The following is a copy of Enercorp Inc.'s Definitive Proxy along with the proxy
card and the annual report information with the Letter to the Shareholders.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 (a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Prelimiary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11 (c) or Section 240.14a-12
Enercorp, Inc.
--------------
(Name of Registrant as Specified in its Charter)
Robert R. Hebard, President
-----------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (4) amd 0-11
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: _____________________________
(4) Proposed Maximum aggregate value of transaction: ____________
(5) Total Fee Paid: _____________________________________________
[ ] Fee previously paid with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ____________________
(2) Form, Schedule or Registrantion Statement No.: _________________
(3) Filing Party: ______________________________
(4) Date Filed: ________________________________
ENERCORP, INC.
7001 Orchard Lake Road, Suite 424
West Bloomfield, Michigan 48322-3608
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on January 29, 1999
December 23, 1998
TO THE SHAREHOLDERS OF ENERCORP, INC.:
The Annual Meeting of Shareholders of Enercorp, Inc., a Colorado
corporation (the "Company"), will be held at the Company's headquarters, 7001
Orchard Lake Road, Suite 424, West Bloomfield, Michigan 48322 on, Friday,
January 29, 1999 at 9:00 a.m. Eastern Standard Time, to consider and take action
on:
1. The election of three directors to serve until the next annual meeting of
shareholders and until their successors have been elected and qualified.
2. A proposal to authorize the Company to sell shares of its capital stock at
prices below such stock's current net asset value. (Passage of this proposal
requires both the affirmative vote of a majority of the Company's outstanding
shares entitled to vote on the proposal and a majority of the Company's voting
shares entitled to vote on the proposal which are held by non-affiliates.)
3. A proposal to authorize the Company to change the nature of its business and
withdraw its election as a business development company under the Investment
Company Act of 1940, as amended. (Passage of this proposal requires the
affirmative vote of a majority of the shares of common stock outstanding and
entitled to vote on the proposal.)
4. Three proposed amendments to the Company's Restated Articles of Incorporation
to be voted upon separately, to (a) provide for limitation of monetary liability
of the Company's directors under certain circumstances, (b) reduce the quorum
required for the transaction of business at any shareholders meeting from a
majority to one-third of the shares entitled to vote at the meeting, and (c)
reduce the voting requirement for shareholder approval of certain actions from
two-thirds to a majority of the shares entitled to vote on the action. (Passage
of each of these proposals requires the affirmative vote of two-thirds of the
Company's outstanding shares entitled to vote on the proposals.)
5. A proposal to ratify the appointment of Hirsch, Silberstein and Sulbelsky,
P.C. as the independent auditors of the Company for the fiscal years ended June
30, 1997 and 1998 and for the fiscal year ending June 30, 1999. (Passage of this
proposal requires the affirmative vote of the majority of the Company's
outstanding shares entitled to vote on the proposal.)
6. Such other business as may properly come before the meeting, or any
adjournment or adjournments thereof.
The discussion of the proposals of the Board of Directors set forth above
is intended only as a summary, and is qualified in its entirety by the
information relating to the proposals set forth in the accompanying Proxy
Statement.
Only holders of record of Common Stock at the close of business on
December 22, 1998 will be entitled to notice of and to vote at this special
meeting, or any postponements or adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS:
Robert R. Hebard, President
PLEASE DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR SHARES MAY
BE VOTED IN ACCORDANCE WITH YOUR WISHES. THE GIVING OF SUCH PROXY DOES NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
YOUR VOTE IS IMPORTANT
ENERCORP, INC.
7001 Orchard Lake Road, Suite 424
West Bloomfield, Michigan 48322-3608
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 29, 1999
December 23, 1998
This proxy statement is being furnished to shareholders of Enercorp, Inc.
(the "Company") in connection with a solicitation of proxies by the board of
directors of the Company for use at the 1998 Annual Meeting of Shareholders and
at any adjournments or postponements thereof. The meeting will be held at 9:00
a.m. Eastern Standard Time, at the Company's headquarters at 7001 Orchard Lake
Road, Suite 424, West Bloomfield, Michigan 48322, on Wednesday, January 29,
1999. The proxy and proxy statement (the "Proxy Materials") will be first mailed
to the shareholders on or about December 29, 1998.
REVOCABILITY OF PROXY
If the enclosed proxy is executed and returned, it will be voted on the
proposals as indicated by the shareholder. The proxy may be revoked by the
shareholder at any time prior to its use by notice in writing to the Secretary
of the Company, by executing a later dated proxy and delivering it to the
Company prior to the meeting or by voting in person at the meeting.
SOLICITATION
In addition to solicitation by mail, the Company may use the services of
its directors, officers and employees to solicit Proxies, personally or by
telephone and telegraph, but at no additional salary or compensation. The
Company will reimburse banks, brokers and other custodians, nominees and
fiduciaries holding shares of record for others reasonable out-of-pocket
expenses incurred by them in forwarding copies of the Proxy Materials to the
beneficial owners of such shares.
VOTING SECURITIES
Holders of record of the Company's common stock, no par value (the "Common
Stock"), at the close of business on December 22, 1998 (the "Record Date") will
be entitled to vote on all matters. On the Record Date the Company had 590,897
shares of Common Stock outstanding. The holders of shares of Common Stock are
entitled to one vote per share. The Company's only class of voting securities is
the Common Stock. A majority of the issued and outstanding shares of the Common
Stock entitled to vote, represented in person or by proxy, constitutes a quorum
for the transaction of business at the meeting.
Abstentions will be treated as shares present or represented and entitled
to vote for purposes of determining the presence of a quorum, but will not be
considered as votes cast in determining whether a matter has been approved by
the shareholders. As to any shares a broker indicates on its proxy that it does
not have the authority to vote on any particular matter because it has not
received direction from the beneficial owner thereof, said shares will not be
counted as voting on the particular matter. With respect to any matter which,
under the Investment Company Act of 1940, requires the approval of a majority of
the outstanding shares, each broker non-vote or abstention will be considered
present for determining the existence of a quorum and will be counted as voting
against approval of the matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information as to certain persons known by the Company
to be the beneficial owner of more than five percent of the Common Stock; the
Company's directors and named executive officers, individually, and executive
officers and directors as a group, as of November 15, 1998:
1
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class
- -------------------------- ------------------- ----------
Robert R. Hebard 69,248 11.5%
7001 Orchard Lake Road (1)(2)(3)
Suite 424
W. Bloomfield, MI 48322
H. Samuel Greenawalt 14,333 2.4%
27777 Inkster Road
Farmington Hills, MI 48333
Carl W. Forsythe -0- 0%
P.O. Box 918
Spring House, PA 19477
Thomas W. Itin 49,149 8.3%
7001 Orchard Lake Road (4)
W. Bloomfield, MI 48322
Charles Maginnis 35,000 5.9%
c/o Corporate Securities Group, Inc. (5)
7600 Southland Blvd., Suite 101
Orlando, FL 32809
Executive officers and 83,581 13.9%
directors as a group (1)(2)(3)
(three persons)
- ----------
(1) Includes 15,467 shares owned by Mr. Hebard's spouse and 1,333
shares held in a custodian account under the Uniform gifts to
Minors Act for the benefit of Mr. Hebard's daughter. Mr. Hebard
disclaims beneficial ownership of the 1,333 shares in the
custodial account.
(2) Includes 10,581 shares of common stock underlying stock options currently
exercisable or exercisable within 60 days from November 15, 1998.
(3) Does not include 28,443 shares held in trust for Mr. Hebard's
minor children. Mr. Hebard's mother-in-law is trustee of these
trusts.
(4) Based upon information contained in the Schedule 13D and
amendments as filed with the Securities and Exchange Commission
(the "SEC"), includes shares owned directly and through other
entities controlled by Mr. Itin and by Mr. Itin's spouse through
entities she controls and for which she is trustee for the
benefit of Mr. & Mrs. Itin's minor grandchildren. Mr. Itin is
the father-in-law of the Company's president.
(5) Based upon information contained in a Schedule 13D filed with the SEC.
No change in control of the Company has occurred since the beginning of
the last fiscal year. The Company does not know of any arrangements, the
operation of which may, at a subsequent date, result in a change in control of
the Company.
2
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
The following three persons have been nominated for election as directors
of the Company for a term of one year and until the election and qualification
of their successors: Robert R. Hebard, Carl W. Forsythe and H. Samuel
Greenawalt. These three directors constitute the entire Board of Directors. The
persons named in the proxy intend to vote for Messrs. Hebard, Forsythe and
Greenawalt unless a shareholder withholds authority to vote for any or all of
these nominees. If any nominee is unable to serve or, for good cause, will not
serve, the persons named in the proxy reserve the right to substitute another
person of their choice as nominee in his place. Each of the nominees has agreed
to serve if elected.
EXECUTIVE OFFICERS AND DIRECTORS
Commencement
date of
service as an
executive
officer and/or
Name Position with Company Age director
- ---------------------- ------------------------- ---- --------------
Robert R. Hebard * Chairman of the Board, Chief 45 6/29/93
Executive Officer, President,
Treasurer and Director
Carl W. Forsythe Director 41 6/28/93
H. Samuel Greenawalt Director 70 6/28/93
- ---------
* Mr. Hebard is an "interested person" of the Company as defined under the
Investment Company Act of 1940, as amended, because he is an executive
officer and a director of the Company.
No arrangement exists between any of the above officers and directors
pursuant to which any one of those persons was elected to any such office or
position. Directors are elected to serve until the next meeting of shareholders.
Executive officers serve at the pleasure of the Board of Directors. There are no
family relationships among the directors and executive officers of the Company.
Robert R. Hebard has served as Chairman of the Board, Chief Executive
Officer, President, Treasurer and Director of the Company since June 29, 1993.
He also serves as vice president of Woodward Partners, Inc., a real estate
development company in suburban Detroit, Michigan. Mr. Hebard also has served as
a Director of Ajay Sports, Inc. since June 1989, and as Ajay's Secretary since
September 1990, and was a director of Kimbro Imaging Systems, Inc. from November
1994 to August 1995. Mr. Hebard holds a Bachelors Degree in Marketing/Management
from Cornell University and an MBA from Canisius College.
Carl W. Forsythe has served as Director of the Company since June 28,
1993. Since October 1998, Mr. Forsythe has served as Chief Executive Officer and
President of Advanta Mortgage Corporation. From January 1996 to September 1998,
he has served as Executive Vice President of Retail Banking and Marketing for
Home Savings of America; and from August 1994 to December 1995, he was Senior
Vice President-Chief Retail Officer for Banc One-Ohio Corporation. Mr. Forsythe
holds a Master of Business Administration degree from Cornell University and a
Bachelor of Arts degree from Columbia University.
H. Samuel Greenawalt has served as Director of the Company since June 28,
1993. From 1987 to June 1995, Mr. Greenawalt was Senior Vice President, Business
Development, for Michigan National Bank. Mr. Greenawalt retired from Michigan
National in June 1995 and is now an independent consultant to the bank. Mr.
Greenawalt holds a Bachelor of Science degree from the Wharton School of the
University of Pennsylvania and is a graduate of the University of Wisconsin
Banking School.
During the fiscal year ended June 30, 1998, the Board of Directors held
one meeting and acted through written consent eight times. The Board of
Directors has Compensation and Audit Committees consisting of Messrs. Forsythe
and Greenawalt, the independent directors of the Company. The Compensation
Committee reviews and approves the Company's compensation policies, determines
compensation paid to the Company's executive officers and administers the 1994
Stock Option Plan for employees and officers. During the fiscal year ended June
30, 1998, the Compensation Committee met one time. The Audit Committee provides
oversight in connection with the Company's compliance with the applicable
provisions of the Investment Company Act of 1940. During the fiscal year ended
June 30, 1998, the Audit Committee held one meeting. All directors and committee
members attended all of the meetings held during the fiscal year. The Company
has no standing Nominating Committee.
3
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Summary Compensation Table
The table below provides information regarding compensation paid to all
directors and the Company's chief executive officer (together, the "Compensated
Persons") for the three years ending June 30, 1998. No other person who is
currently a director or executive officer of the Company earned compensation
exceeding $60,000 during any of those years.
Annual Compensation Awards
Securities
Name and Other Annual Underlying
Principal Position Year Salary ($) Bonus ($) Compensation ($) Stock Options (#)
Robert R. Hebard 1998 $87,000 $ -0- $-0- -0-
President and 1997 $87,000 $25,000 $-0- -0-
Chief Executive Officer 1996 $72,000 $10,000 $-0- -0-
Carl W. Forsythe 1998 -0- -0- $500 -0-
Director 1997 -0- -0- -0- -0-
1996 -0- -0- $500 -0-
H. Samuel Greenawalt 1998 -0- -0- $500 -0-
Director 1997 -0- -0- -0- -0-
1996 -0- -0- $500 -0-
The Company has a stock option plan but does not have any other long-term
compensation arrangements in the form of restricted stock awards, stock
appreciation rights plans, or other long-term incentive plans or arrangements.
Option Grant Table
No stock options were granted to the Compensated Persons during the fiscal
year ended June 30, 1998.
Aggregated Option Exercises and Fiscal Year End Option Value Table
No stock options were exercised during the fiscal year ended June 30,
1998. The table below sets forth information related to the value at June 30,
1998 of unexercised options held by the Company's President and Chief Executive
Officer. No options were held by the other Compensated Persons.
- -----------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Stock
Stock Options at June Options at June 30, 1998
30, 1998 (#) ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ------------ -------------- ------------ --------------
Robert R. Hebard, 10,581 -0- $13,854 $-0-
President and Chief
Executive Officer
- -----------------------------------------------------------------------------------------
Compensation of Directors
During fiscal 1998, directors were paid $500 and were reimbursed for
expenses incurred in attending each Board meeting. See the Summary Compensation
Table above for the aggregate amounts paid to the Company's non-employee
directors.
4
Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is responsible for
reviewing and approving the Company's compensation policies and the compensation
paid to executive officers. The Company's compensation policies are intended to
attract, retain and motivate highly qualified executives who support a
performance-oriented environment that rewards achievement based upon the
Company's performance and the individual's contribution and performance. There
are three main components in the Company's executive compensation program: base
salary, annual bonus incentive and long-term incentive. At this time, the only
executive officer is the Company's President.
Base Salary. The base salary of the Company's President is measured
against the median base pay level for positions with comparable functional
responsibilities at companies with asset size and business scope comparable to
that of the Company. The President's salary is reviewed annually. Salary
adjustments may be made by the Committee to recognize individual contribution
and performance or to reflect an increased scope of responsibilities.
Incentive Bonus. An annual incentive bonus for the Company's President is
intended to reflect the Committee's belief that a significant portion of the
annual compensation of this executive officer should be contingent upon the
performance of the Company, as well as the individual contribution of the
officer. The Company has implemented an annual incentive bonus, which provides
the Company's President the opportunity to earn annual incentive bonuses. As a
pay-for-performance plan, the annual incentive bonus is intended to motivate and
reward the Company's president by directly linking the amount of any cash bonus
to two performance components: (1) the increase in the Net Asset Value (NAV) of
the Company, and (2) the amount of consulting fee income generated by the
Company. These criteria have been reviewed and approved by the Committee. Under
the guidelines adopted by the Committee, the Company's President is eligible to
receive bonus compensation of up to 3% of the increase in NAV, net of taxes
deferred taxes, above the NAV level at the time the last incentive bonus was
paid, and may earn a bonus based on a sliding scale applied to the amount of
consulting fees received by the Company.
Long-Term Compensation. The Company utilizes stock options as a long-term
incentive to reward and retain employees. The Committee believes that this
program serves to link management and shareholder interests and to motivate
executive officers to make long-term decisions that are in the best interest of
the Company and the shareholders. The Committee also believes that executive
officers should have significant ownership of the Company stock. As a group,
officers and directors own approximately 14% of the outstanding common stock.
The Company's President owns approximately 12% of the outstanding shares.
The Committee believes that stock option grants provide an incentive that
focuses the executive's attention on managing the Company from the perspective
of an equity owner in the business. Stock options are granted from time-to-time,
based upon recommendations from management and the Committee. In general, stock
options vest over five years and employees must be employed by the Company in
order to exercise the options. As the stock options are granted at the fair
market value on the date of grant, the Company's stock options are tied to the
future performance of the Company's stock and will provide value to the
recipient only when the price of the Company's stock increases above the option
grant price.
It is the opinion of the Committee that the aforementioned compensation
program provides features that appropriately align the Company's executive
compensation with corporate performance and the interest of its shareholders.
For the fiscal year ended June 30, 1998, the Company's President was paid a base
annual salary of $87,000. The President did not receive a bonus or any stock
options or any other form of additional compensation for the 1998 fiscal year.
H. Samuel Greenawalt, Chairman
Carl W. Forsythe
5
Performance Graph
The graph below compares the percentage changes in the Company's
cumulative shareholder return on its Common Stock for the five-year period ended
June 30, 1998, with the cumulative total return of the Nasdaq Stock Market (US
Companies) and a peer index of the Nasdaq Stocks - Miscellaneous Investing. The
graph below was prepared for the Company by the Center for Research in Security
Prices at the University of Chicago Graduate School of Business.
Legend
CRSP Total Returns Index for: 06/30/93 06/30/94 06/30/95 06/30/96 06/30/97 06/30/98
-------- -------- -------- -------- -------- --------
Enercorp, Inc. 100.0 157.1 114.3 95.2 75.6 173.8
Nasdaq Stock Market (US Companies) 100.0 101.0 134.8 173.0 210.4 277.6
Nasdaq Stocks (SIC 6790-6799 US Companies) 100.0 103.7 99.1 114.0 155.7 193.0
Miscellaneous Investing
NOTES: The lines represent monthly index levels derived from compounded daily
returns that include all dividends. The indexes are reweighted daily, using the
market capitalization on the previous trading day. If the monthly interval,
based on the fiscal year-end, is not a trading day, the preceding day is used.
The index level for all series was set to $100.0 on 6/30/93.
6
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") requires executive officers, directors and persons who
beneficially own more than ten percent of the Company's Common Stock to file
with the SEC initial reports of beneficial ownership on Form 3, reports of
changes in beneficial ownership on Form 4 and annual statements of changes in
beneficial ownership on Form 5. Persons filing such reports are required under
the regulations promulgated by the SEC pursuant to Section 16 to furnish the
Company with copies of such reports. Based solely upon a review of the copies of
the reports received by the Company during the fiscal year ended June 30, 1998,
and written representations of the persons required to file said reports, the
Company believes that all required reports were timely filed.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Williams Controls, Inc. ("Williams") is an investee company of the Company
which, as of September 30, 1998, accounted for over 90% of the Company's
portfolio securities. On November 8, 1997, the Company exercised stock options
to purchase 150,000 shares of Williams common stock for $0.41 per share. In
March 1998, as consideration for management consulting services rendered,
Williams granted the Company stock options to purchase 50,000 shares of Williams
common stock for $2.44 per share.
Vote Required
Directors of the Company are elected by a plurality vote. This means that
the three nominees receiving the greatest number of votes cast at the Meeting
will be elected as the directors of the Company.
PROPOSAL NUMBER TWO
TO AUTHORIZE THE SALE OF CAPITAL STOCK AT
LESS THAN CURRENT NET ASSET VALUE PER SHARE
The Investment Company Act of 1940, as amended (the "1940 Act"), prohibits
the Company, as a business development company (a "BDC"), from selling its
capital stock at a price less than the current net asset value per share for
such stock unless the policy and practice of doing so is approved by the
Company's shareholders. Pursuant to this provision, the Company is requesting
that the shareholders authorize the sale of the Company's capital stock at a
price less than its then current net asset value per share of such stock.
Frequently, the stock of BDCs trades at prices below the corresponding net
asset value. As shown in the following table, the high and low bid closing
quotations of the Company's Common Stock, the only class of stock outstanding,
often has been below the corresponding net asset value per share:
Closing Bid Prices
------------------
Net Asset
As of High Low Average Value
- ----- ---- --- -------- ----------
Fiscal 1997
September 30, 1996 $2.75 $1.88 $2.32 $5.10
December 31, 1996 1.88 1.88 1.88 3.58
March 31, 1997 2.50 1.50 2.00 4.14
June 30, 1997 2.50 1.50 2.00 4.00
Fiscal 1998
September 30, 1997 1.50 1.50 1.50 3.71
December 31, 1997 2.25 1.50 1.88 3.78
March 31, 1998 2.69 1.31 2.00 4.02
June 30, 1998 5.25 2.50 3.63 3.90
Fiscal 1999
September 30, 1998 4.88 2.13 3.50 3.65
7
This indicates that should the Company desire to sell shares of its
Common Stock in either a public or private offering, the price for such stock
may be below the then current net asset value per share, limiting the Company's
ability to raise additional equity capital. Section 63(2) of the 1940 Act
provides that the Company may sell its Common Stock at prices below the then
current net asset value with shareholder approval; provided, that, in addition
to shareholder approval, any such sales are approved by a required majority of
the directors as being in the best interests of the Company and its shareholders
and after a required majority of directors, in consultation with the underwriter
of the offering if it is to be underwritten, have determined in good faith, and
as of a time immediately prior to the first solicitation by or on behalf of the
Company of any firm commitment to purchase such securities or immediately prior
to the issuance of such securities, that the price at which such securities are
to be sold is not less and a price which closely approximates the market value
of those securities, less any distributing commission or discount.
Presently, the Company depends primarily on its bank loan for its working
capital. Over time, the Company has increased its credit limit to provide
additional working capital. The Company does not anticipate being able to obtain
substantial increases in its current bank credit line in the near future. The
only other source of funds available to the Company is through sales of its
portfolio securities. Securities of Williams Controls, Inc. make up over 90% of
the Company's portfolio securities and, therefore, the value of the Company's
assets is closely related to the value of the Williams Controls common stock.
Any significant levels of sales of Williams Controls common stock by the Company
potentially could adversely affect the market price of Williams common stock.
For these reasons, the Board of Directors believes that it would be in the best
interest of the Company and its shareholders to raise additional equity capital
to repay its bank indebtedness and to provide working capital either to purchase
additional portfolio securities or a controlling interest in an operating
company. See Proposal Number Three. Therefore, if the shareholders approve this
proposal, it is likely that the Board of Directors will seriously consider
authorizing an equity offering of the Company's Common Stock.
Generally, equity securities sold in private and/or public securities
offerings are priced based on market prices rather than net asset value. The
Board of Directors is seeking the approval of the shareholders to offer and sell
Common Stock at prices that may be less than net asset value so as to permit the
flexibility in pricing that market conditions generally require. The Board has
not seriously considered any particular type of offering or any specific terms
because the Board believes that it would be premature to do so until after the
shareholders vote on this proposal to permit the Company to make sales of its
securities at prices less than net asset value.
If the shareholders approve this proposal, during a one-year period
commencing on the date the shareholders approve this proposal, the Company will
be permitted, but not required or otherwise obligated, to sell newly issued
shares of its capital stock for prices below the net asset value. The sale of a
substantial number of shares of capital stock at below net asset value would
dilute the percentage interest of the Company's present shareholders. In
determining whether or not to sell additional shares at a price below the net
asset value, the Board of Directors will have fiduciary obligations to act in
the best interest of the Company and its shareholders and must comply with the
other requirements of Section 63(2) of the Investment Company Act of 1940 as
described above.
Board Recommendation and Vote Required
The Company believes this proposal is important because of the
flexibility it would provide in raising additional equity capital even if the
Company's capital stock is trading at prices below the net asset value.
Consequently, the Board of Directors recommends that the shareholders vote "FOR"
this proposal. Approval of this requires both the affirmative vote of a majority
the Company's outstanding shares entitled to vote on this proposal, and a
majority of the Company's outstanding shares entitled to vote on this proposal
which are held by non-affiliates of the Company.
PROPOSAL NUMBER THREE
APPROVAL TO WITHDRAW THE COMPANY'S
ELECTION AS A BUSINESS DEVELOPMENT COMPANY
The Company has elected to be treated as a business development company
("BDC") as that term is defined in Section 54 of the 1940 Act. As such, the
Company is subject to a number of provisions relating to BDCs rather than all of
the provisions of the 1940 Act applicable to registered investment companies.
Section 58 of the 1940 Act provides that a BDC may not change the nature of its
business so as to cease to be, or withdraw its election as, a BDC unless it is
authorized to do so by a majority of its outstanding voting securities.
8
If the Company's shareholders approve this proposal to permit the Company
to withdraw the Company's BDC election, the withdrawal will become effective
only upon receipt by the Securities and Exchange Commission of the Company's
application for withdrawal. The Company does not anticipate filing a withdrawal
until it can be reasonably certain that the Company will not be deemed to be an
investment company without the protection of its BDC election. After the
Company's application for withdrawal of its BDC election is filed with the
Securities and Exchange Commission, the Company will no longer be subject to the
regulatory provisions of the 1940 Act applicable to BDCs generally, including
regulations related to insurance, custody, composition of the board, affiliated
transactions and compensation arrangements. Shareholder approval of this
proposal will be valid for one year following the date of approval. If no
application for withdrawal is filed within this one-year period, the Company
will be required to present the matter to the shareholders again for approval
prior to filing a withdrawal application.
Withdrawal of the Company's election as a BDC will not affect the
Company's registration under Section 12(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under the Exchange Act, the Company is
required to file periodic reports on Form 10-K, Form 10-Q, Form 8-K, proxy
statements and other reports required under the Exchange Act.
Since September 18, 1998, the Company's Common Stock has been traded on
the over-the-counter ("OTC") Bulletin Board. Until that time, the Company's
Common Stock had been traded on the Nasdaq SmallCap Market. At the time of the
change, Nasdaq notified the Company that its Common Stock no longer met the
minimum public float share requirement for continued listing on the Nasdaq
SmallCap Market. The Company has filed an appeal with Nasdaq to attempt to have
its Common Stock reinstated for trading on the Nasdaq SmallCap Market. This
appeal will be heard by the Nasdaq Hearings Panel in January 1999. There can be
no assurance that the Company's Common Stock will be reinstated for trading on
the Nasdaq SmallCap Market. The Company's withdrawal as a BDC is not expected to
have any direct effect on the Company's trading status on the OTC Bulletin Board
or, if reinstated after the appeals hearing, on the Nasdaq SmallCap Market.
Reasons for Proposed Withdrawal as a BDC
From time to time, the Company's Board of Directors has discussed the
feasibility of the Company continuing its election as a BDC and, on November 9,
1998, the Board unanimously agreed that it would be in the best interest of the
Company and its shareholders to present this matter to the shareholders.
In making the determination to present this proposal to the Company's
shareholders, the Board of Directors considered a number of factors. Over the
years, since the Company has operated as a BDC, the business, regulatory and
financial climates have shifted gradually, making operations as a BDC more
challenging and difficult. The first, and possibly the most important factor, is
that the 1940 Act imposes many regulations on BDCs, including regulations
limiting a BDCs ability to sell its common stock at a price below net asset
value without shareholder approval and certain other requirements. Historically,
the market prices for BDC stocks are lower than net asset value, making it much
more difficult for BDCs to raise equity capital. Had the Company had the
flexibility to offer and sell equity securities absent the restrictions imposed
on BDCs by the 1940 Act, possibly the Company could have taken other actions to
preserve its Nasdaq listing for its Common Stock, although no assurance could be
given that the outcome would have been any different. Regulations applicable to
BDCs under the 1940 Act also restrict a BDCs ability to issue debt securities.
BDCs do not generate cash flow from operations as operating companies generally
do because a BDC's business is owning and investing in securities. With the
limitations for capital raising and cash generation, it is difficult for BDCs to
have sufficient cash flow and capital to compete in the marketplace.
At June 30, 1998, the Company's total assets were approximately
$4,776,505, consisting of investments in securities valued at their fair value
of $4,538,361, notes receivable from investee companies and accrued interest of
$217,422, cash of $16,128 and other assets of $4,594. The Company's most
significant assets are its holdings of investment securities of Williams
Controls, Inc. At June 30, 1998, the Company's holdings in Williams Controls,
Inc. had an equity and/or cost basis of $895,250 and a fair value of $4,256,438.
After careful consideration of the factors discussed above and other
relevant factors, the Board of Directors has determined that the shareholders'
return on assets is not likely to warrant continued operations as a BDC over the
long term. The Board of Directors believes that the Company may be more likely
to achieve greater stability in the valuation of its assets and to prosper and
grow if the Company's long-term strategy is to cease operating as a BDC in favor
of purchasing and operating an on-going business. In addition, by withdrawing
its election as a BDC, the Company would be relieved of the restrictions and
additional costs of complying with the many rules and regulations associated
with operating as a BDC under the Investment Company Act of 1940.
9
The Board of Directors has adopted a plan to obtain shareholder approval
for the Company to withdraw its election as a BDC, with the goal of becoming an
operating company. If shareholders approve this proposal, it will indicate to
the Company the shareholders' agreement with Board of Directors plan for a
change in the fundamental nature of the Company's business from operating as a
BDC to operating an on-going business. Upon approval of this proposal, the Board
of Directors will actively pursue business opportunities to acquire or otherwise
purchase an on-going business or target an appropriate merger candidate. It is
possible that the Company will be required to obtain further shareholder
approval to effect the purchase or merger transaction which would enable the
Company to withdraw its BDC election and become an operating company.
Even if this proposal is approved, the Company does not intend to file
with the Securities and Exchange Commission an election to withdraw as a BDC
until such time as it is relatively certain that it will qualify as an operating
business rather than as an investment company. If the election is not filed
within one year after the date it initially receives shareholder approval, the
Company will again seek shareholder approval to file the election. A voluntary
election to withdraw as a BDC becomes effective upon receipt by the Securities
and Exchange Commission of the election form unless a later date is specified in
the application for withdrawal. The Board of Directors has adopted its two-part
strategy of effecting a transaction which will enable the Company to become an
operating company before it files its application for withdrawal as a BDC in
order to minimize the possibility that, after the Company's withdrawal as a BDC,
the Company could be considered an unregistered investment company which is not
in compliance with the Investment Company Act of 1940.
Effect of Withdrawal of BDC Election on the Company's Financial Statements
As an operating company, the fundamental nature of the Company's business
will change from that of investing in a portfolio of securities with the goal of
achieving gains on appreciation and dividend income to that of being actively
engaged in the ownership and management of an on-going business with the goal of
generating income from the operations of that business. Withdrawal of the
Company's election to be treated as a BDC under the Investment Company Act of
1940 will result in a significant change in the Company's method of accounting.
BDC financial statement presentation and accounting utilizes the value method of
accounting used by investment companies. As an operating company, the required
financial statement presentation and accounting for securities held will be
either fair value or historical cost accounting, depending on the classification
of the investment and the Company's intent with respect to the period of time it
intends to hold the investment.
Board Recommendation and Vote Required
The Board of Directors recommends that shareholders vote "FOR" this
proposal to approve withdrawal of the Company's election to be treated as a BDC
under the Investment Company Act of 1940. Approval of this proposal requires the
affirmative vote of a majority the Company's outstanding shares entitled to vote
on this proposal.
PROPOSAL NUMBER FOUR
TO ADOPT THREE AMENDMENTS TO THE COMPANY'S
RESTATED ARTICLES OF INCORPORATION
The Board of Directors has approved and recommends that the shareholders
approve the following three amendments to the Company's Restated Articles of
Incorporation (the "Restated Articles"). The amendments being proposed would (a)
provide to the Company's directors the limitation of monetary liability to the
Company's and its shareholders under certain circumstances; (b) reduce the
quorum required for the transaction of business at any shareholders meeting from
a majority to one-third of the shares entitled to vote at the meeting; and (c)
reduce the voting requirement for shareholder approval of certain actions from
two-thirds to a majority of the shares entitled to vote on the action. The
following discussion is qualified in its entirety by the text of the proposed
amendments to the Company's Restated Articles attached hereto as Exhibit A.
10
Description of, Reasons for and Effects of the Amendments
Limitation of Director Liability. This proposed amendment would add a new
Article IX to the Restated Articles which would limit the personal liability of
the Company's directors for monetary damages for certain breaches of the
fiduciary duty of care as permitted under Section 7-108-402 of the Colorado
Business Corporation Act. The Colorado Business Corporation Act permits a
Colorado corporation to limit or eliminate the personal monetary liability of
its directors to the corporation or its shareholders by reason of their breach
of the fiduciary duty of care as directors, including liability for negligence,
and gross negligence, by including a provision to this effect in its articles of
incorporation. This provision of the Colorado Business Corporation Act was
adopted in 1987, long after the Company's inception, and generally is included
in the charter documents of most newly formed Colorado corporation as a matter
of practice.
Proposed Article IX of the Restated Articles would not permit any
limitation upon the liability of a director for: (i) any breach of a duty of
loyalty to the Company and its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) assenting to an unlawful distribution made in violation of section
7-106-401 of the Colorado Business Corporation Act or the Restated Articles, or
(iv) any transaction from which a director directly or indirectly derived an
improper personal benefit. Accordingly, the provisions limiting or eliminating
the potential monetary liability of directors permitted by the Colorado Business
Corporation Act apply only to the directors' "duty of care." The provision is
not retroactive and, therefore, would not have the effect of limiting liability
for acts or omissions occurring prior to the date of its adoption by
shareholders.
In performing their duties, the Company's directors are scrutinized under
the "business judgment rule" which stipulates the fiduciary duties of care and
loyalty imposed upon directors. Under the business judgment rule, a director is
required to perform all duties as a director in good faith, in a manner the
director reasonably believes to be in the best interests of the company, and
with such care as an ordinarily prudent person in a like position would use
under similar circumstances.
The "duty of care" requires that each director act in a manner which,
after a reasonable investigation, the director believes in good faith to be in
the best interests of the Company and all of its shareholders and requires that
each director, in the performance of the director's corporate responsibilities,
exercise the care that an ordinary prudent person would exercise under similar
circumstances. The "duty of loyalty" prohibits faithlessness and self-dealing by
directors and prohibits directors from using their corporate position to make a
personal profit or gain other personal advantage.
In recent years, litigation seeking to impose liability on directors of
publicly-held corporations for violations of the duty of care has become
commonplace. To preclude liability, the director is required to show that he
conducted himself in strict compliance with the duty of care as set forth in the
business judgment rule. In practice, the application of this duty varies widely
among the courts, leaving directors with little guidance and certainty as to
what constitutes adequate care under a given set of circumstances. Compounding
this uncertainty, in several decisions, courts have imposed a clairvoyant duty
upon directors, despite the fact that the actions of the directors in exercising
reasonable care are supposed to be judged as of the time and under the
circumstances existing at the time the decision was made.
This type of litigation is expensive to defend, with costs frequently
amounting to hundreds of thousands, and sometimes millions of dollars. In many
cases, costs of defense exceed the means of individual defendants, even if
ultimately they are vindicated on the issue of individual liability or
wrongdoing. Furthermore, in view of the costs and uncertainties of litigation,
it is often prudent for companies to settle such claims. While settlements
frequently are for only a fraction of the amount claimed, the settlement amount
may well exceed the financial resources of individual defendants. In summary,
without the benefit of protective measures such as indemnification and
limitation of liability as permitted under the Colorado Business Corporation
Act, exposure to the costs and risks of claims of personal liability for
corporate directors may exceed any benefit to them of serving as a director of a
public corporation.
11
The risks of personal liability for directors has traditionally been
mitigated through directors' and officers' liability insurance ("D&O
Insurance"). Changes in the market for D&O Insurance during recent years have
resulted in meaningful coverage becoming unavailable for directors and officers
of many corporations. Insurance carriers have in certain cases declined to renew
existing directors' and officers' liability policies, or have increased
premiums, thereby making the cost of obtaining such insurance prohibitive.
Moreover, policies often exclude coverage for areas where the service of
qualified independent directors is most needed. For example, many policies do
not cover liabilities or expenses arising from directors' and officers'
activities in response to attempted takeovers of a corporation.
In response to the above developments regarding litigation against
directors and the general unavailability of meaningful D&O Insurance, in 1987
the Colorado legislature adopted Section 7-108-402 of the Colorado Business
Corporation Act which permits a corporation to limit or eliminate the personal
monetary liability of a director for certain breaches of the duty of care.
Effectively, the limitation acts as a substitute for, or a supplement to, D&O
Insurance coverage. As a matter of practice, articles of incorporation for newly
formed companies frequently include provisions for mandatory indemnification and
limitation and/or elimination of personal monetary liability for directors as
permitted under Section 7-108-402 of the Colorado Business Corporation Act.
The Board of Directors believes that inclusion of a provision for
limitation of liability in the Restated Articles, when combined with the
Company's policy of entering into indemnification agreements with its directors,
will best position the Company to attract and retain qualified candidates to
serve as its directors. Although the Company has not experienced difficulty
finding qualified candidates to serve on its Board of Directors to date, it
believes that it may experience difficulty in the future if protective measures
are not taken.
Adoption of proposed Article IX for inclusion in the Company's Restated
Articles would prevent the Company and its shareholders, but not third parties,
from bringing actions for monetary damages based upon a director's negligent or
grossly negligent business decisions, including those related to attempts to
change control of the Company, to the benefit of the Board and at the expense of
the shareholders. Thus, if the proposal to add a provision to limit the monetary
liability of directors is approved, the Company or a shareholder will be able to
prosecute an action against a director for monetary damages for breach of
fiduciary duty only if it can be shown that such damages have been caused by a
breach of the duty of loyalty, a failure to act in good faith, intentional
misconduct, a knowing violation of law, a direct or indirect improper personal
benefit, or an illegal distribution. Proposed Article IX would not limit or
eliminate the right of the Company or any shareholder to seek an injunction or
any other non-monetary relief if a director breaches his duty of care. Although
equitable remedies remain available, they may be inadequate as a practical
matter.
Proposed new Article IX to the Company's Restated Articles providing for
the limitation of liability is intended to be effective only against actions by
the Company and its shareholders. Third party plaintiffs, such as creditors,
will not be prevented from recovering damages on the basis of the provision. In
addition, the provision would apply only to claims against a director arising
out of his status as a director and would not apply to claims arising from his
status as an officer or his status in any other capacity; nor would it apply to
a director's responsibilities under any other law, such as the federal
securities laws. If proposed Article IX to the Restated Articles is approved,
changes in Colorado law further limiting or eliminating personal liability of
directors automatically will be applicable without further shareholder approval.
Neither the Board of Directors nor any of its members have experienced
any recent litigation which would have been affected by the above provision had
it been in effect previously. Proposed new Article IX to the Restated Articles
is not being prompted by any pending or threatened litigation against any member
of the Company's Board of Directors. Rather, it is being proposed to modernize
the Company's Restated Articles to conform with the Colorado law which, since
1987 has permitted companies to include of these protective measures for their
corporate directors in their articles of incorporation.
Reduction in Quorum Requirement. Proposed new Article X to the Restated
Articles would reduce the quorum required for shareholder meetings from a
majority to one-third of the shares entitled to vote at the meeting. For any
shareholder meeting, all shareholders of record as of the record date
established for that meeting would continue to be sent notices of the meeting
and be given the opportunity to vote. Reduction of the quorum requirement would
permit the Company and its shareholders to transact business at the meeting if
at least one-third of the shares entitled to vote at the meeting were present
either in person or by proxy. The quorum requirement relates to the number of
shares that are required to be present at a shareholder meeting before a vote
can be taken. It does not govern the percentage of affirmative vote required to
pass any proposal voted upon.
12
Decrease in Voting Requirements for Shareholder Approval of Certain
Actions. Proposed new Article XI of the Restated Articles would reduce the
affirmative shareholder vote necessary to approve certain transactions, such as
mergers, major acquisitions or sales of all or substantially all the Company's
assets, or any other matter which would require an amendment to the Company's
Restated Articles. Currently, the Company's Restated Articles does not contain
such a provision and, therefore under the Colorado Business Corporation Act, the
affirmative vote of two-thirds of the issued and outstanding Common Stock is
required to approve such transactions. Long after the Company's inception, the
Colorado Business Corporation Act was amended to provide that no action taken by
a corporation requires more than a majority vote of the shares entitled to vote
unless otherwise provided in the corporation's articles of incorporation, or
unless the corporation was formed before July 1, 1994 and its articles of
incorporation do not contain a provision reducing the voting requirement from
two-thirds to not less than a majority.
Due to the dispersion of the Company's shareholders, it is extremely
difficult for the Company to locate and obtain the vote of two-thirds of the
outstanding shares. The Board of Directors believes that it is in the best
interests of the Company to reduce the voting requirement from two-thirds to not
less than a majority of the shares entitled to vote on these types of matters so
that a minority of the Company's shareholders will not be able to thwart the
will of the majority.
Other than as described this Proxy Statement, the Board of Directors has
no present or contemplated plans to enter into any transactions that would
require approval of the Company's shareholders.
Anti-takeover Implications of the Proposed Amendments
Approval of proposed new Article IX providing for the limitation of the
personal monetary liability of the Company's directors for breach of the duty of
care could cause the directors to feel less constrained in approving a
transaction such as the issuance of shares or the taking of other action
designed to prevent a takeover of the Company, since monetary liability to the
Company or its shareholders for approval of such transactions could not be
predicated on a failure to exercise care in connection with the process of
approving the transaction. Directors would, however, remain subject to liability
for breach of the duty of loyalty to the Company, even if this proposed
amendment is approved.
Despite any anti-takeover implications, the proposed amendment is not the
result of management's knowledge of any specific effort to accumulate the
Company's securities or to obtain control of the Company by means of a merger,
tender offer, proxy solicitation in opposition to management or otherwise. The
Company is not submitting any of the amendments contained in this Proposal to
enable it to frustrate any efforts by another party to acquire a controlling
interest or to seek Board representation.
The amendments contained in this Proposal are not a part of any plan by
the Company's management to adopt a series of amendments to the Restated
Articles or Bylaws so as to render the takeover of the Company more difficult.
Management does not currently intend to propose any anti-takeover measures in
future proxy solicitations. Management is not aware of the existence of any
other provisions currently in the Company's Restated Articles or Bylaws of the
Company having any anti-takeover effects which would impose any burden in excess
of requirements imposed by Colorado or federal law upon potential tender
offerors or others seeking a takeover of the Company.
Board Recommendation and Vote Required
The Board of Directors recommends that shareholders vote "FOR" approval
of each of the amendments described above which it proposes to add to the
Restated Articles. The directors of the Company face a potential conflict of
interest in recommending to the shareholders an amendment that would relieve
them of future liability to the shareholders or to the Company. However, the
Board of Directors recommends approval of this amendment because it believes the
provision for limitation of monetary liability of directors for certain acts, as
permitted under the Colorado Business Corporation Act, will encourage capable
individuals to continue to serve as, and become directors of, the Company and
that adoption of the amendment is in the best interests of the Company.
Each proposed amendment will be voted upon separately by the
shareholders. The affirmative vote of two-thirds of the outstanding shares
entitled to vote on these amendments is required to approve each of the three
amendments described in this Proposal.
13
PROPOSAL NUMBER FIVE
RATIFICATION OF THE APPOINTMENT OF THE COMPANY'S INDEPENDENT AUDITORS
The Board of Directors of the Company appointed and engaged the firm of
Hirsch, Silberstein & Sulbelsky, P.C., as independent auditors of the Company
for the years ended June 30, 1997 and 1998. For the year ending June 30, 1999,
the Board has selected Hirsch, Silberstein & Sulbelsky, P.C. to continue as its
independent auditors. Pursuant to the requirements for BDCs under the Investment
Company Act of 1940, the Company is requesting that shareholders ratify these
appointments. Since the audits for the years ending June 30, 1997 and 1998 have
already been completed, a vote against the ratification of Hirsch, Silberstein &
Sulbelsky, P.C. as the Company's auditors will be interpreted as a ratification
for the audits already completed but not for the current fiscal year. If the
Company's appointment of Hirsch, Silberstein & Sulbelsky, P.C. is not ratified
by the shareholders for the current fiscal year, the Board of Directors will
select a different accounting and auditing firm to audit its financial
statements for the fiscal year ending June 30, 1999, subject to ratification of
that appointment at the next annual meeting of shareholders.
A representative of Hirsch & Silberstein, P.C., is not expected to be
present at the meeting.
Board Recommendation and Vote Required
The Board of Directors recommends that shareholders vote "FOR"
ratification of the Company's auditors. Ratification of the Company's selection
of auditors requires the affirmative vote of a majority of the Company's
outstanding shares entitled to vote on this Proposal.
FINANCIAL INFORMATION
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998, including audited financial statements, is being sent to
shareholders with this Proxy Statement.
OTHER MATTERS
Management does not know of any other matters to be brought before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the appointees named in the enclosed form of proxy to vote in
accordance with their best judgment on such matters.
SHAREHOLDER PROPOSALS
Any shareholder proposing to have any appropriate matter brought before
the 1999 Annual Meeting of Shareholders, tentatively scheduled for December 20,
1999, must submit such proposal in accordance with the proxy rules of the SEC.
Such proposals should be sent to Robert R. Hebard, President, Enercorp, Inc.,
7001 Orchard Lake Road, Suite 424, West Bloomfield, Michigan 48322-3608, for
receipt no later than August 23, 1999.
By Order of the Board of Directors:
ENERCORP, INC.
Robert R. Hebard, President
14
EXHIBIT A
----------
Proposal 4(a) - New Article IX
------------------------------
ARTICLE IX.
LIMITATION ON DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for breach of fiduciary
duty as a director; except that this provision shall not eliminate or limit the
liability of a director to the Corporation or to its shareholders for monetary
damages otherwise existing for (i) any breach of the director's duty of loyalty
to the Corporation or to its shareholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) acts specified in Section 7-108-403 of the Colorado Business Corporation
Act; or (iv) any transaction from which the director directly or indirectly
derived any improper personal benefit. If the Colorado Business Corporation Act
is hereafter amended to eliminate or limit further the liability of a director,
then, in addition to the elimination and limitation of liability provided by the
preceding sentence, the liability of each director shall be eliminated or
limited to the fullest extent permitted by the Colorado Business Corporation Act
as so amended. Any repeal or modification of this Article IX shall not adversely
affect any right or protection of a director of the corporation under this
Article IX as in effect immediately prior to such repeal or modification with
respect to any liability that, but for this Article IX, would have accrued prior
to such repeal or modification.
Proposal 4(b) - New Article X
-----------------------------
ARTICLE X
QUORUM FOR SHAREHOLDERS' MEETINGS
Unless otherwise ordered by a court having jurisdiction, at all meetings
of shareholders one-third of the shares of a voting group entitled to vote at
such meeting, represented in person or by proxy, shall constitute a quorum of
that voting group.
15
Proposal 4(c) - New Article XI
------------------------------
ARTICLE XI
SHAREHOLDER VOTING
Whenever the shareholders must approve any matter, the affirmative vote of
a majority of the shares entitled to vote, represented in person or by proxy,
and voting at a duly held meeting at which a quorum is present shall be
necessary to constitute such approval or authorization, except as otherwise
provided herein. For any matter requiring shareholder approval which, as a
result of the repeal of the Colorado Corporation Code and the adoption of the
Colorado Business Corporation Act, would be deemed to require approval of
two-thirds of the shares entitled to vote on the matter, the vote required
hereafter shall be a majority of the shares entitled to vote on the matter.
Elections of Directors shall be determined by a plurality vote.
16