholder entitled to vote on the Merger Agreement who desires that
the Company purchase shares of Common Stock held by such Stockholder as
Dissenting Shares, must not vote in favor of adoption and approval
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of the Merger Agreement. Shares voted in favor of adoption and approval of the
Merger Agreement will be disqualified as Dissenting Shares.
Stockholders whose shares are not voted in favor of adoption and approval
of the Merger Agreement and who, in all other respects, follow the procedures
specified in Section 262 will be entitled to have their Common Stock appraised
by the Delaware Court of Chancery (the "Court") and to receive payment of the
"fair value" of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, as determined by the Court. The
procedures set forth in Section 262 must be strictly complied with. Failure to
follow any of such procedures will result in a termination or waiver of
appraisal rights under Section 262.
Under Section 262, a holder of Common Stock electing to exercise appraisal
rights must:
(1) Deliver to the Company, before the taking of the vote on the Merger
Agreement a written demand for appraisal of such holder's Common Stock
which reasonably informs the Company of the identity of the
Stockholder of record and that such record Stockholder intends thereby
to demand appraisal of such holder's shares. Such written demand is in
addition to and separate from any proxy or vote with respect to the
Merger Agreement. Neither a vote against or abstention from voting
with respect to the Merger Agreement nor a proxy directing such vote
will satisfy the requirement that a written demand for appraisal be
delivered to the Company before the vote on the Merger Agreement or in
person or by mail to the Secretary, prior to the Annual Meeting, at
the address set forth on the cover page of this Proxy Statement.
(2) Not vote in favor of, or consent in writing to, the Merger Agreement.
A failure to vote against the Merger Agreement will not constitute a
waiver of appraisal rights. However, a Stockholder who signs and
returns a proxy without expressly directing (by checking the
applicable boxes on the reverse side of the proxy card enclosed
herewith) that such stockholder's shares be voted against the Merger
Agreement or that an abstention be registered with respect to such
shares in connection with such Merger Agreement will effectively have
thereby waived his or her appraisal rights as to those shares because,
in the absence of express contrary instructions, such shares will be
voted in favor of the Merger Agreement. Accordingly, a Stockholder who
desires to perfect appraisal rights with respect to any shares must,
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as one of the procedural steps involved in such perfection, either (i)
refrain from voting in favor of Proposal 3 either in person or by
checking the box marked "For" next to such proposal on the reverse
side of such card and then returning the card, or (ii) check either
the "Against" or the "Abstain" boxes next to such proposal on the
reverse side of such card; or (iii) vote in person against the Merger
Agreement; or (iv) register in person an abstention with respect
thereto.
The written demand for appraisal must be made by or for the holder of
record of shares of Common Stock. Accordingly, such demand must be executed by
or for such Stockholder of record, fully and correctly, as such Stockholder's
name appears on the stock certificates representing the shares. If the
applicable shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in such
capacity, and if the applicable shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, such demand should be
executed by or for all joint owners. An authorized agent, including one of two
or more joint owners, may execute the demand for appraisal for a Stockholder of
record. However, the agent must identify the record owner(s) and expressly
disclose the fact that, in executing the demand, the agent is acting as agent
for the record owner(s).
A record owner, such as a broker, who holds shares as nominee for other
persons may exercise appraisal rights with respect to the shares held for all or
less than all of such other persons. In such case, the written demand should set
forth the number of shares covered by it. Where no number of shares is expressly
mentioned, the demand will be presumed to cover all shares standing in the name
of such record owner.
Within 10 days after the Effective Date, the Company is required to, and
will, notify each Stockholder who has satisfied the foregoing conditions of the
date on which the Effective Date occurred and that appraisal rights are
available with respect to shares for which a demand has been submitted. Within
120 days after the Effective Date, the Company, or any such Stockholder who has
satisfied the foregoing conditions and is otherwise entitled to appraisal rights
under Section 262, may file a petition in the Court demanding a determination of
the value of the shares held by all Stockholders entitled to appraisal rights.
If no such petition is filed, appraisal rights will be lost for all Stockholders
who had previously demanded appraisal of their shares. Stockholders of the
Company seeking to exercise appraisal rights should not assume that the Company
will file a petition with respect to the appraisal of the value of their shares
or that the Company will initiate any negotiations with respect to the "fair
value" of such shares. Accordingly, such Stockholders should regard it as their
obligation to take all steps necessary to perfect their appraisal rights in the
manner prescribed in Section 262.
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Within 120 days after the date of the Effective Date, any Stockholder who
has theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Company a statement setting
forth the aggregate number of shares not voted in favor of the Merger Agreement
and with respect to which demands for appraisal were received by the Company,
and the number of holders of such shares. Such statement must be mailed within
10 days after the written request therefor has been received by the Company or
within 10 days after expiration of the period for delivery of demands for
appraisal, whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition the Court will determine the Stockholders of the Company entitled to
appraisal rights. After determining the Stockholders entitled to an appraisal,
the Court will appraise the value of the shares of the Common Stock owned by
such shareholders, determining the "fair value" thereof exclusive of any element
of value arising from the accomplishment or expectation of the Merger. The Court
will direct payment by the Company of the fair value of such shares together
with a fair rate of interest, if any, on such fair value to Stockholders
entitled thereto upon surrender to the Company of stock certificates. The costs
of the proceeding may be determined by the Court and taxed upon the parties as
the Court deems equitable in the circumstances. Upon application of a
Stockholder, the Court may, in its discretion, order that all or a portion of
the expenses incurred by any Stockholder in connection with an appraisal
proceeding, including without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all the
shares entitled to appraisal.
Although the Company believes that the consideration to be received upon
consummation of the Merger is fair, no representation is made as to the outcome
of the appraisal of fair value as determined by the Court and Stockholders
should recognize that such an appraisal could result in a determination of a
value higher or lower than, or the same as, the consideration received in
connection with the Merger ("Merger Consideration"). Moreover, the Company does
not presently anticipate offering more than the Merger Consideration to any
Stockholder exercising appraisal rights and reserves the right to assert, in any
appraisal proceeding, that, for purposes of Section 262, the "fair value" of a
share of Common Stock is less than the Merger Consideration. In determining the
"fair value" of shares of Common Stock, the Court is required to take into
account all relevant factors. Therefore, such determination could be based upon
considerations other than, or in addition to, the price paid for shares of
Common Stock, including, without limitation, the market value of shares and the
asset values and earning capacity of the Company.
24
<PAGE>
Any holder of shares of Common Stock who has demanded an appraisal in
compliance with Section 262 will not, after the Effective Date, be entitled to
vote such holder's shares for any purpose nor be entitled to the payment of
dividends or other distributions on such shares (other than those payable to
Stockholders of record as of a date prior to the Effective Date).
If (i) no petition for an appraisal is filed within 120 days after the
Effective Date or (ii) a holder of shares delivers to the Company a written
withdrawal of such holder's demand for an appraisal and an acceptance of the
Merger, either within 60 days after the Effective Date or with the written
approval of the Company thereafter (which the Company reserves the right to give
or to withhold, in its sole discretion), then the right of such Stockholder to
an appraisal will cease and such Stockholder will be entitled to receive the
Merger Consideration, without interest. No appraisal proceeding in the Court
will be dismissed as to any Stockholder without the approval of the Court, which
approval may be conditioned on such terms as the Court deems just.
Summary of Certain Interests
The following tabulations set forth certain information based on the number
of PMH shares outstanding as of _______________, 1996 respecting the ownership
of PMH and the Company, and such ownership as adjusted to reflect consummation
of the Merger (assuming that no holders of shares of common stock exercise
appraisal rights). See "Terms of the Merger Agreement: Manner and Basis of
Converting PMH Shares" above within this section.
Ownership of Common Stock (1)
-----------------------------------
Ownership of Current Indirect As Adjusted
PMH Ownership (Total Following
Common Stock Through PMH(2) Merger)(3)
--------------- --------------- ---------------
% of % of % of
Name Shares Class Shares Class Shares Class
- - - ---- ------ ----- ------ ----- ------ -----
Bruce M. Porter 30,000 50% 481,083 24.1 63x,xxx xx
Joseph R. McLeod 30,000 50% 481,083 24.1 63x,xxx xx
- - - --------------------
(1) For certain additional information concerning the current ownership of
Common Stock. See "Security Ownership of Certain Beneficial Owners."
(2) Based upon 1,970,866 shares of Common Stock outstanding on the date of this
Proxy Statement.
25
<PAGE>
(3) Assuming that 2,6xx,xxx shares of Common Stock will be outstanding
immediately after the Effective Date.
Resales of Affiliates
The shares of Common Stock presently held by PMH, and the shares of Common
Stock to be acquired by Bruce M. Porter and Joseph R. McLeod have not been, and
will not be, registered under the Securities Act of 1933 (the "Act").
Accordingly, such shares may not be sold unless they are registered under the
Act or are sold pursuant to an exemption therefrom or otherwise in compliance
with the provisions thereof, including sales pursuant to Rule 144 under the Act.
Neither Bruce M. Porter nor Joseph R. McLeod has made any determination as to
the amount or timing of any sales of shares of Common Stock following the
Merger.
Expenses
All costs and expenses incurred by the Company in connection with the
Merger and the transactions contemplated thereby will be paid by the Company.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
AND
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The following unaudited pro forma combined balance sheet as of December 31,
1995 and unaudited pro forma combined statement of operations for the year ended
December 31, 1995, including the related pro forma adjustments described in the
notes thereto, give effect to the merger of PMH, PMM and PMC with and into the
Company. The transaction has been accounted for as a combination of companies
under the purchase method. The financial statements are stated at historical
cost since the purchase affects entities under common control. The unaudited pro
forma statement of operations has been prepared as if the proposed transaction
occurred on January 1, 1995. The unaudited pro forma balance sheet has been
prepared as of the proposed transaction occurred December 31, 1995. These pro
forma statements are not necessarily indicative of the results of operations or
the financial positions as they may be in the future or as they might have been
had the transaction become effective on the above mentioned date.
The pro forma combined statement of operations for the year ended December
31, 1995 includes the results of operations of the Company, PMH, PMC and PMM.
26
<PAGE>
The unaudited pro forma combined statement of operations and the unaudited
pro forma combined balance sheet should be read in conjunction with the separate
historical financial statements and notes thereto of (a) the Company (included
in the Annual Report on Form 10-KSB for the year ended December 31, 1995 which
accompanies this proxy statement); and (b) PMC and PMM which are annexed hereto
as Annex D.
27
<PAGE>
<TABLE>
<CAPTION>
Porter Mcleod National Retail, Inc.
Unaudited Pro Forma Combined Balance Sheet
December 31, 1995
Porter McLeod Porter McLeod Porter McLeod Porter McLeod Combining
Nat. Retail, Inc. Holdings, Inc. Management, Inc. Colorado,Inc. Eliminations Combined
----------------- -------------- ---------------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash $ 354,050 $ -- $ 9,098 $ 296,893 $ -- $ 660,041
Accounts receivable from
employees -- 1,000 15,787 -- (1,000)(1) 15,787
Receivables from affiliates -- 3,000 54,620 -- (57,620)(1) --
Accounts receivable, net 609,762 -- -- 1,428,806 -- 2,038,568
Retainage receivable 13,086 -- 131,161 -- -- 144,247
Costs and estimated earnings
in excess of billings on uncom-
pleted projects 96,625 -- -- 118,556 -- 215,181
Prepaid expenses and other 66,232 -- 25,667 10,481 -- 102,380
----------- -------- --------- ----------- ----------- -----------
1,139,755 $ 4,000 105,172 1,985,897 (58,620) 3,176,204
Property and equipment at cost
Office furniture and equipment 21,278 -- 94,288 46,589 -- 162,155
Construction equipment and
vehicles -- -- -- 49,966 -- 49,966
Leasehold improvements 34,634 -- 34,634 69,268 -- 138,536
----------- -------- --------- ----------- ----------- -----------
55,912 -- 128,922 165,823 -- 350,657
Less accumulated depreciation 21,655 -- 34,985 79,662 -- 136,302
34,257 -- 93,937 86,161 -- 214,355
Other Assets
Accounts receivable from affiliates 770,123 -- -- 206,411 (1,056,534)(2) --
----------- -------- --------- ----------- ----------- -----------
Total Assets $ 1,944,135 $ 4,000 $ 199,109 $ 2,358,469 $ 1,115,154 $ 3,390,559
=========== ======== ========= =========== =========== ===========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Porter McLeod Porter McLeod Porter McLeod Porter McLeod Combining
Nat. Retail, Inc. Holdings, Inc. Management, Inc. Colorado,Inc. Eliminations Combined
----------------- -------------- ---------------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Current Liabilities
Accounts payable $ 451,138 $ 3,000 $ 56,713 $ 1,635,505 $ (1,000)(1) $ 2,145,356
Accrued expenses and
payroll taxes -- -- 114,423 54,620 (54,620)(1) 114,423
Billings in excess of costs of estima-
ted earnings on completed contracts -- -- -- 185,025 -- 185,025
Note payable - current portion -- -- 197,960 -- -- 197,960
Capital lease obligation - current
portion -- -- 5,364 -- -- 5,364
----------- ----------- ----------- ----------- ----------- -----------
451,138 3,000 338,142 1,875,150 (57,620) 2,648,128
Obligations under capital lease-net
of current portion -- -- 24,056 -- -- 24,056
Long term debt -- -- 418,106 -- -- 418,106
Note payable to affiliate -- -- 1,056,534 -- (1,056,534)(2) --
Stockholders' Equity
Preferred Stock -- -- -- -- -- --
Common Stock 197 1,000 1,000 1,000 (3,000)(1) 197
Additional paid in capital 3,931,116 -- -- -- -- --
Retained earnings (deficit) (2,374,199) -- (1,675,047) 482,319 -- 3,931,116
Trasury stock -- -- -- -- -- (3,566,927)
Advisory services contract (64,117) -- -- -- -- (64,117)
----------- ----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity 1,492,997 1,000 1,674,047 483,319 (3,000) 742,431
Total Liabilities and Stockholders'
Equity $ 1,944,135 $ 4,000 $ 199,109 $ 2,358,469 $(1,117,154) $ 3,390,559
=========== =========== =========== =========== =========== ===========
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Porter Mcleod National Retail, Inc.
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended December 31, 1995
Porter McLeod Porter McLeod Porter McLeod Porter McLeod Combining
Nat. Retail, Inc. Holdings, Inc. Management, Inc. Colorado,Inc. Eliminations Combined
----------------- -------------- ---------------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Contract Income $ 5,167,422 -- -- $ 9,716,440 -- $ 14,883,862
Management Services -- -- 847,593 -- $ (847,593)(3) --
----------- ------ ----------- ----------- ----------- ------------
5,167,422 -- 847,593 9,716,440 (847,593) 14,883,862
Contract Costs (4,576,593) -- -- (8,703,458) -- (13,280,061)
----------- ------ ----------- ----------- ----------- ------------
Gross Profit 590,829 -- 847,593 1,012,972 (847,593) 1,603,801
General and Administrative Expenses 1,124,048 -- 834,132 871,812 (847,593)(3) 1,982,399
Interest Expense (Income) (54,531) -- 132,301 1,791 -- 79,561
Impairment of Marketing Agreement 1,109,766 -- -- -- -- 1,109,766
Loss on Sale of Investment Securities 41,743 -- -- -- -- 41,743
Other Expenses -- -- 25,628 1,046 -- 26,674
----------- ------ ----------- ----------- ----------- ------------
2,221,026 -- 992,061 874,649 (847,593) 3,240,143
----------- ------ ----------- ----------- ----------- ------------
Net (Loss) Income Before Income Taxes (1,630,197) -- (144,468) 138,323 -- (1,636,342)
Income Taxes Benefit (Expense) -- -- 54,620 (54,620) -- --
----------- ------ ----------- ----------- ----------- ------------
Net (Loss) Income $ 1,630,197 -- $ (89,848) $ 63,706 -- $ (1,636,342)
=========== ====== =========== =========== =========== ============
</TABLE>
30
<PAGE>
Notes to Unaudited Pro Forma Combined Financial Statements
The following adjustments are related to the proposed merger of PMH, PMM
and PMC with and into the Company.
1) To eliminate intercompany receivable and payable and to eliminate
investment by PMH.
2) To eliminate advances from the Company and PMC to PMM.
3) To eliminate intercompany revenue and expense charged by PMM to the
Company and PMC.
31
<PAGE>
CERTAIN INFORMATION CONCERNING THE COMPANY,
PMM, PMC AND PMH
The Company provides general construction, construction management,
design/turnkey and multiple retail store improvement and interior construction
services primarily for national retail firms. The following sections of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995 are
hereby incorporated herein by this reference: Item 1 Business; Item 2
Properties; Item 3 Legal Proceedings; Item 5 Market for Common Equity and
Related Stockholder Matters; Item 6 Management's Discussion and Analysis of
Financial Condition and Results of Operations; Item 7 Financial Statements; and
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
PMM, PMC and PMH are Colorado corporations whose principal offices are
located at 5895 East Evans Avenue, Denver, Colorado 80222. The audited financial
statements of PMM and PMC, and the unaudited financial statements of PMH, each
for the year ended December 31, 1995 are annexed hereto as Annex D.
PROPOSAL NO. 4:
INCREASE OF NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In accordance with the Company's Certificate of Incorporation, it is
authorized to issue a maximum of 3,000,000 shares of Common Stock and 100,000
shares of preferred stock, par value $.0001 per share (the "Preferred Stock").
Under the provisions of the Company's Certificate of Incorporation, the Board of
Directors is authorized to issue the Preferred Stock, without further action of
the stockholders, in classes or series possessing such designations, powers,
preferences and relative, participating, optional or other special rights within
each class or series, and further possessing such qualifications, limitations
and restrictions as the Board may determine, subject to any limitations imposed
thereon by the Certificate of Incorporation and the Delaware General Corporation
Law
As of the Record Date, [1,970,886] shares of Common Stock are issued and
outstanding, no shares of Preferred Stock are issued or outstanding and an
aggregate of [ ] shares of Common Stock have been reserved for issuance under
the Company's 1993 Stock Option Plan and with respect to various options and
warrants which were heretofore issued by the Company. Accordingly, as of the
Record Date, the Company may not issue more than an additional [ ] shares of
Common Stock and 100,000 share of Preferred Stock in the absence of
authorization from the stockholders to amend the Company's certificate of
incorporation to provide for an
32
<PAGE>
increase in the aggregate number of shares of Common Stock and Preferred Stock
which the Company may issue.
In order to give the Company's management the flexibility to engage in a
variety of transactions which can be accomplished through the issuance of Common
Stock and Preferred Stock, as opposed to the payment of cash, e.g., the
engagement of the services of investment bankers and other service providers, as
well as the declaration of stock dividends and the acquisition of business
entities, the Company must have a pool of authorized but unissued shares of
capital stock to drawn upon.
The Company's management is actively engaged in an effort to identify one
or more privately held contracting companies whose business operations and
management structures are compatible with those of the Company, and whose owners
might be interested in engaging in transactions by which their businesses and/or
the capital stock or assets of their companies would be acquired by the Company
wholly or partially in consideration for the issuance of shares of the Company's
capital stock. As of the date of mailing of this Proxy Statement, the Company's
management has held discussions with two of such private contractors. Although
such discussions are ongoing, they are still at a preliminary stage which would
not warrant further disclosure. However, management has been sufficiently
encouraged by such discussions to have formed the conclusion that it would be in
the best interests of the Company to be in a position to issue more shares of
capital stock than it is presently authorized to issue. Unless accomplished
during an annual meeting of stockholders, the process of obtaining the consent
of the stockholders to increase the Company's authorized share capital would
obligate the Company to engage in the time consuming and expensive process of
holding a special meeting of stockholders for that sole purpose.
In order to provide for the longer term stock issuance needs of the Company
at a time when the Company's management believes that prudence favors the
appropriateness of doing so, and without incurring any additional costs in
connection therewith, the Board of Directors is recommending that the
stockholders vote in favor of passage of the following resolution:
"RESOLVED, that the Corporation's certificate of incorporation,
as heretofore amended, shall be further amended to increase the
aggregate number of shares which the Corporation is authorized to
issue, without changing the powers imposed by the Certificate of
Incorporation upon the Board of Directors with respect to the
issuance thereof, from 3,100,000 shares, of which 3,000,000
shares may be common stock having a par value of $.0001 each (the
"Common Stock") and 100,000 shares may be preferred stock having
a par value of $.0001 each (the "Preferred Stock"), to 11,000,000
shares, of which
33
<PAGE>
9,000,000 shares shall be Common Stock, and 2,000,000 shares
shall be Preferred Stock."
Anti-Takeover Effect of Delaware Law and Charter Provisions
The ability of the Board of Directors to issue shares of Preferred Stock
and to set the voting rights, preferences and other terms thereof, may be deemed
to have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which certain
stockholders may deemed to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the
Common Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with the ability of the Board to issue
Preferred Stock without further stockholder action, also could delay or
frustrate the removal of incumbent directors or the assumption of control by
stockholders, even if such removal or assumption would be beneficial to
stockholders of the Company. These provisions also could discourage or make more
difficult a merger, tender offer or proxy contest, even if they could be
favorable to the interests of stockholders, and could potentially depress the
market price of the Common Stock. The Board of Directors of the Company believes
that these provisions are appropriate to protect the interests of the Company
and all of its stockholders. The Board of Directors has no present plans to
adopt any other measures or devices which may be deemed to have an
"anti-takeover effect."
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from date
that such person became an interested stockholder unless: (i) the transaction
resulting in a person becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before the
person becomes an interested stockholder, (ii) the interested stockholder
acquired 85% or more of the outstanding voting stock of the corporation in the
same transaction that makes it an interested stockholder (excluding shares owned
by persons who are both officers and directors of the corporation, and shares
held by certain employee stock ownership plans); or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at least
662/3% of the corporation's outstanding voting stock at an annual or special
meeting, excluding shares owned by the interested stockholder. Under Section
203, an "interested stockholder" is defined (with certain limited exceptions) as
any person that is (i) the owner of 15% or more of the outstanding voting stock
of the corporation or (ii) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time
34
<PAGE>
within the three-year period immediately prior to the date on which it is sought
to be determined whether such person is an interested stockholder. In light of
the facts that PMH and Messrs. Porter and McLeod became "interested
stockholders" more than three years ago, the transactions contemplated by
Proposals 2 and 3 hereof are not subject to the limitations imposed by Section
203.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that such by-law or
charter amendment shall not become effective until 12 months after the date it
is adopted.
Vote Required for Approval
The affirmative vote of the holders of a majority of all outstanding shares
of Common Stock, i.e., not less than [985,444] shares, is required for the
approval of this proposal.
The Board of Directors recommends a vote FOR such proposal.
PROPOSAL 5:
RATIFICATION OF AUDITORS
At the Annual Meeting, the Company's Stockholders will be asked to ratify
the Board of Directors' election of Ehrhardt Keefe Steiner & Hottman P.C.,
("EKSH") as the Company's independent accountants for the fiscal year ended
December 31, 1995 and as the Company's independent accountants for the fiscal
year ending December 31, 1996. It is expected that a representative of EKSH will
be present at the meeting
The Company engaged the services of EKSH effective on November 30, 1995
(the "Effective Date") for the purposes of auditing the Company's financial
statements for the year ended December 31, 1995. As a result of the engagement
of EKSH, the services of Lehman, Butterwick & Company, P.C. ("Lehman") as
auditor of the Company's financial statements were terminated as of the
Effective Date. The change in certifying accountants was implemented solely as a
result of the Company's determination that its accounting needs, and the need
for implementation of faster and more sophisticated accounting systems and
services utilized by businesses involved in the construction industry warranted
its engagement of EKSH, an accounting firm which possesses the resources and
facilities to satisfy these needs.
35
<PAGE>
Vote Required for Approval
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock represented in person or by proxy at the Annual Meeting is
required for approval of this proposal.
The Board of Directors recommends a vote FOR such proposal.
OTHER MATTERS
Discretionary Authority to Vote Proxy
Management does not know of any other matters to be considered at the
Annual Meeting. If any other matters do properly come before the Annual Meeting,
the proxy will be voted in respect thereof in accordance with the best judgement
of the persons authorized therein, and the discretionary authority to do so is
included in the proxy.
Annual Report on Form 10-KSB
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995.
Submission of Stockholder Proposals
Any Stockholder who intends to present a proposal at the Annual Meeting of
Stockholders to be held in 1997 for inclusion in the Proxy Statement and form of
proxy relating to that meeting is advised that the proposal must be received by
the Company at its principal executive offices no later than , 1997.
The Company will not be required to include in its proxy statement or form of
proxy a Stockholder's proposal which is received after that date or which
otherwise fails to meet requirements for Stockholder proposals established by
regulations of the Securities and Exchange Commission.
STOCKHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL, QUARTERLY
AND CURRENT REPORTS ON FORMS 10-KSB, 10-QSB AND 8-K, RESPECTIVELY, BY SENDING A
REQUEST TO: INVESTOR RELATIONS DEPARTMENT, PORTER MCLEOD NATIONAL RETAIL, INC.,
5895 EAST EVANS AVENUE, DENVER, COLORADO 80222
Denver, Colorado
Dated: ______________, 1996
36
<PAGE>
Annex A
APPLEBY PARTNERS, LTD.
April , 1996
Board of Directors
Porter McLeod National Retail, Inc.
5895 East Evans Avenue
Denver, CO 80222
Gentlemen:
You have asked Appleby Partners, Ltd. ("APL") to express an opinion as to
the fairness from a financial point of view to the shareholders of Porter McLeod
National Retail, Inc. ("the Company") of certain transactions on which the
shareholders will be asked to vote at the Annual Meeting to be held on Monday,
June 17, 1996. The transactions on which we have been asked to express an
opinion include the transfer of a block of shares (the "Transfer") comprising
approximately 82% of Porter McLeod Colorado, Inc. ("PMC") in consideration for
(a) the extinguishment of accounts receivable obligations in the amount of
$770,123 owed to the Company by Porter McLeod Management, Inc. ("PMM") an
affiliate, and (b) the assumption by the Company of obligations in the amount of
$616,066 owed to a financial institutional by PMM and Porter McLeod Holdings,
Inc. ("PMH"), another affiliate. Such Transfer is being carried out in the
context of a proposed merger (the "Merger") pursuant to which (a) PMH and its
wholly owned subsidiaries PMM and PMC would each be merged with and into the
Company and (b) all of the outstanding shares of common stock of PMH would be
converted into shares of the Company's common stock. The proposed Transfer and
Merger will be put to the vote of shareholders at the above mentioned Annual
Meeting.
In connection with our analysis of the Transfer and Merger, the Company has
furnished us with information concerning the business and operations of the
Company. Also, we have reviewed financial and operating data of PMC and its
affiliates which was provided to us by the Company as well as information
contained in documents filed with regulatory authorities or otherwise available
from published sources. Our review also included consideration of (i)
historical, financial, and statistical information concerning the Company, PMC
and affiliates (ii) the business, operations, and general prospects of PMC and
affiliates; (iii) reported price ranges for the equity securities of the
Company; (iv) current economic and market conditions; and (v) such other
financial studies, analyses, and investigations of the Company, PMC and similar
551 Fifth Avenue, Suite 1625
New York, New York 10176
Voice (212) 682 6255
Fax (212) 682 6194
<PAGE>
Porter McLeod National Retail, Inc.
April , 1996
publicly traded companies, as we deemed appropriate and necessary to evaluate
the fair market value of PMC. We have relied throughout on the accuracy, without
independent verification, of information furnished to us, or otherwise made
available, by the Company. In particular, we have not independently verified the
actual amounts of the accounts receivable being extinguished nor the amounts of
the obligations being assumed, such amounts having been provided to us by the
Company and its accountants.
Based on the foregoing, we are of the opinion that, as of the date hereof,
the Transfer is fair, from a financial point of view, to the Company's
shareholders. Further, we are of the opinion that the consideration to be paid
by the Company, namely the issuance of additional shares in the Company, as a
part of the Merger, is fair, from a financial point of view, to the Company's
shareholders with respect to the value of the entities and the additional stock
in PMC which the Company will acquire as a result of the merger. We do not have
or express any opinion as to any other issue(s) relating to the Transfer or the
Merger.
Very Truly Yours,
APPLEBY PARTNERS, LTD.
551 Fifth Avenue, Suite 1625
New York, New York 10176
Voice (212) 682 6255
Fax (212) 682 6194
<PAGE>
Annex B
AGREEMENT OF MERGER
AGREEMENT OF MERGER made this ___ day of _____, 1996 by and among Porter
McLeod Colorado, Inc., a business corporation organized under the laws of the
State of Colorado ("PMC"), Porter McLeod Management, Inc., a business
corporation organized under the laws of the State of Colorado ("PMM"), Porter
McLeod Holdings, Inc., a business corporation organized under the laws of the
State of Colorado ("PMH"), and Porter McLeod National Retail, Inc., a business
corporation organized under the laws of the State of Delaware ("PMNR").
WHEREAS, the Boards of Directors of PMC, PMM and PMH (sometimes
collectively referred to hereinafter as the "Constituent Corporations") and
PMNR, respectively, deem it advisable and generally to the advantage and welfare
of all of the corporate parties hereto and their respective shareholders to
merge the Constituent Corporations with and into PMNR in accordance with the
terms of this Agreement of Merger, and pursuant to the Business Corporation Act
of the State of Colorado and the General Corporation Law of the State of
Delaware;
NOW, THEREFORE, in consideration of the premises, the mutual agreements
herein contained and the mutual benefits hereby provided, it is agreed by the
parties, as follows:
1. Merger. Upon the terms and subject to the conditions hereof and in
accordance with the relevant provisions of the Colorado Business Corporation Act
(the "Colorado Act") and the Delaware General Corporation Law (the "Delaware
Act", together with the Colorado Act the "Acts"), including, without limitation,
any required vote of the stockholders of PMNR, the Constituent Corporations
shall be merged with and into PMNR (the "Merger") upon the Effective Date (as
such term is hereinbelow defined). Following the Merger, PMNR shall continue as
the surviving corporation (the "Surviving Corporation"), continue its existence
under the laws of the State of Delaware, and the separate corporate existence of
the Constituent Corporations shall cease.
2. Effective Date. The Merger shall be become effective immediately upon
compliance with the laws of the States of Colorado and Delaware, the time of
such effectiveness being hereinafter called the "Effective Date".
3. Effects of Merger. The Merger shall have the effects set forth in
Section 259 of the Delaware Act.
4. Certificate of Incorporation; Bylaws. The Certificate of Incorporation
of PMNR, and the Bylaws of PMNR, both as in effect at the Effective Date, shall
be the Certificate of Incorporation and Bylaws of the Surviving Corporation.
<PAGE>
5. Board of Directors and Officers. The directors and officers of PMNR on
the Effective Date shall be the members of the first Board of Directors and the
first officers of the Surviving Corporation, all of whom shall hold their
respective offices until their successors are duly elected and qualified or
until their earlier death, resignation or removal.
6. Effects of Merger. Upon the Effective Date, the separate existence of
each of the Constituent Corporations shall cease and said corporations shall be
merged into the Surviving Corporation which shall possess all the rights,
privileges, powers, and franchises of a public and private nature and shall be
subject to all the duties of each of the corporations parties to this Plan of
Merger, and all and singular the rights, privileges, powers, and franchises of
each of the corporations parties to this Plan of Merger, and all property, real,
personal, and mixed, and all debts due to any of the corporations parties to
this Plan of Merger on whatever account shall be vested in the Surviving
Corporation; and all property, rights, privileges, powers, contracts, and
franchises and every other interest shall be thereafter as effectually the
property of the Surviving Corporation as they were of the respective
corporations parties to this Plan of Merger; but all rights of creditors and all
liens upon any property of either of the corporations parties to this Plan of
Merger shall be preserved unimpaired and all debts, liabilities and duties of
the respective corporations parties to this Plan of Merger shall thenceforth
attach to the Surviving Corporation and be enforceable against it to the same
extent as if said debts, liabilities, and duties had been incurred or contracted
by it.
7. Further Assurances. If, at any time, the Surviving Corporation shall
consider or be advised that any further assignments or assurances in law or any
other things are necessary or desirable to vest in the Surviving Corporation,
according to the terms hereof, the title to any property or rights of either of
the Constituent Corporations, the proper officers and directors of the
Constituent Corporations shall and will execute and make all such proper
assignments and assurances and do all things necessary or proper to vest title
in such property or rights in the Surviving Corporation and otherwise to carry
out the purposes of this Plan of Merger.
8. Book Entries. Upon the Effective Date, the assets and liabilities of the
corporations parties to this Plan of Merger shall be carried on the books of the
Surviving Corporation at the amounts at which they respectively shall be carried
on such date on the books of the corporations parties to this Plan of Merger.
The capital surplus and earned surplus of the Surviving Corporation shall be the
sum of the respective capital surpluses and earned surpluses of the corporations
parties to this Plan of Merger, subject in each case to such intercompany
adjustments or eliminations as may be required to give effect to the Merger. The
aggregate amount of the net assets of the corporations parties to this Plan of
Merger legally available
2
<PAGE>
for the payment of dividends immediately prior to the Merger, to the extent that
the value thereof is not transferred to stated capital by the issuance of shares
or otherwise, shall continue to be available for the payment of dividends by the
Surviving Corporation.
9. Conversion of Outstanding Stock. Upon the Effective Date:
(a) All of the outstanding shares of capital stock of PMM, PMC and PMH
shall be canceled; and
(b) the Surviving Corporation will issue 481,083 shares of its common
stock, par value $.0001 per share (Common Stock"), to each of Bruce Porter and
Joseph McLeod, the sole stockholders of PMH, in exchange for the 962,166 shares
of Common Stock held by PMH, which shares shall be returned to the Surviving
Corporation for cancellation;
(c) the Surviving Corporation will issue a block of its Common Stock to
each of Messrs. Porter and McLeod having a fair market value of $156,905.50 (the
"Share Blocks"). The Share Blocks will account for the transfer of ownership to
the Surviving Corporation, pursuant to the Merger, of all of the assets and
business of PMM and PMH, subject to all of the respective liabilities, and the
transfer of ownership to the Surviving Corporation of the approximately 18%
portion of PMC's assets, subject to its liabilities, that the Surviving
Corporation does not own. The number of shares of Common Stock to be issued with
respect to each Share Block shall be calculated by dividing $156,905.50 by the
average mean between the bid and asked prices of the Common Stock for the most
recent period of ten trading days immediately preceding the Effective Date on
which trading in the Common Stock shall have occurred; and
(d) the shares of Common Stock held by stockholders of the Surviving
Corporation, other than PMH, will not be affected by the Merger.
10. Approval or Rejection of Merger; Effects. The Agreement of Merger
herein made and approved shall be submitted to the stockholders of the
Constituent Corporations and to the stockholders of the Surviving Corporation
for their approval or rejection in the manner prescribed by the provisions of
the Acts. In the event of the rejection of this Agreement of Merger, this
Agreement of Merger shall forthwith become void and have no effect, without any
liability on the part of any party or its directors, officers or stockholders.
In the event that this Agreement of Merger shall have been approved by the
stockholders entitled to vote of the Constituent Corporations and by the
stockholders entitled to vote of the Surviving Corporation in the manner
prescribed by the provisions of the Acts, the Constituent Corporations and the
Surviving Corporation hereby stipulate that they will cause to be executed and
filed and/or recorded any document or documents prescribed by the
3
<PAGE>
laws of the State of Colorado and Delaware and that they will cause to be
performed all necessary acts therein and elsewhere to effectuate the Merger.
11. Amendment; Supplementation; Termination. This Agreement of Merger may
be amended or supplemented by action taken by or on behalf of the Boards of
Directors of the Surviving Corporation and the Constituent Corporations at any
time before or after approval of this Agreement of Merger by the stockholders of
the Surviving Corporation and the Constituent Corporations. In addition, this
Agreement of Merger may be terminated at any time on or prior to the Effective
Date, whether before or after approval thereof by the stockholders of the
Surviving Corporation and the Constituent Corporations, by mutual consent of the
respective Boards of Directors of such corporations. Any term, provision or
condition hereof (other than the requirement for stockholder approval) may be
waived in writing by the party which is, or the party the stockholders of which
are, entitled to the benefits hereof.
12. Service of Process on Constituent Corporations. PMNR agrees that it may
be served with process in the State of Colorado in any proceeding for
enforcement of any obligation of any of the Constituent Corporations, as well as
for enforcement of any obligation of PMNR arising from the Merger, including any
suit or other proceeding to enforce the right of any shareholder as determined
in appraisal proceedings pursuant to the Business Corporation Act of the State
of Colorado.
13. Plan of Reorganization. This Agreement of Merger constitutes a plan of
reorganization to be carried out in the manner and on the terms and subject to
the conditions herein set forth.
14. Expenses and Rights of Dissenting Stockholders. PMNR shall pay all
expenses of carrying the Agreement of Merger into effect and of accomplishing
the Merger, including amounts, if any, to which dissenting stockholders of the
Constituent Corporations may be entitled by reason of this Merger.
15. Authorization to Act. The Board of Directors and the proper officers of
the Constituent Corporations and the Board of Directors and the proper officers
of the Surviving Corporation, respectively, are hereby authorized, empowered,
and directed to do any and all acts and things, and to make, execute, deliver,
file, and/or record any and all instruments, papers, and documents which shall
be or become necessary, proper, or convenient to carry out or put into effect
any of the provisions of this Plan of Merger or of the Merger herein provided
for.
IN WITNESS WHEREOF, the corporate parties hereto, pursuant to authority
duly granted by their respective Boards of Directors, have caused this Agreement
of Merger to be executed by their respective Presidents, and to be attested to
by their
4
<PAGE>
respective Secretaries, who hereby affirm under the penalties of perjury that
they have executed this instrument as the act and deed of their respective
corporations, and that the facts herein stated are true.
Attest: Porter McLeod National Retail, Inc.
[SEAL]
_____________________________ By: _____________________________
Secretary President
Attest: Porter McLeod Holdings, Inc.
[SEAL]
_____________________________ By: _____________________________
Secretary President
Attest: Porter McLeod Colorado, Inc.
[SEAL]
_____________________________ By: _____________________________
Secretary President
Attest: Porter McLeod Management, Inc.
[SEAL]
_____________________________ By: _____________________________
Secretary President
5
<PAGE>
Certificate of the Secretary
of
Porter McLeod National Retail, Inc.
I, Michael P. Mitchell, the Secretary of Porter McLeod National Retail,
Inc., hereby certify that the Agreement of Merger to which this certificate is
attached, after having been duly signed on behalf of the corporation by the
president and secretary under the corporate seal of said corporation, was duly
approved and adopted at a meeting of the stockholders of Porter McLeod National
Retail, Inc. held on , 1996 by the holders of a majority of the
outstanding stock entitled to vote thereon.
Witness my hand and seal of said Porter McLeod National Retail, Inc. on the
day of , 1996.
[SEAL]
_____________________________
Secretary
6
<PAGE>
Annex C
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
Section 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with the provisions of subsection (d) of this Section and
who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to ss. 228 of this Chapter shall be entitled to an
appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of this Section. As
used in this Section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a non-stock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a non-stock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, 263 or 264 of this
Chapter;
(1) provided, however, that no appraisal rights under this Section shall be
available for the shares of any class or series of stock which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this Section,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof are
required by the
1
<PAGE>
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this Chapter to accept for such stock anything
except (i) shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof; (ii) shares
of stock of any other corporation or depository receipts in respect thereof,
which shares of stock or depository receipts at the effective date of the merger
or consolidation will be either listed on a national securities exchange or
designated as a market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 holders; (iii) cash in lieu of fractional shares or fractional depository
receipts described in the foregoing clauses (i) and (ii); or (iv) any
combination of the shares of stock, depository receipts and cash in lieu of
fractional shares, or fractional depository receipts described in the foregoing
clauses (i), (ii) and (iii) of this subsection.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this Chapter is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this Section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this Section, including those set forth in subsections (d) and
(e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this Section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this Section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger of consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the
2
<PAGE>
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with the provisions of this subsection
and has not voted in favor of or consented to the merger or consolidation of the
date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this Chapter, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal rights
of the effective date of the merger or consolidation and that appraisal rights
are available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this Section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or
3
<PAGE>
resulting corporation. If the petition shall be filed by the surviving or
resulting corporation, the petition shall be accompanied by such as duly
verified list. The Register in Chancery, if so ordered by the Court, shall give
notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by one or more publications at least one week before the day
of the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publications as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this Section and who have
become entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest which the surviving or resulting corporation would have had to pay
to borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation of by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this Section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this Section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of holders of shares
4
<PAGE>
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any other state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this Section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this Section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
5
<PAGE>
[LETTERHEAD OF EHRHARDT KEEFE STEINER & HOTTMAN PC]
ANNEX D
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Porter McLeod Colorado, Inc.
Lakewood, Colorado
We have audited the accompanying balance sheet of Porter McLeod Colorado, Inc.
as of December 31, 1995, and the related statements of operations and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements of Porter McLeod Colorado, Inc. as of December 31, 1994
were audited by other auditors whose report dated February 10, 1995, expressed
an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Porter McLeod Colorado, Inc.
as of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
April 3, 1996
Denver, Colorado
<PAGE>
PORTER MCLEOD COLORADO, INC.
Balance Sheets
Years Ended
December 31,
-------------------------
1995 1994
---------- ----------
Assets
Current assets
Cash and cash equivalents $ 296,893 $ 183,553
Accounts receivable, less allowance
for doubtful accounts of $10,000 in
1995 and 1994 1,428,806 445,919
Retainage receivable 131,161 92,007
Costs and estimated earnings in excess
of billings (Note 2) 118,556 153,046
Prepaid expenses and other 10,481 24,877
---------- ----------
Total current assets 1,985,897 899,402
---------- ----------
Property and equipment
Office furniture and equipment 96,555 96,555
Leasehold improvements 69,268 69,268
---------- ----------
165,823 165,823
Less accumulated depreciation (79,662) (52,040)
---------- ----------
Total property and equipment 86,161 113,783
---------- ----------
Other assets
Advances to affiliate (Note 8) 286,411 176,203
---------- ----------
Total other assets 286,411 176,203
---------- ----------
Total $2,358,469 $1,189,388
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable 1,635,505 754,354
Accrued expenses and payroll taxes -- 35,418
Income taxes payable to affiliate (Note 5) 54,620 --
Billings in excess of costs and estimated
earnings contracts (Note 2) 185,025 --
---------- ----------
Total current liabilities 1,875,150 789,772
---------- ----------
Commitments (Notes 4, 6 and 7)
Stockholders' equity
Common stock, no par value, 100,000 shares
authorized; and 1,000 shares issued and
outstanding 1,000 1,000
Retained earnings 482,319 398,616
---------- ----------
Total stockholders' equity 483,319 399,616
---------- ----------
Total $2,358,469 $1,189,388
========== ==========
See notes to financial statements
-2-
<PAGE>
PORTER MCLEOD COLORADO, INC.
Statements of Operations and Retained Earnings
Years Ended
December 31,
----------------------------
1995 1994
---------- ----------
Contract revenues (Notes 2 and 3) $9,716,440 $7,894,824
Cost of contract revenues (Note 2) 8,703,468 6,731,713
---------- ----------
Gross profit 1,012,972 1,163,111
General and administrative expenses 871,812 915,169
---------- ----------
Income from operations 141,160 247,942
---------- ----------
Other income (expense)
Interest income (1,791) (501)
Other expense (1,046) (1,846)
---------- ----------
(2,837) (2,347)
---------- ----------
Income before income taxes 138,323 245,595
Income tax expense (Note 5) 54,620 15,000
---------- ----------
Net income 83,703 230,595
Retained earnings
Beginning of period 398,616 168,021
---------- ----------
End of period $ 482,319 $ 398,616
========== ==========
See notes to financial statements.
-3-
<PAGE>
PORTER MCLEOD COLORADO, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 83,703 $ 230,595
---------- ----------
Adjustments to reconcile net loss to net cash
provided by operating activities -
Depreciation 27,622 22,421
Changes in assets and liabilities -
Receivables (1,022,041) 190,656
Cost and estimated earnings in excess
of billings on contracts 34,490 163,477
Prepaid expenses and other 14,396 (24,354)
Accounts payable 881,151 (342,739)
Billings in excess of costs and
estimated earnings on contracts 185,025 (24,079)
Income taxes payable 54,620 --
Accrued expenses (35,418) 10,146
---------- ----------
139,845 (4,472)
---------- ----------
Net cash provided by operating activities 223,548 226,123
---------- ----------
Cash flows from investing activities
Acquisition of property and equipment -- (38,026)
Proceeds from sale of investment securities -- 1,319
---------- ----------
Net cash used in investment activities -- (36,707)
---------- ----------
Cash flows from financing activities
Cash advances to affiliate, net (110,208) (44,950)
---------- ----------
Net cash used in financing activities (110,208) (44,950)
---------- ----------
Net increase in cash and cash equivalents 113,340 144,466
Cash and cash equivalents - beginning
of period 183,553 39,087
---------- ----------
Cash and cash equivalents - end of period $ 296,893 $ 183,553
========== ==========
</TABLE>
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $0 and $15,000 for 1995 and
1994, respectively.
See notes to financial statements.
-4-
<PAGE>
PORTER MCLEOD COLORADO, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
Porter McLeod Colorado, Inc. (the Company), incorporated in Colorado, is a
construction contractor. The Company, which is a wholly-owned subsidiary of
Porter-McLeod Holdings, Inc. (PMH), was founded and incorporated in April 1992.
The Company is a general contractor providing construction management services
primarily for retail interior construction by national retail firms, including
original construction and remodeling of retail stores, throughout Colorado.
Substantially all of the Company's work is performed under negotiated fixed
price contracts. The length of the Company's contracts varies but is typically
one year or less. Accordingly, the Company classifies all contract related
assets and liabilities as current.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management believes that such estimates
have been based on reasonable assumptions and that such estimates are adequate,
however, actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months of less to be cash equivalents.
Concentration of Credit Risk
The Company grants credit in the normal course of business to customers who are
primarily commercial and retail chain owners located throughout Colorado. To
reduce credit risk, the Company monitors the financial condition and performs
credit analysis prior to entering into construction contracts. Additionally, at
times, the Company maintains cash balances in excess of FDIC limits. As of
December 31, 1995, the balance in excess of the federally insured limits was
approximately $309,500.
For the year ended December 31, 1995, the Company had three customers
representing 34.3% of the sales and 27.4% of the outstanding accounts receivable
balance. For the year ended December 31, 1994, the Company had four customers
representing 56.4% of the sales and 26.2% of the outstanding accountings
receivable balance.
-5-
<PAGE>
PORTER MCLEOD COLORADO, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided principally
on the straight-line method over the estimated useful lives of the assets which
range from 5 to 15 years.
Income Taxes
The Company accounts for income taxes whereby deferred tax liabilities and
assets are determined based on the difference between the financial statement
assets and liabilities and tax basis assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Revenue and Cost Recognition
Revenues from fixed-price construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of total cost
incurred to date to estimated total costs for each contract. This method is used
because management considers cost to date to be the best available measure of
progress on these contracts.
Contract costs include all direct job costs and those indirect costs related to
contract performance, such as indirect labor, supplies, insurance, equipment
repairs and depreciation costs. General and administrative costs are charged to
expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses become known.
Changes in job performance, job conditions and estimated profitability,
including those arising from final contract settlements, may result in revisions
to costs and income. These revisions are recognized in the period in which the
changes are determined. Profit incentives are included in revenues when their
realization is reasonably assured. An amount equal to contract costs
attributable to claims is included in revenues when realization is probable and
the amount can be reliably estimates.
The asset account, "Costs and estimated earnings in excess of billings on
contracts," represents revenues recognized in excess of amounts billed. The
liability account, "Billings in excess of costs and estimated earnings on
contracts," represents billings in excess of revenues recognized.
Reclassifications
Certain accounts in the 1994 financial statements have been reclassified to
conform to the 1995 presentation.
-6-
<PAGE>
PORTER MCLEOD COLORADO, INC.
Notes to Financial Statements
Note 2 - Costs and Estimated Earnings on Uncompleted Contracts
The Company's costs and estimated earnings on uncompleted contracts consist of
the following:
December 31,
----------------------------
1995 1994
----------- -----------
Costs incurred on uncompleted contracts $ 808,450 $ 1,885,896
Estimated earnings 68,932 330,485
----------- -----------
877,382 2,216,381
Less billings to date (943,851) (2,063,335)
----------- -----------
$ (66,469) $ 153,046
=========== ===========
December 31,
----------------------------
1995 1994
----------- -----------
Included in the accompanying balance sheet under
the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 118,556 $ 153,046
Billings in excess of costs and estimated
earnings on uncompleted contracts (185,025) --
----------- -----------
$ (66,469) $ 153,046
=========== ===========
Note 3 - Backlog
The following schedule shows a reconciliation of backlog representing signed
contracts in existence:
December 31,
----------------------------
1995 1994
----------- -----------
Balance - beginning of year $ 1,914,936 $ 1,582,510
New contracts, added during year 9,016,325 8,227,250
----------- -----------
10,931,261 9,809,760
Less contracts revenue earned (9,716,440) (7,894,824)
----------- -----------
Balance - end of year $ 1,214,821 $ 1,914,936
=========== ===========
-7-
<PAGE>
PORTER MCLEOD COLORADO, INC.
Notes to Financial Statements
Note 4 - Commitments
All of the Company's assets guarantee an affiliate's SBA loan and note payable
which have a combined outstanding balance at December 31, 1995 of $616,066.
Note 5 - Income Taxes
Deferred tax liabilities and assets are determined based on the difference
between the financial statement assets and liabilities and tax basis assets and
liabilities using the enacted tax rates in effect for the year in which the
differences are expected to occur. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
The components of the provision for income tax expense for the years ended
December 31, 1995 and 1994 are as follows:
December 31,
---------------------------
1995 1994
--------- ---------
Current $ 54,620 $ 15,000
Deferred -- --
--------- ---------
$ 54,620 $ 15,000
========= =========
There are no significant differences in recognition of income for tax purposes
as that reported on the financial statements and, accordingly, there are no
deferred taxes or related asset and/or liability.
The effective tax rate on financial statement income varies from the statutory
rate of 34% due to surtax exemptions, state income taxes and permanent
differences.
The Company files a consolidated tax return with its affiliated group (the
Group). For financial statement purposes, the Group analyzes the tax liability
on an individual Company basis. For 1995, consolidated operations of the
affiliated group along with net operating loss carryforwards resulted in no
income tax payable for the affiliated group. However, as the Company had taxable
income, a payable to the Group is recorded. Approximately $20,000 of net
operating loss carryforwards were used to offset taxable income from the Group.
For federal and state income tax purposes, the Group has net operating loss
carryforwards of approximately $1,514,000, which substantially expire in fiscal
year 2008 through 2010.
-8-
<PAGE>
PORTER MCLEOD COLORADO, INC.
Notes to Financial Statements
Note 6 - Related Party Lease Commitment
The Company leases office space from an affiliated party on the month-to-month
basis. Presently, the monthly expense is $3,290, and it is management's intent
to continue to lease the office space. Rent expense for the years ended December
31, 1995 and 1994, was $39,480 and $31,750, respectively.
Note 7 - Employee Benefits
The Company has a profit sharing plan for all eligible employees which is
established under the provision of Internal Revenue Code Section 401(k). The
plan became effective January 1, 1994. The Company's contributions to the plan
are determined by the employee's elective salary reductions, but may not exceed
the maximum allowable deduction permitted under the Internal Revenue Code at the
time of the contribution. Total profit sharing expense was $3,498 and $2,558 for
the years ended December 31, 1995 and 1994, respectively.
The Company has established an employee health insurance plan under which the
Company is partially self-insured. The Company has an excess risk insurance
policy limiting the maximum liability based on the plan type and claims incurred
by each individual covered under the plan. The policy with the insurance company
covers any claims incurred by each individual covered under the plan. The policy
with the insurance company covers any claims in excess of $5,000 per individual,
per year and limits total Company claims to a maximum of a calculated amount
based upon the number of employees and the dollar value of premiums. At December
31, 1995 and 1994, the Company's maximum medical claim liability under this
stop-loss insurance policy was $3,310 and $12,764.
Note 8 - Related Party Transactions
The Company has the following receivable, payable and note payable with
affiliates:
December 31,
---------------------------
1995 1994
---------- ----------
Advances to affiliate $ 286,411 $ 176,203
========== ==========
During 1995 and 1994, the Company both received and advanced funds to affiliated
companies to fund operations.
An affiliated company provides administrative services for the Company.
Management fee expense related to these administrative services was $195,048 for
the years ended December 31, 1995 and 1994. In addition, the Company reimbursed
the affiliate for costs incurred on behalf of the Company in the amounts of
$228,750 and $91,058 for the years ended December 31, 1995 and 1994,
respectively. The total of the management fees and reimbursed expenses are
included in the general and administrative expenses on the income statement.
-9-
<PAGE>
ANNEX E
[LETTERHEAD OF EHRHARDT KEEFE STEINER & HOTTMAN PC]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Porter McLeod Management, Inc.
Lakewood, Colorado
We have audited the accompanying balance sheet of Porter McLeod Management, Inc.
as of December 31, 1995, and the related statements of operations and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of Porter McLeod Management, Inc. as of December 31, 1994,
prior to the restatement, were audited by other auditors whose report dated
February 10, 1995, expressed an unqualified opinion on those statements. We also
audited the adjustments described in Note 9 that were applied to restate the
December 31, 1994 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Porter McLeod Management,
Inc. as of December 31, 1995 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1, the Company is a wholly owned subsidiary of
Porter-McLeod Holdings, Inc. (PMH) and provides management services for other
subsidiaries of PMH also engaged in the construction industry. The Company does
not participate in any revenue generating operations and relies entirely upon
these other subsidiaries for reimbursement of their management services provided
and expenses paid.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
April 3, 1996
Denver, Colorado
<PAGE>
PORTER MCLEOD MANAGEMENT, INC.
Balance Sheets
December 31,
--------------------------
1995 1994
---- ----
(As Restated)
Assets
Current assets
Cash and cash equivalents
$ 9,098 $ 1,534
Receivable 15,787 810
Income tax receivable from affiliates (Note 2) 54,620 --
Prepaid expenses and other
25,667 10,712
----------- -----------
Total current assets 105,172 13,056
----------- -----------
Property and equipment
Office furniture and equipment 94,288 39,190
Leasehold improvements 34,634 34,634
----------- -----------
128,922 73,824
Less accumulated depreciation (34,985) (16,105)
----------- -----------
Total property and equipment 93,937 57,719
----------- -----------
Total assets $ 199,109 $ 70,775
=========== ===========
Liabilities and Stockholder's Deficit
Current liabilities
Current portion of lease payables (Note 6) $ 5,364 $ --
Current portion of long-term debt (Note 6) 197,960 134,686
Accounts payable 56,713 9,774
Accrued expenses 114,423 4,129
Deferred revenue - affiliates (Note 3) -- 32,508
----------- -----------
Total current liabilities 374,460 181,097
Long term liabilities
Payables to affiliates (Note 8) 1,056,534 819,043
Long-term debt (Note 6) 418,106 654,834
Long-term lease payable (Note 6) 24,056 --
----------- -----------
Total liabilities 1,873,156 1,654,974
Commitments (Notes 4 and 5)
Stockholder's equity
Common stock, no par value, 1,000,000
shares authorized; and 1,000 shares
issued and outstanding 1,000 1,000
Retained earnings (Note 7) (1,675,047) (1,585,199)
----------- -----------
Total stockholder's deficit (1,674,047) (1,584,199)
----------- -----------
Total liabilities and stockholder's deficit $ 199,109 $ 70,775
=========== ===========
See notes to financial statements.
-2-
<PAGE>
PORTER MCLEOD MANAGEMENT, INC.
Statements of Operations and Retained Earnings
December 31,
-----------------------------
1995 1994
---- ----
(As Restated)
Management service revenues (Note 8) $ 847,593 $ 612,803
General and administrative expenses 834,132 504,199
----------- -----------
Income from operations 13,461 108,604
----------- -----------
Other income (expense)
Interest expense (132,301) (42,138)
Other expense (25,628) (174,926)
----------- -----------
(157,929) (217,064)
----------- -----------
Loss before income taxes (144,468) (108,460)
Income tax benefit (expense) (Note 2) 54,620 (773)
----------- -----------
Net loss (89,848) (109,233)
Accumulated deficit
Beginning of period (1,585,199) (686,446)
Prior period adjustment (Note 7) -- (789,520)
----------- -----------
End of period $(1,675,047) $(1,585,199)
=========== ===========
See notes to financial statements.
-3-
<PAGE>
PORTER MCLEOD MANAGEMENT, INC.
Statements of Cash Flows
For the Years Ended
December 31,
------------------------
1995 1994
---- ----
(As Restated)
Cash flows from operating activities
Net income $ (89,848) $(109,233)
---------- ---------
Adjustments to reconcile net loss to net
cash provided by operating activities -
Depreciation and amortization 18,880 7,529
Changes in assets and liabilities -
Receivables (14,977) --
Prepaid expenses and other (14,955) 14,851
Income tax receivable from affiliates (54,620) --
Accounts payable 46,939 (11,750)
Deferred revenue (32,508) 32,508
Accrued expenses 110,294 4,129
---------- ---------
59,053 47,267
---------- ---------
Net cash (used in) operating activities (30,795) (61,966)
---------- ---------
Cash flows from investing activities
Acquisition of property and equipment (20,154) (26,242)
---------- ---------
Net cash used in investment activities (20,154) (26,242)
---------- ---------
Cash flows from financing activities
Cash advances from affiliates 237,491 85,274
Payments on long-term debt (178,978) --
---------- ---------
Net cash (used in) provided by
financing activities 58,513 85,274
---------- ---------
Net increase in cash and cash equivalents 7,564 (2,934)
Cash and cash equivalents - beginning of period 1,534 4,468
---------- ---------
Cash and cash equivalents - end of period $ 9,098 $ 1,534
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest was $72,553 (1995) and $0 (1994).
Supplemental disclosure of noncash financing and investing activities:
During 1995, the Company acquired computer equipment through a capital
lease in the amount of $34,944.
See notes to financial statements.
-4-
<PAGE>
PORTER MCLEOD MANAGEMENT, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
Porter McLeod Management, Inc. (the Company), is a wholly owned subsidiary of
Porter-McLeod Holdings, Inc. (PMH). Both the Company and PMH were formed in
March 1992. On April 1, 1992, Porter-McLeod, Inc. (PMC), a construction
contractor, went through a reorganization, whereby PMC became a wholly owned
subsidiary of PMH. The Company provides management services for other
subsidiaries of PMH also engaged in the construction industry.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management believes that such estimates
have been based on reasonable assumptions and that such estimates are adequate,
however, actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months of less to be cash equivalents.
Management Services Revenue
The Company provides administrative services to affiliated companies which
accounts for all of the Company's revenue generated on an annual basis. The
administrative services provided include management, accounting, marketing and
estimating expenses which are billed monthly, allocated evenly, to the two
affiliated companies.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided principally
on the straight-line method over the estimated useful lives of the assets which
range from 5 to 15 years.
Income Taxes
The Company accounts for income taxes whereby deferred tax liabilities and
assets are determined based on the difference between the financial statement
assets and liabilities and tax basis assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Reclassifications
Certain accounts in the 1994 financial statements have been reclassified to
conform to the 1995 presentation.
-5-
<PAGE>
PORTER MCLEOD MANAGEMENT, INC.
Notes to Financial Statements
Note 2 - Income Taxes
Deferred tax liabilities and assets are determined based on the difference
between the financial statement assets and liabilities and tax basis assets and
liabilities using the enacted tax rates in effect for the year in which the
differences are expected to occur. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
The components of the provision for income taxes expense for the years ended
December 31, 1995 and 1994 are as follows:
December 31,
------------------------
1995 1994
---- ----
Current tax benefit (expense) $54,620 $(773)
======= =====
The Company files a consolidated tax return with its affiliated group (the
Group). For financial statement purposes, the Group analyzes the tax liability
on an individual Company basis. For 1995, consolidated operations of the
affiliated group along with net operating loss carryforwards resulted in no
income tax payable for the affiliated group. However, as a member of the Group
had taxable income, an income tax receivable is recorded to the Company.
Approximately, $20,000 of net operating loss carryforwards were used to offset
taxable income from the Group.
For federal and state income tax purposes, the Group has net operating loss
carryforwards of approximately $1,514,000, which substantially expire in fiscal
years 2008 through 2010.
Note 3 - Deferred Revenue
In December 1994, the Company allocated one month of administrative services to
affiliates. Total deferred revenue related to administrative services provided
to affiliates was $32,508 for the year ended December 31, 1994. There was no
deferred revenue for the year ended December 31, 1995. Deferred revenue
represents funds received by the Company which has not yet been earned.
Note 4 - Operating Lease Commitments
The Company leases office space from an affiliated partnership on a
month-to-month basis. Presently, the monthly expense is $1,645 and its
management's intent to continue to lease the office space. Rent expense was
$19,740 and $17,520 for the years ended December 31, 1995 and 1994,
respectively. As of December 31, 1995 and 1994, the Company had prepaid
approximately $20,000 and $0, respectively, of rent to the affiliated
partnership.
-6-
<PAGE>
PORTER MCLEOD MANAGEMENT, INC.
Notes to Financial Statements
Note 4 - Operating Lease Commitments (continued)
The Company leases certain equipment under long-term operating lease agreements
expiring through December 1999. Minimum future annual rentals under the terms of
these operating leases are as follows:
Year Ending December 31,
------------------------
1996 $ 8,212
1997 8,212
1998 6,203
1999 6,203
2000 --
-------
$28,830
=======
Lease expense incurred under such agreements was $8,332 and $1,411 for the
years ended December 31, 1995 and 1994, respectively.
Note 5 - Employee Benefits
The Company has a profit sharing plan for all eligible employees which is
established under the provisions of Internal Revenue Code Section 401(k). The
plan became effective January 1, 1994. The Company's contributions to the plan
are determined by the employee's elective salary reductions, but may not exceed
the maximum allowable deduction permitted under the Internal Revenue Code at the
time of the contribution. Total profit sharing expense was $3,565 and $4,907 for
the years ended December 31, 1995 and 1994, respectively.
The Company has established an employee health insurance plan under which the
Company is partially self-insured. The Company has an excess risk insurance
policy limiting the maximum liability based on the plan type and claims incurred
by each individual covered under the plan. The policy with the insurance company
covers any claims in excess of $5,000 per individual, per year and limits total
Company claims to a maximum of a calculated amount based upon the number of
employees and the dollar value of premiums. At December 31, 1995 and 1994, the
Company's maximum medical claim liability under this stop-loss insurance policy
was $120 and $4,327, respectively.
-7-
<PAGE>
PORTER MCLEOD MANAGEMENT, INC.
Notes to Financial Statements
Note 6 - Long-Term Liabilities
Long-Term Debt
December 31,
--------------------
1995 1994
---- ----
9.75% note payable - bank, principal and interest
payable in monthly installments of $5,660 beginning
April 1996 and continuing through March 1997. $ 215,920 $ 247,500
11% note payable - bank, principal and interest payable
in monthly installments of $16,555 through February
1998. 400,146 542,020
--------- ---------
616,066 789,520
Less current portion (197,960) (134,686)
--------- ---------
$ 418,106 $ 654,834
========= =========
The stockholder's of the parent and virtually all of the Company's assets
guarantee this debt.
Required annual principal payments are $197,960 in 1996, $361,113 in 1997 and
$56,993 in 1998.
Capital Leases
The Company leases office equipment which is accounted for as a capital lease.
The following is a schedule by year of future minimum capital lease payments
together with the net present value of the minimum lease obligation as of June
30, 1995.
Year Ending December 30,
------------------------
1996 $ 9,665
1997 9,665
1998 9,665
1999 9,665
2000 807
--------
Total 39,467
Less amount representing interest (10,047)
--------
Total principal 29,420
Less current portion (5,364)
--------
$ 24,056
========
-8-
<PAGE>
PORTER MCLEOD MANAGEMENT, INC.
Notes to Financial Statements
Note 6 - Long-Term Liabilities (continued)
Capital Leases (continued)
The asset recorded under capital lease is as follows:
Office furniture and equipment $ 34,944
Less accumulated amortization (6,970)
---------
$ 27,974
=========
Note 7 - Prior Period Adjustment
On November 30, 1994, involuntary proceedings under Chapter 7 of the United
States Bankruptcy Code were commenced against Porter McLeod, Inc. (PMI), an
affiliated company. As a consequence of the commencement of such proceedings and
as the Company was listed as a guarantor, the Company assumed principal and
interest payments on PMI's debt. As it is the Company's intention to continue
making these payments and as the Company has been making these payments since
the date of the commencement of these proceedings, the Company's December 31,
1994 financial statements have been restated to show the outstanding obligation
relating to this debt as of December 31, 1994.
Note 8 - Related Party Transactions
The Company has the following receivable and payables with affiliates:
December 31,
------------------------
1995 1994
----------- ---------
Receivable from affiliate $ -- $ 810
=========== =========
Payables to affiliates $ (379,408) $ (481)
Note payable to affiliate at 7%, due in annual wr
installments of $272,854 plus interest, beginning
March 1995 and maturing March 1997; unsecured. (677,126) (818,562)
Payables to affiliates $(1,056,534) $(819,043)
============ =========
-9-
<PAGE>
PORTER MCLEOD MANAGEMENT, INC.
Notes to Financial Statements
Note 8 - Related Party Transactions (continued)
The Company provides administrative services to affiliated companies. Management
service billings related to the administrative services provided were $390,093
and $291,811 for the years ended December 31, 1995 and 1994, respectively. In
addition, the Company was reimbursed for costs paid on behalf of the affiliates
in the amount of $457,500 and $320,992 for the years ended December 31, 1995 and
1994, respectively. The management service billings and reimbursed costs are
allocated equally to the two affiliated companies. The total of the management
service billings and reimbursed expenses is included in management service
revenues on the income statement.
-10-
<PAGE>
10-KSB Annex
Item 1 Business
Overview Of Business
Porter McLeod National Retail Inc. (the "Company") was formed in March 1992
primarily for the purpose of undertaking construction projects for national
retail clients, as well as undertaking other types of construction projects,
including projects in Colorado for clients with national operations. See
"Description of Business and Properties - Corporate History".
As a full service general contractor, the Company provides general
construction, construction management, design/build, turnkey and multiple retail
store improvement and interior construction services primarily for national
retail firms. The Company selects, coordinates and manages subcontractors, and
provides oversight and supervision of the construction, for specific projects,
by working closely with the retail construction division of its retail client.
The largest portion of this work is performed in shopping malls and other
shopping centers. The Company's principal executive and administrative offices
are located at 5895 East Evans Avenue, Denver, Colorado 80222, telephone number
(303) 756-2227.
Description Of Business
During 1995, approximately 39% of the Company's projects were obtained by
competitive bidding on a fixed price basis, and approximately 61% of its
business was obtained through contracts negotiated directly with clients. By
comparison, during 1994, approximately 90% of the Company's business resulted
from competitive bidding and only approximately 10% resulted from negotiated
contracts. The sixfold expansion of business based upon negotiated contracts and
the concomitant shrinkage in competitively bid fixed price business marks a
significant change of direction regarding the Company's basic business
philosophy. Such change primarily resulted from management's conclusion that a
focused effort to secure a greater number of negotiated contracts would
translate into higher profit margins, while creating more value for its
customers, and eliminating the major risk inherent in competitively bid
projects, i.e., that the Company may invest the time and resources necessary to
submit a bid and then lose the contract to a competitor who has submitted a
lower bid. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Gross Profits."
A negotiated contract generally provides for payment based on a "cost-plus"
formula. Repeat jobs for the same client are a primary source of negotiated
contracts.
Inasmuch as the nature of the competitive bidding process requires a
contractor to be able to prepare accurate fixed bids in a timely manner, the
Company has heretofore relied on Porter-McLeod Management, Inc. ("PMM") to
perform
<PAGE>
such services for it. PMM is a wholly owned subsidiary of Porter McLeod
Holdings, Inc. ("PMH"). PMH is the holder of 48.82% of the Company's outstanding
common stock and is jointly owned by Messrs. Bruce Porter and Joseph McLeod, the
Chairman and President, respectively, of the Company. Pursuant to an
Administrative Services Agreement among the Company, PMM and Porter McLeod
Colorado, Inc. ("PMC") (the "Administrative Services Agreement"), another wholly
owned subsidiary of PMH, PMM provides to the Company as and when needed
estimators and project managers who are responsible for the preparation of bids.
See "Certain Relationships and Related Transactions - Transactions Between the
Company and Affiliated Corporations Administrative Services Agreement." In order
to bid on a project or submit a proposal, the Company assembles information from
suppliers, obtains bids from potential subcontractors, investigates code
requirements, and reviews the client's scheduling needs. The Company prepares
the cost estimate for its bid not only by drawing on cost data from other
projects, but also by utilizing the Company's self-generated data base of
subcontractors in various regional locations. This data base includes
information concerning previous bids and previous work performed on behalf of
the Company, including work performed on behalf of the Company's affiliates
prior to April 1992, by various subcontractors in that region. In addition to
information concerning specific subcontractors, the data base also provides the
estimator with information concerning pricing in a particular region. By
utilizing this data base and the specific cost information concerning a region,
the Company believes it can prepare its bids more effectively and quickly.
In addition to evaluating a potential project from the perspective of cost
and scheduling estimates, the Company also undertakes a client qualification
process to determine whether the client appears to be suitable for the Company
to undertake the particular project - primarily from a financial perspective.
This is accomplished initially through a credit check, review of available
financial statements, and oral inquiries made to management of the prospective
client. If these procedures reveal the need for additional background review,
the Company will pursue it.
After a contract or a bid has been accepted, the Company assembles a team
of subcontractors and assigns a project manager (who is provided by PMM) to the
project to supervise all aspects of the construction and completion of the work.
Subcontractors generally are based in the project's geographic area, and are
hired specifically for the project. The project manager works closely with the
construction superintendent who personally oversees the day to day construction
of a particular project. Depending upon the size of a project, a project manager
may visit the site at least once or twice during the construction period and is
in daily communication with the on-site superintendent.
During the construction period, the Company's supervisory team, consisting
of the project manager, a project coordinator, and the superintendent, works
closely
2
<PAGE>
with the client's construction management department to assure that the project
is completed to the client's satisfaction. The Company believes that a good
working relationship with the client's personnel is essential to the Company's
success and enhances its ability to obtain future business.
The Company invoices its customers at monthly or other periodic intervals
based upon the percentage of work completed, up to 90%. The final 10% of the
contract price is paid when the Company delivers to the client the "closeout"
book, including lien waivers from subcontractors, and satisfies all final
requirements. The closeout book includes as-built drawings, operating and
maintenance manuals, warranty letters from subcontractors, warranties for all
equipment installed on the project, lien waivers from all subcontractors, and
other details relating to the final completion of the project. At completion of
the project, the Company is paid for all changes to the project as originally
planned ("change orders"). In addition, the Company provides a full one-year
materials and labor warranty with each completed project.
Pursuant to the Company's arrangement with its subcontractors, the Company
is obligated to pay the subcontractors two weeks after the Company receives
payment from the client. The Company assumes no liability to the subcontractor
for payment in the event that the client fails to pay.
Industry Environment And Business Strategy
Management believes that the current industry environment complements the
Company's plan to focus on renovations and remodeling. In recent years,
renovations and remodeling have been an increasing portion of the available
business for construction companies. Although there is no assurance, management
believes that by focusing on renovations and remodeling, the Company will be at
a competitive advantage with respect to this growing portion of the construction
business for national retail clients. In addition, the Company believes that new
construction projects will be undertaken by national retail clients mainly in
the western and southwestern United States where the Company is headquartered,
and in other states where the Company has traditionally garnered construction
projects from its customer base. However, there is no assurance that a
meaningful increase in such new construction projects will take place in such
geographic regions, or that, if it does, that the Company will be able to secure
any or a material number of such projects.
After the Company completed its initial public offering in 1993, it
attempted to implement a strategy to expand its business internationally. In
connection therewith, the Company entered into a ten year agreement with an
unaffiliated consultant pursuant to which, in consideration for the consultant's
agreement to (a) locate suitable projects within and without the United States,
(b) facilitate
3
<PAGE>
communications between the Company and potential clients, (c) participate in
negotiations with such potential clients and (d) assist the Company in
formulating bids for such projects, the Company issued 85,000 shares of Common
Stock and one options to purchase 100,000 shares of Common Stock at an exercise
price of $2.20 per share.
The Company's inability to undertake any international projects during the
period of time between execution of said consulting agreement and the end of
1995, coupled with the decisions made by the Company's senior management in 1995
to concentrate its business focus on negotiated contracts within the United
States, and to concommitantly restructure its management team, resulted in the
Company's determination that it would not be able to make any material efforts
in regard to any projects outside of the United States within any reasonably
forseeable period of time. As a result of the foregoing, the Company
discontinued its planned international expansion efforts, and determined, in
accordance with Statement of Financial Accounting Standards No. 121, that its
aforementioned consulting agremeent was impaired at December 31, 1995. See
"Business - Description of Business;" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Non-Operating Loss Due to
Discontinuance of International Expansion Strategy."
Marketing And Competition
The Company obtains business primarily through recommendations from
existing customers and aggressive national marketing of its services. The
Company's primary targeted clients currently are national retailing firms that
either have, or are in the process of establishing, retail locations either near
to or directly in shopping malls and other shopping centers in numerous
locations across the nation. The Company's manager of business development (a
PMM employee) contacts retailing firms that meet this profile and attempts to
develop continuing relationships with the construction departments of retailing
firms with whom the Company desires to work in the future. The Company's vice
president of business development also attempts to strengthen relationships with
the construction departments of retailing firms with whom the Company has
conducted business in the past.
It is the Company's policy that after an initial project has been completed
for a client, the probed manager from that project will be available to the
client for any future projects. This is a good marketing tool as clients desire
to work with supervisory-level personnel who have become familiar with the
client's needs and preferences. They also appreciate that it reduces the amount
of preliminary work and planning that needs to be undertaken on future projects
and thereby shortens the time frame for completion.
4
<PAGE>
The Company believes that shopping mall owners and developers have a more
limited budget than in prior years and therefore provide fewer financial
incentives in the form of tenant improvement allowances in order to attract
prospective retailers to locate in shopping centers. As a result, the retailer
is especially concerned with keeping down the costs of interior construction.
The Company believes it is able to monitor carefully the costs of tenant finish
and remodeling construction, with few costly change orders, while ensuring that
the project is completed on schedule without delays. The Company also believes
that it is well situated to respond quickly to a client's needs because of its
experience-in a number of areas throughout the United States.
In addition to the Company's primary target of national retailing firms
with retail locations in shopping mails and shopping centers, the Company is
attempting to obtain projects for stand-alone facilities and contracts for
construction of discount retailer facilities, drug stores and commercial build
to suit projects. In order to enhance its ability to secure new business from
its existing and potential customers, the Company intends to seek permission
from its stockholders to merge PMH, PMM and PMC (who are hereinafter
collectively referred to as the "Affiliates") with and into the Company. The
Company believes that consummation of the intended transaction will provide
economies of scale and overhead reductions essential for the Company's
achievement and maintenance of profitable operations, and strengthen the
Company's financial condition, thereby enhancing its ability to obtain
sufficient funding, either through loans or equity financings, to enable it to
meet its future capital needs. See "Business - Proposed Merger of PMH, PMM and
PMC with the Company."
Corporate History
Porter McLeod National Retail Inc. was formed in March 1992 (to commence
business as of April 1, 1992) as a subsidiary of PMH to undertake construction
and remodeling business outside of Colorado, as well as work in Colorado for
clients with national operations. In August 1992 The Company changed its state
of incorporation from Colorado to Delaware. Also formed in March 1992 (to
commence business as of April 1, 1992) as subsidiaries of PMH were PMC, to
undertake construction and remodeling in Colorado primarily for commercial
office buildings and also for some retail clients who are not involved in more
than one geographic area; and PMM, to provide administrative services for PMH
and its subsidiaries. See "Certain Relationships and Related Party
Transactions".
Another subsidiary of PMH, Porter-McLeod, Inc. ("PMI"), was formed in 1985,
with its office in Denver, Colorado, for the purpose of providing general
contracting services, including commercial and retail interior construction and
base buildings, for both corporate and retail clients. PMI opened regional
offices in Los Angeles, California, and in Sacramento, California. After having
opened these two
5
<PAGE>
additional offices, PMI operated its business through four divisions: PMNC,
which operated national retail business through the Denver office; PM Denver,
which operated the commercial office space construction business through the
Denver office; PMSC, which operated all construction business through the Los
Angeles office; and PMNC, which operated all construction business through the
Sacramento office. In March 1992, PMI was reorganized and became a subsidiary of
PMH, together with PMH's three other subsidiaries. PMI and its subsidiaries,
PMN, Inc., PM Denver, Inc., PMSC, Inc., and PMNC, Inc., began phasing out their
operations and have not become involved in any new construction projects. In
November 1994, involuntary proceedings under Chapter 7 of the Bankruptcy Code
were commenced against PMI and its subsidiaries. As of March 31, 1996, such
proceedings are pending in the United States Bankruptcy Court for the District
of Colorado. See "Legal Proceedings."
Proposed Merger of PMH, PMM and PMC with the Company
The Company intends to hold its 1996 annual meeting of stockholders on or
about June 17, 1996. At such meeting, the stockholders will be asked to approve,
among other things, a proposal to merge the Affiliates with and into the
Company. The stockholders of PMH, and the boards of directors of the
constituents to the proposed merger have authorized the consummation of the
merger, subject to the Company's receipt of approvals from its stockholders to
(a) to ratify certain transactions pursuant to which the Company advanced an
aggregate of $770,123 to PMI (the "Advances"); (b) to authorize the Company to
assume a bank indebtedness of PMI in the amount of $616,066 (the "Bank Debt");
(c) to authorize the Company to accept, in satisfaction of such indebtedness and
in consideration of such debt assumption, shares of the common stock of PMC
having a fair market value of $1,386,189; and (d) approve the merger.
The Company issued the Advances to PMM in order to provide it with
sufficient capital to meet its operating expenses as well as to enable it to
satisfy certain debt obligations. The Company made the Advances based upon the
belief that by enabling PMM to continue its business operations, the economic
benefits which the Company derived from the services provided to it by PMM would
be protected. The Bank Debt will become the Company's obligation by operation of
law upon consummation of the merger.
The Company believes that maintaining the operations of PMH and its
subsidiaries is unwieldy, has created duplication of expenses and, as such, is
not cost efficient. The Company further believes that a consolidation would
provide economies of scale and the overhead reductions essential for the
Company's achievement and maintenance of profitable operations, and that
elimination of the Advances which would result from the consolidation, would
provide the Company with a stronger balance sheet, thereby enhancing its ability
to obtain sufficient
6
<PAGE>
funding, either through loans or equity financings, to enable it to meet its
future capital needs.
Government Regulation
The Company's business is subject to a variety of governmental regulations
and licensing requirements relating to construction activities. Prior to
commencing work on a project, the Company is required to obtain building permits
and, in some jurisdictions, a general contractor license is required by the
state or local licensing authorities. in addition, construction projects are
required to meet federal, state and local code requirements relating to
construction, building, fire and safety codes. In order to complete a project
and obtain a certificate of occupancy, the Company is required to obtain the
approval of local authorities confirming compliance with these requirements.
Reliance On Major Customers
During the year ended December 31, 1995, the Company had four customers
that accounted for approximately 33%, 18%, 12% and 12%, respectively, of the
Company's revenues, and no other customer that accounted for more than 5% of the
Company's revenues. Although the loss of any of these customers could have at
least a short-term adverse effect on the Company, management believes that the
nature of its business and of its customer relationships makes it unlikely that
there is a significant probability of loss of a significant customer for which
the Company would not be able to obtain compensating business from other sources
within a reasonable period thereafter. There is no particular developer, leasing
agent or other person or entity with whom the Company's business has been
concentrated.
Employees
During 1995, the Company had one salaried executive (whose employment
ceased in April 1995) and no other salaried employees. Each of the other
executives of the Company received his compensation from PMC and/or PMM. See
"Executive Compensation." As and when the Company needs project managers,
superintendents, financial, marketing, project estimating, project management
and/or administrative services personnel, either on a full or part time basis,
PMM provides such personnel to the Company from PMM's pool of 55 employees, and
the costs associated therewith are paid for by the Company pursuant to the
Administrative Services Agreement. See "Certain Relationships and Related
Transactions - Administrative Services Agreement." The Company also relies on
local subcontractors as well as a base of traveling subcontractors for the eight
to ten subcontractors required on each project. The subcontractors act as
independent contractors and are not employees of the Company.
7
<PAGE>
In the event that the proposed merger of the Affiliates with the Company is
approved, the Company will thereupon have four salaried executives and 51 full
time employees.
Each of the Company's officers serves at the pleasure of the Company's
Board of Directors. There are no family relationships among the Company's
officers and directors.
Item 2 Properties
The Company occupies, together with PMM and PMC, approximately 7,065 square
feet of office space and 6,000 square feet of warehouse space at 5895 East Evans
Avenue, Denver, Colorado. The building is owned by a general partnership, the
only two general partners of which are Messrs. Porter and McLeod. The Company is
sublets the space it occupies at the premises from PMM on a month-to-month
basis. See "Certain Relationships and Related Transactions."
Item 3. Legal Proceedings
The Company is involved in the following legal proceedings
Fetzers' Inc. a Utah corporation vs. Porter McLeod National Retail Inc. a
Colorado corporation. Porter McLeod Inn a Colorado corporation. and First
Assurance & Casualty, an action pending in the United States District Court of
Utah, Central Division (Civil No. 93-C-366S). Plaintiff, a licensed contractor,
entered into a subcontract with PMI to act as PMI's subcontractor in connection
with the construction of a store. First Assurance & Casualty provided a payment
bond in connection with the project. Plaintiff seeks the sum of $117,004.87,
together with interest, attorneys' fees, and court costs against PMI, The
Company, and First Assurance. The basis of Fetzers' claim against The Company is
that PMI changed its name to Porter McLeod National Retail Inc. In a Motion To
Dismiss And Alternative Motion For Summary Judgment dated May 17, 1993, The
Company alleged that PMI and the Company are separate entities, that plaintiff
entered into a contract with PMI, not the Company, and therefore that the
Company is not liable to plaintiff for any amount. The Company's Motion To
Dismiss And Alternative Motion For Summary Judgment was denied in October 1993
because there is a factual dispute concerning whether PMI changed its name to
Porter McLeod National Retail Inc. The proceeding currently is stayed due to
bankruptcy proceedings of PMI. Management believes this case will not result in
any liability to the Company.
Item 5. Market for Common Equity and Related Stockholder Matters
8
<PAGE>
(a) Market Information. The Company's Common Stock and Common Stock
Purchase Warrants are listed on the Nasdaq SmallCap Market under the respective
symbols of PMNR and PMNRW. The ranges of high and low bid quotations for the
Common Stock and Warrants during each quarterly period of 1995, is as follows:
Common Stock Warrants
----------------- ----------------
Quarter Ended High Low High Low
- - - ------------- ---- --- ---- ---
March 31, 1995 $12.12 $ 2.12 $ 8.50 $ .75
June 30, 1995 3.50 1.25 .12 .12
September 30, 1995 2.30 .75 .12 .06
December 31, 1995 1.69 .42 .03 .03
On April 2, 1996, the last reported respective bid price was $1.00 per
share for the Common Stock.
The above quotations reflect inter-dealer prices, without retail mark-up,
retail markdown or commission, and may not represent actual transactions.
(b) Holders. As of April 5, 1996, there were approximately 33 record
holders of the Company's Common Stock.
(c) Dividends. The Company has not paid any cash dividends since its
inception. The Company anticipates that all earnings will be retained for
development of the Company's business and that no dividends on the Company's
Common Stock will be declared in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1995 Compared with 1994
Results of Operations
Contract Income - The Company experienced a 48% decrease in contract income from
$9,873,116 during 1994 to $5,167,422 during 1995. Such decrease was due to lower
than usual activity during the year, and a concentrated effort to integrate and
train new management personnel, and implement new management systems in an
effort to generate higher gross margins in the future. In addition, a key
client, which generated approximately four million dollars in contract income in
1994, merged with another major retailer with which the Company did not have a
current relationship. Despite the decrease in volume, the Company experienced an
increase
9
<PAGE>
in gross margin dollars and percentage, primarily as a result of bidding more
selectively for projects.
Contract Costs - Due primarily to the efforts undertaken by the Company's new
management team commencing in or about February 1995, better client selection
and improved management systems implemented for the purpose of reducing costs,
contract costs, stated as a percentage of contract income, decreased from 97%
during 1994 to 88% during 1995.
Gross Profit - As a direct consequence of the above-described cost reduction
efforts and the higher profit margins of the contract work that the Company
performed in 1995 when compared to its 1994 contract work (11.8% versus 3.0%,
respectively), the Company's gross profit increased by approximately 103% from
$298,770 for 1994 to $607,691 during 1995. However, in an effort to improve the
Company's profitability, the new management team decided it was in the best
interest of the Company to reduce revenues in order to facilitate the transition
from the prior management team and focus on implementing systems to increase the
profitability of each project. Eight contracts were in progress at December 31,
1994 versus two at December 31, 1995. Four of those eight contracts negatively
impacted earnings during 1995. The average revenue per project increased from
$229,607 for the year ended December 31, 1994, compared to $494,368 during 1995.
The Company anticipates that its gross profit margin percentages will continue
to grow in the future. However, no assurance can be given in that regard.
General and Administrative Expenses - The Company's general and administrative
expenses are generally fixed in nature, as evidenced by the minimal ($2,642)
increase therein which was due primarily to replacement costs associated with
the above-mentioned transition to the Company's new management team.
Other Income and Expense - Primarily as a result of the decrease in interest
income, other income decreased from $28,219 during 1994 to $12,788 in 1995.
Loss Due to Discontinuance of International Expansion Strategy - The
above-mentioned increase in gross profit margin, coupled with the Company's
ability to keep general and administrative expenses at a relatively fixed level
between 1994 and 1995, resulted in a significant improvement in its operational
results from a loss of $722,636 in 1994 to a loss of $533,219 in 1995. As a
result of the Company's determination to discontinue its prior strategy to
expand its operations to encompass international projects (see "Business -
Industry Environment And Business Strategy"), the Company has incurred a one
time charge to its accumulated deficit, pursuant to Statement of Financial
Accounting Standards No. 121, of $1,109,766 with respect to its declared
impairment of an international consulting services agreement which it had
entered into with an unaffiliated party in 1994.
10
<PAGE>
Amortization expense with respect to said agreement amounted to $147,969 and
$221,953 during 1994 and 1995, respectively.
Liquidity and Capital Resources
Although the Company's current ratio substantially improved (1.48 at December
31, 1994 versus 2.58 at December 31, 1995), the Company's current assets
decreased 62% to $1,139,755 during 1995 which resulted in a 30% decrease (to
$688,617) in working capital during such period. Such reduction in working
capital was primarily due to the reduction of contract activity for 1995 when
compared to 1994.
Cash and Cash Equivalents The improvement in operations signalled by the
substantial increases in gross margins and gross profits, and the significant
decreases in contract costs and operating losses, resulted in 50% increase in
cash and cash equivalents from $236,583 at December 31, 1994 to $354,050 at
December 31, 1995.
Net Cash Used in Operating Activities - During 1995, net cash used in operating
activities decreased by 83% to $150,323, as compared to $888,207 of net cash
used in operating activities during the previous year. Such decrease resulted
primarily from the collection of contract receivables and payment of operating
liabilities.
Net Cash Used in Investing Activities - During 1995, the Company's major source
of cash provided from investing activities related to the $360,779 proceeds from
the sale of investment securities.
Net Cash Used in Financing Activities - During 1995, the major use of cash for
financing activities was advances made to PMM and PMC, both of which are wholly
owned subsidiaries of PMH, the Company's majority shareholder. During 1994, the
Company's major source of cash from finance activities related to proceeds from
the issuance of common stock.
As the following table shows, the Company's investment of capital resources in
contract activities decreased due to fewer contracts (see Contract Income) in
addition to improved operations, billing and collection systems.
11
<PAGE>
December 31, December 31,
1995 1994
----------- -----------
Accounts receivable - net $ 609,762 $ 1,145,852
Cost and estimated earnings in excess of
billings on uncompleted contracts 96,625 904,177
Retainage receivable 13,086 369,205
Billings in excess of costs and estimated
earnings on uncompleted contracts -- (4,245)
----------- -----------
Total investment in contracts $ 719,473 $ 2,414,989
=========== ===========
Accounts receivable affiliates - The Company has advanced a total of $770,123 to
its affiliate, PMM, which provides key administrative services including
management, bidding, data processing, accounting, marketing and cash management
services. Management believes this relationship to be economically beneficial to
the Company through reduced overall administrative cost. PMM does not make any
profit with regard to such activities. The Company made such advances to protect
the economic benefits and preserve the above-mentioned business benefits which
the Company derives from its dealings with its affiliate. PMM's obligation to
repay approximately $605,000 of such advanced funds, plus interest thereon
computed at the rate of seven percent per annum, is evidenced by a promissory
note providing for payment of said obligation in three annual installments of
$201,976, plus accrued interest, commencing on March 31, 1995 and continuing
yearly thereafter through 1997. Payment of such indebtedness was guaranteed by
PMC, PMH, and by Messrs. Bruce Porter and Joseph McLeod, both of whom are
officers and directors of the Company, and the sole shareholders of PMH. PMM
failed to pay the first two of such installments, and the default created
thereby remains in effect through March 31, 1996. Based upon a plan which
management began to formulate prior to the time when such installment became
due, the Company expects to collect the full amount of such indebtedness through
a merger of the Affiliates with and into the Company. Management presently
anticipates that the Company's shareholders will be asked to consider and grant
approval of such transaction at the annual meeting of stockholders which is
scheduled to take place on or about June 17, 1996. See "Certain Transactions and
Related Transactions - Proposed Compensation to the Company With Respect to the
Advances and the Aurora Loans."
Item 7. Financial Statements
The Consolidated Financial Statements that constitute Item 7 are attached
at the end of this report.
12
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company engaged the services of Ehrhardt Keefe Steiner & Hottman PC
("EKS&H") as its independent accountants with effect on November 30, 1995 (the
"Effective Date"). By reason of such new engagement, the services of Lehman,
Butterwick & Company, P.C. ("Lehman"), as auditor of the Company's financial
statements was terminated as of the Effective Date.
This change of certifying accountants was implemented solely as a result of
the Company's determination that its accounting needs, and the concomitant need
for implementation of faster and more sophisticated accounting systems and
services utilized by businesses involved in the construction industry warranted
its engagement of EKS&H, an accounting firm which possesses the resources and
facilities to satisfy those needs.
Neither of Lehman's reports on the Company's financial statements for
either of the Company's past two accounting years contained an adverse opinion
or disclaimer of opinion, or was modified as to uncertainty, audit scope or
accounting principles.
The decision to change certifying accountants was unanimously approved by
the Company's Board of Directors.
There were no disagreements, at any time during the Company's past two
fiscal years, or any later interim period, between the Company and Lehman,
whether resolved or not resolved, on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Porter McLeod National Retail, Inc.
Lakewood, Colorado
We have audited the accompanying balance sheet of Porter McLeod National Retail,
Inc. as of December 31, 1995, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Porter McLeod National Retail, Inc. as of
December 31, 1994 were audited by other auditors whose report dated February 10,
1995, expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Porter McLeod National
Retail, Inc. as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
March 27, 1996
Denver, Colorado
<PAGE>
PORTER MCLEOD NATIONAL RETAIL, INC.
Balance Sheets
December 31,
---------------------------
1995 1994
----------- -----------
Assets
Current assets
Cash and cash equivalents $ 354,050 $ 236,583
Investment securities available for sale,
net (Note 4) -- 348,384
Accounts receivable, less allowance for
doubtful accounts of $20,000 in 1995
and 1994 609,762 1,145,852
Retainage receivable 13,086 369,205
Costs and estimated earnings in excess
of billings (Note 2) 96,625 904,177
Prepaid expenses and other 66,232 23,411
----------- -----------
Total current assets 1,139,755 3,027,612
----------- -----------
Property and equipment
Office furniture and equipment 21,278 21,278
Leasehold improvements 34,634 34,634
----------- -----------
55,912 55,912
Less accumulated depreciation (21,655) (14,843)
----------- -----------
Total property and equipment 34,257 41,069
----------- -----------
Other assets
Note receivable from affiliate (Note 10) 677,126 677,126
Advances to affiliates (Note 10) 92,997 --
----------- -----------
Total other assets 770,123 677,126
----------- -----------
Total assets $ 1,944,135 $ 3,745,807
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 451,138 $ 1,982,895
Accrued expenses and payroll taxes -- 27,875
Billings in excess of costs and
estimated earnings contracts -- 4,245
Payables to affiliates (Note 10) -- 33,287
----------- -----------
Total current liabilities 451,138 2,048,302
----------- -----------
Commitments and contingencies
(Notes 6, 8 and 9)
Stockholders' equity
Preferred stock, $.001 par value,
100,000 authorized - no shares
issued and outstanding -- --
Common stock, $.0001 par value,
authorized - 3,000,000 shares -
issued and outstanding; 1,970,666
(1995) and 1,885,666 (1994) 197 189
Additional paid-in capital 3,931,116 3,824,249
Accumulated deficit (1,264,433) (744,002)
Unrealized holding loss (Note 4) -- (51,212)
Consulting agreement (Note 7) (64,117) --
International marketing contract (Note 7) (1,109,766) (1,331,719)
----------- -----------
Total stockholders' equity 1,492,997 1,697,505
----------- -----------
Total liabilities and stockholders'
equity $ 1,944,135 $ 3,745,807
=========== ===========
See notes to financial statements.
-2-
<PAGE>
PORTER MCLEOD NATIONAL RETAIL, INC.
Statements of Operations
Years Ended
December 31,
---------------------------
1995 1994
----------- -----------
Contract revenues $ 5,167,422 $ 9,873,116
Cost of contract revenus 4,576,593 9,574,346
----------- -----------
Gross profit 590,829 298,770
General and administrative expenses 1,124,048 1,021,406
----------- -----------
Loss from operations (533,219) (722,636)
----------- -----------
Other income (expense)
Interest income 54,531 91,268
Loss on sale of investment securities (41,743) (53,072)
Other expense -- (9,977)
----------- -----------
12,788 28,219
----------- -----------
Loss before income taxes (520,431) (694,417)
Income tax benefit (Note 5) -- 12,102
----------- -----------
Net income (loss) $ (520,431) $ (682,315)
=========== ===========
Net income (loss) per common share $ (.27) $ (.37)
=========== ===========
Weighted average number of
shares outstanding 1,923,999 1,823,999
=========== ===========
See notes to financial statements.
-3-
<PAGE>
PORTER MCLEOD NATIONAL RETAIL, INC.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Unrealized International Total
------------------- Paid-in Accumulated Holding Marketing Consulting Stockholders'
Shares Amount Capital Deficit Loss Contract Agreement Equity
---------- ------ ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1993 1,700,666 $ 170 $ 2,124,580 $ (48,305) $ -- -- -- $ 2,076,445
Distribution of
net assets due
to reorganization -- -- -- -- (13,382) -- -- (13,382)
Issuance of common
stock for marketing
services at $9.1875
per share (Note 7) 85,000 9 780,929 -- -- -- -- 780,938
Issuance of common
stock under option
agreement for marketing
services at $9.1875 per
share (Note 7) 100,000 10 918,740 -- -- -- -- 918,750
Unrealized holding
loss (Note 4) -- -- -- -- (51,212) -- -- (51,212)
International marketing
contract (Note 7) -- -- -- -- -- (1,331,719) -- (1,331,719)
Net loss -- -- -- (682,315) -- -- -- (682,315)
---------- ----- ----------- ----------- ---------- ----------- ----------- -----------
Balances at
December 31, 1994 1,885,666 189 3,824,249 (744,002) (51,212) (1,331,719) -- 1,697,505
Issuance of common stock
pursuant to consulting
agreement at 1.16 per
share (Note 7) 60,000 6 69,369 -- -- -- -- 69,375
Issuance of common stock
pursuant to consulting
agreement at 1.50 per
share (Note 7) 25,000 2 37,498 -- -- -- -- 37,500
Unrealized holding loss
(Note 4) -- -- -- -- 51,212 -- -- 51,212
Amortization of
international marketing
agreement -- -- -- -- -- 221,953 -- 221,953
Consulting agreement
(Note 7) -- -- -- -- -- -- (106,867) (106,867)
Amortization of
consulting agreement -- -- -- -- -- -- 42,750 42,750
Net income -- -- -- (520,431) -- -- -- (520,431)
---------- ----- ----------- ----------- ---------- ----------- ----------- -----------
$1,970,666 $ 197 $ 3,931,116 $(1,264,433) -- $(1,109,766) $ (64,117) $ 1,492,997
========== ===== =========== =========== ========== =========== =========== ===========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
PORTER MCLEOD NATIONAL RETAIL, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (520,431) $ (682,315)
------------ ------------
Adjustments to reconcile net loss to net cash provided by
operating activities -
Depreciation 6,812 5,687
Amortization 264,703 147,762
Loss on sale of investment securities 38,817 53,072
Operating distributions to net assets -- (27,431)
Changes in assets and liabilities -
Receivables 892,209 (839,627)
Cost and estimated earnings in excess of
billings on contracts 807,552 (719,370)
Prepaid expenses and other (42,821) (20,123)
Investment securities -- (42,073)
Accounts payable (1,531,757) 1,313,755
Payables to affiliates (33,287) (42,138)
Billings in excess of costs and estimated
earnings on contracts (4,245) (34,770)
Accrued expenses (27,875) 7,187
Income taxes payable -- (7,823)
------------ ------------
370,108 (205,892)
----------- -----------
Net cash (used in) operating activities (150,323) (888,207)
----------- -----------
Cash flows from investing activities
Acquisition of property and equipment -- (1,559)
Proceeds from sale of investment securities 360,779 400,000
----------- -----------
Net cash provided by investment activities 360,779 398,441
----------- -----------
Cash flows from financing activities
Cash advances (to) from affiliate, net (92,997) 4,227
Net proceeds from issuance of common stock 8 220,000
Non-operating distribution of net assets -- 14,049
------------ ------------
Net cash (used in) provided by
financing activities (92,989) 238,276
----------- -----------
Net increase (decrease) in cash and cash equivalents 117,467 (251,490)
Cash and cash equivalents - beginning of period 236,583 488,073
----------- -----------
Cash and cash equivalents - end of period $ 354,050 $ 236,583
=========== ===========
</TABLE>
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $0 and $8,590 for 1995 and
1994, respectively.
Supplemental disclosures of non-cash financing activities:
During 1995, the Company issued stock in the amount of $106,867 for
consulting services pursuant to a consulting agreement (Note 7).
During 1994, the Company issued stock in the amount of $1,749,688 for
consulting services pursuant to an international marketing agreement
(Note 7).
See notes to financial statements.
-5-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
PORTER McLEOD NATIONAL RETAIL INC. (PMNR) (the Company), is a majority-owned
subsidiary of PORTER McLEOD HOLDINGS, INC. (PMH). PMH owned approximately 49%
and 52% of the outstanding common stock of PMNR at December 31, 1995 and 1994,
respectively. Both PMNR and PMH were formed in March 1992. On April 1, 1992,
Porter-McLeod, Inc. (PMC), a construction contractor, went through a
reorganization, whereby PMC became a wholly-owned subsidiary of PMH.
The Company is a general contractor providing construction management services
primarily for retail interior construction by national retail firms, including
original construction and remodeling of retail stores, throughout the United
States. Substantially all of the Company's work is performed under negotiated
fixed price contracts. The length of the Company's contracts varies but is
typically one year or less. Accordingly, the Company classifies all contract
related assets and liabilities as current.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management believes that such estimates
have been based on reasonable assumptions and that such estimates are adequate,
however, actual results could differ from those estimates.
Adoption of New Accounting Rules
In 1995, the Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock Based Compensation," (FAS 123) which encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees. FAS 123 is required
for such grants, described above, to acquire goods or services form
nonemployees. Additionally, although expense recognition is not mandatory, FAS
123 requires companies that choose not to adopt the new fair value accounting
rules to disclose pro forma net income and earnings per share information using
the new method. The Company will adopt FAS 123 in the first quarter of fiscal
1996 and, does not believe the effect of the adoption will be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months of less to be cash equivalents.
-6-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Investments
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Under SFAS No. 115, management determines the appropriate
classification of securities at the time of the purchase. If management has the
intent and the Company has the ability at the time of purchase to hold
securities until maturity, they are classified as held to maturity investments
and carried at amortized historical cost. Securities to be held for indefinite
periods of time and not intended to be held to maturity are classified as
available for sale and carried at fair value.
Realized gains and losses on dispositions are based on the net proceeds and the
adjusted book value of the securities sold, using the specific identification
method. Unrealized gains and losses on investment securities available for sale
are charged to shareholder's equity, whereas realized gains and losses flow
through the Company's annual operations.
Concentration of Credit Risk
The Company grants credit in the normal course of business to customers who are
primarily commercial and retail chain owners located throughout the United
States. To reduce credit risk, the Company monitors the financial condition and
performs credit analysis prior to entering into construction contracts.
Additionally, at times, the Company maintains cash balances in excess of FDIC
limits. As of December 31, 1995, the balance in excess of the federally insured
limits was approximately $348,000.
For the year ended December 31, 1995, the Company had four customers
representing 75.0% of the sales and 86.3% of the outstanding accounts receivable
balance. For the year ended December 31, 1994, the Company's had two customers
representing 75.9% of the sales and 78.1% of the outstanding accountings
receivable balance.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided principally
on the straight-line method over the estimated useful lives of the assets which
range from 5 to 15 years.
Income Taxes
The Company accounts for income taxes whereby deferred tax liabilities and
assets are determined based on the difference between the financial statement
assets and liabilities and tax basis assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
-7-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue and Cost Recognition
Revenues from fixed-price construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of total cost
incurred to date to estimated total costs for each contract. This method is used
because management considers cost to date to be the best available measure of
progress on these contracts.
Contract costs include all direct job costs and those indirect costs related to
contract performance, such as indirect labor, supplies, insurance, equipment
repairs and depreciation costs. General and administrative costs are charged to
expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses become known.
Changes in job performance, job conditions and estimated profitability,
including those arising from final contract settlements, may result in revisions
to costs and income. These revisions are recognized in the period in which the
changes are determined. Profit incentives are included in revenues when their
realization is reasonably assured. An amount equal to contract costs
attributable to claims is included in revenues when realization is probable and
the amount can be reliably estimates.
The asset account, "Costs and estimated earnings in excess of billings on
contracts," represents revenues recognized in excess of amounts billed. The
liability account, "Billings in excess of costs and estimated earnings on
contracts," represents billings in excess of revenues recognized.
Loss Per Share
Loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the year. Common
stock equivalents are not considered in this calculation as their inclusion
would be anti-dilutive.
Reclassifications
Certain accounts in the 1994 financial statements have been reclassified to
conform to the 1995 presentation.
-8-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 2 - Costs and Estimated Earnings on Uncompleted Contracts
The Company's costs and estimated earnings on uncompleted contracts consist of
the following:
December 31,
-------------------------
1995 1994
---------- ----------
Costs incurred on uncompleted contracts $ 199,462 $5,618,782
Estimated earnings 28,020 320,622
---------- ----------
227,482 5,939,404
Less billings to date (130,857) (5,039,472)
---------- ----------
$ 96,625 $ 899,932
========== ==========
December 31,
-------------------------
1995 1994
---------- ----------
Included in the accompanying balance sheet
under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 96,625 $ 904,177
Billings in excess of costs and
estimated earnings on uncompleted
contracts - (4,245)
---------- ----------
$ 96,625 $ 899,932
========== ==========
Note 3 - Backlog
The following schedule shows a reconciliation of backlog representing
signed contracts in existence:
December 31,
-------------------------
1995 1994
---------- ----------
Balance - beginning of year $1,192,123 $1,451,747
New contracts, added during year 4,680,930 9,613,492
---------- ----------
5,873,053 11,065,239
Less contracts revenue earned (5,167,422) (9,873,116)
---------- ----------
Balance - end of year $ 705,631 $1,192,123
========== ==========
-9-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 4 - Investments
At December 31, 1994, the investment securities portfolio was comprised of
securities classified as available for sale, in conjunction with the adoption of
SFAS No. 115, resulting in investment securities available for sale being
carried at market value. The amortized cost and fair values of investment
securities at December 31, 1995 and 1994, are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
December 31, 1994
Available for sale:
Equity securities $399,596 $- $(51,212) $348,384
======== == ======== ========
Included in stockholder's equity at December 31, 1994, is $51,212 of net
unrealized losses on investment securities available for sale.
Note 5 - Income Taxes
Deferred tax liabilities and assets are determined based on the difference
between the financial statement assets and liabilities and tax basis assets and
liabilities using the enacted tax rates in effect for the year in which the
differences are expected to occur. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
The components of the provision for income tax (benefit) expense for the years
ended December 31, 1995 and 1994 are as follows:
Years Ended
December 31,
-------------------------
1995 1994
---------- ----------
Current $ - $ (12,102)
Deferred - -
---------- ----------
$ - $ (12,102)
---------- ----------
-10-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 5 - Income Taxes (continued)
The differences between the federal income tax rate and the effective income tax
rate as elected in the accompanying statements of operations are:
Years Ended
December 31,
-------------------------
1995 1994
---------- ----------
Statutory federal income tax rate (benefit) (34.0)% (34.0)%
Valuation allowance for net operating loss 34.0 32.3
---- -----
Effective tax rate (benefit) - % (1.7)%
==== =====
The deferred income tax liabilities results primarily from the recognition of
tax net operating loss carryforwards, and is composed of the following:
December 31,
-------------------------
1995 1994
---------- ----------
Total deferred current tax asset $ 190,392 $ 114,857
Total deferred tax liability - -
Valuation allowance (190,392) (114,857)
---------- ----------
$ - $ -
========== ==========
For federal and state income tax purposes, the Company has net operating loss
carryforwards of approximately $1,269,000 which substantially expire in fiscal
years 2008 through 2010. The net operating loss carryforwards generated a
deferred tax asset in the amount of $190,392 which has been fully reserved for
due to lack of profitable operating history.
Note 6 - Commitments and Contingencies
Related Party Lease
The Company leases office space from an affiliated party on the month-to-month
basis. Presently, the monthly expense is $1,645, and it is management's intent
to continue to lease the office space. Rent expense for the years ended December
31, 1995 and 1994, was $19,740 and $17,520, respectively.
-11-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 6 - Commitments and Contingencies (continued)
Litigation
There is an action pending in the United States District Court of Utah in which
the Company is named as a co-defendant. The Plaintiff, a licensed contractor,
entered into a subcontract with Porter McLeod, Inc. (PMI) to act as PMI's
subcontractor in connection with the construction of a store. The Plaintiff
seeks the sum of approximately $117,005 together with interest, attorney's fees
and court costs against PMI, the Company and another co-defendant. The basis of
the plaintiff's claim against the Company is that PMI changed it name to Porter
McLeod National Retail, Inc. The proceeding currently is stayed due to
bankruptcy proceeding of PMI. Management believes this case will not result in
any liability to the Company. No adjustment has been made to these financial
statements as a result of this uncertainty.
Note 7 - Stockholders' Equity
Warrants
Each of the 534,000 warrants issued in connection with the offering entitles the
holder to purchase one share of the Company's common stock at a price of $6.00,
through September 1996. The warrants are redeemable by the Company at any time
prior to their exercise or expiration. The redemption price is $.05 per warrant.
No warrants have been exercised or redeemed as of December 31, 1995.
International Marketing Agreement
In 1994, the Company entered into an agreement with an individual for
international marketing consulting services. The consultant's services are
intended to develop contacts, for the Company, with international organizations
seeking contractors for construction projects. The agreement extends for ten
years, and the consultants can terminate the contract once $2.4 million of
gross profit has been generated from international business. The agreement
defines gross profit as gross revenues actually received by the Company., and
management believes that this is equivalent to gross margin or revenues earned
by the Company, net of direct expenses incurred. For services to be performed,
the consultant was given 85,000 shares of common stock and options to purchase
100,000 more shares at an option price of $2.20 per share. The total amount of
stock issued for marketing services under this agreement was $1,479,688 net of
$220,000 of option proceeds. The value of the stock received under this
marketing agreement is being amortized over the cumulative gross profit
generated from the consultant's services (up to $2.4 million) or over a
ten-year accelerated amortization schedule, whichever is greater. Amortization
expense of the international marketing services for the years ended December
31, 1995 and 1994, was $221,953 and $147,969, respectively.
-12-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 7 - Stockholders' Equity (continued)
Consulting Agreement
In 1995, the Company entered into an agreement with an individual for consulting
services. The consultant's services are intended to provide ongoing operations
advice. The agreement extends for 15 months. For services to be performed, the
consultant was given a total of 85,000 shares of common stock. The cost recorded
pursuant to this consulting agreement was $106,867 which was the fair market
value of the stock issued. The cost is being amortized over the term of the
underlying agreement. Amortization expense for the year ended December 31, 1995
was $42,750.
Note 8 - Stock Option Plan
The Company adopted a stock option plan in 1993. The plan provides for the grant
of qualified incentive options to key employees and for the grant of
non-qualified options to other individuals. A maximum of 150,000 shares of
common stock in total can be issued for the two types of options combined. The
exercise price of options granted and the granting of options will not be less
than the fair market value of the common stock at the date of the grant (110%
for anyone who owns 10% or more of the Company's voting stock at the date of
grant).
The plan is administered by the Option Committee, which may provide vesting
requirements and specific expiration provisions with respect to the options
granted. The plan expires on May 6, 2006. No options have been granted under
this plan.
Note 9 - Employee Benefits
The Company has a profit sharing plan for all eligible employees which is
established under the provisions of Internal Revenue Code Section 401(k). The
plan became effective January 1, 1994. The Company's contributions to the plan
are determined by the employee's elective salary reductions, but may not exceed
the maximum allowable deduction permitted under the Internal Revenue Code at the
time of the contribution. Total profit sharing expense was $1,740 and $2,614 for
the years ended December 31, 1995 and 1994, respectively.
The Company has established an employee health insurance plan under which the
Company is partially self-insured. The Company has an excess risk insurance
policy limiting the maximum liability based on the plan type and claims incurred
by each individual covered under the plan. The policy with the insurance company
covers any claims in excess of $5,000 per individual, per year and limits total
Company claims to a maximum of the calculated amount based upon the number of
employees and the dollar value of premiums. At December 31, 1995 and 1994, the
Company's maximum medical claim liability under this stop-loss insurance policy
was $0 and $4,544, respectively.
-13-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 10 - Related Party Transaction
The Company has the following note receivable, and note payable with affiliates:
December 31,
-------------------------
1995 1994
---------- ----------
Note receivable from affiliate at 7%, due in
annual installments of $225,709 plus interest,
beginning March 1995 and maturing March 31,
1997; unsecured. $ 677,126 $ 677,126
========== ==========
Advances to affiliate, non-interest bearing due
on demand. $ 92,997 $ -
========== ==========
Payable to affiliates, repaid in 1995. $ - $ 33,287
========== ==========
During 1995 and 1994, the Company both received and advanced funds to affiliated
companies to fund operations.
An affiliated company provides administrative services for the Company.
Management fee expense related to these administrative services was $195,048 and
$195,048 for the years ended December 31, 1995 and 1994, respectively. In
addition, the Company reimbursed the affiliate for costs incurred on behalf of
the Company in the amounts of $228,750 and $91,058 for the years ended December
31, 1995 and 1994, respectively. The total of the management fees and reimbursed
expenses are included in the general and administrative expenses on the income
statement.
The following schedule summarizes the activity with affiliated companies for
1995 and 1994:
Net receivables from affiliates at December 31, 1993 $ 605,928
---------
Administrative services incurred (286,106)
Cash payments applied to administrative services incurred 286,106
Cash advances to affiliates 132,401
Cash advances received from affiliates (136,628)
Accrued interest on note receivable from affiliate 42,138
Net receivables from affiliates at December 31, 1994 643,839
---------
Administrative services incurred (423,798)
Cash payments applied to administrative services incurred 423,798
-14-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
Notes to Financial Statements
Note 10 - Related Party Transaction (continued)
Cash advances to affiliates 78,865
Accrued interest on note receivable from affiliate 47,419
---------
Net receivables from affiliates at December 31, 1995 $ 770,123
=========
The Company has advanced funds to an affiliated Company (Porter McLeod
Management (PMM) totaling $770,123 (the advance) as of December 31, 1995. The
affiliate does not have the ability to satisfy this obligation. Management and
officers of the Company have developed a plan to satisfy this obligation through
the assumption of additional indebtedness of PMM in the amount of $616,066 (the
indebtedness) as of December 31, 1995. Officers of the Company would then
satisfy the advance and the indebtedness through shares of common stock of
another affiliate, Porter McLeod Colorado, Inc. (PMC), a corporation indirectly
wholly owned by the officers and controlling shareholders of the Company. The
officers and management believe the fair market value of PMC is approximately
$1,700,000. The Company and management believe that this proposed transaction is
fair to the outside stockholders; however, the realization is dependent on many
factors including approval by the Company shareholders and obtaining a fairness
opinion stating this proposed group of transactions is fair to the outside
shareholders. No estimate can be made as to the probability of obtaining a
fairness opinion or shareholder approval. No adjustment has been made to these
financial statements as a result of this uncertainty.
-15-
<PAGE>
PORTER McLEOD NATIONAL RETAIL, INC.
This Proxy is Solicited on Behalf of the Board of Directors of Porter McLeod
National Retail, Inc.
The undersigned holder of the $.0001 par value common stock (the "Common Stock")
of Porter McLeod National Retail, Inc. (the "Company"), hereby acknowledges
receipt of the Notice of Annual Meeting of the Company and Proxy Statement
attached thereto, all relating to the Company's Annual Meeting of Stockholders
(the "Annual Meeting"), and does appoint Messrs. Bruce Porter and Joseph McLeod,
and each of them, the true and lawful attorney or attorneys of the undersigned,
with power of substitution, for and in the name of the undersigned, to vote as
proxies for the undersigned according to the number of shares of Common Stock
the undersigned would be entitled to vote if then personally present at the
Annual Meeting to be held at _____________________________ , on ___________,
____________, 1996, at 9:00 A.M., or at any adjournment or adjournments thereof,
and thereat to vote all Common Stock of the Company held by the undersigned and
entitled to be voted thereat upon the following matters:
1. To elect as Directors to serve until the Annual Meeting for the year
ending December 31, 1997, the Nominees listed below:
Bruce Porter (Chairman), Joseph McLeod and Michael P. Mitchell
FOR______all the foregoing Nominees
WITHHOLD AUTHORITY______to vote for the foregoing Nominees
NOTE: To withhold authority to vote for any individual nominee, strike a line
through that nominee's name. Unless authority to vote for all of the
foregoing nominees is withheld, this Proxy will be deemed to confer
authority to vote for every nominee whose name is not struck.
2. If Proposal 3 is adopted, to ratify the transactions pursuant to which
the Company advanced an aggregate of $770,123 to an affiliate; to authorize the
Company to assume the bank indebtedness of such affiliate in the amount of
$616,066, and to authorize the Company to accept, in satisfaction of such
indebtedness and in consideration of such debt assumption, shares of the common
stock of Porter McLeod Colorado, Inc. having a fair market value of $1,386,189.
FOR ______ AGAINST ______ ABSTAIN ______
<PAGE>
3. If Proposal 2 is adopted, to authorize the merger of Porter McLeod
Holdings Inc., Porter Mcleod Colorado, Inc. and Porter McLeod Management, Inc.
with and into the Company.
FOR ______ AGAINST ______ ABSTAIN ______
4. To increase the aggregate number of shares which the Company is
authorized to issue to 11,000,000 shares, of which 9,000,000 shares shall be
Common Stock, par value $.0001 per share, and 2,000,000 shares shall be
Preferred Stock, par value $.0001 per share.
FOR ______ AGAINST ______ ABSTAIN ______
5. To ratify the selection of Ehrhardt Keefe Steiner & Hottman, PC as the
Company's independent accountants for the fiscal year ended December 31, 1995;
and to ratify the selection of Ehrhardt Keefe Steiner & Hottman, PC as the
Company's independent accountants for the fiscal year ending December 31, 1996.
FOR ______ AGAINST ______ ABSTAIN ______
6. To transact such other business as may properly come before the meeting.
This Proxy confers authority to vote "FOR" each of propositions 1, 2, 3, 4 and 5
listed above unless otherwise indicated. If any other business is transacted at
said meeting, this proxy shall be voted in accordance with the best judgement of
the proxies. The Board of Directors recommends a vote of "FOR" for propositions
1, 4 and 5, and takes no position with respect to propositions 2 and 3. This
proxy is solicited on behalf of the Board of Directors of Porter McLeod National
Retail, Inc. and may be revoked prior to its exercise.
NOTE: Signature(s) should follow exactly the name(s) on the stock certificate.
Executor, administrator, trustee or guardian should sign as such. If
more than one trustee, all should sign. ALL JOINT OWNERS MUST SIGN.
Dated: _____________________
____________________________
Signature of Shareholder
____________________________
Signature of Shareholder
