Stephen E. Rounds
Attorney at Law
4635 East 18th Avenue
Denver, Colorado
Tel. (303) 377-6997
Fax (303) 377-0231
November 22, 1996
By EDGAR
Securities and Exchange Commission
Division of Corporation Finance
Group 6
450 5th Street NW
Washington, D.C. 20549
Re: Porter McLeod National Retail, Inc.
Amended Preliminary Proxy Statement on Schedule 14A
File No. 0-21998
Dear Sirs and Ladies:
Registrant Porter McLeod National Retail, Inc. files the amended preliminary
proxy statement relating to the election of directors, to the restructuring
of the registrant by merging affiliated private companies into the registrant,
to increasing the registrant's authorized capital, and to adopting an incentive
stock option plan. Changes in response to staff comments in the comment letter
of June 17, 1996, and other changes, are marked in the text. A separate
letter and copies of the filing keyed to the comment letter are being provided
supplementally by Federal Express to Mr. Mark Webb at Group 6.
The undersigned is new securities counsel to the registrant. Please direct
all staff inquiries and correspondence to this office, and to the registrant.
Yours sincerely,
/s/ Stephen E. Rounds
SER/ndz
EDGAR Enc.
cc: Mr. McLeod, Mr. Shilling, EKS&H
PRELIMINARY PROXY MATERIALS
____________, 1996
Dear Fellow Shareholders:
You are cordially invited to attend our Annual Meeting of
shareholders which will be held on December __,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 be greatly appreciated.
Sincerely yours,
BRUCE M. PORTER
Chairman of the Board
PORTER McLEOD NATIONAL RETAIL, INC.
5895 EAST EVANS AVENUE
DENVER, COLORADO 80222
______________
NOTICE OF ANNUAL MEETING OF shareholders
To be Held _________day, December ___, 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_______, December
__, 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 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. (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.
3. 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.
4. To consider and vote upon a proposal to adopt an
Incentive Stock Option Plan and reserve 750,000 shares of Common
Stock for issuance upon exercise of options.
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.
If Proposal 2 is approved and the Merger is consummated,
Messrs. Porter and McLeod will own in the aggregate approximately
1,401,034 shares of Common Stock (58%) of the total 2,409,534
shares of Common Stock which are estimated will be outstanding
following consummation of the Merger. The actual number of
shares to be issued to Messrs. Porter and McLeod will depend on
the market prices for shares of Common Stock, as reported on
NASDAQ, when the Merger is consummated. The preceding number of
shares does not include up to 450,000 shares of Common Stock
which may be issued in the future under an Incentive Stock Option
to be granted to Mr. McLeod if Proposal 4 is approved. Exercise
of such Incentive Stock Option will be subject to the Company's
future earnings performance. See Proposal 4.
Only holders of record of the Company's Common Stock at the
close of business on the Record Date of December __, 1996,
are entitled to notice of or to vote at this meeting and any
adjournment or adjournments thereof. Shareholders 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
December ___, 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.
PROXY STATEMENT
PORTER McLEOD NATIONAL RETAIL, INC.
5895 EAST EVANS AVENUE
DENVER, COLORADO 80222
ANNUAL MEETING OF shareholders
December __, 1996
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 shareholders of the Company to be held
____day, December ___, 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. It
is anticipated that on or about December __, 1996, this
proxy statement and the enclosed form of proxy will be mailed to
shareholders.
The outstanding voting securities of the Company on
December __1996 (the "Record Date") consisted of 1,970,666
shares of common stock, $.0001 par value (the "Common Stock").
Only shareholders 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 shareholders. The
holders of a majority of the outstanding 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 the
holders of a majority of the outstanding Common Stock,
regardless of attendance or representation at the Annual
Meeting , is necessary for the approval of Proposals 2, 3, and
4. Messrs. Bruce Porter, Joseph McLeod and Michael
Mitchell, the Company's Chairman of the Board, President and
Secretary, respectively, own directly and indirectly, in the
aggregate, 50.58% of the Company's issued and outstanding shares
of Common Stock (1). Messrs. Porter, McLeod and Mitchell have
advised the Company that they intend to vote such shares of
Common Stock in favor of Proposals 2, 3, 4, and 5, and in favor
of the election of all nominees to the Company's Board of
Directors. Accordingly, such vote will assure the approval of
Proposals 2, 3, 4, and 5 and the election of all nominees to the
Company's Board of Directors without the affirmative vote of any
other holder of shares of Common Stock.
Shareholders have the right to dissent from the Merger
proposal and to elect to have the fair value of their shares of
Common Stock paid to them in cash by not voting in favor of the
Merger, by submitting to the Company (prior to the Annual
Meeting) a written demand for appraisal of the stockholder's
shares, and by carefully following the other procedures set forth
under "Proposal 2 - Approval of Plan of Merger Among the Company,
PMH, PMM and PMC - The Merger Agreement and the Merger - Rights
of Dissenting shareholders." Pursuant to Delaware law, any
Stockholder who votes his or her shares in favor of Proposal 2
will be deemed to have waived his or her dissenters' rights. The
following is only a summary of certain procedures which must be
followed for a Stockholder to perfect his or her dissenter's
rights.
(1) Mr. Porter and Mr. McLeod are the sole stockholders and are
the co-equal owners of Porter McLeod Holdings, Inc. ("PMH"). PMH
owns in the aggregate 962,166 shares of the Company's Common
Stock. They are the beneficial owners of such shares, which
represent 48.8 % of the outstanding shares of Common Stock. Mr.
Mitchell directly owns 35,000 shares of Common Stock (1.76% of
the outstanding shares). Upon consummation of the Merger
(Proposal 2), Mr. Porter and Mr. McLeod each will own directly
approximately 700,517 shares of Common Stock, representing 29% of
the issued and outstanding shares of Common Stock of the Company.
PMH no longer would own any shares of the Company's Common Stock
(the individuals will own in the aggregate approximately 58% of
the outstanding Common Stock). See "Proposal 2--Approval of
Merger Among the Company, PMH, PMM and PMC--Terms of the Merger
Agreement; Manner and Basis of Converting PMH Shares. The
preceding pro forma share ownership numbers do not include any of
the 450,000 shares underlying the Incentive Stock Option to be
issued to Mr. McLeod if Proposal 4 is approved.
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 nominated, 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 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.
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
PMH, and served as an officer and director of the subsidiaries of
PMI and PMH. 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 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.
Mr. Porter and Mr. McLeod are the sole stockholders and are
co-equal owners of PMH, a Colorado corporation. PMH is sole
stockholder of Porter McLeod Management, Inc. ("PMM"), a Colorado
corporation, and of Porter McLeod Colorado, Inc. ("PMC"), a
Colorado corporation. PMH owns 48.8% of the outstanding Common
Stock of the Company. See "Description of the Company's Business-
- - -Corporate History" in the Company's Annual Report on Form 10-
KSB, which is incorporated herein by reference, for a discussion
of the affiliations between Mr. Porter, Mr. McLeod, the Company,
and PMI, PMH, PMM and PMC. See also "Certain Relationships and
Related Transactions" and "Security Ownership of Certain
Beneficial Owners and Management" in this Proxy Statement.
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 was 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 the PMI 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. In 1984 and 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 in 1981 and 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.
Mr. McLeod spends approximately 45% of his time on the
business of the Company, 45% to PMC business, and 10% to PMM
business. If Proposal 2 is approved at the Annual Meeting, he
will devote all his time to the business of the Company.
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. Mr.
Mitchell has not previously served as a director of the Company.
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 seven 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
$100,000. Information with respect to salary, bonus, other annual
compensation, restricted stock and options is included for the
years ended December 31, 1995, 1994 and 1993. No executive of the
Company has received a grant of restricted stock, options or
SARs, or received payments which may be categorized as "LTIP
Payouts."
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Other
Underlying Annual Restricted Securities
Principal Compen- Stock Options/
Position Year Salary($) Bonus($) sating($)(1) Awards ($) SARs
<S> <C> <C> <C> <C> <C> <C>
Joseph R.
McLeod, CEO
(2) 1995 $30,000 - $14,054 - -
Bruce Porter,
CEO (3) 1994 $32,693 - 7,500
1993 28,435 - 8,410 - -
____________
</TABLE>
(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 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
In May 1993, the Company's Board of Directors 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 Common Stock. A
maximum of 150,000 shares of Common Stock were reserved for issue
under the Plan. The Plan was adopted to
provide participants the financial incentives to contribute
to the Company's growth. In order for an option holder
to be entitled to deferral of income recognition (for Federal
income tax purposes) with respect to shares purchased under
qualified options to be issued under the Plan, the Plan must be
approved by the shareholders.
If the shareholders approve the Plan at the Annual
Meeting (see Proposal 4), the Plan will be amended to permit the
issuance of up to 750,000 shares of Common Stock under options
(qualified and non-qualified) which may be granted to employees,
and Mr. McLeod will be granted a qualified option to purchase
450,000 shares of Common Stock. Mr. McLeod's option will have a
vesting schedule dependent on the profitability of the Company.
See Proposal 4.
DIRECTORS' COMPENSATION
The Company has no standard or other arrangement pursuant to
which directors of the Company are compensated for services as a
director.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the holdings of the Common
Stock of the Company as of September 30 , 1996 by (1) each
person or entity known to the Company to be the beneficial owner
of more than 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.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned Owned
<S> <C> <C>
Porter McLeod Holdings, Inc. 962,166 48.82%
5895 East Evans Avenue
Denver, CO 80222
Directors and Executive Officers
Joseph R. McLeod 962,1661 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 962,1661 48.82%
5895 East Evans Avenue
Denver, CO 80222
All Directors 997,166 50.59%
and Executive Officers
as a Group (4 Persons)
</TABLE>
_____________
1 Mr. McLeod is President, a director and a 50% shareholder of
PMH. Mr. Porter is Chairman of the Board and a 50% shareholder of
PMH. Each of Messrs. McLeod and Porter is 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 the Aurora National Bank loans to
PMM. In the event PMM defaults under such loan obligations or,
in the event that Proposal 2 is approved and the Merger is
consummated, if the Company were to so default, Aurora National
Bank would be entitled to foreclose on its security interest in
these shares, which would result in a change in control of the
Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information is provided in connection with
Proposal 2.
General
The transactions described below arose from various
transactions and arrangements between the Company and its
affiliated companies PMH, PMC, PMM and PMI. However, as a
consequence of PMI's plan of reorganization which was effected in
early 1992, all agreements between PMI and the Company were
either terminated or the obligations of PMI were assumed by PMM,
PMC or PMH. In the event that the Merger is
approved (see Proposal 2), the relationships described
below will be discontinued upon consummation of the merger of
PMH, PMM and PMC 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 PMM,
PMH and PMC in order to establish and operate its business.
These transactions and arrangements are described below (for
information on the dates of and reasons for the transactions, see
"Transactions with Aurora National Bank" and "Advances to PMM and
PMC"). There has been no independent determination of the
fairness and reasonableness of the terms of these transactions.
However, the Company's Board of Directors (Mr. Porter
and Mr. McLeod are the sole members of the Company's Board and
are the sole members of the Board of Directors of each of PMH,
PMM and PMC) is of the view that the terms of these
transactions are fair and reasonable due to its belief,
based upon discussions with various third party vendors, that
the Company would be required to pay at least as much to third
party providers as the Company pays to PMM for rent,
equipment, services, and overhead expenses pursuant to these
arrangements and because the Board believes the
terms of the arrangements are at least as favorable to the
Company as the terms that would be available from third party
providers (for rent, equipment, services and overhead
expenses) pursuant to agreements negotiated at arms' length. Mr.
Porter and Mr. McLeod are the sole shareholders of PMH, and PMH
is the sole shareholder of PMM and PMC.
The Board of Directors of the Company
previously has 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. These
acknowledgements have been disclosed in the Company's June 1993
initial public offering prospectus and in the Company's 1993,
1004 and 1995 Annual Reports on Form 10-KSB. In an effort to
reconcile both the potential conflicts of interest and to
avoid potential usurpation 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 the 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 Board of Directors 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.
With respect to the transactions between the Company and
its affiliated corporations PMH, PMM and PMC, the Company
believes that the aggregate amounts recorded as expenses related
to those transactions are not materially different than the
aggregate amount of expenses that would have been recorded had
these transactions been entered into with third parties. The
Company believes that because of economies of scale that PMM is
able to realize by providing services to both the Company and to
other unaffiliated parties, the Company may have been paying less
to PMM for certain services that it would have cost for the
Company to provide these services for itself only. However, the
Company also realizes that it is possible that if the Company
were not to obtain these services from PMM, the Company could
realize similar economies and pay similar costs for these
services by utilizing other providers of shared or pooled
services, such as bookkeeping services, personnel management
companies, and other outside contractors.
Conflicts of Interest Agreement. The Company and PMH
and PMC have entered into a Conflicts of Interest Agreement,
by which PMH and PMC have agreed to refer any
construction business opportunities which may arise with
the Company's customers (including customers of the Company
with operations both within and outside Colorado) to the
Company.
PMM's Agreement to Provide Administrative Services to
Company. PMM provides the Company and PMC with certain
administrative 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 the use of computers. For these
services, PMM charges the Company and PMC its actual costs to
provide these services, including allocations of all overhead
items such as telephone, electricity, rent, salaries,
insurance, taxes and other items. The out-of-pocket
costs incurred and paid by PMM and charged to the Company
amounted to $286,106 and $423,793 in 1994 and 1995, respectively
inclusive of the Company's obligation to reimburse PMM for monies
paid to third parties by PMM on behalf of the Company in 1994 and
1995 in the amounts of $91,058 and $228,750 respectively.
Allocations of PMM's costs are made between PMC and the Company
each month based on the ratio of their respective revenues.
Office Lease. Until the second quarter of 1996, the
land and building containing the Company's
offices was 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, containing
7,065 square feet of office space and 6,000 square feet of
warehouse space. PMM lease d the building from
Intermountain at the rate of $6,580 per month. PMH, PMC and the
Company had agreed that the cost of the space
should be allocated 50% to PMC, 25% to PMM and 25% to the
Company, based upon the Board's judgment of usage by the
respective parties (not the actual costs incurred by each party).
PMC paid 50% of such expense because in addition to its use of
the building's office facilities, PMC used the principal portion
of the warehouse space. The rental charge to the Company was
$1,645 per month for its 25% share. The obligations of the
Company, PMC and PMM were on a month-to-month basis.
For the three fiscal years ended December 31, 1995 and in
1996 until the Company acquired the building, Intermountain's
costs of mortgage service, taxes, utilities and other expense of
owning the facility equaled the rent revenues received from the
Company and its affiliated entities.
In the second quarter of 1996, the Company acquired the
building from Intermountain at its appraised value of $600,000.
PMM and PMC now make monthly payments to the Company of $1,645
and $3,290; the Company makes payments to Mr. McLeod and Mr.
Porter on the full purchase price amortized over 15 years at an
interest rate of 10%.
Assumption by the Company of Certain PMC Contracts. In
April 1993, the Company agreed to assume all obligations
under certain contracts previously entered into by PMC with
clients with national operations. See the following paragraph
for detailed information on such contracts. PMC had originally
been formed in 1992 to service construction and remodeling
business for commercial office building projects, as well as some
regional retail business clients. The respective Boards of
the Company and PMC determined that because future construction
projects for some of the PMC 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 for such clients, the
clients would have an opportunity to become familiar with the
Company. Due to the fact that PMC's business on a going
forward basis (after April 1993) would be conducted within the
Denver metropolitan area and that the contracts assigned
concerned clients with construction projects outside of Denver,
both Boards were of the view that the assumption of such
contracts by the Company would not have a negative impact on
PMC's future earnings. At the time they were assumed, the Board
anticipated that the contracts would generate gross profits of
$143,630 and that the projects which were the subject of the
Contracts would be completed without incurring costs
overruns. Pursuant to the agreement between PMC and the
Company, the Company agreed to complete all obligations
under the contracts, effective as of the commencement date
of each respective contract, and to pay PMC a fee (the
"Fee") for each contract equal to 75% of the profit from that
contract. The Boards of both the Company and PMC determined
that the Fee was reasonable based upon the services which had
already been provided by PMC, i.e., PMC (a) had solicited and
obtained the award of the contracts in question; (b) had
completed the estimating function for the contracts; (c) had
completed subcontracting and supplier negotiations; and (d) had
retained continuing warranty responsibility for the work
performed under the contracts. The Company's Board believes that
any erosion of PMC's future earnings potential (after April 1993)
due to the Company's assumption of the subject contracts in April
1993 has already been reflected by PMC operations since such
date, and is therefore fully reflected in the PMC financial
statements which accompany this Proxy Statement.
The contracts assumed by the Company from PMC related to
construction services provided on behalf of Waste Management,
Inc., Prentiss Properties, Inc. and Teachers Insurance and
Annuity Association of America. All contracts were completed in
1993. The contracts provided for aggregate revenues of
$1,384,967, resulting in actual gross profits of $156,123; such
profits were allocated $117,092.25 to PMC and $39,030.75 to the
Company. There were no cost overruns incurred in connection with
completing the contracts. Profit was
determined by subtracting from revenues all costs and
expenses incurred in connection with each contract, including
material, labor, subcontractor and other costs, plus all costs,
including overhead, allocable to the Company and payable to
PMM under the Administrative Services Agreement (see
above).
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
$1,000,000 ("Credit Loan"). The Credit Loan is partially
guaranteed by the Small Business Administration ("SBA") and is
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 annual rate of
12.5% and is adjusted up or down quarterly by adding 2.5% to the
lowest New York prime rate as published in the Wall Street
Journal. The current rate for the quarter ending December 31,
1996 is 10.75%. 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 would be fixed at the rate in
effect at default. The Credit Loan is guaranteed by PMH, PMM,
PMC, Mr. McLeod and Mr. Porter.
On March 11, 1991 PMI entered into a Term Loan Agreement
with Aurora pursuant to which PMI borrowed an aggregate of
$252,528 ("Term Loan"; the Credit Loan and the Term Loan are
referred to together 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 requires monthly payments of
interest only charged at Aurora's current index rate; the initial
monthly rate was 9.75%. The promissory note was guaranteed by
PMM, PMC, PMH, Mr. McLeod and Mr. Porter.
Starting in April 1992, PMI did not have funds to meet
its obligations under the Aurora Loans, and such obligations were
met by PMM making the required payments as a guarantor of the
Aurora Loans (in 1992 PMM had paid $142,798 ($77,880 principal
and $64,918 interest), and $193,676 in 1993 ($107,831 principal
and $85,845 interest)). In early 1993, PMM did not have
available funds to pay its obligations under the Aurora Loans.
In order to continue operating at its office and warehouse
locations, and keep the relationship with PMM (including the
benefit of shared services provided by PMM to the Company and
third parties) , the Company advanced to PMM (starting in
early 1993) the money required for PMM to pay PMM's
obligations under the Aurora Loans. The obligation of PMM to
repay the funds made available by the Company was not
memorialized in a formal agreement and the loans are not
evidenced by promissory notes. Consequently, the funds provided
by the Company to PMM have been recorded on the Company's
financial statements as advances (See "--Advances to PMC and
PMM"). By providing the advances and enabling PMM to meet its
payment obligations with respect to the Aurora Loans, the Company
was able to maintain the relationship it had established with
Aurora, which relationship was of considerable value to the
Company's continued business operations. This relationship
included Aurora's extending letters of credit to the Company to
enhance its bonding capacity; bonding capacity is directly
related to the dollar amount of construction projects the Company
can undertake. While the Board was aware of the potential
conflict of interest resulting from the advances, it determined
that the need to maintain the Aurora relationship outweighed the
potential conflict of interest (a default by PMM under the Aurora
Loans would adversely affect the Company's ability to obtain
letters of credit for bonding purposes).
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 (as guarantors of the Aurora Loans)
assumed PMI's payment obligations (see "PMI Restructuring and
Chapter 7 Proceeding" below).
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.
Since March 31, 1996 the principal amount of the two Auroral
Loans have been reduced by $104,754 (payments have been made by
PMC); the Loans balance at September 30, 1996 was $511,312.
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. On consummation
of the Merger, the Company will assume the obligations of PMM and
PMC on the Aurora Loans. The Board believes that the Merger
will enhance the Company's ability to repay the Aurora Loans due
to anticipated reduction of operating expenses, and anticipated
profitability of the business carried on by PMC and revenues from
PMC after consummation of the Merger. The Board estimates PMC
will have a backlog of contracts in place as of December 31, 1996
totalling $1,873,000 with a gross profit margin of 10%
($187,300). See Proposal 2 --Approval of Agreement of
Merger Among the Company PMH, PMM and PMC - Terms of the
Agreement; Manner and Basis of Converting PMH Shares."
PMI Restructuring and Chapter 7 Proceeding. PMI was
formed in 1985 for the purpose of providing general contracting
services, including commercial and retail interior construction
and buildings, for both corporate and retail clients. PMI's
principal offices were located in Denver, Colorado. In 1987 and
1989 PMI opened regional offices in Los Angeles, California and
Sacramento, California, respectively. After having opened its
branch offices, PMI operated its business through four divisions;
PMN, 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. Each of these was an office of
PMI; the divisions were not separate legal entities until 1992
(see below). In November, 1991, after having incurred operating
losses (due primarily to one master project for which PMI was not
paid for its construction services), PMI closed its PMSC office
in Los Angeles. In March, 1992, PMI incorporated each of its four
divisions into the following wholly owned subsidiaries: PMN,
Inc., PM Denver, Inc., PMSC, Inc. and PMNC, Inc. In addition, in
March 1992 PMI restructured its business operations by either
terminating all agreements with the Company or causing PMI's
obligations to be assumed by PMM, PMC or PMH (see "-General"). As
a consequence of the restructuring, PMM and PMC, in their
capacities as guarantors of the Aurora Loans, assumed PMI's
payment obligations with respect to such loans (PMI ceased making
payments with respect to the Aurora Loans in April 1992, and the
payment obligations were assumed by PMM and PMC on April 1,
1992). Despite the restructuring, PMI was unable to pay its
subcontractors and as a consequence of such non-payment, the
subcontractors initiated involuntary proceedings under Chapter 7
of the United States Bankruptcy Code against PMI and its
subsidiaries.
On or about March 26, 1996, PMI's Trustee in Bankruptcy
commenced an adversary proceeding in the United States Bankruptcy
Court for the District of Colorado (Case No. 94-21830 RJB)
against the Company, PMH, PMM, PMC, Mr. Porter and Mr. McLeod,
and others, alleging that (a) in or about the early part of 1992,
the defendants formulated a plan of reorganization; (b) such plan
of reorganization included the isolation of problem contracts in
PMI and its subsidiaries, and the transfer of good contracts to
the Company, PMH and PMC, which allegedly had been formed for the
purpose of implementing such plan; and (c) through a series of
allegedly backdated documents, assets belonging to PMI and its
subsidiaries were transferred to the Company, PMC, PMM, and PMH
for de minimus or non-existent consideration. By reason of such
factual allegations, the plaintiffs are seeking (i) to recover
all of the assets of PMI which were allegedly transferred without
adequate consideration; (ii) an accounting of all the assets of
PMI and its subsidiaries which were allegedly transferred without
adequate consideration; (iii) a turnover of the proceeds derived
by the defendants from their performance of the good contracts;
(iv) subordination of the claims of the Company, PMC and PMM to
the claims of all other unsecured creditors in PMI's bankruptcy
proceedings; (v) damages against the Company, PMH, PMC, and PMM
for alleged breaches of contract in the aggregate amount of
approximately $4.7 million; (vi) unspecified damages and
exemplary damages against PMH and Mr. Porter and Mr. McLeod by
reason of their alleged breaches of fiduciary duties owed to the
plaintiffs; (vii) imposition of constructive trust upon all of
the assets of the Company, PMC, PMM, and Mr. Porter and Mr.
McLeod until all sums due and owing to the plaintiffs are paid in
full; (viii) damages in the amount of approximately $5.4 million,
plus interest, costs and attorneys fees, based upon the
above-mentioned allegedly wrongful acts purportedly undertaken by
the Company, PMC, PMM, and Mr. Porter and Mr. McLeod as part of a
civil conspiracy; and (ix) treble damages in the amount of
approximately $893,000, plus interest, costs and attorneys fees,
based upon an alleged conversion and civil theft of the proceeds
of checks which were allegedly property of the plaintiffs and
deposited into accounts maintained by PMC.
The Company (and the other defendants) filed a Motion to
Dismiss the adversary proceeding complaint filed in the
Bankruptcy Court. The Bankruptcy Court heard arguments on the
motion in September 1996; the Court neither granted or denied the
Motion to Dismiss, and took the matter under advisement. The
Company cannot predict when the Court will rule on the Motion to
Dismiss, however, even if such Motion is granted, additional
proceedings in Bankruptcy Court may be filed by the Trustee.
A companion case was simultaneously commenced by the same
plaintiff Trustee against the Company, PMH, PMCs and PMM in the
District Court for the City and County of Denver, Colorado (Case
No. 96CV 1240) which alleges that the Company, PMH, PMC, and PMM
are the successors to all the liabilities of the plaintiffs. By
reason thereof, the plaintiff seeks (i) judgment against the
defendants in the amount of the creditors' indebtedness to their
respective creditors, i.e., the aggregate amount of approximately
$4.7 million; and (ii) preliminary and permanent injunctive
relief requiring the defendants to operate only in the normal
course of business. The District Court granted the defendants'
Motion to Dismiss the Plaintiff's complaint, however, the Company
has been advised that the plaintiffs intend to appeal the
dismissal to the Colorado Court of Appeals.
The Company is confident that the true facts regarding the
corporate reorganization which took place in 1992 will firmly
establish that (a) the reorganization was undertaken for proper
purposes, and was validly and legally executed; (b) none of the
assets of the plaintiffs was improperly or illegally transferred
to any of the defendants; (c) the plaintiffs received full and
fair consideration for any assets transferred by the plaintiffs
to any of the defendants; (d) none of the defendants breached any
contractual or fiduciary obligation owed to any of the
plaintiffs; and (e) none of the defendants committed any of the
wrongful acts alleged against them by the plaintiffs. In addition
to the above-described substantive defenses, the Company believes
that many, if not all, of the claims alleged in both proceedings
have been time barred under applicable procedural rules.
Accordingly, the Company and PMM, PMC and PMH intend to
vigorously defend themselves in both proceedings .
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
their owing a total of $785,160 to the Company
($380,150 from PMC and $405,010 from PMM). The advances were
made by the Company to preserve the business benefits of the
shared services which were provided by PMM and PMC to the Company
and to enable the Company to maintain its banking relationship
with Aurora. 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.
The Company's advances to PMM enabled PMM to provide to
the Company key administrative services including management,
project bidding, data processing, accounting, marketing and cash
management services. The advances to PMM also enabled PMM to pay
$336,474 of principal and interest on the Aurora Loans in 1992
and 1993. 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, and from the Company's ability to increase
its bonding capacity through letters of credit from Aurora, would
be protected. However, based upon the total amount advanced by
the Company on PMM's behalf and upon PMM's default under the Note
and its failure to repay all or a portion of the Advances, the
overall costs incurred by the Company exceeded the anticipated
economic benefits received as a result of services performed by
PMM on the Company's behalf.
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 Proposal 2 is approved by the shareholders, PMH has
agreed to fully compensate the Company with respect to the amount
of the advances to PMC 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 the Merger, by transferring to the Company
shares of PMC's common stock having a fair market value of
$1,323,534. See "Proposal 2-- Fairness Opinion". The
remaining shares of the Company which will have been acquired by
PMH through the Merger will be issued directly to Mr. McLeod and
Mr. Porter.
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. Officers, Directors and greater than ten percent
shareholders 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:
APPROVAL OF PLAN OF MERGER AMONG THE
COMPANY, PMH, PMM AND PMC
At the Annual Meeting, shareholders 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 $376,466, and the shares of
Common Stock held by shareholders other than PMH would be
unaffected. A copy of the Merger Agreement is set forth in Annex
B to this Proxy Statement. Those shareholders who vote in
favor of Proposal 2 will be precluded from asserting dissenters'
rights. See "- Rights of Dissenting shareholders."
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 Merger
will cause the elimination of the various conflicts of interest
incurred by the members of the Board with respect to their
activities on behalf of the Company, PMH and its wholly-owned
subsidiaries. Further, the amalgamation of PMM and PMC with
the Company will, in the opinion of the Company 's Board ,
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. The Board is of the opinion
that when viewed as a whole, i.e., that the Company will receive
shares of PMC common stock valued at $1,323,534 in consideration
of its assumption of the obligations of PMM and PMC, the benefits
of the previously discussed economies of scale and overhead
reductions, the Merger will be considered to be beneficial to the
Company and in the shareholders' best interests.
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 shareholders 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 March 20, 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 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 it intends to cause such shares held by it to
be voted in favor of the Merger Agreement and the Merger.
Because both 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
shareholders with respect thereto. However, Mr. Porter and
Mr. McLeod intend to cause PMH to vote its shares in favor of
Proposal 2. Such voting is permitted under Delaware law. See
"Anti-Takeover Effect of Delaware Law and Charter Provisions"
under Proposal 3.
Terms of the Merger Agreement; Manner and Basis of Converting PMH
Shares
If approved, the Merger shall become effective on the date
the Certificate of Merger is filed by the Company with the
Secretary of State of Delaware (the "Effective Date"). Pursuant
to the Merger Agreement, the Company will be required to submit
the Certificate of Merger for filing with the Secretary of State
of Delaware on or before the fifth business day immediately
following the date of the Annual Meeting. It is anticipated that
the Effective Date will be on or about December , 1996.
Pursuant to the Merger Agreement, on the Effective Date PMH,
PMM and PMC will be merged into the Company; the Company will
continue as the surviving corporation; PMI will become a
wholly owned subsidiary of the Company; 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 ; and the separate corporate existence of
PMH, PMM and PMC will terminate. As a holding company, PMH's
sole assets consist of its ownership interest in PMC, PMM, PMI
and the Company. PMH does not have any material liabilities.
The following financial information is as of September 30, 1996:
PMM's assets of $290,907 include office furniture, leasehold
improvements and current assets. PMM has total liabilities of
$1,879,286 including $805,935 due the Company as a result of the
Advances and $517,599 as a result of the Aurora Loans. PMC's
assets of $1,852,112 consists of cash, trade receivables, other
current assets and property and equipment. PMC has total
liabilities of $1,361,813 consisting principally of accounts
payable related to construction activities. See "Certain Pro
Forma Financial Information" and "Proposal 1 - Election of
Directors - Certain Relationships and Related Transactions -
Transactions with Aurora National Bank."
The effect on a pro forma basis of the Merger will be to
consolidate four entities resulting in a decrease in the equity
of the Company's shareholders due to the elimination, through
consolidation, of the $805,935 amount due from PMM. The
accounting for this Merger will be done using the historical cost
basis of the entities. With respect to the Company's books, the
$805,935 receivable is more than satisfied with the contribution
of the PMC stock, the value of which is not reflected in the
consolidation of the entities due to the historical cost used.
From a revenue standpoint, a consolidation will have the impact
of increasing the contract income of the combined entities.
Based on historical results for the year ended December 31, 1995,
the companies' incurred net loss on a proforma basis would not
change significantly.
Pursuant to the Merger Agreement, the shares of Common Stock
held by shareholders 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 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 $188,233 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 $.85781 per share
mean between the bid and asked prices of the Common Stock during
the 10 trading day period ended September 30, 1996, each
PMH Block would consist of 219,434 shares.
PMC is a wholly owned subsidiary of PMH. The issued and
outstanding shares of PMC common stock were valued at not less
than $1,700,000 by PMC's Board of Directors, which was confirmed
by Appleby. The debt and liabilities of PMM and PMC in the
aggregate amount of $2,885,055 are those debts and liabilities
stated in the Combined Pro Forma Balance Sheet for the nine month
period ended September 30, 1996 included with this Proxy
Statement. Approximately 82% of PMC's issued and outstanding
shares of Common Stock (valued at $1,386,189) will be delivered
by PMH to the Company at closing of the Merger, to compensate the
Company for the cash advances to PMM and in consideration of the
Company's assumption of the Aurora Loans. Because Mr. Porter and
Mr. McLeod are the beneficial owners of the remaining 18% of
PMC's common stock (which 18% is valued at $376,476), as PMH's
sole shareholders, the shares of the Company's Common Stock
issuable on consummation of the Merger in exchange for the
remaining PMC shares will be issued directly to Mr. Porter and
Mr. McLeod.
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 shareholders 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
shareholders of the Company, PMH, PMM and PMC by action taken by
the boards of directors of such corporations (Messrs. Porter
and McLeod are the sole members of the Board of Directors of each
of the referenced companies). 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 shareholders 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.
Repayment of Advances to PMM and Assumption of PMM's Aurora
Loans Through the Merger. If the Merger is approved and
consummated, the $805,935 owed by PMM to the Company as of
September 30, 1996 (including interest) and the Aurora National
Bank indebtedness of PMM in the amount of $511,312 (which will
become the Company's obligation by operation of law upon
consummation of the Merger) both will be paid by PMH transferring
to the Company shares of PMC common stock valued at $1,323,534.
The approval of Proposal 2 and the consummation of the Merger
will not cause Messrs. Porter and McLeod to be relieved of their
obligations as guarantors of the Aurora Loans. However, upon
consummation of the Merger, the advances to PMM will be
extinguished and, as a consequence thereof, Messrs. Porter and
McLeod will be released from their obligations under the Note
(see "Certain Relationships and Related Transactions Between the
Company and Affiliates - Advances to PMC and PMM").
Background for Recommending the Merger. 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. In addition, Messrs. Porter and McLeod, in
their capacities as directors of the Company, determined that,
notwithstanding any benefit to be derived by PMH, PMC and PMM and
their stockholders, the consolidation was in the best interest of
the Company and its shareholders.
The Board was of the view that maintaining the operations of
PMH and its subsidiaries was unwieldy and created duplication of
expenses. 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. The Board's belief was based upon the determination
that consolidation would provide savings with respect to the
following: (a) the annual audit expense would be incurred with
respect to only one company instead of four; (b) only one income
tax return would have to be prepared instead of two; (c) only one
operating checking account would have to be maintained instead of
four; (d) only one contractor license would have to be maintained
instead of several; and (e) stationery for three of the four
companies would be eliminated. The Board determined that the
economies of scale provided by the consolidation would provide
annual savings of approximately $20,000. In addition, the Board
believed that the elimination of the advances to PMM which would
result from the consolidation would enhance the Company's value
due to its receipt of the shares of PMC common stock valued at
$1,323,534. It is the Board's belief that this additional value
will increase the Company's ability to obtain funding for future
projects, thereby increasing its potential revenue sources.
Finally, the board has determined that the current public company
disclosures about the Company and its complicated relationships
with PMH, PMC and PMM are confusing to its business customers,
its public shareholders, its banks and other.
The Board of Directors considered several alternatives to
the proposed method of repayment of the advances to PMM and the
assumption of the Aurora Loans by the Company acquiring PMH and
PMC and PMM through the Merger. Specifically, the Board
considered the following:
(a) assumption of the payment obligations with respect to
the Aurora Loans and the Note by Messrs. Porter and McLeod,
other than in their capacities as guarantors;
(b) filing for protection under the Federal Bankruptcy Laws
with respect to one or all of the Company's affiliates;
(c) allowing foreclosure by Aurora with respect to the
Aurora Loans;
(d) commencement of legal proceedings to collect the
amounts due from California customers.
The Board determined that, for the following reasons, none
of the alternatives considered were viable: (a) the Board
contacted Aurora regarding the feasibility of the assumption of
the Aurora Loans by Messrs. Porter and McLeod and was advised by
Aurora that the individuals did not possess sufficient assets to
satisfy the outstanding obligations and, as such, it would not
consent to the assumption; (b) after discussion with bankruptcy
counsel, the Board determined that filing for bankruptcy
protection would negatively impact the Company's ability to
obtain financing for future projects and, as such, this course of
action would not be appropriate; (c) the Board determined that
permitting the Aurora Loans to go into foreclosure was not viable
due to the fact that foreclosure would provide Aurora with
control over shares of the Company's common stock held by PMH
(the shares were pledged as security for the Aurora Loans), most
probably resulting in the liquidation of the Company as a means
of raising the funds necessary to repay the Aurora Loans which
was deemed not to be in the best interests of the shareholders;
and (d) the Company had previously made unsuccessful attempts to
collect the monies owed by California customers, rendering the
institution of legal proceedings impracticable.
After consideration of the alternatives listed above, 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 $1,323,534. (The fair market value of the PMC stock to be
transferred by PMH was determined by PMC's Board of Directors.
The fairness of the valuation, among other things, was confirmed
by Appleby. See "- Fairness Opinion"). Upon consummation of such
transaction, the Company will become the owner of approximately
82% of PMC's outstanding common stock.
2. PMH, PMC and PMM will 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., $376,466 ($188,233
each) if the Merger were effective as of September 30, 1996. The
shares of PMC common stock were valued at not less than
$1,700,000. Approximately 82% of the shares (valued at
$1,323,534) will be delivered by PMH to the Company to compensate
the Company for the cash advances and for the Company's
assumption of the Aurora Loans. Because Mr. Porter and Mr.
McLeod are the beneficial owners of the remaining 18% of the PMC
common stock, the shares of the Company's Common Stock issuable
on consummation of the Merger in exchange for the remaining PMC
shares will be distributed directly to Mr. Porter and Mr. McLeod.
The actual number of shares to be issued to each of Messrs.
Porter and McLeod will be determined pursuant to the formula set
forth under "Approval of Plan of Merger Among the Company, PMH,
PMM and PMC - Terms of the Merger Agreement; Manner and Basis of
Converting PMH Shares". Assuming the Merger had been effective
on September 30, 1996 and further assuming that the average mean
bid and asked price for the Company's Common Stock during the
ten-day period immediately preceding such effective date was
$.85781, Messrs. Porter and McLeod would each receive 219,434
shares of the Company's Common Stock or 9.11% each of the
Company's issued and outstanding shares of Common Stock after
taking into account the issuance of shares attributable to the
remaining interest of PMC.
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 the
passage of Proposal 2 by the Company's shareholders. However,
approval of Proposal 2 by the Company's shareholders will not
constitute a ratification by such shareholders of the cash
advances to PMM, which were authorized by the Company's Board of
Directors when the directors thereof were not "disinterested"
under Delaware law.
Fairness Opinion
The Company engaged Appleby to review, from a financial
point of views the fairness to the Company's shareholders 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, ie., 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 the
former principal 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 Company paid Appleby a fee of
$35,000 (plus reimbursement of its out-of-pocket expenses) for
its services. The Company had initially retained Coleman &
Company ("Coleman"), a New York investment banking firm, to
evaluate the fairness of the proposed transactions. However, the
individual investment banker responsible for the Company's
account left Coleman, and as a result the Company terminated its
relationship with Coleman and retained Appleby instead.
Messrs. Porter and McLeod, in their capacities as the sole
directors of 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 the Advances
and in consideration of its assumption of the Aurora Loans. As a
result of such discussions, as well as independent investigations
conducted by Appleby, Appleby 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 $1,323,534 in
consideration for the extinguishment of the Advances and
assumption of the Aurora Loans would be fair to the Company and
its shareholders; and (b) delivery by the Company to Messrs.
Porter and McLeod of shares of its Common Stock having an
aggregate value of $376,466 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 shareholders.
In April 1996, Appleby reviewed financial and operating data
of the Company, PMC and their affiliates which was provided to it
by the Company as well as information contained in documents
filed with regulatory authorities or otherwise available from
published sources and other information it deemed relevant. In
addition, Appleby discussed with management and certain of
management's professional advisors, including the Company's
auditors, issues of relevance to determining the value of the
businesses involved in the transaction. Throughout its
investigation, Appleby relied on information furnished to it, or
otherwise made available, by the Company. Appleby did not
independently verify the actual amounts of the accounts
receivable being extinguished nor the amounts of the obligations
being assumed, such amounts having been provided to it by the
Company and its accountants. The Board of Directors placed no
limitations on the scope of Appleby's investigation.
In particular, Appleby:
1. reviewed a draft of the Company's Preliminary Proxy
Statement dated May 6, 1996.
2. reviewed various Securities and Exchange Commission
filings for the Company including its Form 10-KSB for the years
ended December 31, 1994 and 1995, as well as its form 10-QSB
for the period ended September 30, 1995.
3. reviewed unaudited and audited financial statements for
PMC and PMM including projections for 1996 and other financial
information relating to performance in 1994 and 1995, as they
related to prospective performance in 1996, and analyses of
backlogs and margins, including, in particular, with respect to
PMC (a) balance sheets as of December 31, 1995 and February 29,
1996 and (b) statements of operations for the periods ending
December 31, 1995 and February 29, 1996.
4. discussed with the Company's management past and present
business, future prospects, general aspects of the Company's
financial condition and current competitive issues including the
current economic climate as it related to the segment of the
construction business in which the Company operates.
Appleby's review was based upon its understanding that the
transactions contemplated by the Merger included the transfer of
a block of shares of PMC in consideration for (a) the
extinguishment of accounts receivable obligations in the amount
of $805,935 ($770,123 advance plus accrued interest of $35,812
through September 30, 1996) owed to the Company by PMM, and (b)
the assumption by the Company of obligations in the amount of
$517,599 owed to Aurora by PMM and PMC. It was also Appleby's
understanding that the transfer would be effected in conjunction
with 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 analyses performed by Appleby in preparing its fairness
opinion included assessing the financial value of the stock of
PMC and, in particular, determining whether the block of stock to
be transferred had a value of not less than $1,323,534. In
determining the value of the shares of PMC and hence the value of
the particular block of stock to be transferred, Appleby
determined that it would be inappropriate to rely solely upon the
stated book value of such shares as expressed in accordance with
generally accepted accounting principles. This was due to
Appleby's view that in order to accurately value a company and to
determine such company's franchise value as a whole, it is
necessary to take into consideration the future earnings capacity
of the business and the nature and history of the enterprise
(whether the company is at an early stage in its development or
is relatively mature). In addition, in rendering its
determination, Appleby followed a conservative approach and
valued the obligations of PMC and PMM at their face amount.
Appleby assumed that the guarantees of Messrs. Porter and McLeod
with respect to the Note and the Aurora Loans would not be
released and that such obligations would not be satisfied for a
lesser amount as a result of a compromise between the parties or
the settlement of litigation concerning such obligations.
The valuation approach followed by Appleby attempts to
arrive at the present value of an enterprise by calculating the
periodic future cash flows generated by the business over a
particular horizon, normally five years, and then calculating a
residual value for the business, normally a multiple of the final
year's cash flow and to determine the present value of such cash
flow based upon an appropriate discount rate. In performing its
valuation analysis of PMC, Appleby projected cash flow for the
five year period commencing with fiscal 1995, then determined the
present value of such cash flow at a discount rate of 20% (due to
PMC's limited capitalized fixed assets, capital expenditures were
not factored into the analysis). Appleby determined that, in
order to achieve a $1,700,000 valuation for the PMC stock, PMC
cash flow would have to grow at a rate of 15% per annum
commencing with the 1995 base year. Appleby determined that a 15%
growth rate was achievable and in all probability would be
exceeded. This was due to its conclusion that PMC's cash flow
would grow at a greater rate than it did during 1995 due to: (i)
Mr. McLeod's return to active participation in PMC's day to day
business operations (during 1995 Mr. McLeod spent most of his
time managing the Company and facilitating the nationalization of
the Company's business operations). Appleby was of the view that
Mr. McLeod's return to active participation in PMC's business
operations in fiscal 1996 and his anticipated contribution to
PMC's management and sales would positively impact PMC's
performance on an ongoing basis); (ii) the benefits of
operational improvements completed during fiscal 1995 were
projected to positively impact PMC's earnings commencing with
fiscal 1996; and (iii) the positive impact on contract profit
margins as a result of the implementation of sophisticated bid
management software would not be realized until fiscal 1996.
In addition to the foregoing, Appleby considered the
following factors in performing its analysis: (a) the pricing of
the current bank debt and the apparent ability of PMC to fund
working capital demands reasonably through additional bank
facilities; (b) the price-to-earning ratio of certain public
construction companies; (c) reported price ranges for the equity
securities of the Company relative to the respective financial
performance of the Company and PMC; (d) the imputed franchise
value of PMC based upon its increasing niche business with repeat
customers particularly in the restaurant industry where past
performance does not accurately capture the potential for an
increasing proportion of high margin repetitive business; and (e)
the general business climate recently and future business
prospects within Colorado for the construction industry in
particular.
Further, Appleby advised the Company that it took into
consideration other factors which it believed would have a
bearing on the future performance of PMC, including securing the
future involvement of Messrs. Porter and McLeod on a favorable
basis to the Company together with the costs associated with
their overall compensation. In addition, Appleby advised the
Company that its determination of the value of the stock was not
the result of a mechanical calculation but involved numerous
assumptions with respect both to PMC's future performance as well
as the industry's performance and general business and economic
conditions particular to PMC's principal area of business,
factors which are beyond PMC's control. As such, its estimate of
the value of PMC's stock did not purport to be an appraisal or
the price at which such stock would sell at a particular time.
In rendering its opinion, Appleby did not take into
consideration the action brought by the Trustee in Bankruptcy
(See "Certain Relationships and Related Transactions -
Transactions with Aurora National Bank") due to the fact that its
opinion was issued prior to the time that the action was
instituted. However, it is the Board's belief, based in
discussions with counsel, that the action brought by the Trustee
is without merit and is time barred and, as such, would have
little or no impact on Appleby's opinion. (See "Certain
Relationships and Related Transactions - Transactions with Aurora
National Banks").
Based upon its discussions with Appleby and the conclusions
set forth in Appleby's opinion, the Company's Board of Directors
determined that it would be in the Company's best interests to go
forward with the Merger and to accept the shares of PMC's common
stock to be delivered by PMH.
Consequently, the Board of Directors determined to request
that the Company's shareholders vote to approve the Merger, which
would thereby result in the Company's acceptance of the PMC
common stock to be delivered by PMH to the Company in
extinguishment of the cash advances and the assumption of the
Aurora Loans.
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 SHAREHOLDER'S TAX
SITUATION, SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES 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.
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 "Rights of Dissenting shareholders" 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 therefore 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 ow)ed 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 Shareholders
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
shareholders 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 of the Merger Agreement. Shares voted in
favor of adoption and approval of the Merger Agreement will be
disqualified as Dissenting Shares.
Shareholders 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, 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 Shareholder'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 shareholders entitled to appraisal rights.
If no such petition is filed, appraisal rights will be lost for
all shareholders who had previously demanded appraisal of their
shares. shareholders 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 shareholders
should regard it as their obligation to take all steps necessary
to perfect their appraisal rights in the manner prescribed in
Section 262.
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 therefore 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
shareholders of the Company entitled to appraisal rights. After
determining the shareholders 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 shareholders
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 shareholders 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.
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
shareholders 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 September
30 , 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.
<TABLE>
<CAPTION>
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 SharesClass Shares Class Shares Class
<S> <C> <C> <C> <C> <C> <C>
Bruce M. Porter 30,000 50% 481,083 24.1 700,517 29.01
Joseph R. McLeod 30,000 50% 481,083 24.1 700,517 29.01
</TABLE>
(1) For certain additional information concerning the current
ownership of Common Stock. See "Security Ownership of Certain
Beneficial Owners."
(2) Based upon 1,970,666 shares of Common Stock outstanding on
the date of this Proxy Statement.
(3) Assuming that 219,434 shares of Common Stock are
issued to each of Messrs. Porter and McLeod with respect to the
PMH Blocks and that 2,409,534 shares of Common Stock will
be outstanding (inclusive of PMH Block shares) 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. In
the event either of Messrs. Porter and McLeod sells all or a
substantial portion of the shares of Common Stock which he owns,
such a sale could cause a decrease in the market price of the
Company's Common Stock.
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 September 30, 1996 and
unaudited pro forma combined statement of operations for the year
ended December 31, 1995 and the quarter ended September 30,
1996, 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 if the
proposed transaction occurred on 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 and for the quarter ended September
30, 1996 includes the results of operations of the Company,
PMH, PMC and PMM.
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 Annexes D and E, respectively.
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.
Unaudited Pro Forma Combined Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
Porter
McLeod Porter Porter Porter
National McLeod McLeod McLeod
Retail Holdings Management Colorado Combining
Inc. Inc. Inc. Inc. Eliminations Combined
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash $354,050 $ 500 $9,098 $296,893 $ 0 $660,541
Accounts receivable
from employees 0 0 15,787 0 0 15,787
Receivables from
affiliates 0 0 54,620 0 (54,620) 0
Accounts receivable,
net 622,848 0 0 1,559,967 0 2,182,815
Costs and Estimated
earnings in excess
of billings on un-
completed
contracts 96,625 0 0 118,556 0 215,181
Prepaid expenses
and other 66,232 0 25,667 10,481 0 102,380
Total current
assets 1,139,755 500 105,172 1,985,897 (54,620) 3,176,704
Property and equipment
at cost
Office furniture and
equipment 21,278 0 94,288 46,589 0 162,155
Construction equipment
and vehicles 0 0 0 49,967 0 49,967
Leasehold
improvements 34,634 0 34,634 69,267 0 138,535
55,912 0 128,922 165,823 0 350,657
Less accumulated
depreciation 21,655 0 34,985 79,662 0 136,302
Total property and
equipment 34,257 0 93,937 86,161 0 214,355
Other assets
Investment in
subsidiaries 0 3,000 0 0 (3,000) 0
Receivable from
affiliates 770,123 0 0 286,411 (1,056,534) 0
Organization costs,
net 0 0 0 0 0 0
Total other
assets 770,123 3,000 0 286,411 (1,059,534) 0
Total assets 1,944,135 3,500 199,109 2,358,469 (1,114,154) 3,391,059
Liabilities
Current liabilites
Accounts payable $451,138 $ 0 $ 56,713 $1,635,505 $ 0 $2,143,356
Accrued expenses and
payroll taxes 0 0 114,423 54,620 (54,620) 114,423
Billings in excess
of costs and
estimated earnings
on uncompleted
contracts 0 0 0 185,025 0 185,025
Notes payable -
current portion 0 0 197,960 0 0 197,960
Capital lease
obligation-
current portion 0 0 5,364 0 0 5,364
Total current
liabilities 451,138 0 374,460 1,875,150 (54,620) 2,646,128
Long-term obligations
Notes payable-net
of current
portion 0 0 418,106 0 0 418,106
Capital lease
obligation-net
of current
portion 0 0 24,056 0 0 24,056
Payable to
affiliates 0 0 1,056,534 0 (1,056,534) 0
Total long-term
obligations 0 0 1,498,696 0 (1,056,534) 442,162
Total liabilities 451,138 0 1,873,156 1,875,150 (1,111,154) 3,088,290
Stockholders' equity
(deficit)
Preferred stock 0 0 0 0 0 0
Common stock 197 3,500 1,000 1,000 (3,000) 2,697
Additional paid-in
capital 3,931,116 0 0 0 0 3,931,116
Retained earnings
(deficit) (2,374,199) 0 (1,675,047) 482,319 0 (3,566,927)
Advisory services
contract (64,117) 0 0 0 0 (64,117)
Total stock-
holders' equity
(deficit) 1,492,997 3,500 (1,674,047) 483,319 (3,000) 302,769
Total liabilities
and stockholders'
equity $1,944,135 $3,500 $199,109$2,358,469 $(1,114,154)$3,391,059
</TABLE>
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Porter Porter Porter Porter
McLeod McLeod McLeod McLeod
National Holdings Management Colorado Combining
Inc. Inc. Inc. Inc. Eliminations Combined
<S> <C> <C> <C> <C> <C> <C>
Contract
income $5,167,422 $ 0 $ 0 $9,716,440 $ 0 $14,883,862
Management
services 0 0 847,593 0 (847,593) 0
5,167,422 0 847,593 9,716,440 (847,593) 14,883,862
Contract
costs 4,576,593 0 0 8,703,468 0 13,280,061
Gross
profit 590,829 0 847,593 1,012,972 (847,593) 1,603,801
General and
administrative
expense 1,124,048 0 834,132 871,812 (847,593) 1,982,399
Interest expense
(income) (54,531) 0 132,301 1,791 0 79,561
Impairment of
marketing
agreement 1,109,766 0 0 0 0 1,109,766
Loss on sale
of investment
securities 41,743 0 0 0 0 41,743
Other expenses 0 0 25,628 1,046 0 26,674
2,221,026 0 992,061 874,649 (847,593) 3,240,143
Net income (loss)
before income
taxes (1,630,197) 0 (144,468) 138,323 0 (1,636,342)
Income taxes
benefit
(expense) 0 0 54,620 (54,620) 0 0
Net income
(loss) $(1,630,197) $ 0 $(199,088) $ 83,703 $ 0 $(1,636,342)
</TABLE>
Unaudited Pro Forma Combined Balance Sheet
September 30, 1996
<TABLE>
<CAPTION>
Porter Porter Porter Porter
McLeod McLeod McLeod McLeod
National Holdings Management Colorado Combining
Inc. Inc. Inc. Inc. Eliminations Combined
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash $ 136,715 $ 500 $ 0 $ 130,267 $ 0 $ 267,482
Accounts receivable
from employees 0 0 7,464 0 0 7,464
Accounts receivable,
net 680,771 0 0 921,816 0 1,602,587
Costs and estimated
earnings in excess
of billings on un-
completed
contracts 21,509 0 0 407,152 0 428,661
Prepaid expenses
and other 132,153 0 195,852 8,247 0 336,252
Total current
assets 971,148 500 203,316 1,467,482 0 2,642,446
Property and equipment
at cost
Building 600,000 0 0 0 0 600,000
Office furniture
and equipment 21,278 0 103,440 46,589 0 171,307
Construction equipment
and vehicles 0 0 0 50,663 0 50,663
Leasehold
improvements 34,634 0 34,634 69,268 0 138,536
655,912 0 138,074 166,520 0 960,506
Less accumulated
depreciation 29,459 0 51,293 99,580 0 180,332
Total property
and equipment 626,453 0 86,781 66,940 0 780,174
Other assets
Investment in
subsidiaries 0 3,000 0 0 (3,000) 0
Receivable from
affiliates 605,935 0 810 317,690 (1,124,435) 0
Organization costs,
net 2,704 0 0 0 0 2,704
Total other
assets 808,639 3,000 810 317,690 (1,127,435) 2,704
Total assets $2,406,240 $ 3,500 $290,907 $1,852,112$(1,127,435)$3,425,324
Liabilities
Current liabilities
Accounts payable $ 600,262 $ 0 $ 94,758 $1,260,705$ 0 $1,955,725
Accrued expenses and
payroll taxes 5,683 0 124,314 40,663 0 170,660
Billings in excess
of costs and
estimated earnings
on uncompleted
contracts 33,661 0 0 59,635 0 93,296
Notes payable-current
portion 18,649 0 212,163 0 0 230,812
Capital lease
obligation-current
portion 0 0 5,365 0 0 5,365
Total current
liabilities 658,255 0 436,600 1,361,003 0 2,455,858
Long-term liabilities
Notes payable-net
of current
portion 579,903 0 299,149 0 0 879,052
Capital lease
obligation-net of
current portion 0 0 19,912 0 0 19,912
Payable to
affiliates 0 0 1,123,625 810 (1,124,435) 0
Total long-term
obligations 579,903 0 1,442,686 810 (1,124,435) 898,964
Total liabilities 1,238,158 0 1,879,286 1,361,813 (1,124,435)3,354,822
Stockholders' equity
Preferred stock 0 0 0 0 0 0
Common stock 197 3,500 1,000 1,000 (5,330) 367
Additional paid-in
capital 3,931,115 0 0 0 2,330 3,933,445
Retained earnings
(deficit) (2,763,230) 0 (1,589,379) 489,299 0(3,863,310)
Total stockholders'
equity 1,168,082 3,500 (1,588,379) 490,299 (3,000) 70,502
Total liabilities
and stockholders'
equity $2,406,240 $3,500 $ 290,907$1,852,112$(1,127,435)$3,425,324
</TABLE>
Unaudited Pro Forma Combined Statement of Operations
For the Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Porter Porter Porter Porter
McLeod McLeod McLeod McLeod
National Holdings Management Colorado Combining
Inc. Inc. Inc. Inc. Eliminations Combined
<S> <C> <C> <C> <C> <C> <C>
Contract
income $2,812,449 $ 0 $ 0 $5,962,587 $ 0 $8,775,036
Management
services 0 0 978,978 0 978,978 0
2,812,449 0 978,978 5,962,587 978,978 8,775,036
Contract
costs 2,484,703 0 0 5,268,256 0 7,752,959
Gross
profit 327,746 0 978,978 694,331 978,978 1,022,077
General and
administrative
expense 757,106 0 815,021 703,921 (978,978) 1,297,070
Interest expense
(income) (41,527) 0 90,862 (1,052) 0 47,765
Other expenses 0 0 0 0 0 0
715,579 0 905,883 702,351 (978,978) 1,344,835
Net income (loss)
before income
taxes (387,833) 0 73,095 (8,020) 0 (322,758)
Income taxes
benefit
(expense) 1,198 0 0 (15,000) 0 (13,802)
Net income
(loss) $(389,031) $ 0 $ 73,095 $ 6,980 $ 0 $ (308,956)
</TABLE>
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 o/
Operations; Item 7 Financial Statements; and Item 8 Changes in
and Disagreements with Accountants on Accounting and Financial
Disclosure.
PMH, PMM and PMC are Colorado corporations whose principal
offices are located at 5895 East Evans Avenue, Denver, Colorado
80222. The audited financial statements of PMH, PMM and
PMC for the year ended December 31, 1995 are attached as Annex D.
PROPOSAL NO. 3:
INCREASE OF NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company is authorized to issue 3,000,000 shares of
Common Stock and 100,000 shares of preferred stock, par value
$.0001 per share ("Preferred Stock"). Under 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 1,970,666 shares of Common
Stock are issued and outstanding, no shares of Preferred Stock
are issued or outstanding, and 150,000 shares of Common
Stock have been reserved for issuance under the Company's 1993
Stock Option Plan . Accordingly, the Company may
not issue more than an additional 879,334 shares of Common
Stock and 100,000 shares of Preferred Stock, until such time
as the shareholders authorize an amendment to the Company's
certificate of incorporation to increase 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 seeking
one or more private 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 has entered into a
letter of intent to acquire all the outstanding common stock of a
private construction and remodeling company. Subject to the
Company's completing its due diligence review of the private
company's operations, financial condition and personnel, and to
the results of such review confirming to the Company the private
company's initial representations as to such matters, the Company
intends to prepare a definitive agreement for such acquisition
for approximately $2.5 million cash and 100,000 shares of Common
Stock. No officer, director, shareholder or employee of the
Company, and neither PMH, PMM or PMC, nor PMI or any of its
subsidiaries, will be issued (directly or indirectly) any of the
100,000 shares of Common Stock in the acquisition transaction.
As of the date of this Proxy Statement, the Company cannot
predict the results of the due diligence review, or, assuming the
results are positive and a definitive agreement is signed,
whether such definitive agreement would be consummated.
As a result of the foregoing, management has determined that
it would be in the Company's best interest to be in a position to
issue more shares of capital stock than it is presently
authorized to issue. Other than the one potential acquisition
discussed above, and the shares of Common Stock to be issued to
Mr. McLeod upon the exercise of the Incentive Stock Option which
will be issued to him if Proposal 4 is approved by the
shareholders, the Company does not have any specific plans for
the use of the additional authorized shares of Common Stock or
Preferred Stock. Unless accomplished during an annual
meeting of shareholders, the process of obtaining the consent of
the shareholders 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
shareholders 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 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 deem 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 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. Because PMH and Messrs.
Porter and McLeod became "interested stockholders" more than
three years ago, the transactions contemplated by Proposal
2 is 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. The Company does not presently intend to
seek such exclusion from Section 203.
Vote Required for Approval
The affirmative vote of the holders of at least a majority
of all outstanding shares of Common Stock is required for
the approval of this proposal.
The Board of Directors recommends a vote FOR such proposal.
PROPOSAL 4:
TO APPROVE THE COMPANY'S INCENTIVE STOCK OPTION PLAN,
INCREASE THE NUMBER OF OPTIONS ISSUABLE THEREUNDER,
AND IN CONNECTION
THEREWITH ISSUE A PERFORMANCE OPTION TO THE
COMPANY'S CHIEF EXECUTIVE OFFICER
The Board of Directors has approved and recommends that the
shareholders approve the
Company's 1993 Incentive Stock Option Plan. In February 1993,
the Board of Directors adopted an Incentive Stock Option Plan
(the "Plan"). Under the Plan, the Company reserved an aggregate
of 150,000 shares of Common Stock for issuance pursuant to the
exercise of options (the number of shares issuable under the Plan
is proposed to be increased to 750,000, see below). Options may
be granted to key employees of the Company, including directors
who are also employees of the Company, and to outside directors.
The Plan is administered by a committee that comprises
disinterested members of the Board of Directors (the
"Committee"). Subject to the terms of the Plan, the Committee
determines the persons to whom awards are granted, the type of
award granted, the number of shares granted, the vesting
schedule, the type of consideration to be paid to the Company
upon exercise of options, and the term of each option (not to
exceed ten years). If approved at the Annual Meeting, the Plan
term will expire in December 2006.
If the Plan is approved by the shareholders at the Annual
Meeting, the Company may grant incentive stock options
("incentive stock options") intended to qualify under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
Incentive stock options must be granted at an exercise price
equal to or greater than the fair market value of the Common
Stock on the date of the grant, however, incentive stock options
granted to holders of more than 10% of the Common Stock must be
have an exercise price equal to at least 110% of the fair market
value of the Common Stock on the date of grant, and options
granted to such shareholders must have a terms not exceeding five
years. The Plan also permits issuance of nonqualified options to
persons not employed by the Company; the exercise price of such
nonqualified options is not required to be equal to fair market
value on grant date, nor is the term of such options limited
except by the term of the Plan.
The Plan provides that the total number of shares covered by
such plan, the number of shares covered by each option, and the
exercise price per share may be proportionally adjusted by the
Board of Directors or the Committee in the event of a stock
split, reverse stock split, stock dividend, or similar capital
adjustment effected without receipt of consideration by the
Company.
Upon a change in control of the Company, the Committee may
take any actions it deems appropriate with regard to stock
options outstanding under the Plan. Such actions may include
accelerating exercisability of options and requiring the optionee
to surrender options held for certain consideration described in
the Plan. In the event of a recapitalization or reorganization
in which the Company is not the surviving corporation, the
Committee may adjust the number, type, or price of options to
reflect the restructuring event.
No options have been granted under the Plan as of the date
of this Proxy Statement.
The Board of Directors of the Company has adopted and
recommends that the shareholders approve adoption of the Plan,
and in addition, the Board has adopted and recommends that the
shareholders approve an amendment to the Plan to increase the
number of shares of Common Stock issuable on exercise of options,
from the current 150,000 shares up to 750,000 shares. Such
increase will permit the Plan to issue options to qualified
employees and others, from time to time, to motivate such persons
to remain with the Company and exert maximum efforts on its
behalf.
If the Plan amendment is approved by the shareholders, an
Incentive Stock Option (the "Option") will be granted to Mr.
McLeod, the Company's Chief Executive Officer, to purchase up to
an aggregate of 450,000 shares of Common Stock. The principal
purpose of the Option is to advance the interests of the Company
by providing Mr. McLeod with long-term performance awards so as
to retain his services and to make his compensation competitive
with other opportunities, and to cause him to strive to achieve
the Company's financial and other business objectives.
The Option will grant to Mr. McLeod the right to purchase up
to an aggregate of 450,000 shares of Common Stock at a purchase
price per share equal to 110% of the average of the mean between
the bid and asked prices of the Common Stock during the ten
trading days immediately preceding the date of the grant (which
will be the date of approval of Proposal 4 by the shareholders),
subject to vesting during the fiscal years ending December 31,
1996, 1997, 1998 and 1999 as follows:
(a) On December 31, 1996, the right to purchase 112,500
shares of Common Stock will vest in favor of Mr. McLeod
provided (i) the Company's net income per share after tax
earnings for the fiscal year ending December 31, 1996 is at least
$1.00; (ii) the Merger which is the subject of Proposal 2 is
consummated; (iii) the Company shall have acquired all of the
issued and outstanding shares of capital stock of or
substantially all of the assets of an acquisition candidate,
as approved by the Company's Board of Directors; and (iv) the
Company's Common Stock remains listed for trading on the NASDAQ
Small Cap Market.
(b) On December 31, 1997, the right to purchase 112,500
shares of Common Stock will vest in favor of Mr. McLeod
provided the Company's net income per share after tax earnings
for the fiscal year ending December 31, 1997 is a minimum of
$0.13.
(c) On December 31, 1998, the right to purchase 112,500
shares of Common Stock will vest in favor of Mr. McLeod
provided the Company's net income per share after tax
earnings for the fiscal year ending December 31, 1998 is a
minimum of $0.20.
(d) On December 31, 1999 the right to purchase 112,500
shares of Common Stock will vest in favor of Mr. McLeod
provided the Company's net income per share after tax earnings
for the fiscal year ending December 31, 1996 is a minimum of
$0.29.
In each instance, net income per share after tax shall be
determined by generally accepted accounting principles and shall
be based on the audited financial statements of the Company.
In the event the right to purchase shares of Common Stock
does not vest with respect to a portion of the shares due to
failure to achieve the vesting criteria with respect to a fiscal
year, the right to purchase such shares will terminate and will
not carry over to subsequent years.
The Option may be exercised with respect to vested shares
during the period commencing with first anniversary of the date
of vesting and ending on the sooner date of termination of the
term of the Plan in 2006 or the date immediately preceding the
eighth anniversary of the grant date (the "Exercise Period"). In
the event and to the extent that the right to purchase shares is
not exercised within the appropriate Exercise Period, then the
Option will be deemed to have expired with respect to the vested
but unexercised portion of the Option.
Upon the termination of Mr. McLeod's employment with the
Company for cause other than death or total disability, all
rights with respect to the unexercised portion of the Option,
whether vested or not, shall automatically be canceled at the
time of such termination of employment and shall be of no further
force or effect thereafter.
At any time during the period commencing on the date when
Mr. McLeod shall have purchased an aggregate of not less than
112,500 shares of Common Stock upon exercise of the Option and
continuing until six months after the end of the final Exercise
Period, Mr. McLeod shall have the right to require that the
Company, on one occasion, prepare and file a registration
statement or combined form S-8/S-3 (or such other form as the
Company's counsel may deem appropriate) so as to permit the sale
of the then unsold shares of Common Stock covered by the Option
to Mr. McLeod and to permit Mr. McLeod's resale of all the shares
of Common Stock acquired by him upon exercise of the Option, in
market transactions which are not affected through an
underwriter.
The initial number of shares of Common Stock purchasable
upon exercise of the Option and the purchase price of such shares
shall be subject to adjustment from time to time to protect
against dilution upon the occurrence of certain events.
There is no charge against the Company's earnings as a
result of the grant or exercise of the Option.
Vote Required for Approval
The affirmative vote of the holders of a majority of all
outstanding shares of Common Stock 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 shareholders 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.
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 is being provided to shareholders
concurrently with this Proxy Statement.
Submission of Stockholder Proposals
Any Stockholder who intends to present a proposal at the
Annual Meeting of shareholders 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 June 30,1997. 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.
SHAREHOLDERS 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: December __, 1996
PORTER MCLEOD HOLDINGS, INC.
Financial Statements
December 31, 1995
PORTER MCLEOD HOLDINGS, INC.
Table of Contents
Page
Independent Auditors' Report 1
Financial Statement
Balance Sheet 2
Notes to Financial Statement 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Porter McLeod Holdings, Inc.
Lakewood, Colorado
We have audited the accompanying balance sheet of Porter McLeod
Holdings, Inc. as of December 31, 1995. This financial statement
is the responsibility of the Corporation's management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
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 balance sheet referred to above presents
fairly, in all material respects, the financial position of
Porter McLeod Holdings, Inc. as of December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
June 28, 1996
Denver, Colorado
PORTER MCLEOD HOLDINGS, INC.
Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets
Cash and cash equivalents $ 500
Other assets (Note 2) 3,000
Total assets $ 3,500
Stockholder's Equity
Commitments (Notes 3)
Stockholder's equity
Common stock, no par value, 1,000,000 shares
authorized; and 20,000 shares issued and
outstanding $ 3,500
Total stockholder's equity $ 3,500
</TABLE>
PORTER MCLEOD HOLDINGS, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
Porter McLeod Holdings, Inc. (the Company), was formed in March
1992. The Company has no operations, and its only activity is to
hold the investments in other subsidiaries. As such, these
financial statements do not reflect the consolidated income or
equity in income of the subsidiaries.
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.
Note 2 - Investment in Subsidiaries
The Company owns 100% of Porter McLeod Management, Inc. and
Porter McLeod Colorado, Inc. as well as approximately 48.8% of
Porter McLeod National Retail, Inc. All investments are
accounted for under the cost method as follows:
<TABLE>
<CAPTION>
<S> <C>
Porter McLeod Management, Inc. $ 1,000
Porter McLeod Colorado, Inc. $ 1,000
Porter McLeod National Retail, Inc. $ 1,000
</TABLE>
Note 3 - 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.
PORTER MCLEOD MANAGEMENT, INC.
Financial Statements
December 31, 1995 and 1994
Table of Contents
Page
Independent Auditors' Report 1
Financial Statements
Balance Sheets 2
Statements of Operations and Retained Earnings 3
Statements of Cash Flows 4
Notes to Financial Statements 5
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
PORTER MCLEOD MANAGEMENT, INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
1995 1994
(As Restated)
<S> <C> <C>
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
</TABLE>
PORTER MCLEOD
Statements of Operations and Retained Earnings
<TABLE>
<CAPTION>
Year Ended
December 31,
1995 1994
(As Restated)
<S> <C> <C>
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)
</TABLE>
PORTER MCLEOD MANAGEMENT, 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 $ (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
</TABLE>
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.
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.
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:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Current tax benefit (expense) $ 54,620 $ (773)
</TABLE>
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.
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:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1996 $ 8,212
1997 8,212
1998 6,203
1999 6,203
2000 -
$ 28,830
</TABLE>
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.
Note 6 - Long-Term Liabilities
Long-Term Debt
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Year Ending December 30,
<S> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
Office furniture and equipment $ 34,944
Less accumulated amortization (6,970)
$ 27,974
</TABLE>
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:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Receivable from affiliate $ - $ 810
Payables to affiliates $ (379,408) $ (481)
Note payable to affiliate at 7%,
due in annual 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)
</TABLE>
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.
PORTER MCLEOD COLORADO, INC.
Financial Statements
December 31, 1995 and 1994
PORTER MCLEOD COLORADO, INC.
Table of Contents
Page
Independent Auditors' Report 1
Financial Statements
Balance Sheets 2
Statements of Operations and Retained Earnings 3
Statements of Cash Flows 4
Notes to Financial Statements 5
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
PORTER MCLEOD COLORADO, INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
PORTER MCLEOD COLORADO, INC.
Statements of Operations and Retained Earnings
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
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.
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 16.6%, 13.1%, and 10%, respectively, 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 23.3%, 12.3%, 10.1%, and 10.7%,
respectively, of the sales and 26.2% of the outstanding
accountings receivable balance.
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.
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:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
Note 3 - Backlog
The following schedule shows a reconciliation of backlog
representing signed contracts in existence:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1994
<S> <C> <C>
Current $ 54,620 $ 15,000
Deferred - -
$ 54,620 $ 15,000
</TABLE>
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.
PORTER MCLEOD COLORADO, INC.
Notes to Financial Statements
Note 6 - Related Party Lease Commitment
The Company leases office space from an affiliated party, by
common ownership, 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:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Advances to affiliate, by common ownership $ 286,411 $ 176,203
</TABLE>
During 1995 and 1994, the Company both received and advanced
funds to affiliated companies to fund operations.
An affiliated company, by common ownership, 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.
PORTER MCLEOD NATIONAL RETAIL, INC.
Financial Statements
December 31, 1994 and 1995
PORTER MCLEOD NATIONAL RETAIL, INC.
Table of Contents
Page
Independent Auditors' Report 1
Financial Statements
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
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.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
March 27, 1996
Denver, Colorado
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Porter McLeod National Retail, Inc.
We have audited the accompanying balance sheets of Porter McLeod National
Retail, Inc. as of December 31, 1994 and 1993, and the related statements
of operations, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above to present fairly,
in all material respects, the financial position of Porter McLeod National
Retail, Inc. as of December 31, 1994 and 1993, and the results of its
operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Lehman, Butterwick & Company, P.C.
Denver, Colorado
February 10, 1995
PORTER MCLEOD NATIONAL RETAIL, INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30
1994 1995 1996
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 236,583 $ 354,050 $ 267,482
Investment securities available for
sale, net (Note 4) 348,384 - -
Accounts receivable, less allowance
for doubtful accounts of
$20,000 in 1995 and 1994 1,145,852 609,762 1,610,051
Retainage receivable 369,205 13,086 -
Costs and estimated earnings in
excess of billings (Note 2) 904,177 96,625 428,661
Prepaid expenses and other 23,411 66,232 336,252
Total current assets 3,027,612 1,139,755 2,642,446
Property and equipment
Building - - 600,000
Office furniture and equipment 21,278 21,278 171,307
Leasehold improvements 34,634 34,634 138,536
Vehicles - - 50,663
55,912 55,912 960,506
Less accumulated depreciation (14,843) (21,655) (180,332)
Total property and equipment 41,069 34,257 780,174
Other assets
Note receivable from affiliate
(Note 10) 677,126 677,126 -
Advances to affiliates (Note 10) - 92,997 -
Organization costs, net - - 2,704
Total other assets 677,126 770,123 2,704
Total assets $ 3,745,807 $ 1,944,135 $3,425,324
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 1,982,895 $ 451,138 $1,955,725
Accrued expenses and payroll taxes 27,875 - 170,660
Billings in excess of costs and
estimated earnings contracts 4,245 - 93,296
Payables to affiliates (Note 10) 33,287 - -
Current portion of long-term debt - - 230,812
Current portion of capital lease
obligation - - 5,365
Total current liabilities 2,048,302 451,138 2,455,858
Commitments and contingencies
(Notes 6, 8 and 9)
Long-term debt (net of current
portion) - - 879,052
Capital lease obligation net
of current portion - - 19,912
- - 898,964
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) 189 197 367
Additional paid-in capital 3,824,249 3,931,116 3,933,445
Accumulated deficit (744,002) (2,374,199) (3,863,310)
Unrealized holding loss (Note 4) (51,212) - -
Consulting agreement (Note 7) - (64,117) -
International marketing contract
(Note 7) (1,331,719) - -
Total stockholders' equity 1,697,505 1,492,997 70,502
Total liabilities and stockholders'
equity $ 3,745,807 $ 1,944,135 $3,425,324
</TABLE>
PORTER MCLEOD NATIONAL RETAIL, INC.
Statements of Operations
<TABLE>
<CAPTION>
Years Ended
December 31, September 30,
1994 1995 1996
(Unaudited)
<S> <C> <C> <C>
Contract revenues $ 9,873,116 $ 5,167,422 $8,775,036
Cost of contract revenues 9,574,346 4,576,593 (7,752,959)
Gross profit 298,770 590,829 1,022,077
General and administrative expenses 1,021,406 1,124,048 1,297,070
Loss from operations (722,636) (533,219) (274,993)
Other income (expense)
Interest income (expense) 91,268 54,531 (47,765)
Loss on sale of investment securities (53,072) (41,743) -
Other expense (9,977) - -
Impairment of International
Marketing agreement (Note 7) - 1,109,766 -
28,219 12,788 (47,765)
Loss before income taxes (694,417) (1,630,197) (322,758)
Income tax benefit (Note 5) 12,102 - 13,802
Net income (loss) $ (682,315) $(1,630,197) $ (308,956)
Net income (loss) per common share $ (.37) $ (.85) $
Weighted average number of shares
outstanding 1,823,999 1,923,999
</TABLE>
PORTER MCLEOD NATIONAL RETAIL, INC.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balances at December 31, 1993 1,700,666 $ 170 $ 2,124,580 $ (48,305)
Distribution of net assets
due to reorganization - - - (13,382)
Issuance of common stock for
marketing services at
$9.1875 per share (Note 7) 85,000 9 780,929 -
Issuance of common stock
under option agreement
for marketing services at
$9.1875 per share (Note 7) 100,000 10 918,740 -
Unrealized holding loss
(Note 4) - - - -
International marketing
contract (Note 7) - - - -
Net loss - - - (682,315)
Balances at December 31,
1994 1,885,666 189 3,824,249 (744,002)
Issuance of common stock
pursuant to consulting
agreement at 1.16 per share
(Note 7) 60,000 6 69,369 -
Issuance of common stock
pursuant to consulting
agreement at 1.50 per share
(Note 7) 25,000 2 37,498 -
Unrealized holding loss
(Note 4) - - - -
Amortization of international
marketing agreement - - - -
Consulting agreement (Note 7) - - - -
Amortization of consulting
agreement - - - -
Net income - - - (520,431)
1,970,666 $ 19 $ 3,931,116 $(1,264,433)
</TABLE>
Continued on the next page.
Continued from the following page.
<TABLE>
<CAPTION>
Unrealized International Total
Holding Marketing Consulting Stockholders'
Loss Contract Agreement Equity
<S> <C> <C> <C> <C>
Balances at December 31,
1993 $ - $ - $ - $2,076,445
Distribution of net assets
due to reorganization - - - (13,382)
Issuance of common stock
for marketing services at
$9.1875 per share (Note 7) - - - 780,938
Issuance of common stock
under option agreement for
marketing services at
$9.1875 per share (Note 7) - - - 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)
Balances at December 31,
1994 (51,212) (1,331,719) - 1,697,505
Issuance of common stock
pursuant to consulting
agreement at 1.16 per
share (Note 7) - - - 69,375
Issuance of common stock
pursuant to consulting
agreement at 1.50 per share
(Note 7) - - - 37,500
Unrealized holding loss
(Note 4) 51,212 - - 51,212
Amortization of international
marketing agreement - 221,953 - 221,953
Impairment of international
marketing agreement - 1,109,760 - (1,109,766)
Consulting agreement (Note 7) - - (106,867) (106,867)
Amortization of consulting
agreement - - 42,750 42,750
Net income - - - (1,630,197)
$ - $ - $ (64,117) $1,492,997
</TABLE>
PORTER MCLEOD NATIONAL RETAIL, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31, September 30,
1994 1995 1996
<S> <C> <C> <C>
(Unaudited)
Cash flows from operating activities
Net loss $ (682,315) $(1,630,197) $ (308,956)
Adjustments to reconcile net
loss to net cash provided by
operating activities -
Depreciation 5,687 6,812 -
Amortization 147,762 264,703 -
Impairment of marketing agreement - 1,109,766 -
Loss on sale of investment
securities 53,072 38,817 -
Operating distributions to
net assets (27,431) - -
Changes in assets and
liabilities -
Receivables (839,627) 892,209 (1,000,289)
Retainage receivable - - 13,086
Cost and estimated earnings
in excess of billings on
contracts (719,370) 807,552 (332,036)
Prepaid expenses and other (20,123) (42,821) (270,020)
Investment securities (42,073) - (2,704)
Organization costs - - 1,504,587
Accounts payable 1,313,755 (1,531,757) -
Payables to affiliates (42,138) (33,287) -
Billings in excess of costs
and estimated earnings on
contracts (34,770) (4,245) 93,296
Accrued expenses 7,187 (27,875) 170,660
Income taxes payable (7,823) - -
(205,892) 1,479,874 176,580
Net cash (used in) operating
activities (888,207) (150,323) (132,376)
Cash flows from investing activities
Acquisition of property and equipment (1,559) - (745,917)
Proceeds from sale of investment
securities 400,000 360,779 677,126
Payments on note receivable - - -
Net cash provided by investment
activities 398,441 360,779 (68,791)
Cash flows from financing activities
Cash advances (to) from affiliate,
net 4,227 (92,997) 92,997
Net proceeds from issuance of
common stock 220,000 8 170
Non-operating distribution of
net assets 14,049 - (1,113,709)
Proceeds from long-term debt - - 1,135,141
Net cash (used in) provided
by financing activities 238,276 (92,989) 114,599
Net increase (decrease) in cash
and cash equivalents (251,490) 117,467 (86,568)
Cash and cash equivalents -
beginning of period 488,073 236,583 354,050
Cash and cash equivalents - end
of period $ 236,583 $ 354,050 $ 267,482
</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).
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
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.
(PMI), a construction contractor, went through a reorganization,
whereby PMI 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 from 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 the disclosure
requirements of 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.
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 three
customers representing 33.8%, 18.8%, and 15.6%, respectively, 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 55.1% and 20.8%, respectively, 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.
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.
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:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
Note 3 - Backlog
The following schedule shows a reconciliation of backlog
representing signed contracts in existence:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1994
Available for sale:
Equity securities $ 399,596 $ - $ (51,212) $ 348,384
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1994
<S> <C> <C>
Current $ - $ (12,102)
Deferred - -
$ - $ (12,102)
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1994
<S> <C> <C>
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)%
</TABLE>
The deferred income tax liabilities results primarily from the
recognition of tax net operating loss carryforwards, and is
composed of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Total deferred current tax asset $ 190,392 $ 114,857
Total deferred tax liability - -
Valuation allowance (190,392) (114,857)
$ - $ -
</TABLE>
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, by
common ownership, 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.
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 with an
individual for international marketing consulting services. The consultant's
services were intended to develop contacts, for the Company, with
international organizations seeking contractors for construction projects.
The agreement extended for ten years, and the consultants could terminate
the contract once $2.4 million of gross profit had been generated from
international business. For services to be performed, the consultant
was give 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. Under SFAS 121, the Company determines if
an impairment has occurred when events or circumstances change. In late
1995, management made the decision to focus its operations domestically and
abandon its international efforts. Management has attempted to capitalize
on international opportunities since the inception of the contract with no
success. The lack of success coupled with the management's determination
that it would not be able to make any material efforts in regard to
international projects was the event which caused management to review the
agreement in accordance with SFAS No. 121. Future cash flows from this contract
are estimated to be negligible; therefore, the asset was fully impaired.
Amortization expense of the International Marketing Agreement for the year
ended December 31, 1995 and 1994 was $221,953 and $149,969, respectively.
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.
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:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Note receivable from affiliate, by common
ownership, 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, by common
ownership, non-interest bearing
due on demand. $ 92,997 $ -
Payable to affiliates, repaid in 1995. $ - $ 33,287
</TABLE>
During 1995 and 1994, the Company both received and advanced
funds to affiliated companies to fund operations.
An affiliated company, by common ownership, 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:
<TABLE>
<CAPTION>
<S> <C>
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
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
</TABLE>
The Company has advanced funds to an affiliated Company, by
common ownership, (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.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
AND
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The following unaudited pro forma combined statement of
operations for the year ended December 31, 1995 and the unaudited
pro forma combined balance sheet as of December 31, 1995 give
effect to the business combination of Porter McLeod National
Retail, Inc., (Retail) Porter McLeod Colorado, Inc. (Colorado),
and Porter McLeod Management, Inc. (Management)
effective___________, including the related pro forma adjustments
described in the notes thereto. The transaction between Porter
McLeod National Retail, Inc., Porter McLeod Colorado, Inc., and
Porter McLeod Management, Inc. has been accounted for as a
combination of companies under the purchase method. The
financial statements are stated at historical cost since the
purchase between entities under common control. The unaudited
pro forma statement of operations have 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 Porter
McLeod National Retail, Inc., Porter McLeod Colorado, Inc., and
Porter McLeod Management, Inc.
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 Porter McLeod National Retail, Inc., Porter
McLeod Colorado, Inc., and Porter McLeod Management, Inc.
Notes to Unaudited Pro Forma Combined Financial Statements
The following adjustments are related to the business combination
between Porter McLeod National Retail, Inc., Porter McLeod
Colorado, Inc., and Porter McLeod Management, Inc.
1) To eliminate advances from Retail and Colorado to
Management. Ownership in Colorado used to satisfy advances
from Retail to Management.
2) To eliminate intercompany receivable and payable and to
eliminate investment holding.
3) To eliminate intercompany revenue and expense charged by
Management to Retail and Colorado.
