Proxy
ADVANCED
MATERIALS GROUP, INC.
3303
Lee
Parkway, Suite 105
Dallas,
Texas 75219
April
18,
2007
To
our
stockholders:
You
are
cordially invited to attend the 2007 annual meeting of stockholders of Advanced
Materials Group, Inc. (the “Company”), which will be held at 10:00 a.m. local
time, on Friday, May 11, 2007 at The Busch Firm, 2532 Dupont Drive, Irvine,
California 92612. All holders of the Company’s outstanding common stock as of
March 30, 2007 are entitled to vote at the annual meeting.
Enclosed
is a copy of the Company’s annual report, notice of annual meeting of
stockholders, proxy statement and proxy card. A current report on the business
operations of the Company will be presented at the meeting and stockholders
will
have an opportunity to ask questions.
We
hope
you will be able to attend the annual meeting. Whether or not you expect to
attend, it is important you complete, sign, date and return the proxy card
in
the enclosed postage prepaid envelope in order to ensure that your shares will
be represented at the annual meeting.
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/s/
Ricardo G. Brutocao
Ricardo
G. Brutocao
Chief
Executive Officer and
Director
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/s/
William G. Mortensen
William
G. Mortensen
President
and Chief Financial
Officer
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ADVANCED
MATERIALS GROUP, INC.
3303
Lee
Parkway, Suite 105
Dallas,
Texas 75219
_____________________________________________________________________________________
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
be held Friday, May 11, 2007
NOTICE
IS
HEREBY GIVEN that the 2007 annual meeting of stockholders of Advanced Materials
Group, Inc., a Nevada corporation (the “Company”), will be held at 10:00 a.m.
local time, on Friday, May 11, 2007 at The Busch Firm, 2532 Dupont Drive,
Irvine, California 92612, for the following purposes:
1.
To elect five nominees to the Board of Directors;
2.
To ratify the appointment of Catherine Fang CPA, LLC as the independent
accountants for the Company for the fiscal year ending November 30, 2007;
3.
To approve the Advanced Materials Group, Inc. 2007 Stock Incentive Plan;
and
4.
To transact such other business as may properly come before the annual meeting
or any adjournments and postponements thereof.
The
Board of Directors has fixed the close of business on March 30, 2007 as the
record date for the determination of stockholders entitled to notice of and
to
vote at the annual meeting. Only holders of the Company’s common stock at the
close of business on the record date are entitled to vote at the meeting. A
list
of stockholders entitled to vote at the meeting will be available for inspection
at the Company’s executive offices. Stockholders will need to register at the
annual meeting in order to attend. You will need proof of your identity and
proof of ownership of shares of our common stock as of March 30, 2007 in order
to register. If your shares are not registered in your name, you will need
to
bring to the annual meeting either a copy of an account statement or a letter
from the broker, bank or other institution in which your shares are registered
that shows your ownership of our common stock as of March 30, 2007.
Accompanying
this notice are a proxy and a proxy statement. PLEASE SIGN AND DATE THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. As described
in the proxy statement, the proxy may be revoked at any time prior to its
exercise at the meeting. If you are a beneficial owner and not a record owner,
please follow the directions provided by your broker.
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By
Order of the Board of Directors
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/s/
William G. Mortensen
William
G. Mortensen
President
and Chief Financial
Officer
|
Dallas,
Texas
April
18,
2007
YOUR
VOTE IS IMPORTANT
You
are cordially invited to attend the annual meeting of stockholders. However,
even if you do plan to attend, please promptly complete, sign, date and mail
the
enclosed proxy in the envelope provided. Returning a signed proxy will not
prevent you from voting in person at the annual meeting, if you so desire,
but
will help secure a quorum and reduce or eliminate the expense of additional
proxy solicitation.
TABLE
OF CONTENTS
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Voting
and
Proxy................................................................................................................................................
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2 |
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5 |
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Executive
Compensation.....................................................................................................................................
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6 |
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9 |
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10 |
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Other
Matters.....................................................................................................................................................
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16 |
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Stockholder
Proposals........................................................................................................................................
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16 |
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Available
Information..........................................................................................................................................
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16 |
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Annual
Report.....................................................................................................................................................
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16 |
ADVANCED
MATERIALS GROUP, INC.
3303
Lee
Parkway, Suite 105
Dallas,
Texas 75219
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
To
be held Friday, May 11, 2007
This
proxy statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of Advanced Materials Group, Inc. (the
“Company”) for use at the annual meeting of stockholders to be held at 10:00
a.m. local time, on Friday, May 11, 2007 at The Busch Firm, 2532 Dupont Drive,
Irvine, California 92612 and at any adjournments or postponements thereof.
It is
anticipated that this proxy statement and accompanying proxy card will be mailed
on or about April 18, 2007 to all stockholders entitled to vote at the annual
meeting.
In
voting
by proxy for directors, stockholders may vote in favor of all director nominees,
withhold their votes as to all nominees, or withhold their votes as to specific
nominees. In voting with respect to other proposals, stockholders may vote
“FOR”
or “AGAINST” such proposals. Stockholders should specify their choices on the
accompanying proxy card.
The
shares represented by each properly executed, unrevoked proxy will be voted
as
directed by the stockholder with respect to the matters described in the proxy.
If no specific instructions are given with regard to the matters to be voted
upon, the shares represented by a signed proxy card will be voted “FOR” the
election of all director nominees named herein, “FOR” the ratification of the
appointment of Catherine Fang CPA, LLC as the Company’s independent accountants
for the fiscal year ending November 30, 2007, and “FOR” the approval of the
Advanced Materials Group, Inc. 2007 Stock Incentive Plan. If any other matters
properly come before the annual meeting, the persons named as proxies will
vote
upon these matters in accordance with their best judgment. Any stockholder
giving a proxy has the power to revoke it at any time before it is voted by
providing written notice to the Secretary of the Company, by issuance of a
subsequent proxy, or by voting at the annual meeting in person.
At
the
close of business on March 30, 2007, the record date for determining
stockholders entitled to notice of and to vote at the annual meeting, the
Company had issued and outstanding 12,146,026 shares of common stock, par value
$.001 per share, held by approximately 2,800 holders of record. Each share
of
common stock entitles the holder of record to one vote on any matter coming
before the annual meeting. Only stockholders of record at the close of business
on the record date are entitled to notice of and to vote at the annual meeting
or at any adjournments or postponements thereof.
The
presence, in person or by proxy, of a majority of the outstanding shares of
common stock of the Company entitled to vote at the annual meeting, regardless
of whether a proxy has authority to vote on all matters presented at the
meeting, shall constitute a quorum at the annual meeting. The five nominees
for
director who receive the highest number of votes shall be elected. On matters
other than the election of directors, the proposal will be approved if the
number of votes cast in favor of the proposal exceeds the number of votes cast
in opposition, unless for any particular proposal the vote of a greater
proportion of shares, or of any particular class of shares, or of each class,
is
required by law or by the Company’s articles of incorporation or bylaws.
Abstentions and broker non-votes on proposal 2, proposal 3 and any other
particular proposal that will be approved if the number of votes cast in favor
of the proposal exceeds the number of votes cast in opposition, will not be
treated as a vote cast on the proposal and, therefore, will not affect the
outcome of those matters to be voted on at the meeting.
For
beneficial owners that are not record owners to vote, they will need to follow
the directions from their broker enclosed with this proxy
statement.
Any
stockholder has the power to revoke his or her proxy at any time before it
is
voted at the annual meeting by submitting written notice of revocation to our
corporate secretary or by filing a duly executed proxy bearing a later date.
A
proxy will not be voted if the stockholder who executed it is present at the
annual meeting and elects to vote in person the shares represented by the
proxy.
The
Company will pay the expenses of soliciting proxies for the annual meeting,
including the cost of preparing, assembling, and mailing the proxy solicitation
materials. Proxies may be solicited personally, or by mail or telephone. Proxy
solicitors may include directors, officers and regular employees of the Company.
Brokerage firms, nominees, custodians and fiduciaries also may be requested
to
forward proxy materials to the beneficial owners of shares held of record by
them.
ELECTION
OF DIRECTORS
The
Company’s bylaws provide that its Board of Directors shall consist of at least
three directors, with the exact number of directors that constitute the Board
of
Directors to be set by a resolution of the Board of Directors or by a majority
of the Company’s stockholders. The number of directors on the Board of Directors
currently is set at five.
Directors
are elected annually and hold office until the next annual meeting of
stockholders or until their respective successors are duly elected and
qualified. The proxies solicited by the Board of Directors will be voted “FOR”
election of the five nominees listed below unless a contrary instruction is
made
on the proxy. If one or more of these nominees should be unable or unwilling
to
serve for any reason, the persons named in the accompanying proxy may vote
for
another candidate or candidates nominated by the Board of Directors. However,
the proxy holders may not vote proxies for a greater number of persons than
the
number of nominees named on the proxy card. All of the nominees listed below
are
presently directors of the Company.
THE
COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ELECTION OF THE FIVE
NOMINEES LISTED BELOW.
Director
Nominees
Timothy
R. Busch, 52, has been the Chairman and a director of the Company since
February 1998 and September 1997, respectively. Mr. Busch is a tax attorney
and
is president and managing partner of a professional services practice, The
Busch
Firm, which he founded in 1979. He is a director of Radica Games International,
a publicly held company, and is a director of several privately held companies.
Mr. Busch is a licensed attorney in California, Michigan, Texas and Washington,
D.C. and has a non-practicing/inactive status as a CPA in California and
Michigan.
N.
Price Paschall, 58, has been a director of the Company since January
1994. Mr. Paschall has been Managing Director of Context Capital Group, an
investment-banking firm that serves clients in the medical and industrial
markets, since February 1992. Mr. Paschall was a partner of Shea, Paschall,
Powell-Hambros Bank, and its predecessor company, a firm specializing in mergers
and acquisitions, from January 1983 to January 1992. Mr. Paschall holds a B.A.
in Business Administration from California Polytechnic University at Pomona.
He
currently serves on the Board of Directors of CPU Tech, a private technology
company located in Pleasanton, CA.
Maurice
J. DeWald, 66, has been a director of the Company since February 1998.
From June 1992 to the present, Mr. DeWald has been Chairman and Chief Executive
Officer of Verity Financial Group, Inc., a private investment and financial
advisory firm. Mr. DeWald is a former member of the KPMG LLC Board of Directors
and also served as the Managing Partner of the Los Angeles office of KPMG LLC
from 1986 to 1991. He currently serves on the Boards of Directors of Mizuho
Corporate Bank of California, and Quality Systems, Inc., a publicly-held
developer and marketer of healthcare information systems.
Ricardo
G. Brutocao, 62, was appointed the position of Chief Executive Officer
to fill the Company's previously announced vacancy at that position on January
2, 2006. Mr. Brutocao, who also has served as a director of the Company since
2005, serves in the CEO capacity on a part-time, at-will basis. Mr.
Brutocao also serves as the part-time CEO and a director of Centergistic
Solutions, Inc., a maker of performance management software, positions Mr.
Brutocao has held since 2001. From 2000 to 2001, Mr. Brutocao was the interim
Chief Executive Officer of ZLand, Inc., a software company.
John
Sawyer, 62, was elected as a director on March 6, 2006. Mr. Sawyer is
Chairman and President of Penhall Company. He joined Penhall Company in 1978
as
the Estimating Manager of the Anaheim Division. In 1980, Mr. Sawyer was
appointed Manager of Penhall's National Contracting Division, and in 1984,
he
assumed the position of Vice President and became responsible for managing
all
construction services divisions. Mr. Sawyer has been President of Penhall since
1989, and Chairman since 1998. Mr. Sawyer is also a director and member of
the
audit committee for H&E Equipment Services.
Executive
Officers
Following
is information regarding each current executive officer of the Company who
is
not a member of the Board of Directors.
William
G. Mortensen, 41, was appointed President and retained as the Chief
Financial Officer on August 22, 2005 and previously held the position of Chief
Financial Officer and Controller as of June 1, 2004. Mr. Mortensen was employed
by Cingular Wireless LLC as Associate Director in Finance, and before the
Cingular joint venture he was with SBC, Inc. as a manager of SBC Services
supporting the SBC Wireless division since 1999. Before joining SBC, Inc. Mr.
Mortensen worked for Frito-Lay, Inc. as a manager of finance and for over eight
years with EDS, Inc. holding various financial positions. Mr. Mortensen holds
a
BBA degree in Business Administration from Abilene Christian University and
has
experience in the telecommunications, high-tech and manufacturing
industries.
Independence
The
majority of the Board of Directors are “independent” as that term is defined in
NASD Marketplace Rule 4200(a)(15). The Board of Directors has determined that
Mr. Dewald, Mr. Paschall, and Mr. Sawyer are “independent” as that term is
defined in NASD Marketplace Rule 4200(a)(15).
Term
of Office and Family Relationships
The
Company’s directors are elected at each annual stockholders’ meeting. Each of
the Company’s directors is to hold office until his successor is elected and
qualified or until his earlier death, resignation or removal. Each of the
Company’s executive officers serves at the discretion of the Company’s Board of
Directors. There are no family relationships among the Company’s executive
officers, directors and director nominees.
Each
of
the Company’s directors is entitled to receive $10,000 annually and
reimbursement for out-of-pocket expenses in connection with his attendance
at
each meeting of the Board of Directors or committee of the Board of Directors.
In addition, each director is entitled to receive non-qualified stock options,
pursuant to the Company’s 2003 Stock Option Plan, to purchase 20,000 shares of
the Company’s common stock at fair market value when first elected to the Board
of Directors, and 10,000 shares of common stock at fair market value each
January subsequent to their reelection to the Board of Directors. The options
become fully vested six months after their issuance. The chairman of the Audit
Committee receives an additional $2,000 annually. All director fees are paid
on
a quarterly basis. Mr. Brutocao does not receive director compensation as he
is
paid a salary of $125,000 plus expenses for his role as part-time CEO. In 2006,
no director options were issued; however, it is expected that in 2007, options
will be issued to directors for service in 2006 and 2007, with an exercise
price
of the fair market value of the underlying common stock on the date of the
grant.
Board
of Directors and Committees
The
Board
of Directors held 4 meetings during fiscal 2006. During the fiscal year ended
November 30, 2006, no incumbent director attended fewer than 75% of the
aggregate of: (1) the total number of meetings of the Board of Directors (held
during the period for which he has been a director); and (2) the total number
of
meetings held by all committees of the Board of Directors on which he served
(during the periods that he served).
The
Board
of Directors has standing Compensation and Audit Committees, but does not have
a
nominating committee because the Board of Directors has determined that the
entire Board of Directors can efficiently and effectively fulfill this function
by using a variety of methods for identifying and evaluating nominees for
director, including candidates that may be referred by the Company’s
stockholders. Stockholders who desire to recommend candidates for evaluation
may
do so by contacting the Company in writing, identifying the potential candidate
and providing background information. See “Security Holder Communications with
the Board of Directors.” Candidates may also come to the attention of the Board
of Directors through the recommendation of current members of the Board of
Directors, professional search firms and other persons. In evaluating potential
candidates, the Board of Directors takes into account a number of factors,
including among others, the following:
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independence
from management;
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whether
the candidate has relevant business experience;
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judgment,
skill, integrity and reputation;
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existing
commitments to other businesses;
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corporate
governance background;
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financial
and accounting background, to enable the Board of Directors
to determine
whether the candidate would be suitable for Audit Committee
membership;
and
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the
size and composition of the Board of
Directors.
The
Compensation Committee currently is composed of Mr. Paschall and Mr. DeWald,
with Mr. Paschall serving as Chairman, and met one time during fiscal 2006.
The Compensation Committee evaluates the performance of the Company’s officers
and makes recommendations to the Board of Directors concerning compensation.
The
Compensation Committee also determines option grants made pursuant to the
Company’s stock option plans based on recommendations of
management.
The
Audit
Committee currently is composed of Mr. DeWald and Mr. Paschall, with
Mr. DeWald serving as Chairman, and met four times during fiscal 2006. The
Audit Committee operates under a written charter that is is available for
viewing on the Company’s website at http://www.ami4.com. The Board of
Directors has determined that each of the members of the Audit Committee is
“independent” as that term is defined in NASD Marketplace Rule 4200(a)(15) and
that Mr. DeWald is an “audit committee financial expert” as that term is defined
in Item 407(d) of Regulation S-B. The Audit Committee’s principal functions are
to monitor the Company’s financial reporting process and internal control
system, review and appraise the audit efforts of the Company’s independent
auditors and provide an open avenue of communication among the Company’s
independent auditors, financial and senior management and Board of
Directors.
Security
Holder Communications with the Board of Directors
The
Board
of Directors has established a process to receive communications from security
holders. Security holders and other interested parties may contact any member
(or all members) of the Board of Directors, or the independent directors as
a
group, any committee of the Board of Directors or any chair of any such
committee, by mail or electronically. To communicate with the Board of
Directors, any individual directors or any group or committee of directors,
correspondence should be addressed to the Board of Directors or any such
individual directors or group or committee of directors by either name or title.
All such correspondence should be sent “c/o Secretary” at Advanced Materials
Group, Inc., 3303 Lee Parkway, Suite 105, Dallas, Texas 75219. To communicate
with any director electronically, security holders should send an e-mail “c/o
Secretary,” at info@ami4.com.
All
communications received as set forth in the preceding paragraph will be opened
by the Company’s Secretary for the sole purpose of determining whether the
contents represent a message to the directors. Any contents that are not in
the
nature of advertising, promotions of a product or service, patently offensive
material or matters deemed inappropriate for the Board of Directors will be
forwarded promptly to the addressee. In the case of communications to the Board
of Directors or any group or committee of directors, the Company’s Secretary
will make sufficient copies (or forward such information in the case of e-mail)
of the contents to send to each director who is a member of the group or
committee to which the envelope or e-mail is addressed.
Report
of the Audit Committee
The
Audit
Committee of the Board of Directors is asked to report to the stockholders
on
certain matters each year in the Company’s proxy statement.
The
Audit
Committee represents the Board of Directors in discharging its responsibilities
relating to the accounting, reporting and financial practices of the Company
and
its subsidiaries, and has the general responsibility for the surveillance of
internal controls and accounting and audit activities of the Company and its
subsidiaries. Management has the primary responsibility for preparing the
Company’s financial statements and for its financial reporting process, and the
Company’s independent auditors are responsible for expressing an opinion on the
conformance of the Company’s financial statements to accounting principles
generally accepted in the United States. The Audit Committee is responsible
for,
among other things, reviewing and discussing with management and the Company’s
independent auditors the Company’s annual and quarterly financial statements and
financial reporting process, including an analysis of the auditors’ judgment as
to (a) the quality of the Company’s accounting procedures and practices, (b) any
significant changes in the accounting policies of the Company and (c) any
accounting and financial impact on the Company’s financial reports.
In
this
context, the Audit Committee reviewed and discussed with management and the
independent auditors the Company’s audited annual financial statements for the
fiscal year ended November 30, 2006. The Audit Committee also discussed with
the
independent auditors the matters that the independent auditors are required
to
discuss with the Audit Committee pursuant to Statement on Auditing Standard
No.
61 (Communication with Audit Committees). In addition, the Audit Committee
received from the independent auditors the written disclosures and the letter
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and actively engaged in a dialogue with
the
independent auditors with respect to any and all disclosed relationships or
services that may impact the objectivity and independence of the independent
auditors. In reviewing and discussing such matters, the Audit Committee
considered whether the auditors’ provision of non-audit services during fiscal
2005 and 2006 was compatible with maintaining the auditors’ independence.
Based
on
the review and discussions referred to above, the Audit Committee 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
November 30, 2006, for filing with the Securities and Exchange
Commission.
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Members
of the Audit Committee:
Maurice
J. DeWald and N. Price Paschall
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Certain
Relationships and Related Transactions
On
April
22, 2004, each of Mr. Busch and Mr. Delk loaned the Company $150,000 in exchange
for the issuance of unsecured promissory notes bearing interest at the rate
of
10.0% per annum and warrants to purchase up to 50,000 shares of the Company's
common stock at an exercise price of $0.363 per share. Interest and principal
on
the notes were due July 21, 2004 but were not paid timely. As a result, the
interest rate of the notes increased to the default rate of 12.0% per annum
on
July 22, 2004, and in October 2004, the Company paid to each of Mr. Busch and
Mr. Delk $50,000 of principal plus interest accrued through July 21, 2004 on
the
entire principal balances of their notes and issued as a penalty to each of
Mr.
Busch and Mr. Delk an additional warrant to purchase up to 50,000 shares of
the
Company's common stock at an exercise price of $0.363 per share. Each of the
warrants issued to Mr. Busch and Mr. Delk expires May 13, 2008. The outstanding
balance on the notes was approximately $44,000 at November 30,
2006.
On
August
26, 2005, the Company issued to each of the Lenawee Trust and Plus Four Private
Equities, L.P. 625,000 shares of the Company's common stock for $0.20 per share
($125,000 each). The Lenawee Trust is an affiliate of Timothy R. Busch, the
Chairman of the Company's Board of Directors.
Effective
August 29, 2005, the Company entered into a Separation and Release Agreement
("Separation Agreement") with Robert Delk ("Delk"), Delk Holdings, Inc. ("Delk
Holdings") and Delk Partners, Ltd. ("DELK Partners"). Pursuant to the Separation
Agreement, the Company paid to Delk certain past due compensation, repaying
amounts loaned to the Company by Delk, and reimbursing him for certain expenses
related to intellectual property being transferred by Delk Holdings to the
Company as described below. Delk, Delk Holdings and Delk Partners agreed not
to
compete with the Company, solicit employees, consultants or customers of the
Company, or disclose any confidential information of the Company for a period
of
one year from the date of this event. The parties released each other from
all claims, whether known or unknown, other than those arising under the
Separation Agreement.
The
Company is or has been a party to employment, consulting and compensation
arrangements with related parties, as more particularly described above under
the headings "Employment Contract, and Termination of Employment and
Change-in-Control Arrangements" and "Director Compensation."
On
October 25, 2006 the Company announced that Robert Delk, past CEO and President
of the Company, in a private transaction, sold 1,419,218 shares, or 11.1% of
the
outstanding shares in the Company, to an investor group headed by the Company’s
Chairman Tim Busch, CEO Ricardo Brutocao, President William G. Mortensen and
the
Company’s largest single shareholder, Plus Four Private Equities,
LP.
The
following table sets forth certain information regarding the common stock
beneficially owned as of March 30, 2007 by:
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each
person who is known by the Company to own beneficially or exercise voting
or
dispositive control over 5% or more of the common stock;
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each
of
the Company’s directors and director nominees;
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each
of
the Company’s current Named Executive Officers;
and
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all
current executive officers and directors as a
group.
There were 12,146,026 shares of the Company’s common stock outstanding as of the
close of business on March 30, 2007, the record
date.
Beneficial
ownership is determined in accordance with Rule 13d-3 promulgated by the
Commission under the Securities Exchange Act of 1934 (“Exchange Act”) and
generally includes voting or investment power with respect to securities. Except
as indicated below, the Company believes each holder possesses sole voting
and
investment power with respect to all of the shares of voting stock owned by
that
holder, subject to community property laws where applicable. In computing the
number of shares beneficially owned by a holder and the percentage ownership
of
that holder, shares of common stock subject to options or warrants held by
that
holder that are currently exercisable or are exercisable within 60 days after
the date of the table are deemed outstanding. Those shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of
any
other person or group.
The
inclusion of shares in this table as being beneficially owned by a person is
not
an admission by such person of beneficial ownership of such shares. Except
as
indicated below, the address for each named beneficial owner is the same as
the
Company’s. Ownership of less than 1.00% is indicated with an
asterisk.
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NAME
AND ADDRESS OF BENEFICIAL OWNER (1)
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AMOUNT
AND NATURE OF BENEFICIAL OWNERSHIP
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PERCENTAGE
OF OUTSTANDING SHARES(2)
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Dito
Caree LP, Dito Devcar LP, Plus Four Private Equities, LP, Plus Four
Equity
Partners, LP and Richard H. Pickup
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3,015,106(2)
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24.89%
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Gregory
J. Spagna
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904,500(3)
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7.47%
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Delk
Partners Ltd., Robert E. Delk and Ann Struckmeyer Delk
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100,000(4)
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0.83%
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Timothy
R. Busch and the Lenawee Trust
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2,719,919(5)
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22.45%
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N.
Price Paschall
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270,000(6)
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2.23%
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Maurice
J. DeWald
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50,000(7)
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0.41%
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William
G. Mortensen
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125,000(8)
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1.03%
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Ricardo
G. Brutocao
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579,739(9)
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4.78%
|
|
All
current executive officers and directors as a group (7 persons) (1)
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7,764,264(1)
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64.08%
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(1)
Mr.
Brutocao, Mr. Busch, Mr. Paschall, Mr. DeWald and Mr. John Sawyer are directors
of the Company. Mr. Sawyer does not beneficially own any Company securities
and
thus, he is not included in the table above. Mr. Brutocao and Mr. Mortensen
are
executive officers of the Company.
(2)
Represents 986,300 shares held by Dito Caree LP, 200,000 shares held by Dito
Devcar LP and 1,389,067 shares held by Plus 4 LLC. Mr. Pickup holds voting
and
dispositive power over these shares as general partner of each of three two
entities. Mr. Pickup's address is c/o David Hehn, 3753 Howard Hughes Parkway
#200, Las Vegas, Nevada 89109-0938. Mr Pickup also purchased 439,739 shares
from
Delk in a private transaction. (Refer to related transaction disclosure on
page
4)
(3)
Represents 617,000 shares held by Mr. Spagna and 287,500 shares held jointly
by
Mr. Spagna and his spouse and children, as reported on a Schedule 13D/A filed
with the Commission on February 5, 2003. Mr. Spagna's address is 515 Airport
Executive Park, Nanuet, New York 10954.
(4)
Represents 100,000 shares underlying warrants held by Delk. (Refer to related
transaction disclosure on page 4)
(5)
Represents 1,505,180 shares held by the Lenawee Trust, of which Mr. Busch and
his spouse are beneficiaries and hold voting and dispositive power, 100,000
shares underlying warrants held by Mr. Busch, and 50,000 shares underlying
options held by Mr. Busch. Mr. Busch also purchased 439,739 shares from Delk
in
a private transaction.
(6)
Represents 10,000 shares outstanding and 260,000 shares underlying
options.
(7)
Represents Director stock options.
(8)
Represents 25,000 shares of vested options and 100,000 shares purchased from
Delk in a private transaction. (Refer to related transaction disclosure on
page
4)
(9)
Effective August 22, 2005, the Company also granted a non-qualified stock option
to Mr. Brutocao to purchase up to 100,000 shares of the Company's common stock
for $0.20 per share. The option vests 20% immediately, and the remaining 80%
in
four 20% increments on each anniversary date of the grant. If Brutocao ceases,
for any reason, to provide consulting services or service in any
capacity to the Company, vesting ceases and the option expires 90 days
thereafter. Mr. Brutocao also engaged in a private transaction to purchase
100,000 shares of the Company’s common stock from the Lenawee Trust. Mr.
Brutocao also purchased 439,739 shares from Delk in a private
transaction.
The
following table sets forth certain information regarding compensation paid
by
the Company for services rendered to the Company by its current and former
Chief
Executive Officers and to each of the other most highly compensated executive
officers of the Company who earned more than $100,000 in salary and bonus during
the fiscal years ended November 30, 2005 and 2006 (the “Named Executive
Officers”).
Summary
Compensation Table
|
|
|
|
|
OTHER
|
LONG-TERM
COMPENSATION AWARDS SECURITIES
|
|
NAME
AND PRINCIPAL POSITION
|
FISCAL
YEAR
|
SALARY(1)
|
BONUS
|
ANNUAL
COMPENSATION
|
UNDERLYING
OPTIONS GRANTED
|
|
Ricardo
Brutocao
|
2006
|
$125,000
|
$65,949
|
--
|
--
|
|
Chief
Executive Officer
|
2005
|
$125,000
|
--
|
--
|
100,000
|
|
|
|
|
|
|
|
|
William
G. Mortensen
|
2006
|
$120,000
|
$65,949
|
--
|
--
|
President
and Chief Financial
Officer
|
2005
|
$120,000
|
$16,544
|
--
|
--
|
|
|
|
|
|
|
|
|
Michael
Bowen (2)
|
2006
|
$135,000
|
$30,402
|
--
|
--
|
|
Former
Executive Vice President
|
2005
|
$135,000
|
$16,544
|
--
|
200,000
|
|
|
|
|
|
|
|
|
Robert
E. Delk,
Former
President, Chief Executive Officer
|
2005
|
$125,000
|
--
|
--
|
--
|
(1)
Mr.
Delk's agreement provided for him to receive $125,000 annually beginning in
August 2004. Mr. Brutocao began receiving a salary of $125,000 in January 2006.
Before January 2006, Mr. Brutocao was a director of the Company and was employed
by the Company as a consultant receiving annual compensation in the amount
$120,000.
(2)
Effective July 7, 2006, Michael Bowen resigned from the Company to pursue other
opportunities.
Option
Grants in 2006
None
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The
following table sets forth certain information regarding the exercise of options
by the Named Executive Officers during fiscal 2006 and unexercised stock options
held by the Named Executive Officers as of November 30, 2006.
|
|
|
|
|
|
UNDERLYING
UNEXERCISED OPTIONS AT NOVEMBER 30, 2006
|
NUMBER
OF SHARES VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT NOVEMBER 30,
2006(2)
|
|
NAME
|
SHARES
ACQUIRED ON EXERCISE
|
VALUE
REALIZED(1)
|
EXERCISABLE
|
UNEXERCISABLE
|
EXERCISABLE
|
UNEXERCISABLE
|
|
Ricardo
Brutocao
|
--
|
--
|
40,000
|
60,000
|
$13,600
|
$20,400
|
|
Will
Mortensen
|
--
|
--
|
25,000
|
25,000
|
$3,500
|
$3,500
|
(1)
Market value of underlying securities on the date of exercise, minus the
exercise price.
(2)
Based
on the last reported sale price ($0.62 per share) on the Pink Sheets
on March 30, 2007 (the record date).
Employment
Contract, Termination of Employment and Change-in-Control Arrangements
On
June
24, 2005, Robert E. Delk, who served as a member of the board of directors
("Board") of the Company and as the President and Chief Executive Officer of
the
Company commencing August 1, 2003, resigned from his position on the board
of
directors. Pursuant to the letter dated June 24, 2005 addressed to the Chairman
of the Board of the Company in which Mr. Delk advised the board of directors
of
his resignation as a director, Mr. Delk also gave written notice of termination
of his employment with the Company effective July 31, 2005 upon the expiration
of his Employment Agreement dated August 1, 2003 with the Company.
On
August
22, 2005, the Company entered into Employment Agreements with William G.
Mortensen ("Mortensen"), its current President and Chief Financial Officer,
and
Michael Bowen ("Bowen"), its former Executive Vice President. Pursuant to these
Employment Agreements, Mortensen serves as President and Chief Financial Officer
of the Company and Bowen served as Executive Vice President of the Company.
Mr. Bowen terminated his employment with the Company effective July 7, 2006.
The
terms of employment are at will; however, upon termination by the Company
without cause (as defined in the Employment Agreements), the terminated employee
is entitled to receive severance pay equal to six months' base salary if the
termination occurs within the first year of the term, and equal to three months'
base salary if the termination occurs thereafter. Mortensen's base annual salary
is set at $120,000 and Bowen's base annual salary was set at $135,000. The
employment agreements provide for bonuses calculated by formulas based upon
the
Company's income from continuing operations before taxes. In 2005 upon entering
into his employment agreement, Bowen also received a grant of an incentive
stock
option to purchase up to 200,000 shares of the Company's common stock for $0.20
per share. The option vested at 20% per year for five years, beginning one
year
from the date of the grant. However, due to Bowen's voluntary termination of
employment with the Company as of July 7, 2006, the stock option has
expired.
In
January 2006, the Company entered into an at-will employment arrangement with
Ricardo G. Brutocao to fill the Company's open Chief Executive Officer Position.
Mr. Brutocao has an unwritten agreement to be compensated by the Company at
the
rate of $125,000. In November 2005, Mr. Brutocao was elected to the Company's
board of directors. Prior to that Mr. Brutocao had been providing consulting
services to the Company and as a result was granted 100,000 options at $.20
per
share of which 20% vested immediately and the remaining vest ratably over a
four
year period. Vesting of any remaining unvested options is contingent on
continued service to the Company.
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee consisted of the following non-employee directors during
fiscal 2005 and 2006: Mr. Paschall and Mr. DeWald. No director who was a member
of the Compensation Committee during fiscal 2005 and 2006 was an officer or
employee of the Company or its subsidiaries during fiscal 2005 or 2006, was
formerly an officer of the Company or its subsidiaries, or had any relationship
requiring disclosure pursuant to Item 404 of Regulation S-B under the Securities
Act of 1933 (“Securities Act”).
None
of
the Company’s executive officers serves as a member of a compensation committee
of another corporation (or other Board committee of such company performing
equivalent functions or, in the absence of any such committee, the entire Board
of Directors of such corporation), one of whose executive officers served on
the
Company’s Compensation Committee. None of the Company’s executive officers
served during fiscal 2005 and 2006 as a director of another corporation, one
of
whose executive officers served on the Company’s Compensation Committee. None of
the Company’s executive officers served during fiscal 2005 and 2006 as a member
of a compensation committee of another corporation (or other Board committee
of
such corporation performing similar functions or, in the absence of any such
committee, the entire Board of Directors), one of whose executive officers
served as one of the Company’s directors.
Report
of the Compensation Committee
The
Compensation Committee of the Board of Directors, composed of Mr. Paschall
and
Mr. DeWald, has the authority to recommend to the Board of Directors
changes to the Company’s executive compensation programs, including the
Company’s stock incentive plans. The Company’s executive compensation program is
designed to provide competitive levels of base compensation in order to attract,
retain and motivate high quality employees, tie individual total compensation
to
individual performance and success of the Company, and align the interests
of
the Company’s executive officers with those of its stockholders.
The
Company has a Compensation Committee Charter, which was adopted by the Board
of
Directors on November 2, 2004. The Compensation Committee Charter is available
for viewing on the Company’s website at http://www.ami4.com.
Executive
Compensation Program
The
Company’s executive compensation program consists of three principal elements:
base salary, cash bonus and stock options. The Board of Directors sets the
annual base salary for executives after consideration of the recommendations
of
the Compensation Committee. Prior to making its recommendations, the
Compensation Committee reviews historical compensation levels of the executives,
evaluates past performance, and assesses expected future contributions of the
executives. In making the determinations regarding base salaries, the Company
considers generally available information regarding the salaries prevailing
in
the industry.
The
Company maintains incentive plans under which executive officers may be paid
cash bonuses at the end of each fiscal year. The bonuses under these incentive
plans depend upon individual performance and the achievement by the Company
of
certain financial targets established by the Board of Directors prior to the
start of each fiscal year.
Total
compensation for executive officers also includes long-term incentives offered
in the form of stock options, which are generally provided through initial
stock
option grants at the date of hire and periodic additional stock options grants.
Stock options align the interests of the executive officer with the interests
of
stockholders due to the fact that the executive can realize a gain only if
the
Company’s stock appreciates in value. In determining the amount of such grants,
the Compensation Committee considers the contributions of each executive to
the
overall success of the Company in the past fiscal year, the responsibilities
to
be assumed in the upcoming fiscal year, appropriate incentives for the promotion
of the long-term growth of the Company, and grants to other executives in the
industry holding comparable positions as well as the executive’s position within
the Company.
Chief
Executive Officer Compensation
On
June
24, 2005, Robert E. Delk, who has served as a member of the board of directors
("Board") of AM and as the President and Chief Executive Officer of AM since
August 1, 2003, resigned from his position on the board of directors. Pursuant
to the letter dated June 24, 2005 addressed to the Chairman of the Board of
AM
in which Mr. Delk advised the board of directors of his resignation as a
director, Mr. Delk also gave written notice of termination of his employment
with AM effective July 31, 2005 upon the expiration of his Employment Agreement
dated August 1, 2003 with AM.
On
August
22, 2005, AM entered into Employment Agreements with William G. Mortensen
("Mortensen") and Michael Bowen ("Bowen"). Pursuant to these Employment
Agreements, Mortensen serves as President and Chief Financial Officer of
AM and
Bowen served as Executive Vice President of AM. The terms of employment are
at
will; however, if either is terminated without cause (as defined in the
Employment Agreements), they receive severance pay equal to six months' base
salary if the termination occurs within the first year of the term, and equal
to
three months' base salary if the termination occurs thereafter. Mortensen's
base
annual salary is set at $120,000 and Bowen's base annual salary is set at
$135,000. Mortensen and Bowen are each entitled to bonuses calculated by
formulas based upon AM's income from continuing operations before taxes.
In 2005
upon entering into his employment agreement, Bowen also received a grant
of an
incentive stock option to purchase up to 200,000 shares of AM's common stock
for
$0.20 per share. The option vests 20% per year for five years, beginning
one
year from the date of the grant. If Bowen's employment with AM terminates
for
any reason other than for cause or his voluntary resignation, the option
does
not terminate and vesting continues. Due to Bowen's resignation as of July
7,
2006, all stock options have expired.
In
January 2006, the Company entered into an at-will employment arrangement
with
Ricardo G. Brutocao to fill the Company's open Chief Executive Officer Position.
Mr. Brutocao has an unwritten agreement to be compensated by the Company
at the
rate of $125,000. In November 2005, Mr. Brutocao was elected to the Company's
board of directors. Prior to that Mr. Brutocao had been providing consulting
services to the Company and as a result was granted 100,000 options at $.20
per
share of which 20% vested immediately and the remaining vest ratably over
a four
year period. Vesting is contingent on continued service to the
Company.
| |
|
This
report was furnished by
Mr.
Paschall and Mr. DeWald
|
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires the officers and directors of the Company
as
well as persons who own more than 10% of a registered class of the Company’s
equity securities, to file reports of ownership and changes in ownership with
the Commission. Officers, directors and greater-than-10% stockholders are
required by the regulations of the Commission to furnish the company with copies
of all Section 16(a) forms that they file.
With
the
exception of the two individuals identified below, the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company,
all Section 16(a) requirements applicable to our officers, directors and
greater-than-10% shareholders were satisfied during the fiscal year ended
November 30, 2006.
During
fiscal years 2005 and 2006, Timothy Busch failed to timely file Form 4's with
respect to four separate transactions in the Company's common stocks. A
Form 4 was filed on January 29, 2007 to report these four previously unreported
transactions. On January 29, 2007, Mr. Robert Delk, the former President
and Chief Executive Officer of the Company, filed a Form 4 with respect to
a
disposition of the Company's common stock that occurred on September 23,
2006.
Code
of Ethics
The
Company has adopted a code of ethics that is applicable to all of the Company’s
directors, officers and employees and is intended to meet the definition of
a
“code of ethics” as set forth in Item 406(b) of Regulation S-B of the
Commission. The Company will provide a copy of the code of ethics to any person
without charge, upon written request to Advanced Materials Group, Inc.,
Attention: Investor Relations, 3303 Lee Parkway, Suite 105, Dallas, Texas
75219.
RATIFICATION
OF
APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
General
The
Company is asking its stockholders to ratify the Audit Committee’s appointment
of Catherine Fang CPA, LLC as its independent auditors for the fiscal year
ending November 30, 2007. If the Company’s stockholders fail to ratify the
appointment, the Audit Committee may reconsider this appointment. Even if the
appointment is ratified, the Audit Committee, in its discretion, may direct
the
appointment of a different independent auditing firm at any time if the Audit
Committee determines that such a change would be in the best interests of the
Company and its stockholders.
Representatives
of Catherine Fang CPA, LLC are not expected to be present at the meeting.
Change
in Independent Auditors
On
September 14, 2005, the Company notified Whitley Penn, the independent
accounting firm that was engaged at that time as the Company’s public accountant
to audit its consolidated financial statements, that the Company intended to
engage new independent public accountants, and dismissed Whitley Penn as its
independent public accountant. The change was due to concerns with the cost
of
their services. Also due to cost concerns, the Company did not have Whitley
Penn
issue an audit report or any review reports on the Company’s consolidated
financial statements as of and for the Company's fiscal year ended November
30,
2004.
The
Company's decision to change independent public accountants was approved by
the
Company’s audit committee and board of directors. In connection with services
provided to the Company for its most recent fiscal year ended November 30,
2004,
and through September 14, 2005, there were no disagreements with Whitley Penn
on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to Whitley Penn's satisfaction, would have caused Whitley Penn to make reference
to the subject matter of the disagreements in connection with any audit or
review reports Whitley Penn would have issued on the Company's consolidated
financial statements for such periods, if those consolidated financial
statements had been finalized. For the fiscal year ended November 30, 2004
and
through September 14, 2005, there were no reportable events as described in
Item
304(a)(1)(v) of Regulation S-B.
On
September 20, 2005, the Company provided Whitley Penn with a copy of the
disclosures it is making in response to Item 304(a) of Regulation S-B. the
Company requested that Whitley Penn furnish the Company with a letter addressed
to the Securities and Exchange Commission stating whether Whitley Penn agrees
with the statements being made by the Company in response to Item 304(a) and,
if
not, stating the respects in which it does not agree. A copy of Whitley Penn's
letter was attached as Exhibit 16 to the Form 8-K filed by the Company on
September 22, 2005.
On
September 14, 2005, the Company engaged Catherine Fang, CPA, LLC ("Fang") as
its
new independent public accountants. During the fiscal years ended November
30,
2004 and 2003 and through September 14, 2005, the Company had not consulted
with
Fang with respect to the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's consolidated financial statements or any
other matters or reportable events as defined in Item 304(a)(2)(i) and (ii)
of
Regulation S-B.
Principal
Accountant Fees and Services
The
following table presents fees for professional audit services and fees billed
for other services rendered by Catherine Fang CPA, LLC.
|
|
|
2006
|
|
|
2005
|
|
|
Audit
Fees
|
$ |
55,952 |
|
$
|
47,500
|
|
|
Audit-Related
Fees
|
|
15,875 |
|
|
6,800
|
|
|
Tax
Fees
|
|
14,636 |
|
|
7,500
|
|
|
Total
Fees
|
|
86,463 |
|
|
61,800
|
|
Audit
Fees. Consists of fees billed for professional services rendered for the
audit of the Company’s consolidated financial statements and review of the
interim consolidated financial statements included in quarterly reports and
services that are normally provided in connection with statutory and regulatory
filings or engagements.
Audit-Related
Fees. Consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of the Company’s
consolidated financial statements and are not reported under “Audit Fees.” These
services include legal review and consultations concerning financial accounting
and reporting standards.
Tax
Fees. Consists of fees billed for professional services for tax compliance,
tax advice and tax planning. These services include assistance regarding
federal, state and international tax compliance.
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
of
Independent Auditors
The
Audit
Committee’s policy is to pre-approve all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as
to
the particular service or category of services and is generally subject to
a
specific budget. The independent auditors and management are required to
periodically report to the Audit Committee regarding the extent of services
provided by the independent auditors in accordance with this pre-approval,
and
the fees for the services performed to date. The Audit Committee may also
pre-approve particular services on a case-by-case basis.
THE
BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT
OF CATHERINE
FANG CPA, LLC AS THE INDEPENDENT ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL
YEAR
ENDING NOVEMBER 30, 2007.
APPROVAL
OF THE
ADVANCED
MATERIALS GROUP, INC. 2007 STOCK INCENTIVE PLAN
On
January 30, 2007, the board of directors (the “Board”) of the Company adopted
the Advanced Materials Group, Inc. 2007 Stock Incentive Plan (the “Incentive
Plan”), subject to the approval of its stockholders. The Incentive Plan is an
unfunded plan which provides for the granting of incentive stock options,
nonstatutory stock options, stock appreciation rights and restricted shares
(collectively, “Awards”) to employees, directors and consultants of the Company
or an affiliate. The Board believes that the Incentive Plan strengthens the
Company’s ability to attract, retain, and reward employees, directors and
consultants by enabling such persons to acquire or increase a proprietary
interest in the Company, strengthening the mutuality of interests between such
persons and the Company’s stockholders, and providing such persons with
performance incentives to expend their maximum efforts in the creation of
stockholder value. The Incentive Plan provides for a reserve of 2,000,000 shares
that could be issued in connection with Awards granted under the Incentive
Plan.
Summary
of the Incentive Plan
The
following is a summary of the principal features of the Incentive Plan, together
with the applicable tax implications. This summary, however, does not purport
to
be a complete description of all provisions of the Incentive Plan. The following
description is qualified in its entirety by reference to the Incentive Plan,
a
copy of which is Exhibit A to this Form 14A.
Purpose
of the Plan
In
order
to attract, retain and motivate employees, directors, and consultants who
perform substantial services for or on behalf of the Company or an affiliate,
the Board adopted the Incentive Plan, subject to stockholder approval, pursuant
to which Awards consisting of incentive stock options, nonstatutory stock
options, stock appreciation rights and restricted shares may be granted to
such
persons.
Shares
Subject to the Plan
The
aggregate number of shares of Common Stock subject to the Incentive Plan is
3,000,000. Shares subject to the Incentive Plan include authorized and
unissued shares, as well as previously issued shares that have been reacquired
by the Company. The total number of shares authorized under the Incentive Plan
will be subject to increase or decrease in order to reflect any stock split,
stock dividend, recapitalization, merger, consolidation, reorganization,
combination or exchange of shares of Common Stock or other similar event, and
will be increased proportionately upon any increase in the total number of
shares of Common Stock issued without the Company’s receipt of consideration. If
any Award granted under the Incentive Plan expires, terminates or is canceled
for any reason without having been exercised in full, or if any Shares issued
in
connection with an Award are repurchased by the Company, the corresponding
number of Shares will again be available for Awards under the Incentive Plan.
Awards may be granted under the Incentive Plan at any time prior to tenth
(10th)
anniversary of the effective date of the Incentive Plan (i.e. the 10th
anniversary of the date on which the Company shareholders approve the Incentive
Plan), as long as the total number of Shares of Common Stock which may be issued
pursuant to Awards granted does not exceed the limitations of the Incentive
Plan.
Administration
The
Incentive Plan is administered by the Board, or, at the option of the Board,
a
committee appointed by the Board (the group responsible for administering the
Incentive Plan is referred to herein as the “Plan Administrator”). The Board has
designated the Compensation Committee as the Plan Administrator of the Incentive
Plan. The Plan Administrator is vested with full and final authority to
administer and interpret the Incentive Plan and to make all determinations
necessary or advisable for the administration of the Incentive Plan. Subject
to
the terms of the Incentive Plan, the Plan Administrator will determine who
will
receive Awards, the time or times at which Awards will be granted, the type
of
Awards to be granted, the number of shares of Common Stock covered by each
Award, vesting schedules and other limitations on the vesting of the Awards,
and
such other terms and conditions of each Award as are not inconsistent with
the
provisions of the Incentive Plan.
Participation
in Plan
Employees,
directors and consultants of the Company who are selected by the Plan
Administrator will be eligible for participation in the Incentive Plan.
Agreements
Evidencing Awards
Awards
will be evidenced by Award Agreements in such form as the Plan Administrator
approves and containing such terms and conditions including the substance of
the
Incentive Plan and such other terms and provisions as are not inconsistent
with
the Incentive Plan. Award Agreements need not be identical.
Description
of Options
Types
of Options.
The
types of stock options (“Options”) that may be granted under the Incentive Plan
include: (i) options which meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the “Code”)(“Incentive Stock Options”), and
(ii) stock options that do not qualify as Incentive Stock Options (“Nonstatutory
Stock Options”). Incentive Stock Options may only be granted to employees;
however, Nonstatutory Stock Options may be granted to employees, directors
or
consultants of the Company. The exercise price per share for Common Stock
subject to an Option will be determined by the Plan
Administrator
at the date of grant; provided, that the exercise price for any Option shall
not
be less than 100% of the fair market value of the Common Stock at the date
of
grant, as determined by the Board, and if the participant of an Incentive Stock
Option owns more than 10% of the total combined voting power of all classes
of
stock of the Company and its affiliates, as described in Section 422(b)(6)
of
the Code, the exercise price of any Incentive Stock Option granted to such
participant shall not be less than 110% of the fair market value of the Common
Stock at the date of grant. Fair market value on any date shall be determined
by
the Board, in its sole discretion, on the basis of available prices for shares
of the Company’s Common Stock on an established stock exchange or national
market system or, if not so reported, the average of the high and low bids,
or,
in the absence of an established market, any other good faith valuation method
which complies with the requirements of Code Section 409A.
Payment
on Exercise.
No
shares of Common Stock will be issued upon the exercise of an Option unless
notice of exercise is received by the Company and the Shares are paid for in
full. Payment for shares of Common Stock purchased upon the exercise of an
Option may, subject to the terms of the applicable Award Agreement, be made
in
cash or by wire transfer or check, by execution of a promissory note, by
withholding shares that would otherwise be issued upon exercise of the Option
(“cashless exercise”), or by delivery of shares of Common Stock of the Company
then owned by the participant at the time of the exercise of the Option;
provided, that the participant shall have held such shares for a period of
six
months prior to such exercise (or such shorter or longer period of time as
is
necessary for the Company to avoid a charge to earnings).
Term
of Options.
The
term of each Option will be of such period as may be determined by the Plan
Administrator; provided, that in no event will the term of any Option exceed
a
period of ten years (or, in the case of an Incentive Stock Option granted to
an
employee who owns more than 10% of the total combined voting power of all
classes of stock of the Company and its affiliates, five (5) years). The Plan
Administrator shall determine on the date of grant what conditions shall apply
to the exercise of an Option granted under the Incentive Plan in the event
the
participant shall cease to be employed or retained as a director or consultant
by the Company or its affiliates for any reason, including by reason of death
or
disability, or a termination for cause, and such conditions will be described
in
the applicable Award Agreement.
Description
of Restricted Share Award
Grant
of Restricted Shares.
Restricted Shares may be granted alone or in addition to other Awards granted
pursuant to the Plan. Each Award of Restricted Shares will be evidenced by
an
Award Agreement, which will describe the price to be paid for the shares, if
any, and the restrictions applicable to the shares received thereunder.
Effect
of Restrictions.
The
Restricted Shares may be subject to such restrictions as may be provided under
the applicable Award Agreement. The Plan Administrator may accelerate the lapse
of all or a portion of the restrictions on an Award of Restricted Shares at
any
time. Upon the lapse of the restrictions on Restricted Shares, the Plan
Administrator shall cause the stock certificate to be delivered to the
participant with respect to such shares, free of all restrictions under the
Plan.
Description
of Stock Appreciation Rights
Grant
of Stock Appreciation Rights.
Stock
appreciation rights ("SARs") may be granted alone or in addition to other
Awards. SARs are rights to be paid an amount equal to no more than 100% of
the
difference between the value of a specified number of shares of Common Stock
of
the Company on the date on which the SARs are granted and the value of such
Common Stock on the date on which the SARs are exercised. This amount may be
paid in cash or shares of Common Stock, as described in the applicable Award
Agreement.
Ownership
Rights.
SARs do
not generally provide voting, dividend or other rights associated with stock
ownership.
Term
of SARs.
The
term of each SAR will be of such period as may be determined by the Plan
Administrator. The Plan Administrator shall determine on the date of grant
what
conditions shall apply to the exercise of an SAR granted under the Incentive
Plan in the event the participant shall cease to be employed or retained as a
director or consultant by the Company or its affiliates for any reason,
including by reason of death or disability, or a termination for cause, and
such
conditions will be described in the applicable Award Agreement.
Other
provisions of the Incentive Plan
Amendment
or Termination of the Plan.
The
Board may amend, suspend or terminate the Incentive Plan, so long as that action
does not impair any Award then outstanding, without the consent of the affected
participant. Without the approval of the shareholders, however, the Board may
not amend the Incentive Plan to expand the types of Awards available under
the
Incentive Plan or otherwise materially revise the Incentive Plan, increase
the
number of shares reserved for issuance under the Incentive Plan (other than
pursuant to capitalization adjustments set forth in the Incentive Plan), modify
the class of individuals eligible to receive Awards under the Incentive Plan
or
change the identity of the granting company or the shares to be issued upon
the
exercise of Incentive Stock Options.
The
Plan
Administrator may amend, modify or terminate any outstanding Award in any manner
not inconsistent with the terms of the Incentive Plan as long as such action
does not impair the rights of the participant without his or her consent.
The
Board
may terminate the Incentive Plan at any time. Nevertheless, absent any such
action by the Board, no Award will be granted under the Incentive Plan after
the
tenth anniversary of its effective date or, if later, the tenth anniversary
of
any action by the Board or approval of shareholders, if later, to (i) increase
the number of shares reserved for issuance under the Incentive Plan,
(ii) modify the class of persons eligible to receive Awards under the
Incentive Plan, or (iii) change the identity of the granting company or the
shares issued upon exercise of Incentive Stock Options.
Change
in Control.
Unless
the Plan Administrator determines otherwise, upon or following a “Change
in
Control” of the Company, as such term is defined in the Incentive Plan, Awards
shall accelerate and all restrictions shall immediately lapse. In addition,
Options that remain unexercised on the effective date of the Change in Control
may be immediately forfeited or, in the event the Company is not the surviving
company, all outstanding Options and Stock Appreciation Rights may be
substituted or assumed by the surviving company. Pursuant to the Incentive
Plan,
a Change in Control is generally deemed to have occurred upon (i) the sale,
transfer or other conveyance of all or substantially all of the Company’s
assets, (ii) the acquisition of beneficial ownership, directly or indirectly,
by
a person of the securities representing 50% or more of the total number of
votes
that may be cast for the election of directors of the Company; or (iii) the
failure at any annual or special meeting of the Company's stockholders held
during the three-year period following a "solicitation in opposition" as defined
in Rule 14a-6 promulgated under the Exchange Act, of a majority of the persons
nominated by the Company in the proxy material mailed to shareholders by the
management of the Company to win election to seats on the Board (such majority
calculated based upon the total number of persons nominated by the Company
failing to win election to seats on the Board divided by the total number of
Board members of the Board as of the beginning of such three-year period),
excluding only those who die, retire voluntarily, are disabled or are otherwise
disqualified in the interim between their nomination and the date of the
meeting.
Awards
Not Transferable.
An
Award granted under the Incentive Plan may, by its terms, be non-transferable
by
the holder thereof and as such may not be sold, assigned, pledged, mortgaged,
or
otherwise transferred or disposed of other than by will of the laws of descent
and distribution. During the lifetime of the holder of an Award, such Awards
are
exercisable only by him or her.
Restrictions
on Issuance of Shares.
The
Company is not obligated to sell or issue any shares of Common Stock upon the
exercise of any Award granted under the Incentive Plan unless, among other
requirements, the shares with respect to which such Award is being exercised
are
registered under applicable federal and state securities laws, or the issuance
of which is exempt from such registration. If the shares of Common Stock to
be
issued upon the exercise of any Award granted under the Incentive Plan are
intended to be issued by the Company in reliance upon the exemptions from the
registration requirements of applicable federal and state securities laws,
the
participant, if so requested by the Company, shall furnish to the Company such
evidence and representations as may be requested, including an opinion of
counsel satisfactory to the Company. Any shares of Common Stock issued to an
officer or director of the Company pursuant to the Incentive Plan shall not
be
transferred until at least six months have elapsed from the date of grant of
such Award to the sale of disposition of the Common Stock underlying such Award.
The Plan Administrator may impose such other restrictions on the ownership
and
transfer of shares of Common Stock issued pursuant to the Incentive Plan as
it
deems appropriate.
Federal
Income Tax Consequences
The
following summary of federal income tax considerations of persons who
participate in the Incentive Plan is for general information only and is
intended to summarize briefly the federal income tax consequences arising from
participation in the Incentive Plan. This discussion is based upon present
law,
which is subject to change, possibly retroactively. The tax treatment to persons
who participate in the Incentive Plan may vary depending upon each person’s
particular situation, and therefore may be subject to special rules not
discussed below. This discussion does not address the effects, if any, under
any
potentially applicable foreign, state, or local tax laws, or the consequences
thereunder, that may result from the acquisition, holding, or disposition of
Common Stock issued under the terms of the Incentive Plan. This summary
addresses federal income tax considerations of persons participating in the
Incentive Plan generally and is not intended to, nor may it, be construed as
specific federal income tax advice to any individual person. EACH
PERSON WHO PARTICIPATES IN THE INCENTIVE PLAN SHOULD CONSULT SUCH PERSON’S TAX
ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES TO SUCH PERSON OF PARTICIPATION
IN THE INCENTIVE PLAN.
The
Company shall have the right, subject to applicable law, to collect applicable
taxes due in connection with any Award by deducting such amount from any payment
to an employee or by withholding, at the time of delivery or vesting, an
appropriate number of shares of Common Stock for payment of taxes required
by
law. If shares of Common Stock are used to satisfy applicable tax withholding,
such shares will be valued based on the fair market value of the shares at
the
time the tax withholding is required to be made.
Participants
Subject to Section 16(b) of the Exchange Act. The
Incentive Plan is intended to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act relating to rules for directors, officers
and
10% owners of the Company. Therefore, because the acquisition of the Common
Stock will not be deemed to be a “purchase” for purposes of Section 16(b) of the
Exchange Act, a sale of Common Stock by an Incentive Plan participant within
six
months after the date of exercise of an Option or SAR (or the date restrictions
on a Restricted Share Award lapse) should not necessarily subject the
participant to liability under Section 16(b) of the Exchange Act. However,
because the sale of the Common Stock can still be “matched” with other
purchases, if a participant has purchased Common Stock or obtained a right
to
acquire Common Stock which is considered a “purchase” for purposes of Section
16(b) within six months before the date of exercise of an Option or SAR (or
the
date restrictions on a Restricted Share Award lapse) (an “interim purchase”),
the participant may have short-swing liability under Section 16(b) if he were
to
sell the Common Stock within six months after the date of the interim purchase.
The Internal Revenue Service (the “IRS”) has not provided guidance regarding the
tax consequences of this fact situation. However, IRS regulations suggest that
because an interim purchase would trigger liability upon the sale of the Common
Stock within six months after the interim purchase, the Common Stock may be
treated as subject to a “substantial risk of forfeiture” under Section 83(b) of
the Code and not transferable and, therefore, substantially nonvested. Tax
consequences regarding this issue are discussed below. PARTICIPANTS
SUBJECT TO SECTION 16(b) OF THE EXCHANGE ACT ARE URGED TO CONSULT THEIR ADVISORS
CONCERNING THE APPLICATION OF SECTION 16(b) OF THE EXCHANGE ACT TO TRANSACTIONS
UNDER THE INCENTIVE PLAN.
Nonstatutory
Stock Options.
Participants
will not realize taxable income upon the grant of a Nonstatutory Stock Option.
The federal income tax consequences to a participant of exercising a
Nonstatutory Stock Option will vary depending on whether the shares of Common
Stock received upon the exercise of such Option are either “substantially
vested” or “substantially non-vested” within the meaning of Section 83 of the
Code. Generally, such shares will be “substantially non-vested” if they are both
non-transferable and subject to a substantial risk of forfeiture, and will
be
“substantially vested” if they are either transferable or not subject to a
substantial risk of forfeiture. A participant generally should not recognize
compensation income upon exercising a Nonstatutory Stock Option for shares
that
are “substantially non-vested” until such shares become “substantially vested.”
A participant who wishes to recognize compensation income at the time of the
exercise of such an Option (rather than when the shares become “substantially
vested”) must file an election under Section 83(b) of the Code (“Section 83(b)
Election”).
A
Section
83(b) Election is made by filing a written notice with the IRS office with
which
the participant files his federal income tax return. The notice must be filed
within 30 days of the participant’s receipt of the Common Stock related to the
applicable Award and must meet certain technical requirements.
Participants
Not Subject to Section 16(b).
Upon
the exercise of a Nonstatutory Stock Option, a participant who is not subject
to
Section 16(b) will receive stock that is substantially vested. Therefore, the
participant will recognize ordinary income (treated as compensation) in an
amount equal to the excess of (i) the fair market value of the Common Stock
received upon exercise of the Option, over (ii) the exercise price paid
therefor.
Participants
Subject to Section 16(b) - If Interim Purchases Cause Common Stock Issued under
the Terms of the Incentive Plan to be Substantially Non-vested.
If a
participant who is subject to Section 16(b) has made an interim purchase of
shares of Common Stock (or obtained a right to acquire Common Stock which is
considered a “purchase” for purposes of Section 16(b)) within six months prior
to the exercise of the Nonstatutory Stock Option, such interim purchase may
cause the Common Stock to be substantially non-vested and, as a result, the
participant will recognize ordinary income on the Applicable Date (as
hereinafter defined) equal to the difference between the fair market value
of
the Common Stock on the Applicable Date and the exercise price paid for the
shares unless the participant has made a Section 83(b) Election on the date
of
exercise. Alternatively, if the participant makes a Section 83(b) Election,
then
the participant will recognize ordinary income on the date of exercise in an
amount equal to the excess of the fair market value of the Common Stock on
the
date of exercise over the exercise price.
As
used
herein, “Applicable Date” shall mean the earlier of (i) the date the participant
disposes of the Common Stock issued under the terms of the Plan or (ii) the
first date on which the sale of Common Stock issued under the terms of the
Incentive Plan will not subject the participant to liability under Section
16(b)
of the Exchange Act.
Participants
Subject to Section 16(b) - If Interim Purchases Do Not Cause Common Stock Issued
under the Terms of the Incentive Plan to be Substantially Non-vested.
If
no
interim purchases were made or if it is determined that interim purchases do
not
cause the Common Stock to be substantially non-vested, the tax consequences
will
be the same as if the participant were not subject to Section 16(b). Therefore,
upon the exercise of a Nonstatutory Stock Option, a participant will recognize
ordinary income in an amount equal to the excess of the fair market value of
the
Common Stock received on the date of exercise over the exercise
price.
Basis.
The
participant’s basis in Common Stock acquired upon the exercise of a Nonstatutory
Stock Option will be the exercise price plus the amount of ordinary income
recognized by the participant with respect to such Common Stock, assuming the
exercise price is paid solely in cash. The tax basis in the Common Stock for
which the exercise price is paid with shares of Common Stock (if permitted
by
the Plan Administrator pursuant to the Award Agreement) is discussed below
under
the caption “Exercise of Options with Common Stock.”
Company
Deduction.
The
Company will be entitled to a corresponding deduction equal to the amount
recognized as income by a participant at the time such amount is recognized
by
the participant, provided that the participant’s compensation is within
statutory limitations.
Subsequent
Sale or Disposition of Common Stock.
Upon
the sale or other disposition of Common Stock acquired upon the exercise of
a
Nonstatutory Stock Option, a participant will recognize taxable income (or
a
deductible loss) equal to the difference between the amount realized on the
sale
or disposition and the participant’s basis in the Common Stock. The
participant’s gain or loss will be taxable as a capital gain or deductible as a
capital loss provided the shares of Common Stock constitute a capital asset
in
the hands of the participant. The type of capital gain or loss will depend
upon
the holding period of the Common Stock (the “Capital Gains Holding Period”). If
the Common Stock is held for twelve months or less, there will be a short-term
capital gain or loss on the sale or disposition. If the Common Stock is held
for
more than twelve months, there will be a long-term capital gain or loss on
sale
or disposition.
Incentive
Stock Options.
A
participant will not recognize any taxable income upon the grant of an Incentive
Stock Option. A participant also will not recognize any taxable income upon
the
exercise of an Incentive Stock Option provided that the participant was an
employee of the Company (or an affiliate of the Company) at all times beginning
on the date the Option was granted and ending on the date three months before
the Option was exercised (or one year in the case of a disabled or deceased
employee).
Alternative
Minimum Tax.
The
exercise of an Incentive Stock Option will result, however, in an item of income
for purposes of determining the alternative minimum tax (“AMT”). Liability for
tax under the AMT rules will arise only if the participant’s tax liability
determined under the AMT rules exceeds the participant’s tax liability
determined under the ordinary income tax rules. The exercise of an Incentive
Stock Option will give rise to an item of AMT income in an amount equal to
the
excess of the fair market value of the Common Stock received on the date the
Option is exercised over the exercise price. Participants who exercise Incentive
Stock Options and receive shares of Common Stock that are subject to a
substantial risk of forfeiture within the meaning of Section 83(b) of the Code
are urged to consult their tax advisor concerning the application of the AMT
rules.
Basis.
The
participant’s tax basis in the Common Stock acquired upon the exercise of an
Incentive Stock Option for which the exercise price is paid solely in cash
will
be equal to the amount of the cash paid. The tax basis in the Common Stock
for
which the exercise price is paid in shares of Common Stock (if permitted by
the
Plan Administrator pursuant to the terms of the Award Agreement) is discussed
below under the caption “Exercise of Options With Common Stock.”
Subsequent
Sale or Disposition after ISO Holding Period.
Upon
the disposition of stock acquired upon exercise of an Incentive Stock Option
(“ISO Stock”) that has been held for the requisite holding period (at least two
years from the date of grant and one year from the date of exercise of the
Incentive Stock Option, hereinafter referred to as the “ISO Holding Period”), a
participant will generally recognize capital gain (or loss) equal to the excess
(or shortfall) of the amount received in the disposition over the participant’s
basis in the shares of Common Stock, provided the shares are held as a capital
asset by the participant. However, if a participant disposes of ISO Stock that
has not been held for the ISO Holding Period (a “Disqualifying Disposition”),
the participant will recognize ordinary income (treated as compensation) in
the
year of the Disqualifying Disposition in an amount equal to the excess of the
fair market value of the ISO Stock at the time of exercise of the Incentive
Stock Option (or, if less, the amount realized in the case of an arm's length
Disqualifying Disposition to an unrelated party) over the exercise price paid
by
the participant for such ISO Stock. A participant would also recognize capital
gain to the extent the amount realized in the Disqualifying Disposition exceeds
the fair market value of the ISO stock on the exercise date.
Company
Deduction.
The
Company and its subsidiaries will not be entitled to any Federal income tax
deduction upon the grant or exercise of an Incentive Stock Option. If, however,
a participant makes a Disqualifying Disposition, the Company (or an affiliate
of
the Company) will then, subject to the discussion below under the section
entitled “Tax Code Limitations On Deductibility,” be entitled to a tax deduction
that corresponds as to timing and amount with the compensation income recognized
by a participant under the rules described in the preceding
paragraph.
Disqualifying
Dispositions.
Disqualifying
Disposition by Participants Not Subject to Section 16(b).
If a
participant sells ISO Stock in a Disqualifying Disposition, the participant
will
recognize ordinary income in an amount equal to the lesser of (i) the excess
of
the fair market value of the Common Stock on the date of exercise over the
exercise price or (ii) the amount realized on the sale of such stock over the
exercise price. If the amount realized by a participant on the sale of the
Common Stock exceeds the fair market value of such shares on the date of
exercise, the excess will be taxed to the participant as a short-term or
long-term capital gain, provided that the participant held the Common Stock
as a
capital asset.
Disqualifying
Disposition by Participants Subject to Section 16(b) - If Interim Purchases
Cause Common Stock Issued under the Terms of the Incentive Plan to be
Substantially Non-vested.
If a
participant who is subject to Section 16(b) has made an interim purchase of
shares of Common Stock (or obtained a right to acquire Common Stock which is
considered a “purchase” for purposes of Section 16(b)) within six months prior
to the exercise of an Incentive Stock Option (and if such interim purchase
causes the Common Stock to be substantially non-vested as discussed above)
and
the participant sells the ISO Stock in a Disqualifying Disposition, the
participant will recognize ordinary income in an amount equal to the lesser
of
(i) the excess of the fair market value of the Common Stock on the Applicable
Date over the exercise price or (ii) the amount realized on the sale of such
stock over the exercise price, unless the participant makes a Section 83(b)
Election, in which case the tax consequences will be the same as if the
participant was not subject to Section 16(b) as described in the immediately
preceding paragraph.
Disqualifying
Disposition by Participants Subject to Section 16(b) - If There Are No Interim
Purchases or Interim Purchases Do Not Cause Common Stock Issued under the Terms
of the Incentive Plan to be Substantially Non-vested.
If no
interim purchases were made or it is determined that interim purchases do not
cause the Common Stock to be substantially non-vested, the tax consequences
will
be the same as if the participant was not subject to Section 16(b) as described
in the second preceding paragraph.
Alternative
Minimum Tax.
If a
participant exercises an Incentive Stock Option and sells the ISO Stock in
a
Disqualifying Disposition in the same taxable year, the tax treatment for
purposes of ordinary income tax and AMT will be the same (resulting in no
additional AMT liability). Conversely, if the participant sells ISO Stock in
a
Disqualifying Disposition in a tax year subsequent to the tax year in which
the
Incentive Stock Option was exercised, the participant will recognize AMT income
(as determined above) in the first taxable year, and ordinary taxable income
(but not AMT income) in the year in which the disposition was made.
Exercise
Following Participant’s Death.
Under
certain circumstances, the sale of Common Stock by a participant’s estate which
was previously acquired upon exercise of an Incentive Stock Option will receive
the tax treatment described herein without regard to the ISO Holding Period
requirement.
Company
Deduction.
Upon
the occurrence of a Disqualifying Disposition, the Company will be entitled
to a
deduction for federal income tax purposes equal to the amount of ordinary income
recognized by the participant, provided that the participant’s compensation is
within statutory limitations.
Exercise
of Options with Common Stock.
Nonqualified
Stock Options.
If a
participant pays the exercise price of a Nonstatutory Stock Option with shares
of Common Stock (including, shares obtained through the exercise of an Incentive
Stock Option and not held for the ISO Holding Period), the participant will
not
recognize any gain on the shares surrendered. With respect to the Common Stock
received, that portion of the Common Stock equal in number to the shares of
Common Stock surrendered will have a basis equal to the basis of the shares
surrendered and a holding period that includes the holding period of the shares
surrendered. The excess shares received upon exercise of the Nonstatutory Stock
Option will be taxable to the participant as compensation income in an amount
equal to the fair market value of such shares as of the exercise date. The
participant’s basis in such excess shares of Common Stock will equal the amount
of ordinary compensation income recognized by the participant.
Incentive
Stock Options.
The tax
consequences to a participant from using shares of Common Stock to pay the
exercise price of an Incentive Stock Option will depend on the status of the
Common Stock acquired. However, all shares acquired through the exercise of
an
ISO are individually subject to the ISO Holding Period requirements and the
Disqualifying Disposition rules, regardless of whether the option is exercised
with previously acquired shares of the Company or shares of the Company’s stock
being offered for purchased under the ISO. If an ISO is exercised with shares
of
Company stock and the exercise results in an allocation of different tax bases
to the shares received, the participant’s Disqualifying Disposition of any of
the stock acquired though the exercise of the ISO is treated as a Disqualifying
Disposition of the shares with the lowest basis.
If
a
participant pays the exercise price of an Incentive Stock Option for stock
that
is substantially vested with previously-owned shares of Common Stock that are
substantially vested, the participant will not recognize any compensation income
or gain with respect to the shares surrendered. With respect to the Common
Stock
received, that portion of the Common Stock equal in number to the shares of
Common Stock surrendered will have a basis equal to the basis of the shares
surrendered. The holding period of the surrendered shares will be carried over
to the equivalent number of shares of Common Stock received. The participant
will recognize no gain with respect to the excess shares received, the basis
of
such shares will be zero, and the holding period for purposes of determining
capital gain of such shares will begin on the date of receipt thereof by the
participant. Similarly, it appears that if the participant pays the exercise
price for substantially non-vested Common Stock with previously-owned shares
of
Common Stock that is substantially vested, the tax consequences will be the
same.
Likewise,
if
a participant exercises an Incentive Stock Option granted pursuant to the
Incentive Plan using shares of Common Stock that were obtained through the
exercise of an Incentive Stock Option and that have been held by the participant
for the ISO Holding Period for either substantially vested Common Stock or
substantially non-vested Common Stock, the tax consequences of such payment
to
the participant will be identical to those discussed in the preceding
paragraph.
Conversely,
if a participant exercises an Incentive Stock Option granted pursuant to the
Incentive Plan using shares of Common Stock received upon the prior exercise
of
an Incentive Stock Option and the participant has not held the Common Stock
surrendered for the ISO Holding Period, the participant will have made a
Disqualifying Disposition of the number of shares of Common Stock surrendered
as
payment for the exercise price of the Incentive Stock Option. If the participant
receives Common Stock that is substantially vested, the participant generally
will recognize ordinary compensation income with respect to the Disqualifying
Disposition upon surrender of the shares received upon the prior exercise of
an
ISO equal to the excess of the fair market value of the Common Stock surrendered
(determined as of the prior date the Option relating to such Common Stock was
exercised) over the exercise price of the shares surrendered. It is unclear
whether, if the participant receives Common Stock that is substantially
non-vested, the recognition of income will be deferred until the Common Stock
becomes substantially vested. The basis of the shares received in exchange
for
the surrendered shares of Common Stock will equal the participant’s basis in the
shares surrendered, plus the amount of ordinary compensation income recognized
by the participant. The participant will recognize no gain with respect to
the
excess shares received, the basis of such shares will be zero, and the holding
period for purposes of determining capital gain of such shares will begin on
the
date of receipt thereof by the participant.
Restricted
Shares.
Tax
Consequences.
Participants will be taxed on the fair market value of the Restricted Shares
for
the taxable year which includes the date of grant, unless the underlying shares
are substantially nonvested (i.e. both nontransferable and subject to a
substantial risk of forfeiture). However, a participant who wishes to recognize
compensation income with respect to substantially non-vested shares in the
taxable year that includes the date of grant of such an Award must file Section
83(b) Election.
Participants
Not Subject to Section 16(b).
A
participant who is not subject to Section 16(b) who receives Restricted Shares
will recognize ordinary income equal to the fair market value of the Common
Stock received on the earlier of: (i) the date such Common Stock is
transferable or (ii) the time the restrictions lapse, unless the participant
makes a Section 83(b) Election to report the fair market value of such Common
Stock received as ordinary income in the taxable year of receipt.
Participants
Subject to Section 16(b).
A
participant subject to Section 16(b) who receives Restricted Shares will
recognize ordinary income equal to the fair market value of the Common Stock
received at the later of (i) the Applicable Date or (ii) the earlier of: (a)
the
date on which such Common Stock is transferable or (b) the date on which the
restrictions lapse, unless the participant makes a Section 83(b) Election to
report the fair market value of such Common Stock received as ordinary income
in
the taxable year of receipt.
Basis.
The
basis of the Restricted Shares in the hands of the participant will be equal
to
the fair market value of the Restricted Shares on the date the participant
recognizes ordinary income as described above.
Subsequent
Sale or Disposition.
Upon
the sale or disposition of shares of Common Stock, a participant will recognize
taxable income or loss equal to the difference between the amount realized
by
the participant on the disposition of the stock and the participant’s basis in
the stock. The gain or loss will be taxable to the participant as a capital
gain
or deductible by the participant as a capital loss (either short-term or
long-term, depending on the holding period of the Restricted Shares), provided
that the participant held the Restricted Shares as a capital asset.
Dividends.
During
the period in which a participant holds Restricted Shares, prior to the lapse
of
the restrictions, if dividends are declared but not distributed to the
participant until the restrictions lapse, the dividends will be treated for
tax
purposes by the participant and the Company in the following manner: (i) if
the
participant makes a Section 83(b) Election to recognize income at the time
of receipt of the restricted stock, the dividends will be taxed as dividend
income to the participant when the restrictions lapse and the Company will
not
be entitled to a deduction and will not be required to withhold income tax,
or
(ii) if the participant does not make a Section 83(b) Election, the
dividends will be taxed as compensation to the participant when the restrictions
lapse and will be deductible by the Company and subject to applicable federal
income tax withholding at that time.
If,
instead, the Company pays the dividends to the participant prior to the lapse
of
the restrictions and the participant makes a Section 83(b) Election, the
dividends will be taxed as dividend income at the time of payment and will
not
be deductible by the Company. Conversely, if the participant does not make
a
Section 83(b) Election, the dividends will be taxed as compensation to the
participant at the time of payment and will be deductible by the Company and
subject to applicable federal income tax withholding at that time.
Company
Deduction.
The
Company may deduct an amount equal to the income recognized by the participant
at the time the participant recognizes the income, provided the participant’s
compensation is within statutory limitations.
Stock
Appreciation Rights.
Tax
Consequences.
Participants will not realize taxable income upon the grant of an SAR. The
federal income tax consequences to a participant of exercising an SAR will
vary
depending on the form of payment. If the SAR is settled in cash or shares of
Common Stock that are substantially vested, the participant must include in
gross income an amount equal to the value of the consideration received upon
exercise of the SAR. If the SAR is settled in shares of Common Stock and the
shares are substantially nonvested, then the results discussed above under
“Restricted Shares” regarding the taxation of Restricted Shares and “Section
83(b) Elections” will apply.
Company
Deduction.
The
Company may deduct an amount equal to the income recognized by the participant
at the time the participant recognizes the income, provided the participant’s
compensation is within statutory limitations.
Taxation
of Deferred Compensation.
Notwithstanding
the foregoing, a participant who receives an Award that is treated as a deferral
of compensation under a “nonqualified deferred compensation plan”, as that term
is defined under Section 409A(d)(1) of the Code (a “Deferral Award”), will, to
the extent such Deferral Award is not subject to a substantial risk of
forfeiture and not previously included in gross income, recognize ordinary
income in the earliest taxable year in which the Deferral Award fails to comply
with the requirements of Section 409A of the Code. The amount required to be
included in the participant’s gross income will include the amount treated as
deferred under the Deferral Award for such taxable year plus all other amounts
treated as deferred under Deferral Awards granted under the Incentive Plan
in
prior taxable years. Further, the amount required to be included in the
participant’s gross income under Section 409A will be increased by the sum of
(i) the amount of applicable interest imposed under Section 409A on the
underpayments that would have occurred had the amounts treated as a deferral
of
compensation under the Deferral Awards been includible in the participant’s
gross income for the taxable year in which the Deferral Awards were granted
or,
if later, the first taxable year in which such Deferral Awards were not subject
to a substantial risk of forfeiture (as that term is defined under Section
409A
of the Code) and (ii) an amount equal to twenty percent (20%) of all amounts
treated as a deferral of compensation under the Incentive Plan and required
to
be included in the participant’s gross income pursuant to Section 409A.
Tax
Code Limitations On Deductibility.
In
order
for applicable amounts described above to be deductible by the Company (or
a
subsidiary of the Company), such amounts must constitute reasonable compensation
for services rendered or to be rendered and must be ordinary and necessary
business expenses. The ability of the Company (or a subsidiary of the Company)
to obtain a deduction for future payments under the Incentive Plan could also
be
limited by the golden parachute payment rules of section 280G of the Code,
which
prevent the deductibility of certain excess parachute payments made in
connection with a change in control of a corporation. Finally, the ability
of
the Company (or a subsidiary of the Company) to obtain a deduction for amounts
paid under the Incentive Plan could be limited by section 162(m) of the Code,
which limits the deductibility, for federal income tax purposes, of compensation
paid to certain executive officers of the Company to $1,000,000 with respect
to
any such officer during any taxable year of the Company.
Incentive
Plan Benefits
Awards
may be granted under the Incentive Plan to those employees, directors and
consultants of the Company selected by the Plan Administrator from time to
time.
No Awards have been issued under the Incentive Plan as of the date of this
filing.
Vote
Required and Recommendation for Adoption of the Incentive
Plan
To
be
approved by the stockholders, the adoption of the Incentive Plan must receive
the approval of stockholders holding at least a majority of the outstanding
shares of Common Stock present at the special meeting, either in person or
by
proxy, and entitled to vote on the Incentive Plan. Because the Incentive Plan
provides that Awards may be granted to all executive officers and directors
of
the Company, each of the executive officers and directors of the Company has
an
interest in, and may benefit from, the adoption of the Incentive Plan.
Because
abstentions are counted as present and entitled to vote on the Incentive Plan,
they will have the effect of votes AGAINST this proposal. If a stockholder
executes and returns a proxy but does not specify otherwise, the shares
represented by such stockholder's proxy will be voted FOR the Incentive
Plan.
THE
BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE ADVANCED
MATERIALS GROUP, INC. 2007 STOCK INCENTIVE PLAN.
The
Board
of Directors knows of no other matters to be brought before the annual meeting.
However, if other matters should come before the annual meeting, it is the
intention of each person named in the proxy to vote such proxy in accordance
with his or her judgment on such matters.
Pursuant
to Rule 14a-8 of the Exchange Act, proposals by stockholders which are intended
for inclusion in the Company’s proxy statement and proxy and to be presented at
the Company’s 2007 annual stockholders’ meeting, to be held in calendar year
2008, must be received by the Company by December 1, 2007, in order to
be considered for inclusion in the Company’s proxy materials relating to the
Company’s 2007 annual stockholders’ meeting. Such proposals should be addressed
to the Company’s Secretary and may be included in next year’s annual
stockholders’ meeting proxy materials if they comply with rules and regulations
of the Commission governing stockholder proposals.
For
all
other proposals by stockholders to be timely, a stockholder’s notice must be
delivered to, or mailed and received at, the Company’s principal executive
offices not later than December 1, 2007. If a stockholder fails to notify the
Company of any such proposal prior to that date, management will be allowed
to
use its discretionary voting authority with respect to proxies held by
management when the proposal is raised at the annual meeting, without any
discussion of the matter in the Company’s proxy statement.
The
Company is subject to the informational requirements of the Exchange Act. In
accordance with the Exchange Act, the Company files reports, proxy statements
and other information with the Commission. These materials can be inspected
and
copied at the Public Reference Room maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on
the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. Copies of these materials can also be obtained from the
Commission at prescribed rates by writing to the Public Reference Section of
the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Company’s
common stock is traded in the pink sheets under the symbol
“ADMG.PK.”
A
copy of
the Company’s annual report on Form 10-KSB for the fiscal year ended November
30, 2006, as filed with the Commission, accompanies this proxy statement. The
annual report is not incorporated by reference into this proxy statement and
is
not deemed to be a part of this proxy solicitation material.
An
additional copy of the Company’s annual report will be furnished by first class
mail, without charge, to any person from whom the accompanying proxy is
solicited upon written or oral request to Advanced Materials Group, Inc.,
Attention: Investor Relations, 3303 Lee Parkway, Suite 105, Dallas, Texas 75219,
telephone (972) 432-0602. If exhibit copies are requested, a copying charge
of
$.20 per page will be made. In addition, all of the Company’s public filings,
including its annual report, can be found free of charge on the worldwide web
at
http://www.sec.gov
or
www.ami4.com.
| |
|
By
the Order of the Board of Directors
|
| |
|
/s/
William G.
Mortensen
William
G. Mortensen
President
and Chief Financial Officer
|
Dallas,
Texas
April
18,
2007
ADVANCED
MATERIALS GROUP, INC.
THIS
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD MAY 11, 2007
The
undersigned hereby appoints William G. Mortensen as the attorney, agent and
proxy of the undersigned, with the power to appoint his substitute, to represent
and vote, as designated on the reverse side, all shares of common stock of
Advanced Materials Group, Inc. (the “Company”) held of record by the undersigned
at the close of business on March 30, 2007, at the 2007 annual meeting of
stockholders to be held on Friday, May 11, 2007 at 10:00 a.m. local time, at
The
Busch Firm located at 2532 Dupont Drive, Irvine, California 92612 and at any
and
all adjournments and postponements thereof.
(Continued
and to be signed on the reverse side)
ANNUAL
MEETING OF STOCKHOLDERS OF
ADVANCED
MATERIALS GROUP, INC.
April
18, 2007
Please
date, sign and mail
your
proxy card in the
envelope
provided as soon
as
possible.
Please
detach along perforated line and mail in the envelope provided.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR ALL NOMINEES” FOR THE
ELECTION
OF DIRECTORS, “FOR” PROPOSAL 2 AND “FOR” PROPOSAL 3.
PLEASE
SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE
MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE S
|
1.
|
To consider and vote upon a proposal to elect five nominees to the
Company’s board of directors:
|
|
|
NOMINEES:
|
|
|
£
|
FOR
ALL NOMINEES
|
0
Timothy R. Busch
|
|
|
|
0
Ricardo G. Brutocao
|
|
£
|
WITHHOLD
AUTHORITY
|
0
N. Price Paschall
|
|
|
FOR
ALL NOMINEES
|
0
Maurice J. DeWald
|
|
|
|
0
John Sawyer
|
|
£
|
FOR
ALL EXCEPT
|
|
|
|
(See
instructions below)
|
|
INSTRUCTION:
To
withhold authority to vote for any individual nominee(s), mark “FOR
ALL EXCEPT”
and
fill in the circle next to each nominee you wish to withhold, as shown here:
S
|
2.
|
To
consider and vote upon a proposal to ratify the section of Catherine
Fang
CPA, LLC as the independent accountants for the Company for the fiscal
year ending November 30, 2007:
|
£ For £ Against £
Abstain
|
3.
|
To
consider and vote upon a proposal to approve the Advanced Materials
Group,
Inc. 2007 Stock Incentive Plan :
|
£ For £ Against £
Abstain
The
proxy
holder(s) are authorized to vote in their discretion upon such other business
as
may properly come before the meeting or any adjournments and postponements
of
the meeting. This proxy, when properly executed, will be voted in the manner
directed by the undersigned stockholder. If no direction is made, this proxy
will be voted “FOR ALL NOMINEES,” “FOR” proposal 2 and “FOR” proposal 3. All
other proxies previously given by the undersigned in connection with the action
proposed on this proxy are hereby expressly revoked. This proxy may be revoked
at any time before it is voted by written notice to the Secretary of the
Company, by issuance of a subsequent proxy or by voting at the meeting in
person.
To
change
the address on your account, please check the box at right and [ ] indicate
your
new address in the address space above. Please note that changes to the
registered name(s) on the account may not be submitted via this
method.
Signature
of Stockholder
____________________________________________ Date:
___________________
Signature
of Stockholder
____________________________________________ Date:
___________________
Note:
Please
sign exactly as your name or names appear on this proxy. When shares are held
jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer
is
a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
MARK
“X’
HERE IF YOU PLAN TO ATTEND THE MEETING £