SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant X
Filed by a party other than the Registrant 0
Check the appropriate box:
X Preliminary Proxy Statement
0 Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
0 Definitive Proxy Statement
0 Definitive Additional Materials
0 Soliciting Material under Section 240.14a-12
PURE CYCLE CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
0 Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
0 Fee paid previously with preliminary materials:
0 Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PURE CYCLE CORPORATION
8451 Delaware Street
Thornton, Colorado 80260
(303) 292-3456
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 12, 2004
TO THE STOCKHOLDERS:
An Annual Meeting of the Stockholders of PURE CYCLE
CORPORATION will be held at 1550 Seventeenth Street, Suite 500,
Denver, Colorado 80202, on April 12, 2004 at 9:00 a.m. Mountain
Time for the following purposes:
1. To elect a board of six directors to serve until
the next Annual Meeting of Stockholders, or until
their successors are elected and have qualified.
2. To approve an amendment to the Company's
Certificate of Incorporation which would increase
the number of authorized shares of common stock
from 135 million to 225 million.
3. To approve an amendment of the Company's
Certificate of Incorporation authorizing the
board of directors to effect a one-for-ten or
one-for-five reverse stock split.
4. To approve an amendment of the Company's
Certificate of Incorporation authorizing the
board of directors to decrease the authorized
shares of common stock upon or after a reverse
split.
5. To approve the 2004 Incentive Plan.
6. To ratify the appointment of KPMG LLP as
independent auditors for the 2004 fiscal year.
7. To transact such other business as may properly
come before the meeting or any adjournment(s)
thereof.
Only stockholders of record as of 5:00 p.m. Mountain
Time on March 18, 2004 will be entitled to notice of or to vote
at this meeting or any adjournment thereof. You are cordially
invited to attend. A copy of the Company's Annual Report on
Form 10-KSB for the fiscal year ended August 31, 2003 and the
Quarterly Report on Form 10-QSB for the fiscal quarter ended
November 30, 2003 are enclosed with this Notice and Proxy
Statement.
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ACCOMPANYING POSTAGE-PAID ENVELOPE. STOCKHOLDERS WHO ATTEND THE
MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON IF THEY SO
DESIRE.
BY ORDER OF THE BOARD OF
DIRECTORS
Scott E. Lehman, Secretary
March ____, 2004
Preliminary Copy
PURE CYCLE CORPORATION
8451 Delaware Street
Thornton, Colorado 80260
PROXY STATEMENT
for the
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 12, 2004
This proxy statement is furnished to stockholders in
connection with the solicitation of proxies by the board of
directors of PURE CYCLE CORPORATION (the "Company") for use at
the annual meeting of stockholders of the Company (the
"Meeting") to be held at 1550 Seventeenth Street, Suite 500,
Denver, Colorado 80202, on April 12, 2004 at 9:00 a.m. Mountain
Time or at any adjournment thereof. This proxy statement and
the enclosed proxy, together with the Company's Annual Report on
Form 10-KSB for the year ended August 31, 2003 and the Quarterly
Report on Form 10-QSB for the quarter ended November 30, 2003,
are being mailed to stockholders on or about March ___, 2004.
The cost of soliciting proxies is being paid by the
Company. In addition to the mailings, the Company's officers,
directors and other regular employees may, without additional
compensation, solicit proxies personally or by other appropriate
means.
If the enclosed proxy is properly executed and
returned, the shares represented thereby will be voted in the
manner specified. If no specification is made by the proxy,
then the shares will be voted in accordance with the
recommendations of the board of directors. A proxy may be
revoked by a stockholder at any time prior to the exercise
thereof by written notice to the Secretary of the Company, by
submission of another proxy bearing a later date or by attending
the meeting and voting in person.
Discretionary authority is provided in the proxy as to
matters not specifically referred to therein. The board of
directors is not aware of any other matters which are likely to
be brought before the meeting. However, if any such matters
properly come before the meeting, it is understood that the
proxy holder or holders are fully authorized to vote in
accordance with the proxy holder's or holders' judgment and
discretion.
Only holders of record as of 5:00 p.m. Mountain
Standard Time on March 18, 2004, will be entitled to vote on
matters presented at the meeting. The following classes of the
Company's securities vote together as one class on all matters
presented at the meeting: (i) common stock, par value 1/3 of
$.01 ("common stock"), (ii) Series A-1 Convertible Preferred
Stock, 1/10 of $.01 par value, (iii) Series D Convertible
Preferred Stock, 1/10 of $.01 par value, and (iv) Series D-1
Convertible Preferred Stock, 1/10 of $.01 par value. The Series
A-1, Series D and Series D-1 Preferred Stock votes are on an
as-converted basis. On November 30, 2003, there were
outstanding (i) 81,217,541 shares of common stock, each of which
is entitled to one vote; (ii) 1,100,000 shares of Series A-1
Preferred Stock, which are entitled to 6,111,111 votes;
(iii) 6,455,000 shares of Series D Preferred Stock, which are
entitled to 6,445,000 votes; and (iv) 2,000,000 shares of
Series D-1 Preferred Stock, which are entitled to 2,000,000
votes. There is no cumulative voting.
The presence, in person or by proxy, of the holders of
a majority of the outstanding voting power of all shares of
common stock and preferred stock (voting on an as-converted
basis) entitled to vote is necessary to constitute a quorum at
the meeting for the election of directors and for the other
proposals. Abstentions and broker "non-votes" are counted as
present and entitled to vote for purposes of determining whether
a quorum exists. A broker "non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
Abstentions and broker non-votes are not counted as votes cast
in the election of directors and the other proposals.
Accordingly, an abstention on any matter will have the effect of
a negative vote on that matter. The affirmative vote of the
majority of the voting power of the shares of common stock and
preferred stock (voting with the common stock on an as-converted
basis) represented and voted at the meeting, assuming a quorum
is present, is necessary for the approval of proposals 5 and 6.
The affirmative vote of the majority of the voting power of all
outstanding shares of common stock and preferred stock
(considered on an as-converted basis) is necessary for approval
of proposals 2, 3 and 4. The election of directors requires the
affirmative vote of a plurality of the votes cast by shares
represented in person or by proxy and entitled to vote for the
election of directors.
Multiple Stockholders Sharing the Same Address. The
Company has adopted a procedure approved by the Securities and
Exchange Commission, or the SEC, called "householding," which
reduces printing costs and postage fees. Under this procedure,
stockholders of record who have the same address and last name
will receive only one copy of the annual report and proxy
statement unless one or more of these shareowners notify the
Company that they wish to continue receiving individual copies.
Stockholders who participate in householding will continue to
receive separate proxy cards.
If a stockholder of record residing at such an address
wishes to receive a separate document in the future, he or she
may contact our transfer agent at Computershare Trust Company,
Inc., 350 Indiana St., Suite #800, Golden, CO 80401, telephone
(303) 262-0600, or write to the Company's Secretary at the
Company's address set forth above. An eligible shareowner of
record receiving multiple copies of the annual report and proxy
statement can request householding by contacting the Company in
the same manner. If shares are owned through a bank, broker or
other nominee, the holder can request householding by contacting
the nominee.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of December 31,
2003, the beneficial ownership of the Company's issued and
outstanding common stock, Series A-1 Preferred Stock, Series B
Preferred Stock, and Series D Preferred Stock, and Series D-1
Preferred Stock by (i) each person who owns of record (or is
known by the Company to own beneficially) 5% or more of each
such class of stock, (ii) each director of the Company and each
nominee for director, (iii) each executive officer and (iv) all
directors and executive officers as a group. Except as
otherwise indicated, the Company believes that each of the
beneficial owners of the stock listed has sole investment and
voting power with respect to such shares, based on information
provided by such holders
Common Stock
Name and Address Number of Percentage of
Beneficial Owner Shares Common Stock
Percentag
Thomas P. Clark
8451 Delaware St.
Thornton, Colorado 80260 24,464,854 23.2% (1)(2)
George M. Middlemas
225 W. Washington, #1500
Chicago, IL 60606 18,421,149 19.8% (3)(4)
Harrison H. Augur
P.O. Box 4389
Aspen, CO 81611 531,667 0.7% (5)
Margaret S. Hansson
2220 Norwood Avenue
Boulder, Colorado 80304 8,246,000 9.2% (6)
Richard L. Guido
121 Antebellum Drive
Meridianville, Alabama 35759 0 0
Mark W. Harding
8451 Delaware St.
Thornton, CO 80260 9,960,000 10.9% (7)
INCO Securities Corporation
145 King St. West, #1500
Toronto, Ontario Canada M5H4B7 4,700,000 5.5% (8)
Apex Investment Fund II, L.P.
("Apex")
225 W. Washington, #1450
Chicago, IL 60606 17,087,816 18.6% (4)(9)
Environmental Venture Fund Limited
Partnership ("EVFund")
233 S. Wacker Drive, Suite 9500
Chicago, Illinois 60606 6,291,375 7.5% (4)(10)
Environmental Private Equity Fund
II, L.P. ("EPFund")
233 S. Wacker Drive, Suite 9500
Chicago, Illinois 60606 7,121,462 8.4% (4)(11)
The Productivity Fund II, L.P.
("PFund')
233 S. Wacker Drive, Suite 9500
Chicago, Illinois 60606 4,789,484 5.8% (4)(12)
All Officers and Directors
as a group (6 persons) 61,623,670 51.5% (13)
Preferred Stock
Series A-1 Series B
Preferred Shares Preferred Shares
Name and Address
of Beneficial Owner Number % Number %
Thomas P. Clark
8451 Delaware St.
Thornton, CO 80260 346,010(14) 80%
Apex
Investment Fund II L.P.
225 W. Washington, #1500
Chicago, IL 60606 408,000(9) 25.5%
Environmental
Private Equity Fund II,
L.P.
233 S. Wacker Dr.,# 9600
Chicago, IL 60606 600,000(11) 37.5%
Harrison H. Augur
P.O. Box 4389
Aspen, CO 81611 20,000(5)
LC Holdings, Inc.
8451 Delaware St.
Thornton, CO 80260 432,513 100.0%
LCH, Inc.
8451 Delaware St.
Thornton, CO 80260 86,503(15)20.0%
Preferred Stock (continued)
Series D Series D1
Preferred Shares Preferred Shares
Name and Address
of Beneficial Owner Number % Number %
Thomas P. Clark
8451 Delaware St.
Thornton, CO 80260 6,455,000(1) 100% 2,000,000(2) 100%
(1) Includes 6,455,000 shares of Series D Preferred Stock owned by
Mr. Clark, the Company's CEO, which are convertible into 6,455,000
shares of common stock when the Company has sufficient authorized but
unissued shares of common stock, which will occur if Proposal No. 2
is approved.
(2) Includes 2,000,000 shares of Series D-1 Preferred Stock, owned by
Mr. Clark, the Company's CEO, which are convertible into 2,000,000
shares of common stock when the Company has sufficient authorized but
unissued shares of common stock, which will occur if Proposal No. 2
is approved.
(3) Includes 1,000,000 shares purchasable by Mr. Middlemas under
currently exercisable options and 17,087,816 shares which
Mr. Middlemas may be deemed to own but of which he disclaims
beneficial ownership as described in more detail in footnote (4)
below.
(4) Each of the Apex, EVFund, PFund, and EPFund (the "Apex
Partnerships") is controlled through one or more partnerships. The
persons who have or share control of such stockholders are referred
to herein as "ultimate general partners." The ultimate general
partners of Apex are: First Analysis Corporation, a Delaware
corporation ("FAC"), Stellar Investment Co. ("Stellar"), a
corporation controlled by James A. Johnson ("Johnson"); George
Middlemas ("Middlemas"); and Chartwell Holdings Inc. ("Chartwell"), a
corporation controlled by Paul J. Renze ("Renze"). The ultimate
general partners of EVFund are: FAC; Felsen, Genack Associates
("FGA"); William D. Ruckelshaus Associates, a Limited Partnership
("WDRA"); and RS Investment Management ("RSIM"). The ultimate
general partners of PFund are FAC and Bret R. Maxwell ("Maxwell").
The ultimate general partners of EPFund are FAC, Maxwell, RSIM,
Argentum Environmental Corporation ("AEC") and Schneur Z. Genack,
Inc. ("SZG").
The business address of FAC, Stellar, Johnson, Middlemas,
and Maxwell is 233 S. Wacker Drive, Suite 9500, Chicago, Illinois
60606. The business address of Renze and Chartwell is 5 Three Lakes
Road, Barrington, Illinois 60010. Each of AEC and SZG maintains its
business address c/o The Argentum Group ("TAG"), 405 Lexington
Avenue, 54th Floor, New York, New York 10174. The persons who take
actions on behalf of AEC and SZG with respect to their functioning as
ultimate general partners of EPFund are Schneur Z. Genack ("Genack"),
Daniel Raynor ("Raynor") and Walter H. Barandiaran ("Barandiaran").
Each of Raynor and Barandiaran is principally employed as an
executive of TAG and maintains his business address at the TAG
address. TAG's principal business is merchant banking. SZG is
principally employed as a private investor and maintains his business
address at 18 East 48th Street, Suite 1800, New York, New York 10017.
The business address of FGA and Harvey G. Felsen ("Felsen"), who,
along with Genack, take actions on behalf of FGA with respect to its
functioning as an ultimate general partner of EVFund, is 18 East 48th
Street, Suite 1800, New York, New York 10017. WDRA and Paul B.
Goodrich, the person who takes action on behalf of WDRA (with respect
to its functions on behalf of WDRA) with respect to its functioning
as general partner of EVFund, maintains its business address at 1201
Third Avenue, 39th Floor, Seattle, Washington 98101. RSIM maintains
its business address at 388 Market Street, Suite 200, San Francisco,
California 94111. The person who takes actions on behalf of RSIM
with respect to its functioning as an ultimate general partner of
EVFund and EPFund is Charles R. Hamilton ("Hamilton"). Hamilton is
principally employed as a partner in RSIM and maintains his principal
business address at 6065 Shelter Bay Avenue, Mill Valley, California
94941.
By reason of its status as ultimate general partner of each of Apex
Partnerships, FAC may be deemed to be the indirect beneficial owner
of 35,290,137 shares of common stock, or 36.4% of such shares. By
reason of his status as the majority stockholder of FAC, F. Oliver
Nicklin may also be deemed to be the indirect beneficial owner of
such shares. By reason of their status as ultimate general partners
of Apex, Stellar (and through Stellar, Johnson), Middlemas, Chartwell
(and through Chartwell, Renze) may be deemed to be the indirect
beneficial owners of 17,087,816 shares of common stock, or 18.6% of
such shares. When these shares are combined with his personal
holdings of 333,333 shares of common stock and his currently
exercisable option to purchase 1,000,000 shares of common stock,
Middlemas may be deemed to be the beneficial owner (directly with
respect to his shares and the option shares and indirectly as to the
balance) of 18,421,149 shares of common stock, or 19.8% of such
shares.
By reason of his status as a general partner of an ultimate general
partner of PFund and EPFund, Maxwell may be deemed to be the indirect
beneficial owner of 11,910,946 shares of common stock, or 14.2% of
such shares.
By reason of their status as ultimate general partners of EVFund,
FGA, WDRA and RSIM and their respective controlling persons may be
deemed to be the indirect beneficial owners of 6,291,375 shares of
common stock, or 7.8% of such shares. By reason of AEC's and SZG's
status as ultimate general partners of EPFund, AEC, SZG, and their
and their controlling persons may be deemed to be the indirect
beneficial owners of 7,121,462 shares of common stock, or 8.7% of
such shares. By reason of Genack's interest in FGA, AEC and SZG, he
may be deemed to be the indirect beneficial owner of 13,412,837
shares of common stock, or 15.9% of such shares.
By reason of RSIM's status as ultimate general partner of EPFund and
EVFund, RSIM and its controlling persons may be deemed to be the
indirect beneficial owners of 13,412,837 shares of common stock, or
15.9% of such shares.
Each of the Apex Partnerships disclaims beneficial ownership of all
shares of common stock described herein except those shares that are
owned by that entity directly. The Company understands that each of
the other persons named as an officer, director, partner or other
affiliate of any Apex Partnership disclaims beneficial ownership of
all the shares of common stock described herein, except for Middlemas
with respect to the shares and options to purchase 1,333,333 shares
owned by him.
Each of the Apex Partnerships disclaims the existence of a "group"
among any or all of them and further disclaims the existence of a
"group" among any or all of them and any or all of the other persons
named as an officer, director, partner or those affiliate of any of
them, in each case within the meaning of Section 13(d) of the 1934
Act.
The information herein was derived from a filing dated April 16, 2001
made by the APEX Partnerships with the SEC.
(5) Includes (i) 300,000 shares purchasable by Mr. Augur under
currently exercisable warrants, (ii) 111,111 shares of common stock
purchasable on conversion of 20,000 shares of Series A-1 Convertible
Preferred Stock, and (iii) 25,000 shares held by Patience Partners,
L.P., a limited partnership in which a foundation controlled by
Mr. Augur is a 60% limited partner and Patience Partners LLC is a 40%
general partner. Patience Partners LLC is a limited liability
company in which Mr. Augur owns a 50% membership interest.
(6) Includes 8,000,000 shares purchasable by Ms. Hansson under
currently exercisable options.
(7) Includes 9,750,000 shares purchasable by Mr. Harding under a
currently exercisable option.
(8) Consists of 4,700,000 shares purchasable by INCO Securities
Corporation ("Inco") under currently exercisable warrants.
(9) Includes 8,506,198 shares purchasable by Apex under a currently
exercisable warrant and 2,266,667 shares purchasable on conversion of
408,000 shares of Series A-1 Convertible Preferred Stock.
(10) Includes 2,609,814 shares purchasable by EVFund under currently
exercisable warrants.
(11) Includes 301,432 shares purchasable by EP Fund under a currently
exercisable warrant and 3,333,333 shares purchasable on conversion of
600,000 shares of Series A-1 Convertible Preferred Stock.
(12) Includes 1,783,804 shares purchasable by PFund under currently
exercisable warrants.
(13) Includes 18,750,000 shares purchasable by directors and officers
under currently exercisable options, 8,806,198 shares purchasable by
directors and officers under currently exercisable warrants,
2,377,778 shares of common stock purchasable by directors and
officers on conversion of outstanding Series A-1 Convertible
Preferred Stock, and 8,455,000 shares of common stock purchasable by
directors and officers on conversion of Series D and Series D-1
Preferred Stock. The directors and officers disclaim beneficial
ownership of 17,087,816 such shares.
(14) Includes 346,010 shares of Series B Preferred Stock which Mr.
Clark, the Company's Chief Executive Officer, may be deemed to hold
beneficially by reason of his ownership of 80% of the common stock of
LC Holdings, Inc., the owner of 100% of the Series B Preferred Stock.
Mr. Clark disclaims beneficial ownership of the remaining 20% of the
Series B Preferred Stock.
(15) Includes 86,503 shares of Series B Preferred Stock which LCH, Inc.
may be deemed to hold beneficially by reason of its ownership of 20%
of the common stock of LC Holdings, Inc., the owner of 100% of the
Series B Preferred Stock.
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The following table sets forth the names, ages and
titles of the persons who are currently directors and executive
officers of the Company, along with other positions they hold
with the Company.
Name Age Position
Harrison H. Augur (1)(2) 62 Chairman of the Board
Thomas P. Clark 67 Director,
Chief Executive Officer
Mark W. Harding 40 Director, President
George M. Middlemas (1) (2) 57 Director
Margaret S. Hansson 79 Director
Richard L. Guido (1) (2) 59 Director
______________________
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Board Committees; Meetings
Effective April 9, 2001, the Company appointed an
audit committee. Ms. Hansson and Messrs. Augur and Middlemas
were members of the Audit Committee until February 13, 2004,
when Mr. Guido was appointed to the board and the audit
committee. The board has determined that the audit committee
members, as so reconstituted, will meet the independence
standards of NASDAQ. In addition, the board has determined that
at least one member of the audit committee is a financial
expert. That person, Mr. Augur, meets the SEC criteria of audit
committee financial expert by reason of his education and his 20
years of experience in investment management and venture capital
investment.
The functions to be performed by the audit committee
include the appointment, retention, compensation and oversight
of the Company's independent auditors, including pre-approval of
all audit and non-audit services to be performed by such
auditors. The Company has adopted an Audit Committee Charter,
which is attached to this proxy statement as Exhibit A. The
audit committee met one time during the fiscal year ended
August 31, 2003, and has met two times in the current fiscal
year. See the Report of the Audit Committee.
Effective February 13, 2004, the Company appointed a
compensation committee, consisting of Mr. Augur and
Mr. Middlemas. Mr. Guido became a member of the compensation
committee at the time he joined the board on February 13, 2004.
The functions to be performed by the compensation committee
include establishing the compensation of officers and directors,
and administering management incentive compensation plans. The
compensation committee has not yet held any meetings.
The Company does not have a nominating committee
because of the small size of its board and the relative
infrequency of meetings. Nominees for director will be selected
or recommended by a majority of the Company's directors who meet
the NASDAQ independence standards. In selecting nominees for
the board, the Company is seeking a board with a variety of
experiences and expertise, and in selecting nominees will
consider business experience in the industry in which the
Company operates, financial expertise, independence from
transactions with the Company, experience with publicly traded
companies, experience with relevant regulatory matters in which
the Company is involved and reputation for integrity and
professionalism. The independent directors will consider
nominations for director made by stockholders of record entitled
to vote. In order to make a nomination for election at the 2005
annual meeting, a stockholder must provide notice, along with
supporting information regarding such nominee, to the Company's
Secretary by September 30, 2004.
Effective February 13, 2004, the Company adopted a
policy for stockholders to send communications to the Board.
Stockholders wishing to send communications to the Board may
contact Mark Harding, President of the Company at the Company's
principal place of business. All such communications shall be
shared with the members of the Board, or if applicable, a
specified committee or director.
The Company has attempted to minimize the additional
costs associated with the annual meeting. If the annual meeting
is not scheduled on the same day as a regular meeting of the
Board, only directors who are resident in Colorado are expected
to attend the annual meeting. If the annual meeting is
scheduled on the same day as a regular meeting of the Board, all
directors are expected to attend the annual meeting. The
Company did not hold an annual meeting during 2003.
During the fiscal year ended August 31, 2003, the
board of directors held no meetings, but took two actions by
unanimous written consent. In the current fiscal year, the
board of directors has met two times and has taken action by
unanimous written consent two times.
Relationship of Directors and Officers
None of the current directors or officers, or nominees
for director, is related to any other officer or director of the
Company or to any nominee for director.
Terms of Directors and Officers
All directors are elected for one-year terms which
expire at the annual meeting of stockholders or until their
successors are elected and qualified. The Company's officers
are elected annually by the board of directors and hold office
until their successors are elected and qualified.
Section 16 (a) Beneficial Ownership Reporting Compliance
The Company's directors and executive officers and
persons who are beneficial owners of more than 10% of the
Company's common stock are required to file reports of their
holdings and transactions in common stock with the Securities
and Exchange Commission and furnish the Company with such
reports. Based solely upon its review of the copies the Company
has received or upon written representations from these persons,
the Company believes that, as of February 13, 2004 all of the
Company's directors and executive officers had complied with the
applicable Section 16 (a) filing requirements.
Code of Ethics
Effective February 13, 2004, the Company has adopted a
code of ethics for its directors, officers and employees, which
is attached to this proxy statement as Exhibit B.
Certain Relationships and Related Transactions
From time to time since December 6, 1987, Thomas P.
Clark, a director and Chief Executive Officer of the Company,
loaned funds to the Company to cover operating expenses. These
funds have been treated by the Company as unsecured debt, and
promissory notes have been issued to Mr. Clark. The notes bear
interest at rates ranging from 8.36% to 9.01% per annum, and
mature on October 1, 2007. To date, Mr. Clark has loaned the
Company $310,720, of which $43,350 has been repaid, leaving a
balance of $267,370. As of December 31, 2003, the outstanding
balance, including principal and accrued interest, on the Notes
totaled $275,232. All loans were made on terms determined by
the board members (Mr. Clark abstaining) to be at market rates.
LCH, Inc., a Delaware corporation which owns 20% of LC
Holdings, Inc. and is thereby affiliated with Mr. Clark, who
owns 80% of LC Holdings, Inc., loaned the Company a total of
$950,000 between November 1988 and February 1989. In connection
with these loans, the Company issued two demand promissory notes
(the "LCH Notes") bearing interest at a rate equal to the rate
announced from time to time by Mellon Bank, Pittsburgh,
Pennsylvania as its "prime rate" plus 300 basis points from the
date of the first advance thereunder until maturity. The LCH
Notes were payable quarterly beginning on the first day of April
1989 and continuing thereafter on the first day of each
subsequent calendar quarter. No payments were made on the
LCH Notes. On April 25, 1989, LCH assigned the LCH Notes to
Rangeview Development Corp., which was at the time a wholly-
owned subsidiary of the Company, which further assigned $750,000
of the LCH Notes to Rangeview Company, L.P., a limited
partnership in which LCH held a 45% interest and Rangeview
Development Corporation held a 55% interest. In February 1991,
LCH transferred its interest in Rangeview Company, L.P. to the
Company in exchange for a $4,000,000 profits interest in the
Rangeview Project (pursuant to which the Company is to provide
water and wastewater services to a specified service area) that
will be paid subsequent to the first $31,807,000 profits
interest allocated to other investors. In connection with a
comprehensive Settlement Agreement dated April 11, 1996, LCH
consented to be paid its $4,000,000 profits interest from the
sale or other disposition of the Export Water (as defined in the
Settlement Agreement) subsequent to payment of $31,807,000 owed
under the Comprehensive Amendment Agreement No. 1 dated
April 11, 1996 (the "Commercialization Agreement"), subject to
the provision that the LCH Notes would be due and payable if the
Rangeview Project did not generate $35,000,000 in proceeds.
During the fiscal year ended August 31, 1998, the Company
reached an agreement with LCH, Inc. to defer payment of the
principal amount of the LCH Notes, plus interest, until
October 1, 2007. No additional consideration is due to LCH,
Inc. for the deferral. The board members (Mr. Clark abstaining)
determined the transactions are at fair market value taking into
consideration the risk to LCH, Inc.
In 1996 and 1997, the Company entered into loan
agreements with five related party investors: Apex, EVFund,
EPFund and PFund, each a 5% stockholder, and Harrison Augur, a
director. The loan balances to such persons totaled $799,295 at
November 30, 2003, the loans are unsecured, and bear interest at
the rate of 10.25% and prime plus 2%. The notes mature
August 31, 2007. In connection with the loan agreements, the
Company issued warrants to such persons to purchase
2,901,176 shares of the Company's Common Stock with an exercise
price of $.18 per share. Such warrants expire August 31, 2007.
The Company currently leases office facilities at no
cost from the Company's CEO Mr. Clark. The fair market value of
the lease is approximately $1,200 per month.
Mr. Augur is a party to the Commercialization
Agreement with the Company, pursuant to which the Company is
required to distribute to numerous parties the first $32,026,232
of proceeds from the sale of Export Water (as defined therein).
Mr. Augur is a partner, with his wife, in a partnership that is
entitled to receive a total of $150,000 thereunder. To date, no
amounts have been distributed under the Commercialization
Agreement to any party.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning
the compensation received by or awarded to (i) the Company's
chief executive officer and (ii) the Company's other executive
officers for the fiscal years ended August 31, 2003, 2002 and
2001:
Annual Compensation
Other
Annual
Name and Principal Fiscal Salary Bonus Compensatin
Position Year ($) ($) ($)
Thomas P. Clark, CEO 2003 60,000 0 0
2002 60,000 0 0
2001 60,000 0 0
Mark W. Harding
President, CFO 2003 80,000 0 0
2002 80,000 0 0
2001 80,000 0 0
Until February 13, 2004 Directors did not receive any
compensation for serving on the board. Effective February 13,
2004, the board approved the following compensation arrangement
for directors: Each director will receive a payment of $10,000
for each full year in which he or she serves as a director, with
an additional payment of $1,000 for each committee on which he
or she serves, and $1,000 for serving as chairman of the board.
An additional $500 will be paid to each director for attendance
at each board meeting and, if committee meetings are held
separate from board meetings, $500 will be paid for attendance
at such committee meetings.
In addition to cash compensation, as part of the 2004
Equity Incentive Plan being presented to stockholders at this
meeting, each director would receive an option to purchase
50,000 shares of common stock upon election to the board, and an
option to purchase 25,000 shares for each subsequent full year
in which he or she serves as a director. See "APPROVAL OF 2004
EQUITY INCENTIVE PLAN (Proposal 5)."
Aggregated Option Exercises and Fiscal Year End Option Values
The Company has an Equity Incentive Plan (the
"Existing Plan") adopted by the board of directors in June 1992,
which Plan expired in 2002. Pursuant to the Existing Plan, the
President of the Company has been granted options to purchase
shares of common stock which have a value as set forth below.
No options have been exercised to date.
No. of
Unexercised
Securities Value of
Underlying Unexercised
Options at In-the-money
8/21/03 Options 1/03
Name/ Acquired on Value Exercisable Exercisable
Principal Position Exercise Recieved Unexercisable Unexercisable
Thomas P. Clark, CEO - - - -
Mark W. Harding - - 9,750,000 340,000
President, CFO 250,000 $10,000
The board is proposing to stockholders a new 2004
Equity Incentive Plan. See "APPROVAL OF 2004 EQUITY INCENTIVE
PLAN (Proposal 5)."
REPORT OF THE AUDIT COMMITTEE
As of February 13, 2004, the Audit Committee of the
board of directors is comprised of directors who meet the NASDAQ
standards for independence. Prior to that date, one member,
Margaret Hansson, did not meet the NASDAQ requirement due to her
prior service as Vice President of the Company. The Audit
Committee operates under a written charter adopted by the Board
of Directors on February 13, 2004, which is attached to this
proxy statement as Exhibit A.
On the recommendation of the Audit Committee, the
board of directors appointed KPMG LLP as the independent
auditors for the Company after reviewing KPMG's performance and
independence from management.
Management has primary responsibility of the Company's
financial statements and the overall reporting process,
including the Company's system of internal controls. The
independent auditors audited the annual financial statements
prepared by management, expressed an opinion as to whether those
financial statements present fairly the financial position,
results of operations and cash flows of the Company in
conformity with generally accepted accounting principles and
discussed with the Audit Committee any issues they believed
should be raised.
The Audit Committee reviewed with management and KPMG
LLP the Company's audited financial statements and met
separately with both management and KPMG LLP to discuss and
review those financial statements and reports prior to issuance.
Management has represented, and KPMG LLP has confirmed, to the
Audit Committee, that the financial statements were prepared in
accordance with generally accepted accounting principles.
The Audit Committee received from and discussed with
KPMG LLP the written disclosure and the letter required by
Independence Standards Audit Committee Standard No. 1
(Independence Discussions with Audit Committees). These items
relate to that firm's independence from the Company. The Audit
Committee also discussed with KPMG LLP matters required to be
discussed by the Statement on Auditing Standards No. 61
(Communication with Audit Committees) of the Auditing Standards
Audit Committee of the American Institute of Certified Public
Accountants to the extent applicable. The Audit Committee
implemented a procedure to monitor auditor independence,
reviewed audit services performed by KPMG LLP and discussed with
the auditors their independence.
In reliance on these reviews and discussions referred
to above, the Audit Committee has recommended to the board of
directors that the Company's audited financial statements be
included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 2003.
Harrison H. Augur
Margaret S. Hansson
George M. Middlemas
ELECTION OF DIRECTORS
(Proposal No. 1)
The current number of members of the board of
directors is fixed at six. The board of directors nominates the
following six persons currently serving on the board for
election to the board: Thomas P. Clark, Margaret S. Hansson,
George M. Middlemas, Harrison H. Augur, Richard L. Guido and
Mark W. Harding. Biographical information regarding the
directors and nominees follows:
HARRISON H. AUGUR. Mr. Augur was elected Chairman of
the board of directors in April 2001. For the past 20 years,
Mr. Augur has been involved with investment management and
venture capital investment groups. Mr. Augur has been a General
Partner of CA Partners since 1987, and General Partner of
Patience Partners LLC since 1999. Mr. Augur received a Bachelor
of Arts degree from Yale University, an LLB degree from Columbia
University School of Law, and an LLM degree from New York
University School of Law.
THOMAS P. CLARK. Thomas P. Clark was appointed Chief
Executive Officer of the Company in April 2001. Prior to his
appointment as Chief Executive Officer, Mr. Clark served as
President and Treasurer of the Company from 1987 to April 2001.
Mr. Clark is primarily involved in the management of the
Company. His other business activities include: President, LC
Holdings, Inc. (business development), 1983 to present, and
Partner (through a wholly owned corporation) of Resource
Technology Associates (development of mineral and energy
technologies), 1982 to present. Mr. Clark serves on the board
of the Rangeview Metropolitan District. Mr. Clark received his
Bachelor of Science degree in Geology and Physics from Brigham
Young University.
RICHARD L. GUIDO. Mr. Guido served as a member of the
Company's board from July 1996 through August 31, 2003, and on
February 13, 2004 was appointed to fill a vacancy on the board.
Mr. Guido was an employee of INCO Securities Corporation, a 5.5%
stockholder of the Company, from 1980 through August 2003, and
previously served on the board pursuant to a voting agreement
between INCO and the Company. That agreement is no longer in
effect. Mr. Guido was Associate General Counsel of Inco Limited
and President, Chief Legal Officer and Secretary of Inco United
States, Inc. Mr. Guido is a Director on the American-Indonesia
Chamber of Commerce and the Canada-United States Law Institute.
Mr. Guido received a Bachelor of Science degree from the United
States Air Force Academy, a Master of Arts degree from
Georgetown University, and a Juris Doctor degree from the
Catholic University of America.
MARGARET S. HANSSON. Ms. Hansson has been a Director
of the Company since April 1977, Chairman from 1983 to 2001,
Vice President from 1992 to 2003, and was the Chief Executive
Officer of the Company from September 23, 1983 to January 31,
1984. From 1976 to May 1981, she was President of GENAC, Inc.,
a Boulder, Colorado firm which she founded. From 1960 to 1975,
Ms. Hansson was CEO and Chairman of Gerry Baby Products Company
(formerly Gerico, Inc.), now a division of Evenflo. She is a
Director of Wells Fargo Bank, Boulder, Colorado, Wells Fargo
Banks, PC, Colorado Capital Alliance, Realty Quest, Inc. (now
RQI, Inc.), and the Boulder Technology Incubator. Ms. Hansson
is currently President of two companies, Adrop, LLC and Erth,
LLC, companies engaged in development of a centrifuge for water
purification systems. Ms. Hansson received her Bachelor of Arts
degree from Antioch College.
MARK W. HARDING. Mark W. Harding joined the Company
in April 1990 as Corporate Secretary and Chief Financial
Officer. He was appointed President of the Company in April
2001, and on February 13, 2004 was appointed to fill a vacancy
on the board. He brings a background in public finance and
management consulting. From 1988 to 1990, Mr. Harding worked
for Price Waterhouse, where he assisted clients in providing
public finance and other investment banking related services.
Mr. Harding is the President of the Rangeview Metropolitan
District. Mr. Harding has a B.S. Degree in Computer Science and
a Masters in Business Administration in Finance from the
University of Denver.
GEORGE M. MIDDLEMAS. George M. Middlemas has been a
Director of the Company since April 1993. Mr. Middlemas has
been a general partner with Apex Investment Partners, a
diversified venture capital management group, since 1991. From
1985 to 1991, Mr. Middlemas was Senior Vice President of Inco
Venture Capital Management, primarily involved in venture
capital investments for INCO Securities Corporation. From 1979
to 1985, Mr. Middlemas was a Vice President and a member of the
Investment Committee of Citicorp Venture Capital Ltd., where he
sourced, evaluated and completed investments for Citicorp.
Mr. Middlemas is a director of Online Resources & Communications
Corporation, Tut Systems, Data Critical Corporation, and
Pennsylvania State University - Library Development Board.
Mr. Middlemas received a Bachelors degree in History and
Political Science from Pennsylvania State University, a Masters
degree in Political Science from the University of Pittsburgh
and a Master of Business Administration from Harvard Business
School.
The Proxy cannot be voted for more than the six
nominees named. Directors are elected for one-year terms or
until the next Annual Meeting of the Stockholders and until
their successors are elected and qualified. All of the nominees
have expressed their willingness to serve, but if because of
circumstances not contemplated, one or more nominees is not
available for election, the Proxy holders named in the enclosed
Proxy form intend to vote for such other person or persons as
management may nominate.
Mr. Middlemas was designated as a nominee to the board
of directors pursuant to the EPFund Voting Agreement, which
agreement obligates Mr. Clark, Ms. Hansson, the Apex
Partnerships and Fletcher Byrom, a former director of the
Company, to vote for the designee of the EPFund. See "VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF." This agreement
terminates at such time as EPFund no longer owns shares of
common stock of the Company, or warrants to acquire shares of
common stock, which aggregate 1,301,000 shares of common stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THE ELECTION AS DIRECTORS OF THE SIX
PERSONS NOMINATED.
____________________________
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED CAPITAL
(Proposal No. 2)
The Company's Certificate of Incorporation presently
provides for a capitalization of 135,000,000 shares of common
stock, 1/3 of $.01 par value, of which 81,217,541 shares are
issued and outstanding as of December 31, 2003.
On February 13, 2004, , the board of directors
approved, and recommended to the stockholders for adoption, an
amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock, 1/3 of
$.01 par value, from 135,000,000 shares to 225,000,000 shares.
The purpose of the proposed amendment is (i) to
authorize sufficient shares of common stock in order to enable
the Company to comply with obligations to issue shares of common
stock upon the exercise of outstanding warrants and options and
(ii) to give the Company flexibility with respect to raising
funds for its projects.
If all currently outstanding warrants and options were
exercised and all convertible securities converted, the total
number of outstanding shares of common stock on a fully diluted
basis would be 146,186,651. The Company currently only has
135,000,000 shares of common stock authorized. The Company has
6,445,000 shares of Series D Convertible Preferred Stock, issued
to Thomas Clark, a director and chief executive officer, in
August 2001, and 2,000,000 shares of Series D-1 Convertible
Preferred Stock, issued in August 2003 to Mr. Clark, that by
their terms are not convertible until the Company has amended
the Certificate of Incorporation to increase the authorized
capital. Holders of an additional approximately
11,200,000 options, warrants and convertible securities which
are currently exercisable and convertible have agreed not to
exercise their options and/or warrants or convert their
convertible securities until the date on which the Company's
Certificate of Incorporation is amended to increase the number
of authorized shares of common stock. Following amendment of
the Certificate of Incorporation, the Company's issued and
outstanding capital could increase from 81,217,541 shares to
95,783,652 because the Series A-1, Series D and Series D-1
Convertible Preferred Stock are each currently convertible. The
Company also anticipates that, if the stock price continues at
current levels, a number of options and warrants would be
exercised. Assuming exercise or conversion of all securities
that are currently exercisable or convertible, Mr. Clark would
hold 16.7% of the common stock and current management would hold
42.2% (30.5% if disclaimed shares are not included) of the
common stock. Assuming no changes in ownership, Mr. Clark would
remain the Company's largest stockholder in either case.
If all outstanding warrants and options were
exercised, the Company would receive $9,072,540 upon exercise.
The board currently anticipates that it would use some of the
proceeds from any such exercise to attempt to purchase contract
rights from parties to the Commercialization Agreement. Other
uses will necessarily depend upon the activities of the Company
at the time of any such exercise. The shares authorized may be
issued upon exercise of the warrants or options, the conversion
of convertible securities or in other transactions without
further vote of the stockholders.
In addition to permitting the issuance of common stock
underlying currently exercisable warrants and options and
convertible preferred stock as described above, the board of
directors believes that it would be desirable to increase the
authorized number of shares of common stock in order to have
shares available for future issuance for acquisitions of
properties or businesses and for other corporate purposes. In
addition, the board believes that it would be desirable to have
shares available for sale through public offerings, private
placements, issuance in connection with employee benefit plans
and other purposes. Such shares may be issued for such
consideration, cash or otherwise, at such times and in such
amounts, as the board of directors in its discretion may
determine without further action by the stockholders, subject to
compliance with applicable law and regulations.
Newly authorized shares would have the same rights as
the presently authorized shares, including the right to cast one
vote per share. Although the authorization would not, in
itself, have any effect on the rights of existing stockholders,
issuance of additional shares of common stock for other than a
stock split or dividend could, under certain circumstances, have
a dilutive effect on voting rights and earnings per share. The
stockholders have no preemptive rights to purchase additional
shares of common stock that may be issued and sold.
While the issuance of shares in certain instances may
have the effect of forestalling a hostile takeover, the board
does not intend or view the increase in authorized common stock
as an anti-takeover measure, nor is the Company aware of any
proposed or contemplated transaction of this type.
Under the General Corporation Law of the State of
Delaware, stockholders are not entitled to appraisal rights with
respect to the increase in authorized capital, and the Company
will not independently provide stockholders with such right.
The text of the proposed amendment is set forth as
Exhibit C.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO INCREASE THE AUTHORIZED CAPITAL.
____________________________
APPROVAL OF AMENDMENT TO CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
(Proposal No. 3)
Background
We have been a public company since 1977 and currently
have approximately 81,217,541 shares outstanding. Our stock
does not currently meet the requirements for listing on NASDAQ
because of our low stock price. In order to reduce the number
of shares of the Company's common stock outstanding and thereby
attempt to raise the per share price of the Company's common
stock, the board of directors believes that it is in the best
interests of stockholders for the board of directors to obtain
the authority to implement a reverse stock split.
The board of directors believes that it is in the
interest of our stockholders and the Company for the Board to
have the authority to effect the reverse stock split in order
for the Company's share price to attain a price more typical of
share prices of other small cap public companies. The board of
directors believes that a higher share price of the Company's
common stock may meet investing guidelines for certain
institutional investors and investment funds that are currently
unable to invest in the Company. The board of directors also
believes that our stockholders will benefit from relatively
lower trading costs for a higher priced stock. The combination
of lower transaction costs and increased interest from
institutional investors and investment funds could ultimately
improve the trading liquidity of our common stock. Furthermore,
the board of directors believes the Company will benefit from
reduced costs associated with stockholder communications.
If the proposal is approved by stockholders, and the
board of directors determines to implement the reverse stock
split, the board may effect a reverse stock split based on
either a one-for-ten or a one-for-five ratio. The Company would
communicate to the public, prior to the effective date of the
reverse split, information regarding the reverse split ratio
selected, along with other relevant information. If the board
of directors does not implement the reverse stock split prior to
December 31, 2004, the authority granted in this proposal to
implement the reverse stock split will terminate. The board of
directors reserves its right to elect not to proceed, and
abandon, the reverse stock split if it determines, in its sole
discretion, that this proposal is no longer in the best
interests of our stockholders.
Risk Factors Associated with the Reverse Stock Split
There can be no assurance that the total market
capitalization of the common stock after the proposed reverse
stock split will be equal to or greater than the total market
capitalization before the proposed reverse stock split or that
the per share market price of the common stock following the
reverse stock split will increase in proportion to the reduction
in the number of shares of common stock outstanding before the
reverse stock split.
There can be no assurance that the market price per
share of the common stock after the reverse stock split will
remain unchanged or increase in proportion to the reduction in
the number of shares of common stock outstanding before the
reverse stock split. For example, based on the closing price of
the common stock on the OTC Bulletin Board on February 13, 2004
of $1.20 per share, if the board of directors decided to
implement the one-for-ten reverse stock split or the
one-for-five stock split, there can be no assurance that the
post-split market price of the common stock would be $12.00 per
share or $6.00 per share, respectively, or greater.
Accordingly, the total market capitalization of the
common stock (the aggregate value of all the Company's common
stock at the then market price) after the proposed reverse stock
split may be lower than the total market capitalization before
the proposed reverse stock split. Moreover, in the future, the
market price of the common stock following the reverse stock
split may not exceed the market price prior to the proposed
reverse stock split.
If the reverse stock split is effected, the resulting
per-share stock price may not attract institutional investors or
investment funds and may not satisfy the investing guidelines of
such investors and, consequently, the trading liquidity of the
common stock may not improve.
While the board of directors believes that a higher
stock price may help generate investor interest, there can be no
assurance that the reverse stock split will result in a
per-share price that will attract institutional investors or
investment funds or that such share price will satisfy the
investing guidelines of institutional investors or investment
funds. As a result, the trading liquidity of the common stock
may not necessarily improve.
A decline in the market price of the common stock
after the reverse stock split may result in a greater percentage
decline than would occur in the absence of a reverse stock
split, and the liquidity of the common stock could be adversely
affected following such a reverse stock split.
If the reverse stock split is effected and the market
price of the common stock declines, the percentage decline may
be greater than would occur in the absence of a reverse stock
split. The market price of the common stock will, however, also
be based on the Company's performance and other factors, which
are unrelated to the number of shares of common stock
outstanding.
Impact of the Proposed Reverse Stock Split if Implemented
If approved and effected, the reverse stock split will
be realized simultaneously for all common stock and the ratio
will be the same for all common stock. The reverse stock split
will affect all of the Company's stockholders uniformly and will
not affect any stockholder's percentage ownership interests in
the Company, except to the extent that the reverse stock split
would result in any stockholders receiving cash in lieu of
fractional shares. As described below, stockholders otherwise
entitled to fractional shares as a result of the reverse stock
split will receive cash payments in lieu of such fractional
shares. These cash payments will reduce the number of post
reverse stock split stockholders to the extent there are
presently stockholders who would otherwise receive less than one
share of common stock after the reverse stock split. In
addition, the reverse stock split will not affect any
stockholder's percentage ownership or proportionate voting power
(subject to the treatment of fractional shares).
The principal effect of the reverse stock split will
be that:
* the number of shares of common stock issued and outstanding
will be reduced. For example, if all options and warrants
were exercised and all convertible securities converted, the
approximately 147,000,000 issued and outstanding shares will
be reduced to 14,700,000 shares if a one-for-ten ratio were
selected, and 29,400,000 shares if a one-for-five ratio were
selected;
* the number of shares that may be issued upon the exercise of
conversion rights by holders of securities convertible into
common stock will be reduced proportionately;
* proportionate adjustments will be made to the per-share
exercise price and the number of shares issuable upon the
exercise of all outstanding options and warrants, which will
result in approximately the same aggregate price being
required to be paid upon exercise of such options and warrants
as was required immediately preceding the reverse stock split;
and
* the number of shares reserved for issuance under the Company's
existing stock option plan, or under the 2004 Equity Incentive
Plan, if approved by stockholders, will be reduced
proportionately.
In addition, the reverse stock split may increase the
number of stockholders who own odd lots (less than 100 shares).
Stockholders who hold odd lots typically may experience an
increase in the cost of selling their shares and may have
greater difficulty in effecting sales.
Effect on Fractional Stockholders
No fractional post-reverse stock split shares will be
issued in connection with the reverse stock split. Instead, the
transfer agent will aggregate all fractional shares and sell
them as soon as practicable after the effective date at the then
prevailing prices on the open market, on behalf of those holders
who would otherwise be entitled to receive a fractional share.
The transfer agent will conduct the sale in an orderly fashion
at a reasonable pace in order to sell all of the fractional
shares of common stock and not to significantly depress the
market price for the common stock. After completing the sale,
holders entitled to a fractional share will receive a cash
payment from the transfer agent in an amount equal to their pro
rata share of the total net proceeds of that sale. No
transaction costs will be assessed on this sale. However, the
proceeds will be subject to federal income tax. Such holders
will not be entitled to receive interest for the period of time
between the effective date of the reverse stock split and the
date they receive their payment for the cashed-out shares. The
payment amount will be paid in the form of a check in accordance
with the procedures outlined below.
After the reverse stock split, such holders will have
no further interest in the Company with respect to their
cashed-out shares. A person otherwise entitled to a fractional
interest will not have any voting, dividend or other rights
except the right to receive payment as described above.
If you do not hold sufficient shares to receive at
least one share in the reverse stock split and you want to
continue to hold common stock after the reverse stock split, you
may do so by taking either of the following actions far enough
in advance so that it is completed by the effective date:
(1) purchase a sufficient number of shares of common stock
so that you hold at least an amount of shares of
common stock in your account prior to the reverse
stock split that would entitle you to receive at least
one share of common stock on a post-reverse stock
split basis; or
(2) if you have common stock in more than one account,
consolidate your accounts so that you hold at least a
number of shares of common stock in one account prior
to the reverse stock split that would entitle you to
receive at least one share of common stock on a
post-reverse stock split basis. Shares held in
registered form (that is, shares held by you in your
own name in the Company's stock records maintained by
our transfer agent) and shares held in "street name"
(that is, shares held by you through a bank, broker or
other nominee), will be considered held in separate
accounts and will not be aggregated when effecting the
reverse stock split.
You should be aware that, under the escheat laws of
the various jurisdictions where you reside, where the Company is
domiciled and where the funds will be deposited, sums due for
fractional interests that are not timely claimed after the funds
are made available may be required to be paid to the designated
agent for each such jurisdiction. Thereafter, stockholders
otherwise entitled to receive such funds may have to obtain the
funds directly from the state to which they were paid.
Effect on Employees and Directors
The number of shares reserved for issuance under stock
option plans will be reduced proportionately based on the
reverse stock split ratio, and the number of shares issuable
upon the exercise of options and the exercise price for such
options will be adjusted based on such reverse stock split
ratio.
Effect on Registered and Beneficial Stockholders
Upon a reverse stock split, stockholders holding
common stock in "street name," through a bank, broker or other
nominee, will be treated in the same manner as registered
stockholders whose shares are registered in their names. Banks,
brokers or other nominees will be instructed to effect the
reverse stock split for their beneficial holders holding common
stock in "street name." However, these banks, brokers or other
nominees may have different procedures than registered
stockholders for processing the reverse stock split. If you
hold your shares with a bank, broker or other nominee and if you
have any questions in this regard, we encourage you to contact
your nominee.
Effect on Owners of our Convertible Stock
If you are a holder of our Series A-1, Series D or
Series D-1 Convertible Preferred Stock, the number of shares of
common stock into which each convertible security may be
converted will be adjusted proportionately based on the reverse
stock split ratio.
Effect on Registered "Book-entry" Stockholders
Registered stockholders may hold some or all of their
shares electronically in book-entry form under the direct
registration system for securities. These stockholders will not
have stock certificates evidencing their ownership of common
stock. They are, however, provided with a statement reflecting
the number of shares registered in their accounts.
* If you hold registered shares in a book-entry form, you do not
need to take any action to receive your post reverse stock
split shares or your cash payment in lieu of any fractional
share interest, if applicable. If you are entitled to
post-reverse stock split shares, a transaction statement will
automatically be sent to your address of record indicating the
number of shares you hold.
* If you are entitled to a payment in lieu of any fractional
share interest, a check will be mailed to you at your
registered address as soon as practicable after the sale of
aggregate fractional interests by the transfer agent. By
signing and cashing this check, you will warrant that you
owned the shares for which you received a cash payment. This
cash payment is subject to applicable federal and state income
tax and state abandoned property laws. You will not be
entitled to receive interest for the period of time between
the effective date of the reverse stock split and the date you
receive your payment.
Effect on Registered Certificated Shares
* If any shares are held in certificate form, you will receive a
transmittal letter from our transfer agent after the effective
date of the reverse stock split. The letter of transmittal
will contain instructions on how to surrender a certificate
representing pre-reverse stock split shares to the transfer
agent. Upon receipt of your stock certificate, you will be
issued the appropriate number of shares electronically in
book-entry form under the direct registration system.
* No new shares in book-entry form will be issued until you
surrender your outstanding certificate(s), together with the
properly completed and executed letter of transmittal, to the
transfer agent.
* If you are entitled to a payment in lieu of any fractional
share interest, payment will be made as described above under
"Effect on Fractional Stockholders."
At any time after receipt of your direct registration
system statement, you may request a stock certificate
representing your ownership interest.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK
CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL
REQUESTED TO DO SO.
Authorized Shares
The reverse stock split would affect all issued and
outstanding shares of common stock and outstanding rights to
acquire common stock. Concurrent with the proposal to authorize
the board to implement a reverse stock split, the Company is
proposing that stockholders authorize the board of directors to
implement a decrease in the authorized shares of common stock.
Such authority would be contingent upon stockholder approval of
the reverse stock split, and would likely be adopted to reduce
the authorized capital proportionately. See "APPROVAL OF
AMENDMENT OF CERTIFICATE OF INCORPORATION TO DECREASE AUTHORIZED
CAPITAL (Proposal 4)." If the proposal to authorize the board
of directors to reduce the authorized capital were adopted, but
the board elected not to implement such proposal, there would be
a significant number of authorized shares of common stock
available for issuance. We will continue to have
25,000,000 authorized shares of preferred stock, 15,012,486 of
which are unissued at this time. Authorized but unissued shares
will be available for issuance, and we may issue such shares in
the future.
Accounting Matters
The reverse stock split will not affect the par value
of the common stock. As a result, as of the effective time of
the reverse stock split, the stated capital attributable to
common stock on the Company's balance sheet will be reduced
proportionately based on the reverse stock split ratio, and the
additional paid-in capital account will be credited with the
amount by which the stated capital is reduced. The per-share
net loss and net book value of the common stock will be restated
because there will be fewer shares of common stock outstanding.
Procedure for Effecting Reverse Stock Split
If the stockholders approve the proposal to authorize
the reverse stock split and the board of directors decides to
implement the reverse stock split, the Company will file a
Certificate of Amendment with the Secretary of State of the
State of Delaware to amend our existing Certificate of
Incorporation. The reverse stock split will become effective on
the date of filing the Certificate of Amendment, which is
referred to as the "effective date." Beginning on the effective
date, each certificate representing pre-reverse stock split
shares will be deemed for all corporate purposes to evidence
ownership of post-reverse stock split shares. The text of the
Certificate of Amendment is set forth in Exhibit D to this proxy
statement. The text of the Certificate of Amendment is subject
to modification to reflect the reverse split ratio selected and
to include such changes as may be required by the office of the
Secretary of State of the State of Delaware and as the board of
directors deems necessary and advisable to effect the reverse
stock split.
No Appraisal Rights
Under the General Corporation Law of the State of
Delaware, stockholders are not entitled to appraisal rights with
respect to the reverse stock split, and we will not
independently provide stockholders with any such right.
Federal Income Tax Consequences of the Reverse Stock Split
The following is a summary of certain material United
States federal income tax consequences of the reverse stock
split, does not purport to be a complete discussion of all of
the possible federal income tax consequences of the reverse
stock split and is included for general information only.
Further, it does not address any state, local or foreign income
or other tax consequences. It does not address the tax
consequences to holders that are subject to special tax rules,
such as banks, insurance companies, regulated investment
companies, personal holding companies, foreign entities,
nonresident alien individuals, broker-dealers and tax-exempt
entities. The discussion is based on the provisions of the
United States federal income tax law as of the date hereof,
which is subject to change retroactively as well as
prospectively. This summary also assumes that the pre-reverse
stock split shares were, and the post-reverse stock split shares
will be, held as "capital assets," as defined in the Internal
Revenue Code of 1986, as amended (i.e., generally, property held
for investment). The tax treatment of a stockholder may vary
depending upon the particular facts and circumstances of such
stockholder. Each stockholder is urged to consult with such
stockholder's own tax advisor with respect to the tax
consequences of the reverse stock split. As used herein, the
term "United States holder" means a stockholder that is, for
federal income tax purposes: a citizen or resident of the
United States; a corporation or other entity taxed as a
corporation created or organized in or under the laws of the
United States, any state of the United States or the District of
Columbia; an estate the income of which is subject to federal
income tax regardless of its source; or a trust if a U.S. court
is able to exercise primary supervision over the administration
of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust.
Other than the cash payments for fractional shares
discussed below, no gain or loss should be recognized by a
stockholder upon the exchange of pre-reverse stock split shares
for post-reverse stock split shares pursuant to the reverse
stock split. The aggregate tax basis of the post-reverse stock
split shares received in the reverse stock split (including any
fraction of a post-reverse stock split share deemed to have been
received) will be the same as the stockholder's aggregate tax
basis in the pre-reverse stock split shares exchanged therefor.
In general, stockholders who receive cash in exchange for their
fractional share interests in the post-reverse stock split
shares as a result of the reverse stock split will recognize
gain or loss based on their adjusted basis in the fractional
share interests redeemed. The stockholder's holding period for
the post-reverse stock split shares will include the period
during which the stockholder held the pre-reverse stock split
shares surrendered in the reverse stock split. The receipt of
cash instead of a fractional share of common stock by a United
States holder of common stock will result in a taxable gain or
loss to such holder for federal income tax purposes based upon
the difference between the amount of cash received by such
holder and the adjusted tax basis in the fractional shares as
set forth above. The gain or loss will constitute a capital
gain or loss and will constitute long-term capital gain or loss
if the holder's holding period is greater than one year as of
the effective date.
Our view regarding the tax consequences of the reverse
stock split is not binding on the Internal Revenue Service or
the courts. ACCORDINGLY, EACH STOCKHOLDER SHOULD CONSULT WITH
HIS OR HER OWN TAX ADVISOR WITH RESPECT TO ALL OF THE POTENTIAL
TAX CONSEQUENCES TO HIM OR HER OF THE REVERSE STOCK SPLIT.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT AT EITHER A
ONE-FOR-FIVE OR ONE-FOR-TEN RATIO.
____________________________
APPROVAL OF AMENDMENT TO CERTIFICATE OF
INCORPORATION TO REDUCE AUTHORIZED CAPITAL
(Proposal No. 4)
On February 13, 2004, the board of directors approved,
and recommended to the stockholders for adoption, a proposal
that would grant to the Company's board of directors the
authority to implement a reverse stock split. The reverse stock
split would have the effect of decreasing the number of issued
and outstanding common shares but would not impact the number of
authorized shares of common stock, which would remain
225,000,000 (if the increase in authorized capital is approved
by the stockholders).
The board of directors believes that it is in the best
interest of our stockholders and the Company for the board to
have the authority to reduce the number of authorized shares if
and when the board implements the reverse stock split described
above. The Company's capital needs following the reverse stock
split would likely not require the large number of authorized
shares that would remain after the reverse stock split and,
since certain franchise and other fees are based on authorized
capital, the Company would reduce costs if the authorized
capital were reduced. In addition, having a large number of
authorized but unissued shares is viewed by markets as a
detriment in that it provides the board of directors with the
ability to issue a significant number of shares without seeking
stockholder approval.
Accordingly, the Company proposes that the board of
directors have the authority to amend the Company's certificate
of incorporation to decrease the number of authorized shares of
Common Stock to some lower number of authorized shares, as
determined in the sole discretion of the board, provided that
such authorization may only be exercised upon or after the
occurrence of the reverse stock split. If the board of
directors does not implement the reverse stock split prior to
December 31, 2004, its authority to decrease the authorized
share capital will terminate. The board of directors reserves
its right to elect not to proceed, and abandon, the reverse
stock split if it determines, in its sole discretion, that this
proposal is no longer in the best interests of our stockholders.
The board's authority to implement this proposal is contingent
on its determination to implement the reverse stock split.
However, if the board of directors determines to implement the
reverse stock split, it may nonetheless determine not to reduce
the authorized capital as described in this proposal.
Under the General Corporation Law of the Sate of
Delaware, stockholders are not entitled to appraisal rights with
respect to the decrease in authorized capital, and the Company
will not independently provide stockholders with such right.
The text of the proposed amendment is set forth on
Exhibit E.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE PROPOSAL TO AUTHORIZE THE BOARD OF DIRECTORS TO
AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO DECREASE THE
AUTHORIZED CAPITAL UPON OR AFTER REVERSE STOCK SPLIT.
____________________________
APPROVAL OF 2004 EQUITY INCENTIVE PLAN
(Proposal No. 5)
The board of directors has approved the 2004 Incentive
Plan (the "2004 Plan") and directed that it be submitted to the
stockholders for approval. The purpose of the 2004 Plan is to
provide long-term incentives to the Company's officers,
directors, employees and consultants and to advance the
interests of the Company through the attraction, retention and
motivation of qualified officers, directors, employees and
consultants. Sixteen million (16,000,000) shares of common
stock will be reserved for issuance under the 2004 Plan if
Proposal 2 increasing the authorized capital is approved by
stockholders. Under the 2004 Plan, the Company may grant to
officers, directors, employees and consultants awards of
restricted stock, stock options and performance awards or any
combination thereof, but no participant may be granted awards in
any 12-month period with respect to more than 3,000,000 shares.
There are currently three officers, one employee, three non-
officer directors and no consultants. Awards will be at the
discretion of the Compensation Committee. No benefits or
particular allocations under the 2004 Plan are determinable with
respect to the Company's officers, directors or employees. The
complete text of the 2004 Plan is attached hereto as Exhibit F.
The 2004 Plan is administered by the board of
directors or the Compensation Committee (the "Compensation
Committee") of the board of directors. Subject to the terms of
the 2004 Plan, the Compensation Committee determines the persons
to whom awards are 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 terms of any option
(which cannot exceed ten years). The Compensation Committee may
delegate to officers the power to make these determinations,
except with respect to grants to executive officers and
directors.
Under the 2004 Plan, the Company may grant both
incentive stock options ("incentive stock options") intended to
qualify under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and options which are not qualified as
incentive stock option ("non-statutory stock options").
Incentive stock options may be granted only to persons who are
employees of the Company, while non-statutory stock options may
also be granted to persons who are directors or consultants to
the Company. No more than 15,000,000 shares are available for
the grant of incentive stock options.
Incentive stock options may not be granted at an
exercise price of less than the fair market value of the common
stock on the date of grant. The exercise price of non-statutory
stock options may be less than the fair market value of the
common stock on the date of grant. At February 13, 2004, the
average price of the Company's common stock on the OTC Bulletin
Board was $1.20. The exercise price of incentive stock options
granted to holders of more than 10% of the common stock must be
at least 110% of the fair market value of the common stock on
the date of grant, and the term of these options cannot exceed
five years. Incentive stock options granted pursuant to the
2004 Plan may not be exercised more than three months after the
option holder ceases to be an employee of the Company, except
that in the event of the death, disability, or retirement of the
option holders, the option may be exercised by the holder (or
his estate, as the case may be), for a period of up to one year
after the date of death, disability or retirement. The exercise
price may be paid in cash, in shares of common stock (valued at
fair market value at the date of exercise), by delivery of a
notice of exercise, accompanied by instructions to a broker to
deliver proceeds of sale of stock, or of a loan from the broker,
sufficient to pay the exercise price, or by a combination of
such means of payment, as may be determined by the Compensation
Committee. The Company may guarantee a third-party loan, or
make a loan, to a participant that is not an officer or director
if all or part of the exercise price of such loan is secured by
the stock underlying the option and the loan bears a market
interest rate. The Compensation Committee is authorized to
reprice outstanding options, and to change vesting schedules and
exercise periods in its discretion.
Under the performance award component of the 2004
Plan, participants may be granted an award denominated in shares
of common stock or in dollars. Achievement of the performance
targets, or multiple performance targets established by the
Compensation Committee relating to corporate, group, unit or
individual performance based upon standards set by the
Compensation Committee shall entitle the participant to payment
at the full amount specified with respect to the award, subject
to adjustment at the discretion of the Compensation Committee in
the event of performance exceeding the minimum performance
target, but below the maximum performance target applicable to
such award. Payment may be made in cash, common stock or any
combination thereof, as determined by the Compensation
Committee, and shall be adjusted in the event the participant
ceases to be an employee of the Company before the end of a
performance cycle by reason of death, disability or retirement.
Under the stock component of the 2004 Plan, the
Compensation Committee may, in selected cases, grant to a plan
participant a given number of shares of restricted stock or
unrestricted stock. Restricted stock under the 2004 Plan is
common stock restricted as to sale pending fulfillment of such
vesting schedule and employment requirements as the Compensation
Committee shall determine. Prior to the lifting of the
restrictions, the participant will nevertheless be entitled to
receive distributions in liquidation and dividends on, and to
vote the shares of, the restricted stock. The 2004 Plan
provides for forfeiture of restricted stock for breach of
conditions of grant.
The 2004 Plan also implements a formula stock plan for
non-employee directors. Under the formula plan, each non-
employee director will receive a non-statutory option to
purchase 50,000 shares of common stock upon election to the
board, and an option to purchase 25,000 shares of common stock
on each anniversary of election to the board. Anniversary
options will be exercisable one year from grant, and initial
option grants will vest in equal annual increments over a two-
year period. All options will have an exercise price equal to
the fair market value at date of grant, and will expire ten
years from the date of grant.
The 2004 Plan provides that the total number of option
shares covered by such 2004 Plan, the number of shares covered
by each option and the exercise price per share may be
proportionately adjusted by the Compensation 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 merger or sale of
substantially all assets of the Company, the Compensation
Committee will have the power and discretion to prescribe the
terms for exercise or modification of outstanding awards under
the 2004 Plan. In addition, upon a change of control, the
Compensation Committee is authorized to make adjustments in
outstanding stock options and awards, including acceleration of
exercise dates and vesting schedules, granting cash bonuses to
option holders equal to the exercise price, making cash payments
to holders equal to the difference between the fair market value
and the exercise price of options, and elimination of
restrictions on vesting of restricted stock or performance
shares.
The following table sets forth information as of
August 31, 2003, with respect to the Existing Plan:
Number of securities
remaining available
for future issuance
Number of Weighted-average under equity
securities to exercise price of compensation plans
be issued upon outstanding (excluding
exercise of optins securities
Outstanding warrants and reflected in
options, rights column (a))
warrants and
rights
(a) (b) (c)
Equity
compensation
plans approved
by security
holders 23,000,000 $.18 0
Equity
compensation
plans not
approved by
security holders 3,000,000 $.18
Total
26,000,000 $.18 0
In April of 2001, the Board granted Mr. Harding
options pursuant to employment arrangements outside the Existing
Plan to purchase 3,000,000 shares of common stock at an exercise
price of $.18 per share, of which 2,250,000 vested immediately
and 250,000 shares vest on each annual anniversary date of the
grant over the following three years. Such options expire in
August 2007.
The Compensation Committee may amend or discontinue
the 2004 Plan at any time, provided that no such amendment may
become effective without approval of the stockholders if
stockholder approval is necessary to satisfy statutory or
regulatory requirements or if the Compensation Committee, on
advice of counsel, determines that stockholder approval is
otherwise necessary or desirable, in particular, if the
amendment will increase the cost of the 2004 Plan to the
Company. No amendment or discontinuance shall adversely affect
the rights and obligations with respect to outstanding awards
under the 2004 Plan without the consent of award holders.
Federal Income Tax Consequences
A participant who is granted an incentive stock option
recognizes no taxable income upon grant. Generally, no taxable
income is recognized upon exercise of an incentive stock option
unless the alternative minimum tax applies (see below).
However, a participant who exercises an incentive stock option
recognizes taxable gain or loss when he sells his shares. Such
gain or loss is taxed as capital gain or loss if the stock is
sold at least one year after the option was exercised and at
least two years after the option was granted. In this event,
the Company receives no deduction. If the optionee disposes of
the incentive stock option shares before the required holding
periods have elapsed (a "disqualifying disposition"), he
recognizes ordinary income on disposition of the shares, to the
extent of the difference between the fair market value on the
date of exercise (or potentially up to six months thereafter if
the optionee is subject to Section 16(b) of the Securities
Exchange Act of 1934 (the "Act") as a director, officer or
greater than 10% shareholder) and the option price, but, in the
case of a disposition in which a loss (if sustained) would be
recognized, not exceeding the net gain upon such disposition.
The Company generally receives a corresponding deduction in the
year of the disqualifying disposition equal to the amount of
ordinary income recognized by the optionee. Long-term capital
gain is taxed at a more favorable rate than ordinary income, but
the deduction of capital losses is subject to limitation.
Certain taxpayers who have significant tax preferences
(and other items allowed favorable treatment for regular tax
purposes) may be subject to the alternative minimum tax ("AMT").
The AMT is payable only if and to the extent that it exceeds the
taxpayer's regular tax liability, and AMT paid generally may be
credited against subsequent regular tax liability. For purposes
of the AMT, an incentive stock option is treated as if it were a
non-statutory option (see below). Thus, the difference between
fair market value on the date of exercise (or potentially up to
six months thereafter if the optionee is subject to
Section 16(b) of the Act) and the option price is included in
income for AMT purposes, and the taxpayer receives a basis equal
to such fair market value for subsequent AMT purposes. However,
regular tax treatment (see above) will apply for AMT purposes if
a disqualifying disposition occurs in the same taxable year as
the options are exercised.
The tax treatment of non-statutory options differs
significantly from the tax treatment of incentive stock options.
No taxable income is recognized when a non-statutory option is
granted, but upon the exercise of such option, the difference
between the market value of the stock on the date of exercise
and the option price is taxable as ordinary income in the year
the option is exercised, and generally is deductible by the
Company. If the optionee is subject to Section 16(b) of the
Act, the date for measuring taxable income potentially may be
deferred for up to six months (unless the employee makes an
election under Section 83(b) of the Internal Revenue Code within
30 days after the exercise date).
The Company may withhold any taxes required to be
withheld in connection with the grant or exercise of any option,
including, but not limited to withholding of any portion of any
payment or withholding from other compensation payable to the
participant, unless the participant reimburses the Company for
such amount.
Approval of the Plan will require the affirmative vote
of a majority of the shares of common stock of the Company
represented in person or by proxy at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE 2004 INCENTIVE PLAN.
____________________________
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal No. 6)
Action is to be taken by the stockholders at the
Meeting with respect to the ratification and approval of the
selection by the Company's board of directors of KPMG LLP to be
the independent auditors of the Company for the fiscal year
ending August 31, 2004. KPMG LLP does not have and has not had
at any time any direct or indirect financial interest in the
Company and does not have and has not had at any time any
connection with the Company in the capacity of promoter,
underwriter, voting trustee, director, officer or employee.
Neither the Company, nor any officer, director or associate of
the Company has any interest in KPMG LLP.
A representative of KPMG LLP will be present at the
Meeting and will have the opportunity to make a statement if
(s)he so desires and will be available to respond to appropriate
questions.
Audit Fees
The following table summarizes fees billed to the
Company by KPMG LLP during the fiscal years ended August 31,
2003 and 2002 for (i) audit of financial statements and review
of securities filings; (ii) services reasonably related to
performance or review of financial statements, (iii) tax
compliance, tax advice and tax planning, and (iv) other products
and services:
2003 2002
Audit Fees $24,000 $18,000
Audit-related fees 0 0
Tax fees 0 0
Other fees 0 0
Commencing in 2004, the Audit Committee implemented
the policies for review and approval of all services to be
provided by KPMG LLP before the firm is retained for such
services, which policies are included in the Audit Committee
Charter set forth in Exhibit A.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE SELECTION OF KMPG LLP AS INDEPENDENT AUDITORS.
ACTION TO BE TAKEN UNDER THE PROXY
The accompanying Proxy will be voted "FOR" approval of
proposals 1 through 6 unless the Proxy is marked in such a
manner as to withhold authority to so vote. The accompanying
Proxy will also be voted in connection with the transaction of
such other business as may properly come before the Meeting or
any adjournment or adjournments thereof. Management knows of no
other matters, other than the matters set forth above, to be
considered at the Meeting. If, however, any other matters
properly come before the Meeting or any adjournment thereof, the
persons named in the accompanying Proxy will vote such Proxy in
accordance with their best judgment on any such matter. The
persons named in the accompanying Proxy will also, if in their
judgment it is deemed to be advisable, vote to adjourn the
Meeting from time to time.
DATE OF RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the Proxy
Statement for the 2005 Annual Meeting of Stockholders must be
received at the principal executive offices of the Company on or
before September 30, 2004. The Company is not required to
include proposals received after September 30, 2004 in its proxy
materials for the 2005 Annual Meeting of Stockholders.
INCORPORATION BY REFERENCE
Stockholders should review the financial statements
included with the Form 10-KSB for the year ended August 31, 2003
and the Form 10-QSB for the quarter ended November 30, 2003,
each of which are provided herewith and incorporated by
reference in the proxy statement.
EXHIBIT A
AUDIT COMMITTEE CHARTER
PURE CYCLE CORPORATION
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Adopted February 13, 2004
* * * * *
PURPOSE
The audit committee (the "Committee") is appointed by the
board of directors (the "Board") of Pure Cycle Corporation (the
"Company"). This audit committee charter specifies the
composition, scope of authority and responsibility of the
Committee. The primary function of the Committee is to assist
the Board in fulfilling its oversight responsibilities,
primarily through overseeing management's conduct of the
Company's accounting and financial reporting process and systems
of internal accounting and financial controls; selecting,
retaining and monitoring the independence and performance of the
Company's outside auditors, including overseeing the audits of
the Company's financial statements and approving any non-audit
services; and providing an avenue of communication among the
outside auditors, management and the Board.
COMPOSITION
The Committee shall have at least three (3) members at all
times, each of whom:
(1) Is an independent director, as defined in the Rule
4200(a)(15) of the NASDAQ listing standards, as
amended;
(2) Satisfies the independence requirements set forth in
Rule 10A-3 promulgated under the Securities Exchange
Act of 1934, as amended;
(3) Did not participate in the preparation of the
financial statements of the Company or any current
subsidiary of the Company at any time during the past
three years; and
(4) Is able to read and understand fundamental financial
statements, including the Company's balance sheet,
income statement and cash flow statement.
In addition, at least one member of the Committee shall be
a "financial expert" as defined by, and meet the financial
sophistication standards under, applicable law and listing
standards.
Each member of the Committee shall be appointed by the
Board and shall serve until the earlier to occur of the date on
which he or she shall be replaced by the Board, resigns from the
Committee, or resigns from the Board.
MEETINGS
The Board shall name a chairperson of the Committee, who
shall prepare and/or approve the agenda for each meeting and
shall preside over meetings of the Committee. In the absence of
the chairperson, the Committee shall select a chairperson for
that meeting. A majority of the members of the Committee shall
constitute a quorum and the act of a majority of the members
present at a meeting where a quorum is present shall be the act
of the Committee. The Committee may also act by unanimous
written consent of its members. The Committee shall maintain
minutes or other records of meetings and activities of the
Committee. The Committee shall meet as frequently as
circumstances dictate, but no less than once annually; provided
that, the chairperson shall meet with the Company's outside
auditors at least quarterly, and the chairperson shall call a
meeting of the full Committee if the results of the
chairpersons' meeting with the auditors dictate.
The Committee shall, through its chairperson, report to the
Board following the meetings of the Committee, addressing such
matters as the quality of the Company's financial statements,
the Company's compliance with legal or regulatory requirements,
the performance and independence of the outside auditors, the
performance of the internal audit function and other matters
related to the Committee's functions and responsibilities.
The Committee shall at least annually meet separately with
each of the Company's management, the Company's chief financial
officer and the Company's outside auditors in separate executive
sessions to discuss any matters that the Committee or each of
these groups believes should be discussed privately.
RESPONSIBILITIES, DUTIES AND POWERS
The Committee's principal responsibility is one of
oversight. The Company's management is responsible for
preparing the Company's financial statements and the outside
auditors are responsible for auditing and/or reviewing those
financial statements. In carrying out these oversight
responsibilities, the Committee is not providing any expert or
special assurance as to the Company's financial statements or
any professional certification as to the outside auditors' work.
The Committee's specific responsibilities and powers are as
set forth below:
General Duties And Responsibilities
* Periodically review with management and the outside
auditors the applicable law and listing rules (the
"Listing Rules") relating to the qualifications,
activities, responsibilities and duties of audit
committees and compliance therewith, and also take, or
recommend that the Board take, appropriate action to
comply with such law and rules.
* Review and evaluate, at least annually, the adequacy
of this charter and make recommendations for changes
to the Board.
* Establish procedures for: (a) the receipt, retention
and treatment of complaints received by the Company
regarding accounting, internal accounting controls or
auditing matters; and (b) the confidential, anonymous
submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
* Retain, at the Company's expense, independent counsel,
accountants or others for such purposes as the
Committee, in its sole discretion, determines to be
appropriate to carry out its responsibilities.
* Prepare annual reports of the Committee for inclusion
in the proxy statement for the Company's annual
meeting.
* Investigate any matter brought to its attention
related to financial, accounting and audit matters and
have full access to all books, records, facilities and
personnel of the Company.
* Undertake such additional responsibilities as from
time to time may be delegated to it by the Board,
required by the Company's articles or bylaws or
required by law or Listing Rules.
Related Party Transactions
* Review any transaction involving the Company and a
related party at least once a year or upon any
significant change in the transaction or relationship.
For these purposes, a "related party transaction"
includes any transaction required to be disclosed
pursuant to Item 404 of Regulation S-K or
Regulation S-B (as applicable).
Pre-Approval of Audit and Non-Audit Services
* Pre-approve all engagement letters and fees for all
auditing services (including providing comfort letters
in connection with securities underwritings) and non-
audit services performed by the outside auditors,
subject to any exception under Section 10A of the
Exchange Act and any rules promulgated thereunder.
Pre-approval authority may be delegated to a Committee
member or a subcommittee, and any such member or
subcommittee shall report any decisions to the full
Committee at its next scheduled meeting. The
Committee shall not approve an engagement of outside
auditors to render non-audit services that are
prohibited by law or the Listing Rules
Auditor Independence
* Be directly responsible for the appointment,
compensation, retention, termination, and oversight of
the work of any outside auditor engaged by the Company
for the purpose of preparing or issuing an audit
report or performing other audit, review or attest
services. The outside auditors shall report directly
to the Committee.
* Be vested with all responsibilities and authority
required by Rule 10A-3 under the Exchange Act.
* Obtain from the outside auditors assurance that they
have complied with Section 10A of the Exchange Act, as
amended, and the rules promulgated thereunder.
* Review with the outside auditors, at least annually,
the auditors' internal quality control procedures and
any material issues raised by the most recent internal
quality peer review of the outside auditors.
Internal Control
* Review annually the adequacy and quality of the
Company's financial and accounting staffing, the need
for and scope of internal audit reviews, and the plan,
budget and the designations of responsibilities for
any internal audit.
* Review the performance and material findings of
internal audit reviews.
* Review annually with the outside auditors any
significant matters regarding the Company's internal
controls and procedures over financial reporting that
have come to their attention during the conduct of
their annual audit, and review whether internal
control recommendations made by the auditors have been
implemented by management.
* Review annually management's report on internal
controls and the auditor's attestation regarding
management's assessment of internal controls, when and
as required by Section 404 of the Sarbanes-Oxley Act.
* Evaluate whether management is setting the appropriate
tone at the top by communicating the importance of
internal controls and ensuring that all supervisory
and accounting employees understand their roles and
responsibilities with respect to internal controls.
Annual And Interim Financial Statements
* Review, evaluate and discuss with the outside auditors
and management the Company's audited annual financial
statements and other information that is to be
included in the Company's annual report on Form 10-KSB
or Form 10-K (as applicable to the Company), including
the disclosures under "Management's Discussion and
Analysis", and the results of the outside auditors'
audit of the Company's annual financial statement,
including the accompanying footnotes and the outside
auditors' opinion, and determine whether to recommend
to the Board that the financial statements be included
in the Company's annual report on Form 10-KSB or
Form 10-K (as applicable to the Company) for filing
with the SEC.
* Review, evaluate and discuss the nature and extent of
any significant changes in accounting principles or in
the application of accounting principles.
* Require the outside auditors to review the Company's
interim financial statements, and review and discuss
with the outside auditors and management the Company's
interim financial statements and other information to
be included in the Company's quarterly reports on Form
10-QSB or Form 10-Q (as applicable to the Company),
including the disclosures under "Management's
Discussion and Analysis", prior to filing such reports
with the SEC.
* Review and discuss with the Company's management and
outside auditors significant accounting and reporting
principles, practices and procedures applied in
preparing the financial statements and any major
changes to the Company's accounting or reporting
principles, practices or procedures, including those
required or proposed by professional or regulatory
pronouncements and actions, as brought to its
attention by management and/or the outside auditors.
* Review and discuss all critical accounting policies
identified to the Committee by management and the
outside auditors.
* Review significant accounting and reporting issues,
including recent regulatory announcements and rule
changes and understand their impact on the financial
statements.
* Discuss alternative treatments of financial
information under generally accepted accounting
principles, the ramifications of each treatment and
the method preferred by the Company's outside
auditors.
* Review the results of any material difficulties,
differences or disputes with management encountered by
the outside auditors during the course of the audit or
reviews and be responsible for overseeing the
resolution of such difficulties, differences and
disputes.
* Review the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended
(Communications with Audit Committees), relating to
the conduct of the audit.
* Receive from the outside auditors, review and discuss
a formal written statement delineating all
relationships between the outside auditors and the
Company, consistent with the Independence Standards
Board, Standard No. 1, regarding relationships and
services which may impact the objectivity and
independence of the outside auditors, and other
applicable standards. The statement shall include a
description of all services provided by the outside
auditors and the related fees. The Committee shall
actively discuss any disclosed relationships or
services that may impact the objectivity and
independence of the outside auditors.
* Review the scope, plan and procedures to be used on
the annual audit and receive confirmation from the
outside auditors that no limitations have been placed
on the scope or nature of their audit scope, plan or
procedures.
Earnings Press Releases
* Review and discuss with management and the outside
auditors prior to release all earnings press releases
of the Company, as well as financial information and
earnings guidance, if any, provided by the Company to
analysts and rating agencies.
Compliance With Law And Regulations
* Meet at least annually with management to review
compliance with laws and regulations (including
insider reporting) in all operating jurisdictions, the
effectiveness of the Company's systems for monitoring
compliance with laws and regulations and the results
of the investigation and follow-up (including
disciplinary action) on any fraudulent acts or
accounting regularities.
* Periodically obtain updates from management regarding
compliance matters.
Compliance With Corporate Business Conduct Or Ethics
Policies
* Review with management, the outside auditors and legal
counsel, as the Committee deems appropriate, actions
taken to ensure compliance with any code of ethics or
conduct for the Company established by the Board.
* Review at least annually the Company's Code of
Business Conduct and Ethics and any other code of
ethics adopted to comply with Section 406 of the
Sarbanes-Oxley Act.
* Evaluate whether management is setting the appropriate
tone at the top by communicating the importance of the
Company's ethics and conduct codes.
EXHIBIT B
CODE OF ETHICS
PURE CYCLE CORPORATION
CODE OF BUSINESS CONDUCT AND ETHICS
Adopted February 13, 2004
* * * * *
Pure Cycle Corporation (the "Company") is adopting this Code
of Business Conduct and Ethics (the "Code") to formalize the
Company's continuing expectations regarding ethical conduct.
This Code applies to the directors, officers and employees of
the Company and each of its subsidiaries.
This Code is intended to satisfy the requirements of Section
406 of the Sarbanes-Oxley Act of 2002 regarding the adoption of
a code of ethics for senior officers and the Nasdaq Stock Market
listing standards regarding the adoption of a code of conduct
for directors, officers and employees.
Honest and Ethical Conduct
The Company is committed to conducting its business in
accordance with the highest ethical principles. Each director,
officer and employee is expected to conduct his or her affairs
with uncompromising honesty and integrity. Specifically, each
director, officer and employee must:
(i) Adhere to a high standard of honesty and
integrity and not seek competitive advantage
through unlawful or unethical business practices.
(ii) Become familiar with, and conduct the
Company's business in compliance with, applicable
governmental laws, rules, and regulations.
(iii) Treat all customers and suppliers
honestly.
(iv) Promote equal opportunity for all employees
while providing a work environment free of any
form of discrimination.
(v) Safeguard and properly use the Company's
proprietary information assets and other
resources.
(vi) Maintain confidentiality of nonpublic
information and not act on such information for
personal gain.
(vii) Maintain the skills necessary and
relevant to serve the Company's needs.
(viii) Achieve responsible use of and control
over all assets and resources employed by or
entrusted to each such person.
(ix) Promptly report to the Audit Committee any
violation of this Code.
Conflicts of Interest
Each director, officer and employee has an obligation to
act in the best interests of the Company and is expected to
avoid engaging in activities that create an actual or apparent
conflict between their personal interests and the interests of
the Company. A conflict of interest may arise when a director,
officer or employee takes an action or has a personal interest
that may adversely influence his or her objectivity or the
exercise of sound, ethical business judgment. The following
situations are examples of conflict of interest situations:
(a) Owning or holding a substantial financial interest
in a company which has material business dealings with
the Company or which engages in any significant field
of activity engaged in by the Company.
(b) Acting as a director or officer for any business
enterprise with which the Company has a competitive or
significant business relationship, unless so requested
or approved by the Company.
(c) Accepting gifts, payments, or services of
significant value from those seeking to do business
with the Company.
(d) Knowingly competing with the Company in the
purchase or sale of property or diverting from the
Company a business opportunity in which the Company
has or is likely to have an interest.
(e) Placing of Company business with a firm owned or
controlled by a Company employee, officer or director
without the prior specific approval of the Board.
It is the Company's policy that actual or apparent
conflicts of interest are to be avoided if possible and must be
fully disclosed to the full board of directors. Any material
transaction or relationship involving a potential conflict of
interest must be approved in advance by the board. In addition,
all related party transactions of the Company must be reviewed
and approved by the Audit Committee.
Disclosure
The Company's public filings, including its filings with
the SEC, must be full, fair, accurate, timely, and
understandable. Depending on his or her position with the
Company, any director, officer or employee may be called upon
from time to time to provide information necessary to achieve
this objective. The Company expects each director, officer and
employee to take this responsibility very seriously and to
provide full, fair, and accurate information upon request in a
timely and understandable manner.
Each director, officer and employee must promptly bring to
the attention of the Company's Audit Committee any material
information of which that individual has become aware that
affects the disclosures made by the Company in its public
filings or otherwise, and to otherwise assist the Audit
Committee in fulfilling its responsibilities.
In addition, each director, officer and employee must
promptly bring to the attention of the Audit Committee any
information that the individual may have concerning (a)
deficiencies in the design or operation of the Company's
internal controls which could materially affect the Company's
ability to record, process, summarize, and report financial data
or (b) any fraud, whether or not material, that involves any
officer, or that involves an employee who has a significant role
in the Company's financial reporting, disclosures, or internal
controls.
Compliance with Laws
The Company has always required that all of its employees
conduct the Company's operations in accordance with all
applicable governmental laws, rules and regulations. Each
director, officer and employee has the obligation to understand
those laws, rules and regulations that apply to them in the
performance of their jobs and to take such steps as are
necessary to ensure that the Company's operations with which
they are involved are conducted in conformity with those laws.
The failure of a director, officer or employee to strictly
adhere to the letter and the spirit of the law could result in
both personal and corporate criminal liability.
Reporting and Accountability
Each director, officer and employee is personally
accountable for his or her adherence to is Code. Any violation
of the Code must be promptly reported to the Audit Committee.
The chairman of the Audit Committee may be reached as follows:
Harrison H. Augur
P.O. Box 4389
Aspen, Colorado 81611
Phone: (970) 925-2926
email: oteea@aol.com
Upon receiving a report alleging a violation of the Code,
the Audit Committee, or its designee, shall investigate the
alleged violation of this Code. In the event the Audit
Committee determines that a violation has occurred, the Audit
Committee shall make a recommendation to the board of directors
of the action to be taken. The board of directors shall make
the final determination of the action to be taken, provided that
any board member alleged of violating this Code shall not be
entitled to vote on such action. Such action may include, if
appropriate, termination of employment and reporting of
violations to applicable government authorities.
Waiver
Any waiver of this Code for executive officer or directors
may be made only by the board of directors. Such waivers must
be disclosed to stockholders to the extent required by
applicable law.
EXHIBIT C
PROPOSED AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
PURE CYCLE CORPORATION
The Certificate of Incorporation of the Corporation, filed with
the Secretary of State of the State of Delaware on April 1,
1976, as amended, is hereby amended by deleting Section 1 of
Article IV thereof in its entirety and substituting the
following in lieu thereof:
Section 1. Authorized Shares. The number of shares
of capital stock of all classes which the Corporation
shall have authority to issue is two hundred fifty
million (250,000,000) shares, of which two hundred
twenty-five million (225,000,000) shares shall be of a
class designated as "common stock," with a par value
of one-third of one cent ($.00333) per share, and
twenty-five million (25,000,000) shares shall be of a
class designated as "Preferred Stock," with a par
value of one-tenth of one cent ($.001) per share.
EXHIBIT D
PROPOSED AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
PURE CYCLE CORPORATION
Pure Cycle Corporation, a Delaware corporation (the
"Corporation"), does hereby certify that:
FIRST: This Certificate of Amendment amends the provisions
of the Corporation's Certificate of Incorporation (the
"Certificate of Incorporation").
SECOND: The terms and provisions of this Certificate of
Amendment have been duly adopted in accordance with Section 242
of the General Corporation Law of the State of Delaware and
shall become effective at [time], on [date].
THIRD: Section 1 of Article IV of the Certificate of
Incorporation is hereby amended by deleting that section in its
entirety and replacing it with the following:
Section 1. Authorized Shares. The number of shares
of capital stock of all classes which the Corporation
shall have authority to issue is two hundred fifty
million (250,000,000) shares, of which two hundred
twenty-five million (225,000,000) shares shall be of a
class designated as "common stock," with a par value
of one-third of one cent ($.00333) per share, and
twenty-five million (25,000,000) shares shall be of a
class designated as "Preferred Stock," with a par
value of one-tenth of one cent ($.001) per share.
Effective at [time], on [date] (the "Effective Time"),
each [5 or 10] shares of Common Stock of the
Corporation issued and outstanding immediately prior
to the Effective Time (the "Old Common Stock") shall
be automatically reclassified as and combined into
(the "Reclassification"), without any further action,
one (1) fully-paid and nonassessable share of the same
class of Common Stock of the Corporation, par value
one-third of one cent ($.00333) (the "New Common
Stock"), provided that no fractional shares shall be
issued to any holder of less than [5 or 10] shares of
Common stock immediately before the Effective Time,
and that instead of issuing such fractional shares,
the Corporation shall arrange for the disposition of
fractional interests by those entitled thereto, by the
mechanism of having (x) the transfer agent of the
Corporation aggregate such fractional interests and
(y) the shares resulting from the aggregation sold and
(z) the net proceeds received from the sale be
allocated and distributed among the holders of the
fractional interests as their respective interests
appear.
EXHIBIT E
PROPOSED AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
PURE CYCLE CORPORATION
Pure Cycle Corporation, a Delaware corporation (the
"Corporation"), does hereby certify that:
FIRST: This Certificate of Amendment amends the provisions
of the Corporation's Certificate of Incorporation (the
"Certificate of Incorporation").
SECOND: The terms and provisions of this Certificate of
Amendment have been duly adopted in accordance with Section 242
of the General Corporation Law of the State of Delaware and
shall become effective at [time], on [date].
THIRD: Section 1 of Article IV of the Certificate of
Incorporation is hereby amended by adding the following
paragraph to end of that section:
Section 1. Authorized Shares.
....
Notwithstanding anything to the contrary in this
Certificate of Incorporation, following the Effective
Time, the number of shares of capital stock of all
classes which the Corporation shall have authority to
issue is [ ] ( ) shares, of which [ ] ( )
shares shall be of a class designated as "common
stock," with a par value of one-third of one cent
($.00333) per share, and twenty-five million
(25,000,000) shares shall be of a class designated as
"Preferred Stock," with a par value of one-tenth of
one cent ($.001) per share.
EXHIBIT F
2004 EQUITY INCENTIVE PLAN
PROPOSED
PLAN
PURE CYCLE CORPORATION
2004 INCENTIVE PLAN
(Effective as of [April 12], 2004)
SECTION 1
INTRODUCTION
1.1 Establishment. Pure Cycle Corporation hereby
establishes the Pure Cycle Corporation 2004 Incentive Plan (the
"Plan") for certain officers, employees, consultants, and
directors of the Company.
1.2 Purposes. The purposes of the Plan are to provide the
officers, employees, consultants, and directors of the Company
selected for participation in the Plan with added incentives to
continue in the long-term service of the Company and to create
in such persons a more direct interest in the future success of
the operations of the Company by relating incentive compensation
to increases in stockholder value, so that the income of such
persons is more closely aligned with the income of the Company's
stockholders. The Plan is also designed to enhance the ability
of the Company to attract, retain and motivate officers,
employees, consultants, and directors by providing an
opportunity for investment in the Company.
SECTION 2
DEFINITIONS
2.1 Definitions. The following terms shall have the
meanings set forth below:
(a) "Administrator" means (i) the Board, or (ii) one
or more committees of the Board to whom the Board has delegated
all or part of its authority under this Plan. Any committee
under clause (ii) hereof which makes grants to "officers" of the
Company (as that term is defined in Rule 16a-1(f) promulgated
under the Exchange Act) shall be composed of not less than the
minimum number of persons from time to time required by Rule
16b-3, each of whom, to the extent necessary to comply with Rule
16b-3 only, shall be a Nonemployee Director. Further, if the
Administrator consists of less than the entire Board, then to
the extent necessary for any Award to qualify as "performance-
based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, each member of the Administrator will be
an Outside Director. For purposes of the preceding provisions,
if one or more members of the Administrator is not a Nonemployee
or not an Outside Director, but recuses himself or herself or
abstains from voting with respect to a particular action taken
by the Administrator, then the Administrator, with respect to
the action, will be deemed to consist only of the members of the
Administrator who have not recused themselves or abstained from
voting.
(b) "Affiliated Corporation" means (i) any
corporation or other entity (including but not limited to a
partnership) that directly, or through one or more
intermediaries controls, is controlled by, or is under common
control with, Pure Cycle Corporation, or (ii) any entity in
which the Company has a significant equity interest, as
determined by the Administrator.
(c) "Award" means a grant made under this Plan in the
form of Stock, Options, Restricted Stock, Performance Shares, or
Performance Units.
(d) "Board" means the board of directors of the
Company.
(e) "Company" means Pure Cycle Corporation, a
Delaware corporation, together with its Affiliated Corporations
except where the context otherwise requires.
(f) "Consultant" means any person, including an
advisor, engaged by the Company to render consulting or advisory
services and who is compensated for such services and such
person is eligible to receive shares registered on Form S-8
under the Securities Act. Mere service as a Director or payment
of a director's fee by the Company or an Affiliated Corporation
shall not be sufficient to constitute "consulting or advisory
services" rendered to the Company or an Affiliated Corporation.
(g) "Director" means a member of the Board.
(h) "Effective Date" means the date on which the Plan
is initially approved by a vote of the stockholders of the
Company.
(i) "Employee" means any person who is a full or
part-time employee (including, without limitation, an officer or
director who is also an employee) of the Company or any
Affiliated Corporation or any division thereof. The term also
includes future employees who have received a formal offer of
employment.
(j) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(k) "Executive Officer" shall mean an officer as
defined in Exchange Act Rule 16a-1(f) and any person deemed to
be an "executive officer" within the scope of Section 13(k) of
the Exchange Act.
(l) "Fair Market Value" means, as of any date, the
value of the Stock determined as follows:
(i) If the Stock is listed on any established
stock exchange or a national market system, its Fair Market
Value shall be the closing sales price for such Stock (or the
closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the
time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Stock is regularly quoted by a
recognized securities dealer but selling prices are not
reported, the Fair Market Value of a Share shall be the mean
between the high bid and low asked prices for the Stock on the
last market trading day prior to the day of determination, as
reported in The Wall Street Journal or such other source as the
Administrator deems reliable;
(iii) In the absence of an established market for
the Stock, the Fair Market Value shall be determined in good
faith by the Administrator.
(m) "Incentive Stock Option" means any Option
designated as such and granted in accordance with the
requirements of Section 422 of the Internal Revenue Code.
(n) "Internal Revenue Code" means the Internal
Revenue Code of 1986, as it may be amended from time to time,
and the rules and regulations promulgated thereunder.
(o) "Nonemployee Director" means a Director who is a
"nonemployee director" within the meaning of Rule 16b-3
promulgated under the Exchange Act.
(p) "Non-Statutory Option" means any Option other
than an Incentive Stock Option.
(q) "Option" means a right to purchase Stock at a
stated price for a specified period of time.
(r) "Option Price" means the price at which shares of
Stock subject to an Option may be purchased, determined in
accordance with Section 7.2(b).
(s) "Outside Director" means a Director who is an
"outside director" within the meaning of Internal Revenue Code
Section 162(m).
(t) "Participant" means an Employee or Director of,
or Consultant to, the Company designated by the Administrator
from time to time during the term of the Plan to receive one or
more Awards under the Plan.
(u) "Performance Cycle" means the period of time as
specified by the Administrator over which Performance Share or
Performance Units are to be earned.
(v) "Performance Shares" means an Award made pursuant
to Section 9 which entitles a Participant to receive Shares,
their cash equivalent or a combination thereof based on the
achievement of performance targets during a Performance Cycle.
(w) "Performance Units" means an Award made pursuant
to Section 9 which entitles a Participant to receive cash, Stock
or a combination thereof based on the achievement of performance
targets during a Performance Cycle.
(x) "Plan Year" means each 12-month period beginning
September 1 and ending the following August 31, except that for
the first year of the Plan it shall begin on the Effective Date
and extend to August 31 of that year.
(y) "Restricted Stock" means Stock granted under
Section 8 that is subject to restrictions imposed pursuant to
such Section.
(z) "Service Provider" means an Employee or Director
of, or Consultant to, the Company or an Affiliated Corporation.
(aa) "Share" means a share of Stock.
(bb) "Stock" means the common stock, $.01 par value,
of the Company.
(cc) "Stock Option Agreement" means a written document
delivered by the Company to the recipient of an Option
specifying the terms of such Option. Such document must
specify, at a minimum, the number of Shares subject to the
Option, the exercise price, any vesting schedule, and any terms
which vary from the default provisions provided in the Plan.
Such document need not be signed by the Option recipient.
2.2 Gender and Number. Except when otherwise indicated by
the context, the masculine gender shall also include the
feminine gender, and the definition of any term herein in the
singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
3.1 Authority of Administrator. The Plan shall be
administered by the Administrator. Subject to the terms of the
Plan and applicable law, and in addition to other express powers
and authorizations conferred on the Administrator by the Plan,
the Administrator shall have full power and authority to:
(i) designate Participants; (ii) determine the type or types of
Awards to be granted to eligible Participants; (iii) determine
the number of Shares to be covered by, or with respect to which
payments, rights, or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions
of any Award; (v) determine whether, to what extent, and under
what circumstances Awards may be settled or exercised in cash,
Shares, other securities, other Awards or other property, or
canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under
what circumstances cash, shares, other securities, other Awards,
other property, and other amounts payable with respect to an
Award shall be deferred either automatically or at the election
of the holder thereof or of the Administrator; (vii) determine
whether, to what extent, and under what circumstances to
accelerate the exercisability of any Award or the end of a
Performance Cycle or the termination of the restriction period
for any Restricted Stock Award; (viii) correct any defect,
supply any omission, reconcile any inconsistency and otherwise
interpret and administer the Plan and any instrument or
agreement relating to the Plan or any Award hereunder;
(ix) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; and (x) make any
other determination and take any other action that the
Administrator deems necessary or desirable for the
administration of the Plan. To the extent necessary or
appropriate, the Administrator may adopt sub-plans consistent
with the Plan to conform to applicable state or foreign
securities or tax laws.
3.2 Determinations Under the Plan. Unless otherwise
expressly provided in the Plan all designations, determinations,
interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the
Administrator, may be made at any time and shall be final,
conclusive, and binding upon all persons, including the Company,
any Affiliated Corporation, any Participant, any holder or
beneficiary of any Award, and any stockholder. No member of the
Administrator shall be liable, in the absence of bad faith, for
any act or omission with respect to his or her services as an
Administrator. Service on a committee acting as the
Administrator shall constitute service as a director of the
Company entitling members to any indemnification of liability
benefits applicable to directors with respect to their services
as Administrator.
3.3 Delegation of Certain Responsibilities. The
Administrator may, in its sole discretion, delegate to
appropriate officers of the Company the administration of the
Plan under this Section 3; provided, however, that no such
delegation by the Administrator shall be made (i) if such
delegation would not be permitted under applicable law or
(ii) with respect to the administration of the Plan as it
affects Executive Officers or Directors of the Company, and
provided further that the Administrator may not delegate its
authority to correct errors, omissions or inconsistencies in the
Plan. Subject to the above limitations, the Administrator may
delegate to the Chief Executive Officer of the Company its
authority under this Section 3 to grant Awards to employees who
are not Executive Officers or Directors of the Company. All
authority delegated by the Administrator under this Section 3.3
shall be exercised in accordance with the provisions of the Plan
and any guidelines for, conditions on, or limitations to the
exercise of such authority that may from time to time be
established by the Administrator.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided
in Section 4.3, sixteen million (16,000,000) Shares are
initially authorized for issuance under the Plan in accordance
with the provisions of the Plan and subject to such restrictions
or other provisions as the Administrator may from time to time
deem necessary. Subject to adjustment as provided in
Section 4.3, no Participant may be granted Awards in any twelve-
month period with respect to more than three million (3,000,000)
Shares. The Shares may be divided among the various Plan
components as the Administrator shall determine, except that no
more than fifteen million (15,000,000) Shares as calculated
pursuant to Section 4.2 shall be cumulatively available for the
grant of Incentive Stock Options under the Plan. Shares which
may be issued upon the exercise of Options shall be applied to
reduce the maximum number of Shares remaining available for use
under the Plan. The Company shall at all times during the term
of the Plan and while any Options are outstanding retain as
authorized and unissued Stock, or as treasury Stock, at least
the number of Shares from time to time required under the
provisions of the Plan, or otherwise assure itself of its
ability to perform its obligations hereunder.
4.2 Unused and Forfeited Stock. Any Shares that are
subject to an Award under this Plan which are not used because
the terms and conditions of the Award are not met, including any
Shares that are subject to an Option which expires or is
terminated for any reason, any Shares which are used for full or
partial payment of the purchase price of Shares with respect to
which an Option is exercised and any Shares retained by the
Company pursuant to Section 16.2 shall automatically become
available for use under the Plan. Notwithstanding the
foregoing, any Shares used for full or partial payment of the
purchase price of the Shares with respect to which an Option is
exercised and any Shares retained by the Company pursuant to
Section 16.2 that were originally Incentive Stock Option Shares
shall still be considered as having been granted for purposes of
determining whether the Share limitation provided for in
Section 4.1 has been reached for purposes of Incentive Stock
Option grants.
4.3 Adjustments for Stock Split, Stock Dividend, etc. If
the Company shall at any time increase or decrease the number of
its outstanding Shares of Stock or change in any way the rights
and privileges of such Shares by means of the payment of a stock
dividend or any other distribution upon such Shares payable in
Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the
Stock, then in relation to the Stock that is affected by one or
more of the above events, the numbers, rights and privileges of
(i) the shares of Stock as to which Awards may be granted under
the Plan, and (ii) the Shares of Stock then included in each
outstanding Option, Performance Share or Performance Unit
granted hereunder, shall be increased, decreased or changed in
like manner as if they had been issued and outstanding, fully
paid and nonassessable at the time of such occurrence.
4.4 Dividend Payable in Stock of Another Corporation, etc.
Except as set forth in Section 4.5 below, if the Company shall
at any time pay or make any dividend or other distribution upon
the Stock payable in securities of another corporation or other
property (except money or Stock), a proportionate part of such
securities or other property shall be set aside and delivered to
any Participant then holding an Award for the particular type of
Stock for which the dividend or other distribution was made,
upon exercise thereof in the case of Options, and the vesting
thereof in the case of other Awards. Prior to the time that any
such securities or other property are delivered to a Participant
in accordance with the foregoing, the Company shall be the owner
of such securities or other property and shall have the right to
vote the securities, receive any dividends payable on such
securities, and in all other respects shall be treated as the
owner. If securities or other property which have been set
aside by the Company in accordance with this Section are not
delivered to a Participant because an Award is not exercised or
otherwise vested, then such securities or other property shall
remain the property of the Company and shall be dealt with by
the Company as it shall determine in its sole discretion.
4.5 Spin-offs. If the Company shall at any time pay or
make any dividend or other distribution upon the Stock in the
nature of a spin-off, for example a dividend payable in
securities of an Affiliated Corporation, the Administrator shall
in its discretion determine what changes are equitably required
to outstanding Awards to effect the spin-off, including but not
limited to treating Awards of Employees remaining with the
Company differently from Awards to Employees of the newly spun-
off entity, substituting Awards for Company Stock for Awards of
stock in the spun-off entity, and allowing either the Company,
the spun-off entity or both to hold the securities or property
set aside for Award participants.
4.6 Other Changes in Stock. In the event there shall be
any change, other than as specified in Sections 4.3, 4.4 and
4.5, in the number or kind of outstanding shares of Stock or of
any stock or other securities into which the Stock shall be
changed or for which it shall have been exchanged, and if the
Administrator shall in its discretion determine that such change
equitably requires an adjustment in the number or kind of Shares
subject to outstanding Awards or which have been reserved for
issuance pursuant to the Plan but are not then subject to an
Award, then such adjustments shall be made by the Administrator
and shall be effective for all purposes of the Plan and on each
outstanding Award that involves the particular type of stock for
which a change was effected.
4.7 General Adjustment Rules. If any adjustment or
substitution provided for in this Section 4 shall result in the
creation of a fractional Share under any Award, the Company
shall, in lieu of selling or otherwise issuing such fractional
Share, pay to the Participant a cash sum in an amount equal to
the product of such fraction multiplied by the Fair Market Value
of a Share on the date the fractional Share would otherwise have
been issued. In the case of any such substitution or adjustment
affecting an Option, the total Option Price for the shares of
Stock then subject to an Option shall remain unchanged but the
Option Price per share under each such Option shall be equitably
adjusted by the Administrator to reflect the greater or lesser
number of shares of Stock or other securities into which the
Stock subject to the Option may have been changed.
4.8 Determination by Administrator. Adjustments under
this Section 4 shall be made by the Administrator, whose
determinations with regard thereto shall be final and binding
upon all persons.
SECTION 5
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated
with another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which
does not result in any reclassification or change of outstanding
Shares), or if all or substantially all of the assets or more
than 50% of the outstanding voting stock of the Company is
acquired by any other corporation, business entity or person
(other than a sale or conveyance in which the Company continues
as a holding company of an entity or entities that conduct the
business or businesses formerly conducted by the Company), or in
case of a reorganization (other than a reorganization under the
United States Bankruptcy Code) or liquidation of the Company,
and if the provisions of Section 11 do not apply, the
Administrator, or the board of directors of any corporation
assuming the obligations of the Company, shall, have the power
and discretion to prescribe the terms and conditions for the
exercise, or modification, of any outstanding Awards granted
hereunder. By way of illustration, and not by way of
limitation, the Administrator may provide for the complete or
partial acceleration of the dates of exercise of the Options, or
may provide that such Options will be exchanged or converted
into options to acquire securities of the surviving or acquiring
corporation, or may provide for a payment or distribution in
respect of outstanding Options (or the portion thereof that is
currently exercisable) in cancellation thereof. The
Administrator may remove restrictions on Restricted Stock and
may modify the performance requirements for any other Awards.
The Administrator may provide that Stock or other Awards granted
hereunder must be exercised in connection with the closing of
such transaction, and that if not so exercised such Awards will
expire. Any such determinations by the Administrator may be
made generally with respect to all Participants, or may be made
on a case-by-case basis with respect to particular Participants.
The provisions of this Section 5 shall not apply to any
transaction undertaken for the purpose of reincorporating the
Company under the laws of another jurisdiction, if such
transaction does not materially affect the beneficial ownership
of the Company's capital stock.
SECTION 6
PARTICIPATION
Participants in the Plan shall be those Employees,
Directors, or Consultants who, in the judgment of the
Administrator, are performing, or during the term of their
incentive arrangement will perform, important services in the
management, operation and development of the Company, and
significantly contribute, or are expected to significantly
contribute, to the achievement of long-term corporate economic
objectives. Participants may be granted from time to time one
or more Awards; provided, however, that the grant of each such
Award shall be separately approved by the Administrator, receipt
of one such Award shall not result in automatic receipt of any
other Award, and written notice shall be given to such person,
specifying the terms, conditions, rights and duties related
thereto; and further provided that Incentive Stock Options shall
not be granted to (i) Consultants, (ii) part-time employees,
(iii) Nonemployee Directors, or (iv) Employees of any
partnership or other entity which is included within the
definition of an Affiliated Corporation but whose employees are
not permitted to receive Incentive Stock Options under the
Internal Revenue Code. Each Participant shall enter into an
agreement with the Company, in such form as the Administrator
shall determine and which is consistent with the provisions of
the Plan, specifying such terms, conditions, rights and duties.
Awards shall be deemed to be granted as of the date specified in
the grant resolution of the Administrator, which date shall be
the date of any related agreement with the Participant. In the
event of any inconsistency between the provisions of the Plan
and any such agreement entered into hereunder, the provisions of
the Plan shall govern.
SECTION 7
STOCK OPTIONS TO EMPLOYEES AND CONSULTANTS
7.1 Grant of Options to Employees and Consultants.
Coincident with or following designation for participation in
the Plan, a Participant (other than a Nonemployee Director) may
be granted one or more Options. The Administrator in its sole
discretion shall designate whether an Option is to be considered
an Incentive Stock Option or a Non-Statutory Option. The
Administrator may grant both an Incentive Stock Option and a
Non-Statutory Option to the same Participant at the same time or
at different times. Incentive Stock Options and Non-Statutory
Options, whether granted at the same or different times, shall
be deemed to have been awarded in separate grants, shall be
clearly identified, and in no event shall the exercise of one
Option affect the right to exercise any other Option or affect
the number of Shares for which any other Option may be
exercised.
7.2 Option Agreements. Each Option granted under the Plan
shall be evidenced by a Stock Option Agreement which shall be
delivered by the Company to the Participant to whom the Option
is granted (the "Option Holder"). Except as otherwise set forth
in a Stock Option Agreement delivered to the Participant, each
Option shall be governed by the following terms and conditions,
as well as such other terms and conditions not inconsistent
therewith as the Administrator may consider appropriate in each
case.
(a) Number of Shares. Each Stock Option Agreement
shall state that it covers a specified number of Shares, as
determined by the Administrator. To the extent that the
aggregate Fair Market Value of Shares with respect to which
Options designated as Incentive Stock Options are exercisable
for the first time by any Participant during any year (under all
plans of the Company and any Affiliated Corporation) exceeds
$100,000, such Options shall be treated as not being Incentive
Stock Options. The foregoing shall be applied by taking Options
into account in the order in which they were granted. For the
purposes of the foregoing, the Fair Market Value of any Share
shall be determined as of the time the Option with respect to
such Share is granted. In the event the foregoing results in a
portion of an Option designated as an Incentive Stock Option
exceeding the $100,000 limitation, only such excess shall be
treated as not being an Incentive Stock Option.
(b) Price. Except for the limitations on Incentive
Stock Options set forth below, the price at which each Share
covered by an Option may be purchased shall be determined in
each case by the Administrator and set forth in the Stock Option
Agreement. The Option Price for each Share covered by a Non-
Statutory Option may be granted at any price less than Fair
Market Value, in the sole discretion of the Administrator. In
no event shall the Option Price for each Share covered by an
Incentive Stock Option be less than the Fair Market Value of the
Stock on the date the Option is granted. Further, the Option
Price for each Share covered by an Incentive Stock Option
granted to an Employee who then owns stock possessing more than
10% of the total combined voting power of all classes of stock
of the Company or any parent or subsidiary corporation of the
Company must be at least 110% of the Fair Market Value of the
Stock subject to the Incentive Stock Option on the date the
Option is granted.
(c) Duration of Options. The Administrator shall
determine the period of time within which the Option may be
exercised by the Option Holder (the "Option Period"). The
Option Period must expire, in all cases, not more than ten years
from the date an Option is granted; provided, however, that the
Option Period of an Incentive Stock Option granted to an
Employee who then owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company
must expire not more than five years from the date such Option
is granted. Any Option Period determined by the Administrator
to be shorter than the ten or five-year term set forth above,
must be set forth in a Stock Option Agreement. Each Stock
Option Agreement shall also state the periods of time, if any,
as determined by the Administrator, when incremental portions of
each Option shall vest. If any Option is not exercised during
its Option Period, it shall be deemed to have been forfeited and
of no further force or effect.
(d) Termination of Service, Retirement, Death or
Disability. Except as otherwise determined by the
Administrator, each Option shall be governed by the following
terms with respect to the exercise of the Option if an Option
Holder ceases to be a Service Provider:
(i) If the Option Holder ceases to be a Service
Provider within the Option Period for cause, as determined by
the Company, the Option shall thereafter be void for all
purposes. As used in this Section 7.2(d), "cause" shall mean
(A) if applicable, "cause" as defined on a written contract
between the Option Holder and the Company, or (B) in any other
case, a gross violation, as determined by the Company, of the
Company's established policies and procedures. The effect of
this Section 7.2(d)(i) shall be limited to determining the
consequences of a termination, and nothing in this
Section 7.2(d)(i) shall restrict or otherwise interfere with the
Company's discretion with respect to the termination of any
Service Provider.
(ii) If the Option Holder ceases to be a Service
Provider with the Company in a manner determined by the Board,
in its sole discretion, to constitute retirement (which
determination shall be communicated to the Option Holder within
10 days of such termination), the Option may be exercised by the
Option Holder, or in the case of death, by the persons specified
in clause (iii) of this Section 7.2(d), within three months
following his or her retirement if the Option is an Incentive
Stock Option or within twelve months following his or her
retirement if the Option is a Non-Statutory Stock Option
(provided in each case that such exercise must occur within the
Option Period), but not thereafter. In any such case, the
Option may be exercised only as to the Shares as to which the
Option had become exercisable on or before the date the Option
Holder ceases to be a Service Provider.
(iii) If the Option Holder dies (A) while he or
she is a Service Provider, (B) within the three-month period
referred to in clause (v) below, or (C) within the three or
twelve-month period referred to in clause (ii) above, the Option
may be exercised by those entitled to do so under the Option
Holder's will or by the laws of descent and distribution within
twelve months following the Option Holder's death (provided that
such exercise must occur within the Option Period), but not
thereafter. In any such case, the Option may be exercised only
as to the Shares as to which the Option had become exercisable
on or before the date the Option Holder ceased to be a Service
Provider.
(iv) If the Option Holder becomes disabled
(within the meaning of Section 22(e) of the Internal Revenue
Code) while a Service Provider, Incentive Stock Options held by
the Option Holder may be exercised by the Option Holder within
twelve months following the date the Option Holder ceases to be
a Service Provider (provided that such exercise must occur
within the Option Period), but not thereafter. If the Option
Holder becomes disabled (within the meaning of Section 22(e) of
the Internal Revenue Code) while a Service Provider or within
three-month period referred to in clause (v) below or within the
twelve-month period following his or her retirement as provided
in clause (ii) above, Non-Statutory Options held by the Option
Holder may be exercised by the Option Holder within twelve
months following the date of the Option Holder's disability
(provided that such exercise must occur within the Option
Period), but not thereafter. In any such case, the Option may
be exercised only as to the Shares as to which the Option had
become exercisable on or before the date the Option Holder
ceased to be a Service Provider.
(v) If the Option Holder ceases to be a Service
Provider within the Option Period for any reason other than
cause, retirement as provided in clause (ii) above, disability
as provided in clause (iv) above or the Option Holder's death,
the Option may be exercised by the Option Holder within three
months following the date of such cessation (provided that such
exercise must occur within the Option Period), but not
thereafter. In any such case, the Option may be exercised only
as to the Shares as to which the Option had become exercisable
on or before the date that the Option Holder ceases to be a
Service Provider
(e) Exercise, Payments, etc.
(i) The method for exercising each Option
granted under the Plan shall be by delivery to the Corporate
Secretary of the Company or an agent designated pursuant to
Section 18 of a notice specifying the number of Shares with
respect to which such Option is exercised and payment of the
Option Price. Such notice shall be in a form satisfactory to
the Administrator and shall specify the particular Option (or
portion thereof) which is being exercised and the number of
Shares with respect to which the Option is being exercised. The
exercise of the Option shall be deemed effective upon receipt of
such notice by the Corporate Secretary or a designated agent and
payment to the Company. The purchase of such Stock shall be
deemed to take place at the principal office of the Company upon
delivery of such notice, at which time the purchase price of the
Stock shall be paid in full by any of the methods or any
combination of the methods set forth in (ii) below. A properly
executed certificate or certificates representing the Stock
shall be issued by the Company and delivered to the Option
Holder. If certificates representing Stock are used to pay all
or part of the Option Price, separate certificates for the same
number of shares of Stock shall be issued by the Company and
delivered to the Option Holder representing each certificate
used to pay the Option Price, and an additional certificate
shall be issued by the Company and delivered to the Option
Holder representing the additional shares, in excess of the
Option Price, to which the Option Holder is entitled as a result
of the exercise of the Option.
(ii) The exercise price shall be paid by any of
the following methods or any combination of the following
methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
(C) if authorized by the Administrator, in
its sole discretion, by delivery to the Company of certificates
representing the number of Shares then owned by the Option
Holder, the Fair Market Value of which equals the purchase price
of the Stock purchased pursuant to the Option, properly endorsed
for transfer to the Company; provided however, that Shares used
for this purpose must have been held by the Option Holder for
more than six months; and provided further that the Fair Market
Value of any Shares delivered in payment of the purchase price
upon exercise of the Option shall be the Fair Market Value as of
the exercise date, which shall be the date of delivery of the
certificates for the Stock used as payment of the Option Price;
(D) if authorized by the Administrator, in
its sole discretion, and subject to applicable law, including
Section 402 of the Sarbanes-Oxley Act, by delivery by a
Participant (other than an Executive Officer or Director) to the
Company of a properly executed notice of exercise together with
irrevocable instructions to a broker to deliver to the Company
promptly the amount of the proceeds of the sale of all or a
portion of the Stock or of a loan from the broker to the Option
Holder necessary to pay the exercise price; or
(E) if authorized by the Administrator, in
its sole discretion, any combination of these methods.
(iii) In the sole discretion of the Administrator,
the Company may, subject to applicable law, including
Section 402 of the Sarbanes-Oxley Act, guaranty a third-party
loan obtained by a Participant (other than an Executive Officer
or Director) to pay part or all of the Option Price of the
Shares provided that such loan or the Company's guaranty is
secured by the Shares and the loan bears interest at a market
rate. The Company may not make or guaranty loans to Executive
Officers or Directors.
(f) Date of Grant. An option shall be considered as
having been granted on the date specified in the grant
resolution of the Administrator.
(g) Adjustment of Options. Subject to the
limitations contained in Sections 7 and 15, the Administrator
may make any adjustment in the Option Price, the number of
shares subject to, or the terms of, an outstanding Option and a
subsequent granting of an Option by amendment or by substitution
of an outstanding Option. Such amendment, substitution, or re-
grant may result in terms and conditions (including Option
Price, number of shares covered, vesting schedule or exercise
period) that differ from the terms and conditions of the
original Option. This provision specifically authorizes the
Administrator to reprice outstanding Options. The Administrator
may not, however, adversely affect the rights of any Participant
to previously granted Options without the consent of such
Participant. If such action is affected by amendment, the
effective date of such amendment shall be the date of the
original grant.
SECTION 8
STOCK AWARDS
8.1 Awards Granted by Administrator. Coincident with or
following designation for participation in the Plan, a
Participant (other than a Nonemployee Director) may be granted
one or more unrestricted Stock Awards or Restricted Stock Awards
consisting of Shares. A Stock Award may be paid by delivery of
Stock, in cash or in a combination of Stock and cash, as
determined by the Administrator.
8.2 Restrictions. A Participant's right to retain a
Restricted Stock Award granted to such Participant under
Section 8.1 shall be subject to such restrictions, including but
not limited to the Participant's continuing to perform as a
Service Provider for a restriction period specified by the
Administrator, or the attainment of specified performance goals
and objectives, as may be established by the Administrator with
respect to such Award. The Administrator may, in its sole
discretion, require different periods of service or different
performance goals and objectives with respect to (i) different
Participants, (ii) different Restricted Stock Awards, or (iii)
separate, designated portions of the Shares constituting a
Restricted Stock Award.
8.3 Privileges of a Stockholder, Transferability. A
Participant shall have all voting, dividend, liquidation and
other rights with respect to Stock in accordance with its terms
received by such Participant as a Stock Award under this
Section 8 upon the Participant's becoming the holder of record
of such Stock; provided, however, that the Participant's right
to sell, encumber or otherwise transfer Restricted Stock shall
be subject to the limitations of Section 12.2 hereof.
8.4 Enforcement of Restrictions. The Administrator may in
its sole discretion require one or more of the following methods
of enforcing the restrictions referred to in Section 8.2 and
8.3:
(a) placing a legend on the stock certificates
referring to the restrictions as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FORFEITURE AND TRANSFERABILITY RESTRICTIONS AS SET FROTH IN
THE RESTRICTED STOCK AGREEMENT BETWEEN THE SHAREHOLDER AND
PURE CYCLE CORPORATION DATED _____________. A COPY OF THE
RESTRICTED STOCK AGREEMENT IS ON FILE AT THE EXECUTIVE
OFFICE OF PURE CYCLE CORPORATION.
(b) requiring the Participant to keep the stock
certificates, duly endorsed, in the custody of the Company while
the restrictions remain in effect; or
(c) requiring that the stock certificates, duly
endorsed, be held in the custody of a third party while the
restrictions remain in effect.
8.5 Termination of Service, Death or Disability. In the
event of the death or disability (within the meaning of
Section 22(e) of the Internal Revenue Code) of a Participant, or
the retirement of a Participant as provided in
Section 7.2(d)(ii), all service period and other restrictions
applicable to Restricted Stock Awards then held by him shall
lapse, and such Awards shall become fully nonforfeitable.
Subject to Sections 5 and 10, in the event a Participant ceases
to be a Service Provider for any other reason, any Restricted
Stock Awards as to which the service period or other
restrictions have not been satisfied shall be forfeited.
SECTION 9
PERFORMANCE SHARES AND PERFORMANCE UNITS
9.1 Awards Granted by Administrator. Coincident with or
following designation for participation in the Plan, a
Participant (other than a Nonemployee Director) may be granted
Performance Shares or Performance Units.
9.2 Amount of Award. The Administrator shall establish a
maximum amount of a Participant's Award, which amount shall be
denominated in Shares in the case of Performance Shares or in
dollars in the case of Performance Units.
9.3 Communication of Award. Written notice of the maximum
amount of a Participant's Award and the Performance Cycle
determined by the Administrator shall be given to a Participant
as soon as practicable after approval of the Award by the
Administrator.
9.4 Amount of Award Payable. The Administrator shall
establish maximum and minimum performance targets to be achieved
during the applicable Performance Cycle. Performance targets
established by the Administrator shall relate to corporate,
group, unit or individual performance and may be established in
terms of earnings, growth in earnings, ratios of earnings to
equity or assets, or such other measures or standards determined
by the Administrator. Multiple performance targets may be used
and the components of multiple performance targets may be given
the same or different weighting in determining the amount of an
Award earned, and may relate to absolute performance or relative
performance measured against other groups, units, individuals or
entities. Achievement of the maximum performance target shall
entitle the Participant to payment (subject to Section 9.6) at
the full or maximum amount specified with respect to the Award;
provided, however, that notwithstanding any other provisions of
this Plan, in the case of an Award of Performance Shares the
Administrator in its discretion may establish an upper limit on
the amount payable (whether in cash or Stock) as a result of the
achievement of the maximum performance target. The
Administrator may also establish that a portion of a full or
maximum amount of a Participant's Award will be paid (subject to
Section 9.6) for performance which exceeds the minimum
performance target but falls below the maximum performance
target applicable to such Award.
9.5 Adjustments. At any time prior to payment of a
Performance Share or Performance Unit Award, the Administrator
may adjust previously established performance targets or other
terms and conditions to reflect events such as changes in laws,
regulations, or accounting practice, or mergers, acquisitions or
divestitures.
9.6 Payments of Awards. Following the conclusion of each
Performance Cycle, the Administrator shall determine the extent
to which performance targets have been attained, and the
satisfaction of any other terms and conditions with respect to
an Award relating to such Performance Cycle. The Administrator
shall determine what, if any, payment is due with respect to an
Award and whether such payment shall be made in cash, Stock or
some combination. Payment shall be made in a lump sum or
installments, as determined by the Administrator, commencing as
promptly as practicable following the end of the applicable
Performance Cycle, subject to such terms and conditions and in
such form as may be prescribed by the Administrator.
9.7 Termination of Employment. If a Participant ceases to
be a Service Provider before the end of a Performance Cycle by
reason of his death, disability as provided in Section
7.2(d)(iv), or retirement as provided in Section 7.2(d)(ii), the
Performance Cycle for such Participant for the purpose of
determining the amount of the Award payable shall end at the end
of the calendar quarter immediately preceding the date on which
such Participant ceased to be a Service Provider. The amount of
an Award payable to a Participant to whom the preceding sentence
is applicable shall be paid at the end of the Performance Cycle
and shall be that fraction of the Award computed pursuant to the
preceding sentence the numerator of which is the number of
calendar quarters during the Performance Cycle during all of
which said Participant was a Service Provider and the
denominator of which is the number of full calendar quarters in
the Performance Cycle. Upon any other termination of
Participant's services as a Service Provider during a
Performance Cycle, participation in the Plan shall cease and all
outstanding Awards of Performance Shares or Performance Units to
such Participant shall be canceled.
SECTION 10
FORMULA AWARDS TO DIRECTORS
10.1 Administrator. The Administrator shall have no
authority, discretion or power to select the Nonemployee
Directors who will receive any Award, determine the number of
shares to be issued hereunder or the time at which such Awards
are to be granted, establish the duration of the Awards or alter
any other terms or conditions specified in the Plan, except in
the sense of administering the Plan pursuant to the provisions
of the Plan.
10.2 Number of Option Shares. Upon the initial election or
appointment of a Nonemployee Director to the Company's Board, or
upon the Effective Date, whichever is later, the Nonemployee
Director shall be granted a Non-Statutory Option to purchase
50,000 Shares of Stock (subject to adjustment pursuant to
Section 4 hereof), which option shall become exercisable at the
rate of 25,000 Shares of Stock on each of the first two
anniversaries of the initial date of grant. In addition, each
Nonemployee Director shall be granted a Non-Statutory Option to
purchase 25,000 Shares of Stock on each anniversary of the
commencement of his or her initial term of service on the Board
(subject to adjustment pursuant to Section 4 hereof), which
option shall be exercisable one year from the date of grant.
Options shall expire, to the extent not exercised, ten years
after the date on which day they were granted.
10.3 Price of Option Shares. The exercise price per Share
for any Option granted pursuant to this Section 10 shall be 100%
of the Fair Market Value of the Stock on the date on which the
Nonemployee Director is granted the Option.
10.4 Option Termination. If the Nonemployee Director
ceases to be a Director for any reason, the Option may be
exercised by the Nonemployee Director at any time following the
date of such cessation provided that such exercise must occur
prior to the Option expiration date. In any such case, the
Option may be exercised only as to the Shares as to which the
Option had become exercisable on or before the date that the
Nonemployee Director ceased to be a Director.
10.5 Option Exercise. Options granted to Nonemployee
Directors pursuant to this Section 10 shall provide for exercise
as set forth in Section 7.2(e).
10.6 Other Terms. Except for the limitations set forth in
Sections 5, 10.2, 10.3, and 11, the terms and provisions of
Options shall be as determined from time to time by the
Administrator, and Options issued may contain terms and
provisions different from other Options granted to the same or
other Option recipients. Options shall be evidenced by a Stock
Option Agreement containing such terms and provisions as the
Administrator may determine, subject to the provisions of the
Plan.
10.7 Meeting of Board Committees. The Board (and not a
committee of the Board), in its sole discretion, may adopt one
or more formulas that provide for granting a specified Award to
each Nonemployee Director for attendance at each meeting of
designated committees of the Board. The Board may adopt
different formulas for the various committees of the Board, and
it may choose to adopt formulas for some committees and not
others. Further, any formula may provide for a different grant
to members of the committee charged with additional
responsibilities on the committee, such as the chairman.
SECTION 11
CHANGE IN CONTROL
11.1 Options, Restricted Stock. In the event of a change
in control of the Company as defined in Section 11.3, then the
Administrator may, in its sole discretion, without obtaining
stockholder approval, to the extent permitted in Section 15,
take any or all of the following actions: (a) accelerate the
exercise dates of any outstanding Options or make all such
Options fully vested and exercisable; (b) grant a cash bonus
award to any Option Holder in an amount necessary to pay the
Option Price of all or any portion of the Options then held by
such Option Holder; (c) pay cash to any or all Option Holders in
exchange for the cancellation of their outstanding Options in an
amount equal to the difference between the Option Price of such
Options and the greater of the tender offer price for the
underlying Stock or the Fair Market Value of the Stock on the
date of the cancellation of the Options; (d) make any other
adjustments or amendments to the outstanding Options; and
(e) eliminate all restrictions with respect to Restricted Stock
and deliver Shares free of restrictive legends to any
Participant.
11.2 Performance Shares and Performance Units. Under the
circumstances described in Section 11.1, the Administrator may,
in its sole discretion, and without obtaining stockholder
approval, to the extent permitted in Section 15, provide for
payment of outstanding Performance Shares and Performance Units
at the maximum award level or any percentage thereof.
11.3 Definition. For purposes of the Plan, a "change in
control" shall be deemed to have occurred if: (a) any "person"
or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Exchange Act), other than Thomas P. Clark or a trustee or
other fiduciary holding securities under an employee benefit
plan of the Company or under a trust, the grantor of which is
Thomas P. Clark, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than 33-1/3% of the then outstanding voting
stock of the Company; or (b) at any time during any period of
three consecutive years (not including any period prior to the
Effective Date), individuals who at the beginning of such period
constitute the Board (and any new director whose election by the
Board or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of
the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority thereof; or (c) the stockholders of the
Company approve a merger or consolidation of the Company with
any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 80% of the
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger
or consolidation, or the stockholders approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
SECTION 12
CONTINUATION OF SERVICES; TRANSFERABILITY
12.1 Continuation of Services. Nothing contained in the
Plan or in any Award granted under the Plan shall confer upon
any Participant any right with respect to the continuation of
his or her services as a Service Provider, or interfere in any
way with the right of the Company, subject to the terms of any
separate employment or consulting agreement to the contrary, at
any time to terminate such services or to increase or decrease
the compensation of the Participant from the rate in existence
at the time of the grant of an Award. Whether an authorized
leave of absence, or absence in military or government service,
shall constitute a termination of Participant's services as a
Service Provider shall be determined by the Administrator at the
time of such leave in accordance with then current laws and
regulations.
12.2 Nontransferability. Except as provided in Section
12.3, no right or interest of any Participant in an Award
granted pursuant to the Plan shall be assignable or transferable
during the lifetime of the Participant, except (if otherwise
permitted under Section 12.4) pursuant to a domestic relations
order, either voluntarily or involuntarily, or be subjected to
any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment,
pledge or bankruptcy. In the event of a Participant's death, a
Participant's rights and interests in Options shall, if
otherwise permitted under Section 12.4, be transferable by
testamentary will or the laws of descent and distribution, and
payment of any amounts due under the Plan shall be made to, and
exercise of any Options may be made by, the Participant's legal
representatives, heirs or legatees. If, in the opinion of the
Administrator, a person entitled to payments or to exercise
rights with respect to the Plan is disabled from caring for his
or her affairs because of mental condition, physical condition
or age, payment due such person may be made to, and such rights
shall be exercised by, such person's guardian, conservator or
other legal personal representative upon furnishing the
Administrator with evidence satisfactory to the Administrator of
such status. Transfers shall not be deemed to include transfers
to the Company or "cashless exercise" procedures with third
parties who provide financing for the purpose of (or who
otherwise facilitate) the exercise of Awards consistent with
applicable laws and the authorization of the Administrator.
12.3 Permitted Transfers. Pursuant to conditions and
procedures established by the Administrator from time to time,
the Administrator may permit Awards (other than Incentive Stock
Options) to be transferred to, exercised by and paid to certain
persons or entities related to a Participant, including but not
limited to members of the Participant's immediate family,
charitable institutions, or trusts or other entities whose
beneficiaries or beneficial owners are members of the
Participant's immediate family and/or charitable institutions.
In the case of initial Awards, at the request of the
Participant, the Administrator may permit the naming of the
related person or entity as the Award recipient. Any permitted
transfer shall be subject to the condition that the
Administrator receive evidence satisfactory to it that the
transfer is being made for estate and/or tax planning purposes
on a gratuitous or donative basis and without consideration
(other than nominal consideration).
12.4 Limitations on Incentive Stock Options.
Notwithstanding anything in this Agreement (or in any Stock
Option Agreement evidencing the grant of an Option hereunder) to
the contrary, Incentive Stock Options shall be transferable only
to the extent permitted by Section 422 of the Internal Revenue
Code and the treasury regulations thereunder without affecting
the Option's qualification under Section 422 as an Incentive
Stock Option.
SECTION 13
GENERAL RESTRICTIONS
13.1 Investment Representations. The Company may require
any person to whom an Option or other Award is granted, as a
condition of exercising such Option or receiving Stock under the
Award, to give written assurances in substance and form
satisfactory to the Company and its counsel to the effect that
such person is acquiring the Stock subject to the Option or the
Award for his own account for investment and not with any
present intention of selling or otherwise distributing the same,
and to such other effects as the Company deems necessary or
appropriate in order to comply with federal and applicable state
securities laws. Legends evidencing such restrictions may be
placed on the certificates evidencing the Stock.
13.2 Compliance with Securities Laws. Each Award shall be
subject to the requirement that, if at any time counsel to the
Company shall determine that the listing, registration or
qualification of the Shares subject to such Award upon any
securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance
or purchase of Shares thereunder, such Award may not be accepted
or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the
Administrator. Nothing herein shall be deemed to require the
Company to apply for or to obtain such listing, registration or
qualification.
13.3 Stock Restriction Agreement. The Administrator may
provide that shares of Stock issuable pursuant to an Award
shall, under certain conditions, be subject to restrictions
whereby the Company has a right of first refusal with respect to
such shares or a right or obligation to repurchase all or a
portion of such shares, which restrictions may survive a
Participant's cessation or termination as a Service Provider.
13.4 Stockholder Privileges. No Award Holder shall have
any rights as a stockholder with respect to any Shares covered
by an Award until the Award Holder becomes the holder of record
of such Stock, and no adjustments shall be made for dividends or
other distributions or other rights as to which there is a
record date preceding the date such Award Holder becomes the
holder of record of such Stock, except as provided in Section 4.
SECTION 14
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a
Participant as a result of the exercise of an Option or the
grant or vesting of any other Award shall not constitute
"earnings" with respect to which any other benefits of such
Participant are determined, including without limitation
benefits under any pension, profit sharing, life insurance or
salary continuation plan.
SECTION 15
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time-to-time
may amend or modify, the Plan; provided, however, that no
amendment or modification may become effective without approval
of the amendment or modification by the stockholders if
stockholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if the
Company, on the advice of counsel, determines that stockholder
approval is otherwise necessary or desirable.
No amendment, modification or termination of the Plan shall
in any manner adversely affect any Awards theretofore granted
under the Plan, without the consent of the Participant holding
such Awards.
SECTION 16
WITHHOLDING
16.1 Withholding Requirement. The Company's obligations to
deliver Shares upon the exercise of an Option, or upon the
vesting of any other Award, shall be subject to the
Participant's satisfaction of all applicable federal, state and
local income and other tax withholding requirements. The
Company may defer exercise of an Award unless indemnified by the
Participants to the Administrator's satisfaction against the
payment of any such amount. Further, the Company shall, to the
extent permitted by law, have the right to deduct any such taxes
from any payment of any kind due to the Participant by the
Company.
16.2 Withholding with Stock. At the time the Administrator
grants an Award, it may, in its sole discretion, grant the
Participant an election to pay all such amounts of tax
withholding, or any part thereof, by electing to transfer to the
Company, or to have the Company withhold from Shares otherwise
issuable to the Participant, Shares having a value equal to the
amount required to be withheld or such lesser amount as may be
elected by the Participant. All elections shall be subject to
the approval or disapproval of the Administrator. The value of
Shares to be withheld shall be based on the Fair Market Value of
the Stock on the date that the amount of tax to be withheld is
to be determined (the "Tax Date"). Any such elections by
Participants to have Shares withheld for this purpose will be
subject to the following restrictions:
(a) All elections must be made prior to the Tax Date;
(b) All elections shall be irrevocable; and
(c) If the Participant is an "officer" or "director"
of the Company within the meaning of Section 16 of the Exchange
Act, the Participant must satisfy the requirements of such
Section 16 and any applicable rules thereunder with respect to
the use of Stock to satisfy such tax withholding obligation.
16.3 Incentive Options. In the event that an Option Holder
makes a disposition (as defined in Section 424(c) of the
Internal Revenue Code) of any Stock acquired pursuant to the
exercise of an Incentive Stock Option prior to the later of (i)
the expiration of two years from the date on which the Incentive
Stock Option was granted or (ii) the expiration of one year from
the date on which the Option was exercised, the Option Holder
shall send written notice to the Company at its principal office
(Attention: Corporate Secretary) of the date of such
disposition, the number of shares disposed of, the amount of
proceeds received from such disposition, and any other
information relating to such disposition as the Company may
reasonably request. The Option Holder shall, in the event of
such a disposition, make appropriate arrangements with the
Company to provide for the amount of additional withholding, if
any, required by applicable federal and state income tax laws.
SECTION 17
SECTION 162(M) PROVISIONS
17.1 Limitations. Notwithstanding any other provision of
this Plan, if the Administrator determines at the time any Stock
Award or Performance Award is granted to a Participant that such
Participant is, or is likely to be at the time he or she
recognizes income for federal income tax purposes in connection
with such Award, a "covered employee" within the meaning of
162(m)(3) of the Internal Revenue Code, then the Administrator,
may provide that this Section 17 is applicable to such Award.
17.2 Performance Goals. If an Award is subject to this
Section 17, then the lapsing of restrictions thereon and the
distribution of cash, Shares or other property pursuant thereto,
as applicable, shall be subject to the achievement of one or
more objective performance goals established by the
Administrator, which shall be based on the attainment of one or
any combination of the following: specified levels of earnings
per share from continuing operations, operating income,
revenues, gross margin, return on operating assets, return on
equity, economic value added, stock price appreciation, total
stockholder return (measured in terms of stock price
appreciation and dividend growth), or cost control, of the
Company or Affiliated Corporation (or any division thereof) for
or within which the Participant is primarily employed. Such
performance goals also may be based upon the attaining of
specified levels of Company performance under one or more of the
measures described above relative to the performance of other
corporations. Such performance goals shall be set by the
Administrator within the time period prescribed by, and shall
otherwise comply with the requirements of, Section 162(m) of the
Internal Revenue Code and the regulations thereunder.
17.3 Adjustments. Notwithstanding any provision of the
Plan other than Sections 5 and 11, with respect to any Award
that is subject to this Section 17, the Administrator may not
adjust upwards the amount payable pursuant to such Award, nor
may it waive the achievement of the applicable performance goals
except in the case of the death or disability of the
Participant.
17.4 Other Restrictions. The Administrator shall have the
power to impose such other restrictions on Awards subject to
this Section 17 as it may deem necessary or appropriate to
ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section
162(m)(4)(B) of the Internal Revenue Code or any successor
thereto.
SECTION 18
BROKERAGE ARRANGEMENTS
The Administrator, in its discretion, may enter into
arrangements with one or more banks, brokers or other financial
institutions to facilitate the exercise of Options or the
disposition of Shares acquired upon exercise of Stock Options,
including, without limitation, arrangements for the simultaneous
exercise of Stock Options and sale of the Shares acquired upon
such exercise.
SECTION 19
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the
submission of the Plan to stockholders of the Company for
approval shall be construed as creating any limitations on the
power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of
whatever nature as the Board may deem necessary or desirable or
preclude or limit the continuation of any other plan, practice
or arrangement for the payment of compensation or fringe
benefits to Employees or Consultants generally, or to any class
or group of Employees or Consultants, which the Company or any
Affiliated Corporation now has lawfully put into effect,
including, without limitation, any retirement, pension, savings
and stock purchase plan, insurance, death and disability
benefits and executive short-term incentive plans.
SECTION 20
REQUIREMENTS OF LAW
20.1 Requirements of Law. The issuance of Stock and the
payment of cash pursuant to the Plan shall be subject to all
applicable laws, rules and regulations.
20.2 Rule 16b-3. Transactions under the Plan and within
the scope of Rule 16b-3 of the Exchange Act are intended to
comply with all applicable conditions of Rule 16b-3. To the
extent any provision of the Plan or any action by the
Administrator under the Plan fails to so comply, such provision
or action shall, without further action by any person, be deemed
to be automatically amended to the extent necessary to effect
compliance with Rule 16b-3; provided, however, that if such
provision or action cannot be amended to effect such compliance,
such provision or action shall be deemed null and void to the
extent permitted by law and deemed advisable by the
Administrator.
20.3 Governing Law. The Plan and all agreements hereunder
shall be construed in accordance with and governed by the laws
of the State of Delaware.
SECTION 21
DURATION OF THE PLAN
No Award shall be granted under the Plan after ten years
from the Effective Date; provided, however, that any Award
theretofore granted may, and the authority of the Board or the
Administrator to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights
under any such Award shall, extend beyond such date.
Dated: _____________, _____
PURE CYCLE CORPORATION
By:
Mark W. Harding
President