UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[ ] Definitive Information Statement
PTS, INC.
(Name of Registrant as specified in its charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to xchange act rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously 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 registration statement no.:
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(4) Date filed:
PTS, INC.
3355 Spring Mountain Road
Suite 66
Las Vegas, Nevada
Telephone:(702) 380-3811
August 12, 2004
To Our Shareholders:
The purpose of this information statement is to inform the holders of
record of shares of our common stock and preferred stock as of the close of
business on the record date, July 30, 2004 that our board of directors has
recommended, and that the holder of the majority of the votes of our stock
intends to vote in favor of resolutions which will accomplish the following:
1. Amend our Articles of Incorporation to increase the number of our
authorized shares of common stock to 1,800,000,000.
2. To amend our Articles of Incorporation to increase the number of our
authorized shares of preferred stock to 200,000,000.
3. To grant discretionary authority to our board of directors to amend our
Articles of Incorporation to effect a reverse stock split of our common
stock on the basis of one share for up to each 500 shares to occur at some
time within 60 days of the date of this information statement, with the
exact time of the reverse split to be determined by the board of directors.
4. Approve the 2004/C Employee Bonus Stock Plan adopted by our directors
effective July 20, 2004 with 180,000,000 shares of our common stock in the
aggregate authorized for issuance under the Plan.
We have consenting shareholders, including Peter Chin, our director and
president/secretary/treasurer, who holds 225,000 shares of our common stock and
3,700,000 shares of our Series A preferred stock and his wife, Sandy Chin, who
holds 10,634,500 shares of our common stock and 300,000 shares of our preferred
stock and nonaffiliate shareholders who own 115,000,000 shares of our common
stock. Pursuant to our Certificate of Designation Establishing Series A
Preferred Stock, each share of our currently issued and outstanding Series A
preferred stock may be converted into 50 fully paid and nonassessable shares of
our common stock. On all matters submitted to a vote of the holders of our
common stock, a holder of shares of the Series A preferred stock shall be
entitled to the number of votes on such matters equal to the number of shares of
the Series A preferred stock held by such holder multiplied by 50. Therefore,
the consenting shareholders will have 325,859,500 votes out of a total of
603,100,505 votes taking into consideration the votes of holders of our
preferred stock. will have the power to vote 185,225,000 shares of our common
stock, which number exceeds the majority of the issued and outstanding shares of
the common stock on the record date.
The consenting shareholders will vote in favor of the amendments to our
Articles of Incorporation, for the approval of the stock plans, and for the
grant of the discretionary authority to our board of directors to amend our
Articles of Incorporation to effect a reverse stock split of our common stock on
the basis of one post-consolidation share for up to each 500 pre-consolidation
shares to occur at some time within 60 days of the date of this information
statement, with the exact time of the reverse split to be determined by the
board of directors. The consenting shareholders have the power to pass the
proposed resolutions without the concurrence of any of our other shareholders.
WE ARE NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This information statement is being mailed on or about August 12, 2004 to
all shareholders of record as of July 30, 2004.
We appreciate your continued interest in PTS, Inc.
Very truly yours,
/s/Peter Chin
Peter Chin
President
PTS, INC.
3355 Spring Mountain Road
Suite 66
Las Vegas, Nevada
Telephone:(702) 380-3811
INFORMATION STATEMENT
This information statement is furnished to the holders of record at the
close of business on July 30, 2004, the record date, of the outstanding common
stock and preferred stock of PTS, Inc., pursuant to Rule 14c-2 promulgated under
the Securities Exchange Act of 1934, as amended, in connection with an action
that the consenting shareholders who hold a majority of the votes of our stock
intend to take on August 12, 2004 to effect the following corporate actions:
1. Amend our Articles of Incorporation to increase the number of our
authorized shares of common stock to 1,800,000,000.
2. To amend our Articles of Incorporation to increase the number of our
authorized shares of preferred stock to 200,000,000.
3. To grant discretionary authority to our board of directors to amend our
Articles of Incorporation to effect a reverse stock split of our common
stock on the basis of one post-consolidation share for up to each 500
pre-consolidation shares to occur at some time within 60 days of the date
of this information statement, with the exact time of the reverse split to
be determined by the board of directors.
4. Approve the 2004/C Employee Bonus Stock Plan July 20, 2004 with 180,000,000
shares of our common stock in the aggregate authorized for issuance under
the Plan.
This information statement will be sent on or about August 12, 2004 to our
shareholders of record who do not sign the written consent described herein.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND A
PROXY.
1
VOTING SECURITIES
In accordance with our bylaws, our board of directors has fixed the close
of business on July 30, 2004 as the record date for determining the shareholders
entitled to vote for the corporate actions proposed by our board of directors.
The amendments to our Articles of Incorporation, the approval of the stock plan
and the grant of discretionary authority to our board with respect to the
reverse stock split requires the affirmative vote of a majority of the shares of
our common stock and preferred stock issued and outstanding as of the record
date at the time the vote is taken. As of the record date,403,100,505 shares of
the common stock and 4,000,000 shares of our Series A preferred stock were
issued and outstanding. Each share of common stock outstanding entitles the
holder to one vote on all matters brought before the common shareholders. Each
share of preferred stock outstanding entitles the holder to fifty votes on all
matters brought before the common shareholders. The quorum necessary to conduct
business of the shareholders consists of a majority of the outstanding shares of
the common stock and the Series A preferred stock issued and outstanding as of
the record date.
We have consenting shareholders, including Peter Chin, our director and
president/secretary/treasurer, who holds 225,000 shares of our common stock and
3,700,000 shares of our Series A preferred stock and his wife, Sandy Chin, who
holds 10,634,500 shares of our common stock and 300,000 shares of our preferred
stock and nonaffiliate shareholders who own 115,000,000 shares of our common
stock. Pursuant to our Certificate of Designation Establishing Series A
Preferred Stock, each share of our currently issued and outstanding Series A
preferred stock may be converted into 50 fully paid and nonassessable shares of
our common stock. On all matters submitted to a vote of the holders of our
common stock, a holder of shares of the Series A preferred stock shall be
entitled to the number of votes on such matters equal to the number of shares of
the Series A preferred stock held by such holder multiplied by 50. Therefore,
the consenting shareholders will have 325,859,500 votes out of a total of
603,100,505 votes taking into consideration the votes of holders of our
preferred stock. will have the power to vote 185,225,000 shares of our common
stock, which number exceeds the majority of the issued and outstanding shares of
the common stock on the record date.
The consenting shareholders will vote in favor of the amendments to our
Articles of Incorporation, for the approval of the stock plans, and for the
grant of the discretionary authority to our board of directors to amend our
Articles of Incorporation to effect a reverse stock split of our common stock on
the basis of one post-consolidation share for up to each 500 pre-consolidation
shares to occur at some time within 60 days of the date of this information
statement, with the exact time of the reverse split to be determined by the
board of directors. Mr. Chin has the power to pass the proposed resolutions
without the concurrence of any of our other shareholders.
ACCORDINGLY, WE ARE NOT ASKING OUR SHAREHOLDERS FOR A PROXY AND
SHAREHOLDERS ARE REQUESTED NOT TO SEND A PROXY.
DISTRIBUTION AND COSTS
We will pay all costs associated with the distribution of this information
statement, including the costs of printing and mailing. In addition, we will
only deliver one information statement to multiple security holders sharing an
address, unless we have received contrary instructions from one or more of the
security holders. Security holders may also address future requests regarding
delivery of information statements and/or annual reports by contacting us at the
address noted above.
2
BACKGROUND
PTS, Inc. (the "Company") was incorporated in the State of Nevada on
November 5, 1996 under the name Med Mark, Inc. In 1998, Elast Technologies
Corporation, a Delaware corporation, ("Elast") merged with and into Elast
Merger, Inc., a Nevada corporation, which was a wholly-owned subsidiary of the
Company. On or about June 29, 1998, the Company filed articles of amendment
changing its name to Elast Technologies, Inc. Pursuant to a merger agreement
entered into on June 11, 2001, PTS, Inc. ("PTS"), a Nevada corporation, merged
into the Company. The Company was the surviving company and changed its name to
PTS, Inc.
AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The board of directors has determined that it is advisable to increase our
authorized common stock and has adopted, subject to shareholder approval, an
amendment to our Articles of Incorporation to increase our authorized number of
shares of common stock from 800,000,000 shares to 1,800,000,000 shares of common
stock, par value $0.001 per share.
The following is a summary of the material matters relating to our common
stock.
Presently, the holders of our common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of our
shareholders, including the election of directors. Our common shareholders do
not have cumulative voting rights. Subject to preferences that may be applicable
to any then outstanding series of our preferred stock, holders of our common
stock are entitled to receive ratably such dividends, if any, as may be declared
by our board of directors out of legally available funds. In the event of the
liquidation, dissolution, or winding up of PTS, Inc., the holders of our common
stock will be entitled to share ratably in the net assets legally available for
distribution to our shareholders after the payment of all our debts and other
liabilities, subject to the prior rights of any series of our preferred stock
then outstanding.
The holders of our common stock have no preemptive or conversion rights or
other subscription rights and there are no redemption or sinking fund provisions
applicable to our common stock. The amendment would not alter or modify any
preemptive right of holders of our common stock to acquire our shares, which is
denied, or effect any change in our common stock, other than the number of
authorized shares.
The increase in the authorized shares of our common stock is not proposed
by the board of directors in response to any known accumulation of shares or
threatened takeover. The issuance of additional shares to certain persons allied
with our management could have the effect of making it more difficult to remove
our current management by diluting the stock ownership or voting rights of
persons seeking to cause such removal. In addition, an issuance of additional
shares by us could have an effect on the potential realizable value of a
shareholder's investment.
In the absence of a proportionate increase in our earnings and book value,
an increase in the aggregate number of our outstanding shares caused by the
issuance of the additional shares will dilute the earnings per share and book
value per share of all outstanding shares of our common stock. If such factors
were reflected in the price per share of common stock, the potential realizable
value of the shareholder's investment could be adversely affected.
3
The additional common stock to be authorized by adoption of the amendment
would have rights identical to our currently outstanding common stock. Adoption
of the proposed amendment and issuance of the common stock would not affect the
rights of the holders of our currently outstanding common stock, except for
effects incidental to increasing the number of outstanding shares of our common
stock, such as dilution of the earnings per share and voting rights of current
holders of common stock. If the amendment is adopted, it will become effective
upon filing of a certificate of amendment of our Articles of Incorporation with
the Secretary of State of Nevada.
As of the date of this information statement, our board has no plans to
issue or use any of our newly authorized shares of common stock.
VOTE REQUIRED
The affirmative vote of a majority of the total number of shares of our
issued and outstanding capital stock is required to approve the amendment of our
Articles of Incorporation increasing the number of our authorized common shares.
AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK
The board of directors has determined that it is advisable to increase our
authorized preferred stock and has adopted, subject to shareholder approval, an
amendment to our Articles of Incorporation to increase our authorized number of
shares of preferred stock from 100,000,000 shares to 200,000,000 shares of
preferred stock, par value $0.001 per share.
The following is a summary of the material matters relating to our
preferred stock.
Authorizing the issuance of 100,000,000 additional shares of preferred
stock would give our board of directors the express authority, without further
action of our shareholders, to issue preferred stock from time to time as the
board deems necessary. The board of directors believes it is necessary to have
the ability to issue such shares of preferred stock for general corporate
purposes. Potential uses of the authorized shares may include equity financings,
issuance of options, acquisition transactions, stock dividends or distributions,
without further action by the shareholders, unless such action were specifically
required by applicable law or rules of any stock exchange or similar system on
which our securities may then be listed.
The issuance of the shares of preferred stock could have a number of
effects on our shareholders depending upon the exact nature and circumstances of
any actual issuance of authorized but unissued shares. The increase could have
an anti-takeover effect, in that the additional shares could be issued (within
the limits imposed by applicable law) in one or more transactions that could
make a change in control or takeover of PTS, Inc. more difficult. For example,
additional shares could be issued by us so as to dilute the stock ownership or
voting rights of persons seeking to obtain control of PTS, Inc. In some
instances, each share of the preferred stock may be convertible into multiple
shares of our common stock. Likewise, shares of our preferred stock could have
voting rights equal to their converted status as common stock, with the effect
being that the shareholders of the preferred stock would have the ability to
control the vote of our shareholders, even though they may own less that than a
majority of our issued and outstanding common stock.
4
The proposal with respect to our preferred stock is not being made by us in
response to any known accumulation of shares or threatened takeover. The
issuance of shares of preferred stock to certain persons allied with our
management could have the effect of making it more difficult to remove our
current management by diluting the stock ownership or voting rights of persons
seeking to cause such removal. In addition, an issuance of shares of preferred
stock by us could have an effect on the potential realizable value of a
shareholder's investment.
In the absence of a proportionate increase in our earnings and book value,
an increase in the aggregate number of our outstanding shares caused by the
issuance, upon the conversion of our preferred stock into shares of our common
stock, would dilute the earnings per share and book value per share of all
outstanding shares of our common stock. If such factors were reflected in the
price per share of common stock, the potential realizable value of the
shareholder's investment could be adversely affected.
The proposed preferred stock would not carry with it preemptive rights to
acquire our shares of preferred stock.
As of the date of this information statement, our board has no plans to
issue or use any of our newly authorized shares of preferred stock.
VOTE REQUIRED
The affirmative vote of a majority of the total number of shares of our
issued and outstanding capital stock is required to approve the amendment of our
Articles of Incorporation authorizing additional preferred shares.
GRANT OF DISCRETIONARY AUTHORITY TO THE BOARD OF DIRECTORS TO AMEND OUR ARTICLES
OF INCORPORATION TO EFFECT AN UP TO ONE FOR FIVE HUNDRED REVERSE STOCK SPLIT
Our board of directors has adopted a resolution to seek shareholder
approval to grant the board discretionary authority to amend our Articles of
Incorporation to affect a reverse split for the purpose of increasing the market
price of our common stock. The reverse split exchange ratio that the board of
directors approved and deemed advisable and for which it is seeking shareholder
approval is up to one post-consolidation share for each 500 pre-consolidation
shares, with the reverse split to occur within 60 days of the date of this
information statement, the exact time of the reverse split to be determined by
the directors in their discretion. Approval of this proposal would give the
board authority to implement the reverse split at any time it determined within
60 days of the date of this information statement. In addition, approval of this
proposal would also give the board authority to decline to implement a reverse
split.
Our board of directors believes that shareholder approval of a range for
the exchange ratio of the reverse split (as contrasted with approval of a
specified ratio of the split) provides the board of directors with maximum
flexibility to achieve the purposes of a stock split and, therefore, is in the
best interests of our shareholders. The actual ratio for implementation of the
reverse split would be determined by our board of directors based upon its
evaluation as to what ratio of pre-consolidation shares to post-consolidation
shares would be most advantageous to us and our shareholders.
Our board of directors also believes that shareholder approval of a 60 day
range for the effectuation of the reverse split (as contrasted with approval of
a specified time of the split) provides the board of directors with maximum
flexibility to achieve the purposes of a stock split and, therefore, is in our
best interests and our shareholders. The actual timing for implementation of the
reverse split would be determined by our board of directors based upon its
evaluation as to when and whether such action would be most advantageous to us
and our shareholders.
5
If the board exercises its grant of discretionary authority to implement a
reverse split, we will file a certificate of amendment to our Articles of
Incorporation with the Secretary of State of Nevada which will effect a reverse
split of our then issued and outstanding common stock at the specific ratio set
by the board.
The board of directors believes that the higher share price that might
initially result from the reverse stock split could help generate interest in
PTS, Inc. among investors and thereby assist us in raising future capital to
fund its operations or make acquisitions.
Shareholders should note that the effect of the reverse split upon the
market price for our common stock cannot be accurately predicted. In particular,
there is no assurance that prices for shares of our common stock after a reverse
split will be 500 times as great than the price for shares of our common stock
immediately prior to the reverse split. Furthermore, there can be no assurance
that the market price of our common stock immediately after a reverse split will
be maintained for any period of time. Moreover, because some investors may view
the reverse split negatively, there can be no assurance that the reverse split
will not adversely impact the market price of our common stock or,
alternatively, that the market price following the reverse split will either
exceed or remain in excess of the current market price.
EFFECT OF THE REVERSE SPLIT
The reverse split would not affect the registration of our common stock
under the Securities Exchange Act of 1934, as amended, nor will it change our
periodic reporting and other obligations thereunder.
The voting and other rights of the holders of our common stock would not be
affected by the reverse split (other than as a result of the payment of cash in
lieu of fractional shares as described below). For example, a holder of 0.5
percent of the voting power of the outstanding shares of our common stock
immediately prior to the effective time of the reverse split would continue to
hold 0.5 percent of the voting power of the outstanding shares of our common
stock after the reverse split. The number of shareholders of record would not be
affected by the reverse split (except to the extent that any shareholder holds
only a fractional share interest and receives cash for such interest).
The authorized number of shares of our common stock and the par value of
our common stock under our Articles of Incorporation would remain the same
following the effective time of the reverse split.
The number of shares of our common stock issued and outstanding would be
reduced following the effective time of the reverse split in accordance with the
following formula: every 500 shares of our common stock owned by a shareholder
will automatically be changed into and become one new share of our common stock,
with 500 being equal to the exchange ratio as determined by our board of
directors.
We currently have no intention of going private; and this proposed reverse
stock split is not intended to be a first step in a going private transaction
and will not have the effect of a going private transaction covered by Rule
13e-3 of the Exchange Act. Moreover, the proposed reverse stock split does not
increase the risk of us becoming a private company in the future. We will
continue to be subject to the periodic reporting requirements of the Exchange
Act of 1934 following the reverse split of our common stock.
6
Issuance of Additional Shares. The number of authorized but unissued shares
of our common stock effectively will be increased significantly by the reverse
split of our common stock. For example, based on the 403,100,505 shares of our
common stock outstanding on the record date and the 800,000,000 shares of our
common stock that are currently authorized under our Articles of Incorporation,
396,899,495 shares of our common stock remain available for issuance prior to
the reverse split taking effect. A one for 500 reverse split would have the
effect of decreasing the number of our outstanding shares of our common stock
from 403,100,505 to 806,201 shares prior to any increase in our authorized
common stock. The issuance in the future of such additional authorized shares
may have the effect of diluting the earnings per share and book value per share,
as well as the stock ownership and voting rights, of the currently outstanding
shares of our common stock.
The effective increase in the number of authorized but unissued shares of
our common stock may be construed as having an anti-takeover effect by
permitting the issuance of shares to purchasers who might oppose a hostile
takeover bid or oppose any efforts to amend or repeal certain provisions of our
Articles of Incorporation or bylaws. Such a use of these additional authorized
shares could render more difficult, or discourage, an attempt to acquire control
of us through a transaction opposed by our board of directors. At this time, our
board does not have plans to issue any common shares resulting from the
effective increase in our authorized but unissued shares generated by the
reverse split.
CASH PAYMENT IN LIEU OF FRACTIONAL SHARES
In lieu of any fractional shares to which a holder of our common stock
would otherwise be entitled as a result of the reverse split, we shall pay cash
equal to such fraction multiplied by the average of the high and low trading
prices of the our common stock on the OTCBB during regular trading hours for the
five trading days immediately preceding the effectiveness of the reverse split.
FEDERAL INCOME TAX CONSEQUENCES
We will not recognize any gain or loss as a result of the reverse split.
The following description of the material federal income tax consequences
of the reverse split to our shareholders is based on the Internal Revenue Code
of 1986, as amended, applicable Treasury Regulations promulgated thereunder,
judicial authority and current administrative rulings and practices as in effect
on the date of this information statement. Changes to the laws could alter the
tax consequences described below, possibly with retroactive effect. We have not
sought and will not seek an opinion of counsel or a ruling from the Internal
Revenue Service regarding the federal income tax consequences of the reverse
split. This discussion is for general information only and does not discuss the
tax consequences that may apply to special classes of taxpayers (e.g.,
non-residents of the United States, broker/dealers or insurance companies). The
state and local tax consequences of the reverse split may vary significantly as
to each shareholder, depending upon the jurisdiction in which such shareholder
resides. You are urged to consult your own tax advisors to determine the
particular consequences to you.
7
In general, the federal income tax consequences of the reverse split will
vary among shareholders depending upon whether they receive cash for fractional
shares or solely a reduced number of shares of our common stock in exchange for
their old shares of our common stock. We believe that the likely federal income
tax effects of the reverse split will be that a shareholder who receives solely
a reduced number of shares of our common stock will not recognize gain or loss.
With respect to a reverse split, such a shareholder's basis in the reduced
number of shares of our common stock will equal the shareholder's basis in its
old shares of our common stock. A shareholder who receives cash in lieu of a
fractional share as a result of the reverse stock split will generally be
treated as having received the payment as a distribution in redemption of the
fractional share, as provided in Section 302(a) of the Code, which distribution
will be taxed as either a distribution under Section 301 of the Code or an
exchange to such shareholder, depending on that shareholder's particular facts
and circumstances. Generally, a shareholder receiving such a payment should
recognize gain or loss equal to the difference, if any, between the amount of
cash received and the shareholder's basis in the fractional share. In the
aggregate, such a shareholder's basis in the reduced number of shares of our
common stock will equal the shareholder's basis in its old shares of our common
stock decreased by the basis allocated to the fractional share for which such
shareholder is entitled to receive cash, and the holding period of the
post-effective reverse split shares received will include the holding period of
the pre-effective reverse split shares exchanged.
EFFECTIVE DATE
If the proposed grant of discretionary authority to implement a reverse
split is approved and the board of directors elects to proceed with a reverse
split, the split would become effective as of 5:00 p.m. Nevada time on the date
of filing of a certificate of amendment to our Articles of Incorporation with
the office of the Secretary of State of Nevada. Except as explained below with
respect to fractional shares, on such date, all shares of our common stock that
were issued and outstanding immediately prior thereto will be, automatically and
without any action on the part of the shareholders, converted into new shares of
our common stock in accordance with the 500 for one exchange ratio as determined
by our directors.
RISKS ASSOCIATED WITH THE REVERSE SPLIT
This information statement includes forward-looking statements including
statements regarding our intent to solicit approval of a reverse split, the
timing of the proposed reverse split and the potential benefits of a reverse
split, including, but not limited to, increased investor interest and the
potential for a higher stock price. The words "believe," "expect," "will," "may"
and similar phrases are intended to identify such forward-looking statements.
Such statements reflect our current views and assumptions, and are subject to
various risks and uncertainties that could cause actual results to differ
materially from expectations. These risks include: we may not have sufficient
resources to continue as a going concern; any significant downturn in our
industry or in general business conditions would likely result in a reduction of
demand for our products and would be detrimental to our business; we will be
unable to achieve profitable operations unless we increase quarterly revenues or
make further cost reductions, a loss of or decrease in purchases by one of our
significant customers could materially and adversely affect our revenues and
profitability, the loss of key personnel could have a material adverse effect on
our business; the large number of shares available for future sale could
adversely affect the price of our common stock; and the volatility of our stock
price. For a discussion of these and other risk factors, see our annual report
on Form 10-KSB for the year ended December 31, 2003 and other filings with the
Securities and Exchange Commission.
8
If approved and effected, the reverse stock split will result in some
shareholders owning "odd-lots" of less than 100 common shares of our stock on a
post-consolidation basis. Odd lots may be more difficult to sell, or require
greater transaction costs per share to sell than shares in "even lots" of even
multiples of 100 shares.
VOTE REQUIRED
The affirmative vote of a majority of the total number of shares of our
issued and outstanding capital stock is required to approve the grant of
discretionary authority to our directors to implement a reverse stock split.
APPROVAL OF STOCK PLAN
Our consenting shareholders intend to approve the Approve the 2004/C
Employee Bonus Stock Plan adopted by our directors effective July 20, 2004 with
180,000,000 shares of our common stock in the aggregate authorized for issuance
under the Plan.
As of the record date 24,000,000 shares of our common stock have been
issued under the stock plan.
The following is a summary of the principal features of the stock plan. A
copy of the stock plan is attached to this information statement as Attachment
B. Any shareholder who wishes to obtain copies of the stock plan may also do so
upon written request to our corporate secretary at our principal executive
offices in Las Vegas, Nevada.
PURPOSE OF THE STOCK PLAN
The purpose of the stock plan is to provide incentives to attract, retain
and motivate eligible persons whose present and potential contributions are
important to the success of PTS, Inc. and our subsidiaries, by offering them an
opportunity to participate in our future performance through awards of options,
restricted stock and stock bonuses.
Number of Shares Available. Subject to certain provisions of the Stock
Plans, the total aggregate number of shares of our common stock reserved and
available for grant and issuance pursuant to the stock plan is 180,000,000 plus
shares of our common stock that are subject to:
- - Issuance upon exercise of an option but cease to be subject to such option
for any reason other than exercise of such option;
- - An award granted but forfeited or repurchased by PTS, Inc. at the original
issue price; and
- - An award that otherwise terminates without shares of our common stock being
issued. At all times, PTS, Inc. shall reserve and keep available a
sufficient number of shares of our common stock as shall be required to
satisfy the requirements of all outstanding options granted under the Stock
Plans and all other outstanding but unvested awards granted under the Stock
Plans.
Adjustment of Shares. In the event that the number of outstanding shares is
changed by a stock dividend, recapitalization, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the capital
structure of PTS, Inc. without consideration, then the number of shares of our
common stock reserved for issuance under the stock plan, the exercise prices of
and number of shares of our common stock subject to outstanding options, and the
number of shares of our common stock subject to other outstanding awards will
not be proportionately adjusted.
9
ELIGIBILITY
Incentive Stock Options and Awards may be granted only to employees
(including, officers and directors who are also employees) of PTS, Inc. or of a
parent or subsidiary of PTS, Inc.
DISCRETIONARY OPTION GRANT PROGRAM
The committee may grant options to eligible persons the number of shares of
our common stock subject to the option, the exercise price of the option, the
period during which the option may be exercised, and all other terms and
conditions of the option, subject to the following.
Form of Option Grant. Each option granted under the Stock Plans is
evidenced by an Award Agreement (the "Option Agreement"), and will be in such
form and contain such provisions (which need not be the same for each
participant) as the committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of the stock plan.
Date of Grant. The date of grant of an option is the date on which the
committee makes the determination to grant such option, unless otherwise
specified by the committee. The Option Agreement and a copy of the applicable
Stock Plan is delivered to the participant within a reasonable time after the
granting of the option.
Exercise Period. Options may be exercisable within the times or upon the
events determined by the committee as set forth in the Stock Option Agreement
governing such option; provided, however, that no option will be exercisable
after the expiration of 10 years from the date the option is granted. For
further restrictions on the Exercise Periods, please refer to the stock plan.
Exercise Price. The exercise price of an option is determined by the
committee when the option is granted and may be not less than 85 percent of the
fair market value of the shares of our common stock on the date of grant;
provided that the exercise price of any option granted to an employee holding
one percent of the voting power may not be less than 110 percent of the fair
market value of the shares of our common stock on the date of grant. Payment for
the shares of our common stock purchased may be made in accordance with the
stock plan.
Method of Exercise. Options may be exercised only by delivery to PTS, Inc..
of a written stock option exercise agreement (the "Notice and Agreement of
Exercise") in a form approved by the committee, together with payment in full of
the exercise price for the number of shares of our common stock being purchased.
Termination. Notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an option is always subject to the following:
10
- Upon an Employee's Retirement, Disability (as those terms are defined in
the stock plan) or death, (a) all Stock Options to the extent then presently
exercisable shall remain in full force and effect and may be exercised pursuant
to the provisions thereof, and (b) unless otherwise provided by the committee,
all Stock Options to the extent not then presently exercisable by the Employee
shall terminate as of the date of such termination of employment and shall not
be exercisable thereafter. Unless employment is terminated for Cause, as defined
by applicable law, the right to exercise in the event of termination of
employment, to the extent that the optionee is entitled to exercise on the date
the employment terminates as follows:
- - a year from the date of termination if termination was caused by death or
disability.
- - 90 days from the date of termination if termination was caused by other
than death or disability.
- - Upon the termination of the employment of an Employee for any reason other
than those specifically set forth in the stock plan, (a) all Stock Options
to the extent then presently exercisable by the Employee shall remain
exercisable only for a period of 90 days after the date of such termination
of employment (except that the 90 day period shall be extended to 12 months
if the Employee shall die during such 90 day period), and may be exercised
pursuant to the provisions thereof, including expiration at the end of the
fixed term thereof, and (b) unless otherwise provided by the committee, all
Stock Options to the extent not then presently exercisable by the Employee
shall terminate as of the date of such termination of employment and shall
not be exercisable thereafter.
Limitations on Exercise. The committee may specify a reasonable minimum
number of shares of our common stock that may be purchased on any exercise of an
option, provided that such minimum number will not prevent the participant from
exercising the option for the full number of shares of our common stock for
which it is then exercisable. Subject to the provisions of the stock plan, the
Employee has the right to exercise his Stock Options at the rate of at least
33-1/3 percent per year over three years from the date the Stock Option is
granted.
Modification, Extension or Renewal. The committee may modify or amend any
Award under the stock plan or waive any restrictions or conditions applicable
to the Award; provided, however, that the committee may not undertake any such
modifications, amendments or waivers if the effect thereof materially increases
the benefits to any Employee, or adversely affects the rights of any Employee
without his consent.
SHAREHOLDER RIGHTS AND OPTION TRANSFERABILITY
Awards granted under the stock plan, including any interest, are not
transferable or assignable by the participant, and may not be made subject to
execution, attachment or similar process, other than by will or by the laws of
descent and distribution.
GENERAL PROVISIONS
Adoption and Shareholder Approval. The stock plan became effective on the
date it was adopted by the board of directors of PTS, Inc. (the "effective
date"). The Board of Directors may grant Awards pursuant to the stock plan upon
the effective date.
11
Term of Stock Plans/Governing Law. Unless earlier terminated as provided,
the Stock Plans will terminate 10 years from the date of adoption, or, if
earlier, from the date of shareholder approval. The Stock Plans and all
agreements thereunder shall be governed by and construed in accordance with the
laws of the State of Nevada.
Amendment or Termination of the stock plan. Our board of directors may at
any time terminate or amend the stock plan including to preserve or come within
any exemption from liability under Section 16(b) of the Exchange Act, as it may
deem proper and in our best interest without further approval of our
shareholders, provided that, to the extent required under Nevada law or to
qualify transactions under the Stock Plans for exemption under Rule 16b-3
promulgated under the Exchange Act, no amendment to the stock plan shall be
adopted without further approval of our shareholders and, provided, further,
that if and to the extent required for the stock plan to comply with Rule 16b-3
promulgated under the Exchange Act, no amendment to the stock plan shall be made
more than once in any six month period that would change the amount, price or
timing of the grants of our common stock hereunder other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the regulations thereunder. The Board may terminate the stock plan
at any time by a vote of a majority of the members thereof.
FEDERAL TAX CONSEQUENCES
Nonqualified Stock Options. No taxable income is recognized by an optionee
upon the grant of a NQSO. The optionee will in general recognize ordinary
income, in the year in which the option is exercised, equal to the excess of the
fair market value of the purchased shares on the exercise date over the exercise
price paid for the shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
If the shares acquired upon exercise of the NQSO are unvested and subject
to repurchase, at the exercise price paid per share, by us in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when our repurchase right lapses, an
amount equal to the excess of (i) the fair market value of the shares on the
date the repurchase right lapses over (ii) the exercise price paid for the
shares. The optionee may, however, elect under Section 83(b) of the Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapse and all subsequent appreciation in the
shares generally would be eligible for capital gains treatment.
We will be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the optionee with respect to the exercised NQSO.
The deduction will in general be allowed for our taxable year in which such
ordinary income is recognized by the optionee.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in a
compensation expense to our earnings equal to the difference between the
exercise or issue price and the fair market value of the shares on the grant or
issue date. Such expense will be amortized against our earnings over the period
that the option shares or issued shares are to vest.
12
Option grants or stock issuances with exercise or issue prices equal to the
fair market value of the shares at the time of issuance or grant generally will
not result in any charge to our earnings, but PTS, Inc, in accordance with
Generally Accepted Accounting Principals, must disclose, in pro-forma statements
to our financial statements, the impact those option grants would have upon our
reported earnings (losses) were the value of those options treated as
compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining our earnings per share on a
fully diluted basis.
Should one or more optionee be granted stock appreciation rights that have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to our
earnings. Accordingly, at the end of each fiscal quarter, the amount (if any) by
which the fair market value of the shares of common stock subject to such
outstanding stock appreciation rights has increased from the prior quarter-end
would be accrued as compensation expense, to the extent such fair market value
is in excess of the aggregate exercise price in effect for those rights.
VOTE REQUIRED
The affirmative vote of a majority of the total number of shares of our
issued and outstanding capital stock is required to approve the stock plan.
Information regarding the beneficial ownership of our common stock and
preferred stock by management and the board of directors is noted below.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding the beneficial ownership
of all shares of our common stock and preferred stock as of the record date, by:
- - Each person who beneficially owns more than five percent of the outstanding
shares of our common stock;
- - Each person who beneficially owns outstanding shares of our preferred
stock;
- - Each of our directors;
- - Each named executive officer; and
- - All directors and officers as a group.
13
COMMON STOCK PREFERRED STOCK
BENEFICIALLY
OWNED
------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------- ------ ------- ------ -------
Peter Chin(1)(3) 225,000 0.05% 3,700,000 92.5%
3355 Spring Mountain Road
Suite 66
Las Vegas, Nevada 89102
Sandy Chin(1) (3) 10,634,000 2.64% 300,000 7.5%
14240 Calico Basin Road
Calico Basin, Nevada 89124
-------- ------- -------- ------
All directors and officers as a group
(one persons) 225,000 0.05% 3,700,000 92.5%
========== ===== ========= ======
- --------------------
(1) Peter Chin has the sole voting and investment power with respect to the
shares of our common stock which he beneficially owns. Peter Chin may be
considered the beneficial owner of shares owned by his wife, Sandy Chin.
(2) Beneficial ownership is determined in accordance with the rules of the SEC.
The total number of outstanding shares of the common stock on the record
date was 403,100,505.
(3) Each share of Series A Preferred Stock has 50 votes. Thus, Mr. Chin has
185,000,00 votes. Sandy Chin, the wife of Peter Chin, owns 10,634,500
shares of common stock and 300,000 preferred stock. Thus, she has
15,000,000 votes. Peter Chin is considered the beneficial owner of the
shares of Sandy Chin. In the event that Peter Chin and Sandy Chin convert
their shares of Series A Preferred Stock in shares of common stock, the
total issued and outstanding shares would become 603,100,505 of which Peter
Chin and Sandy Chin would own 35% of the issued and outstanding common
stock.
- --------------------------
In addition, 11 nonaffiliated shares owning an aggregate of 115,000,000
shares of common stock have cast votes in favor of the resolutions set
forth herein. Thus, the consenting shareholders will cast 54.0% of the
total issued and outstanding shares of our common stock will vote in favor
of the resolutions.
INVOLVEMENT ON CERTAIN MATERIAL LEGAL PROCEEDINGS DURING THE LAST FIVE YEARS
No director, officer, significant employee or consultant has been convicted
in a criminal proceeding, exclusive of traffic violations.
No bankruptcy petitions have been filed by or against any business or
property of any director, officer, significant employee or consultant of the
Company nor has any bankruptcy petition been filed against a partnership or
business association where these persons were general partners or executive
officers.
No director, officer, significant employee or consultant has been
permanently or temporarily enjoined, barred, suspended or otherwise limited from
involvement in any type of business, securities or banking activities.
No director, officer or significant employee has been convicted of
violating a federal or state securities or commodities law.
14
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, executive
officers and persons who own more than 10 percent of a registered class of our
equity securities, file with the SEC initial reports of ownership and reports of
changes in ownership of our equity securities. Officers, directors and greater
than 10 percent shareholders are required by SEC regulation to furnish us with
copies of all Section 16(a) forms they file. All such persons have filed all
required reports.
DOCUMENTS INCORPORATED BY REFERENCE
Our Annual Report on Form 10-KSB for the year ended December 31, 2003, and
Financial Information from our Quarterly Reports for the periods ended March 31,
2004 are incorporated herein by reference.
COPIES OF ANNUAL AND QUARTERLY REPORTS
We will furnish a copy of our Annual Report on Form 10-KSB for the year
ended December 31, 2003 and any exhibit referred to therein without charge to
each person to whom this information statement is delivered upon written or oral
request by first class mail or other equally prompt means within one business
day of receipt of such request. Any request should be directed to our corporate
secretary at 3355 Spring Mountain Road, Suite 66, Las Vegas, Nevada, telephone
(702) 380-3811.
By Order of the board of directors,
/s/Peter Chin
Peter Chin,
President
15
ATTACHMENT A
RESOLUTIONS TO BE ADOPTED BY THE SHAREHOLDERS OF PTS, INC.
(THE "COMPANY")
RESOLVED, that the amendment to the Company's Articles of Incorporation
increasing the number of authorized shares of common stock to 1,800,000,000
shares; is hereby adopted and approved in all respects; and
RESOLVED FURTHER, that the amendment to the Company's Articles of
Incorporation increasing the number of authorized shares of preferred stock to
200,000,000 shares, is hereby adopted and approved in all respects; and
RESOLVED FURTHER, that the adoption of Articles of Amendment to the
Articles of Incorporation of the Company in the form attached hereto as Annex 1
be, and hereby is, approved in all respects; and
RESOLVED FURTHER, that the Company's stock plan included in the Company's
information statement on Schedule 14C as Attachment B are hereby ratified in all
respects; and
RESOLVED FURTHER, that the directors are hereby granted discretionary
authority to amend the Company's Articles of Incorporation to effect a one for
up to 500 reverse split of the Company's common stock to occur within 60 days of
the Company's information statement on Schedule 14C, with the exact time and
ratio of the reverse split to be determined by the directors within their
discretion, and
RESOLVED FURTHER, that the officers of the Company be, and each of them
hereby is, authorized, empowered and directed, for and on behalf of the Company,
to take any and all actions, to perform all such acts and things, to execute,
file, deliver or record in the name and on behalf of the Company, all such
instruments, agreements, or other documents, and to make all such payments as
they, in their judgment, or in the judgment of any one or more of them, may deem
necessary, advisable or appropriate in order to carry out the transactions
contemplated by the foregoing resolutions.
ANNEX 1
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
PTS, INC.
DEAN HELLER
Secretary of State
[STATE SEAL 204 North Carson Street, Suite 1
OF NEVADA] Carson City, Nevada 89701-4299
(775) 684 5708
Website: secretaryofstate.biz
- ----------------------------------------------
Certificate of Amendment
(PURSUANT TO NRS 78.385 and 78.390)
- ----------------------------------------------
Important: Read attached instructions before completing form.
ABOVE SPACE IS FOR OFFICE USE ONLY
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
-----------------------------------------------------
FOR NEVADA PROFIT CORPORATIONS
------------------------------
(PURSUANT TO NRS 78.385 AND 78.390 - AFTER ISSUANCE OF STOCK)
1. Name of corporation: PTS, INC.
2. The articles have been amended as follows (provide article numbers, if
available):
Article IV, as previously amended, is hereby amended to read as follows:
Capital Stock
The aggregate number of shares of all classes of capital stock that this
corporation shall have authority to issue is 2,000,000,000 shares, 1,800,000,000
of which shall be designated as common stock (the Common Stock) with a par value
of $0.001 per share, and 200,000,000 shares of which shall be preferred stock
(the Preferred Stock) with a par value of 0.001 per share. The board of
directors shall have the authority, without any further approval of the
shareholders, to establish the relative rights, preferences and limitations of
the preferred stock. Cumulative voting shall not prevail in any election by the
stockholders of this corporation. No stockholder shall have preemptive rights to
acquire the corporations unissued shares and any and all such existing
preemptive rights shall be extinguished.
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or such
greater proportion of the voting power as may be required in the case of a vote
by classes or series, or as may be required by the provisions of the articles of
incorporation have voted in favor of the amendment is: 325,859,500 common
shares.
4, Effective date of filing (optional):
(must not be later than 90
days after the certificate is filed)
5. Officer Signature (required):
If any proposed amendment would alter or change any preference or any
relative or other right given to any class or series of outstanding shares, then
the amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and submit the proper
fees may cause this filing to be rejected.
This form must be accompanied by appropriate fees. See attached fee schedule.
Nevada Secretary of State
ATTACHMENT B
STOCK PLAN
PTS, INC.
2004/C EMPLOYEE BONUS STOCK PLAN
1. GENERAL PROVISIONS.
1.1 PURPOSE. This 2004/C Employee Bonus Stock Plan (the "Plan") is intended to
allow designated employees (all of whom are sometimes collectively referred
to herein as the "Employees," or individually as the "Employee") of PTS,
Inc., a Nevada corporation (the "Company") including its Subsidiaries, if
any, (as that term is defined below) which it may have from time to time
(the Company including any such Subsidiaries is referred to herein as the
"Company") to receive certain options (the "Stock Options") to purchase
common stock of the Company, par value $0.001 per share (the "Common
Stock"), and to receive grants of the Common Stock subject to certain
restrictions (the "Awards"). As used in this Plan, the term "Subsidiary"
shall mean each corporation which is a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Internal Revenue Code
of 1986, as amended (the "Code"). The purpose of this Plan is to provide
the Employees with equity-based compensation incentives who make
significant and extraordinary contributions to the long-term growth and
performance of the Company, and to attract and retain the Employees.
1.2 ADMINISTRATION.
1.2.1The Plan shall be administered by the Board of Directors of the Company or
the Compensation Committee of, or appointed by, the Board (referred to
herein as the "Committee"). If appointed, the Committee shall select one of
its members as Chairman and shall act by vote of a majority of a quorum, or
by unanimous written consent. A majority of its members shall constitute a
quorum. The Committee shall be governed by the provisions of the Company's
bylaws and of Nevada law as applicable to boards of directors of
corporations, except as otherwise provided herein or determined by the
Board.
1.2.2 If appointed, the Committee shall have full and complete authority, in its
discretion, but subject to the express provisions of this Plan (a) to
approve the Employees nominated by the management of the Company to be
granted Awards or Stock Options; (b) to determine the number of Awards or
Stock Options to be granted to an Employee; (c) to determine the time or
times at which Awards or Stock Options shall be granted; (d) to establish
the terms and conditions upon which Awards or Stock Options may be
exercised; (e) to remove or adjust any restrictions and conditions upon
Awards or Stock Options; (f) to specify, at the time of grant, provisions
relating to exercisability of Stock Options and to accelerate or otherwise
modify the exercisability of any Stock Options; and (g) to adopt such
rules and regulations and to make all other determinations deemed
necessary or desirable for the administration of this Plan. All
interpretations and constructions of this Plan by the Committee, and all
of its actions hereunder, shall be binding and conclusive on all persons
for all purposes.
1.2.3 The Company hereby agrees to indemnify and hold harmless each Committee
member and each Employee, and the estate and heirs of such Committee
member or Employee, against all claims, liabilities, expenses, penalties,
damages or other pecuniary losses, including legal fees, which such
Committee member or Employee, his estate or heirs may suffer as a result
of his responsibilities, obligations or duties in connection with this
Plan, to the extent that insurance, if any, does not cover the payment of
such items. No member of the Committee or the Board shall be liable for
any action or determination made in good faith with respect to this Plan
or any Award or Stock Option granted pursuant to this Plan.
1.3 ELIGIBILITY AND PARTICIPATION. The Employees eligible under this Plan
shall be approved by the Committee from those Employees who, in the
opinion of the management of the Company, are in positions which enable
them to make significant contributions to the long-term performance and
growth of the Company. In selecting the Employees to whom Award or Stock
Options may be granted, consideration shall be given to factors such as
employment position, duties and responsibilities, ability, productivity,
length of service, morale, interest in the Company and recommendations of
supervisors.
1.4 SHARES SUBJECT TO THIS PLAN. The maximum number of shares of the Common
Stock that may be issued pursuant to this Plan shall be 180,000,000 subject
to adjustment pursuant to the provisions of Paragraph 4.1. If shares of the
Common Stock awarded or issued under this Plan are reacquired by the
Company due to a forfeiture or for any other reason, such shares shall be
cancelled and thereafter shall again be available for purposes of this
Plan. If a Stock Option expires, terminates or is cancelled for any reason
without having been exercised in full, the shares of the Common Stock not
purchased thereunder shall again be available for purposes of this Plan.
2. PROVISIONS RELATING TO STOCK OPTIONS.
2.1 GRANTS OF STOCK OPTIONS. The Committee may grant Stock Options in such
amounts, at such times, and to the Employees nominated by the management
of the Company as the Committee, in its discretion, may determine. The
Committee has the discretion to grant Stock Options which constitute
"incentive stock options" within the meaning of Section 422 of the Code,
if so designated by the Committee on the date of grant, or do not
constitute incentive stock options, and any such Stock Options shall be
designated non-statutory stock options by the Committee on the date of
grant. The aggregate Fair Market Value (determined as of the time an
incentive stock option is granted) of the Common Stock with respect to
which incentive stock options are exercisable for the first time by any
Employee during any one calendar year (under all plans of the Company and
any parent or subsidiary of the Company) may not exceed the maximum amount
permitted under Section 422 of the Code (currently, $100,000.00).
Non-statutory stock options shall not be subject to the limitations
relating to incentive stock options contained in the preceding sentence.
Each Stock Option shall be evidenced by a written agreement (the "Option
Agreement") in a form approved by the Committee, which shall be executed
on behalf of the Company and by the Employee to whom the Stock Option is
granted, and which shall be subject to the terms and conditions of this
Plan. In the discretion of the Committee, Stock Options may include
provisions (which need not be uniform), authorized by the Committee in its
discretion, that accelerate an Employee's rights to exercise Stock Options
following a "Change in Control," upon termination of the Employee's
employment by the Company without "Cause" or by the Employee for "Good
Reason," as such terms are defined in Paragraph 3.1 hereof. The holder of
a Stock Option shall not be entitled to the privileges of stock ownership
as to any shares of the Common Stock not actually issued to such holder.
2.2 PURCHASE PRICE. The purchase price (the "Exercise Price") of shares of the
Common Stock subject to an Incentive Stock Option (the "Option Shares")
shall not be less than 85 percent of the Fair Market Value of the Common
Stock on the date of exercise. For an Employee holding greater than 10
percent of the total voting power of all stock of the Company, either
Common or Preferred, the Exercise Price of an incentive stock option shall
be at least 110 percent of the Fair Market Value of the Common Stock on
the date of the grant of the option. As used herein, "Fair Market Value"
means, if the Common Stock trades on a national exchange, the average of
the highest and lowest reported sales prices of the Common Stock on the
date with respect to which the Fair Market Value is to be determined, or,
if not listed on a national exchange, the average of the bid price of the
Common Stock during the last five trading days immediately preceding the
last trading day prior to the date with respect to which the Fair Market
Value is to be determined. If the Common Stock is not then publicly
2
traded, then the Fair Market Value of the Common Stock shall be the book
value of the Company per share as determined on the last day of the last
fiscal quarter or year end closest to the date when the determination is
to be made. For the purpose of determining book value hereunder, book
value shall be determined from the balance sheet of the Company, or if
there is no balance sheet by adding as of the applicable date called for
herein the capital surplus, and undivided profits of the Company, and
after having deducted any reserves theretofore established; the sum of
these items shall be divided by the number of shares of the Common Stock
and the number of shares of common stock into which any debt or preferred
shares outstanding as of said date are convertible, and the quotient thus
obtained shall represent the book value of each share of the Common Stock
of the Company.
2.3 OPTION PERIOD. The Stock Option period (the "Term") shall commence on the
date of grant of the Stock Option and shall the period as determined by
the Committee not to exceed ten years. Each Stock Option shall provide
that it is exercisable over its term in such periodic installments as the
Committee in its sole discretion may determine. Such provisions need not
be uniform. Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") exempts persons normally subject to the
reporting requirements of Section 16(a) of the Exchange Act (the "Section
16 Reporting Persons") pursuant to a qualified employee stock option plan
from the normal requirement of not selling until at least six months and
one day from the date the Stock Option is granted.
2.4 EXERCISE OF OPTIONS.
2.4.1 Each Stock Option may be exercised in whole or in part (but not as to
fractional shares) by delivering it for surrender or endorsement to the
Company, attention of the Corporate Secretary, at the principal office of
the Company, together with payment of the Exercise Price and an executed
Notice and Agreement of Exercise in the form prescribed by Paragraph
2.4.2. Payment may be made (a) in cash, (b) by cashier's or certified
check, (c) by surrender of previously owned shares of the Common Stock
valued pursuant to Paragraph 2.2 (if the Committee authorizes payment in
stock in its discretion), (d) by withholding from the Option Shares which
would otherwise be issuable upon the exercise of the Stock Option that
number of Option Shares equal to the exercise price of the Stock Option,
if such withholding is authorized by the Committee in its discretion, or
(e) in the discretion of the Committee, by the delivery to the Company of
the optionee's promissory note secured by the Option Shares, bearing
interest at a rate sufficient to prevent the imputation of interest under
Sections 483 or 1274 of the Code, and having such other terms and
conditions as may be satisfactory to the Committee.
2.4.2 Exercise of each Stock Option is conditioned upon the agreement of the
Employee to the terms and conditions of this Plan and of such Stock Option
as evidenced by the Employee's execution and delivery of a Notice and
Agreement of Exercise in a form to be determined by the Committee in its
discretion. Such Notice and Agreement of Exercise shall set forth the
agreement of the Employee that (a) no Option Shares will be sold or
otherwise distributed in violation of the Securities Act of 1933, as
amended (the "Securities Act") or any other applicable federal or state
securities laws, (b) each Option Share certificate may be imprinted with
legends reflecting any applicable federal and state securities law
restrictions and conditions, (c) the Company may comply with said
securities law restrictions and issue "stop transfer" instructions to its
Transfer Agent and Registrar without liability, (d) if the Employee is a
Section 16 Reporting Person, the Employee will furnish to the Company a
copy of each Form 4 or Form 5 filed by said Employee and will timely file
all reports required under federal securities laws, and (e) the Employee
will report all sales of Option Shares to the Company in writing on a form
prescribed by the Company.
3
2.4.3 No Stock Option shall be exercisable unless and until any applicable
registration or qualification requirements of federal and state securities
laws, and all other legal requirements, have been fully complied with. The
Company will use reasonable efforts to maintain the effectiveness of a
Registration Statement under the Securities Act for the issuance of Stock
Options and shares acquired thereunder, but there may be times when no
such Registration Statement will be currently effective. The exercise of
Stock Options may be temporarily suspended without liability to the
Company during times when no such Registration Statement is currently
effective, or during times when, in the reasonable opinion of the
Committee, such suspension is necessary to preclude violation of any
requirements of applicable law or regulatory bodies having jurisdiction
over the Company. If any Stock Option would expire for any reason except
the end of its term during such a suspension, then if exercise of such
Stock Option is duly tendered before its expiration, such Stock Option
shall be exercisable and exercised (unless the attempted exercise is
withdrawn) as of the first day after the end of such suspension. The
Company shall have no obligation to file any Registration Statement
covering resales of Option Shares.
2.5 CONTINUOUS EMPLOYMENT. Except as provided in Paragraph 2.7 below, an
Employee may not exercise a Stock Option unless from the date of grant to
the date of exercise the Employee remains continuously in the employ of
the Company. For purposes of this Paragraph 2.5, the period of continuous
employment of an Employee with the Company shall be deemed to include
(without extending the term of the Stock Option) any period during which
the Employee is on leave of absence with the consent of the Company,
provided that such leave of absence shall not exceed three months and that
the Employee returns to the employ of the Company at the expiration of
such leave of absence. If the Employee fails to return to the employ of
the Company at the expiration of such leave of absence, the Employee's
employment with the Company shall be deemed terminated as of the date such
leave of absence commenced. The continuous employment of an Employee with
the Company shall also be deemed to include any period during which the
Employee is a member of the Armed Forces of the United States, provided
that the Employee returns to the employ of the Company within 90 days (or
such longer period as may be prescribed by law) from the date the Employee
first becomes entitled to a discharge from military service. If an
Employee does not return to the employ of the Company within 90 days (or
such longer period as may be prescribed by law) from the date the Employee
first becomes entitled to a discharge from military service, the
Employee's employment with the Company shall be deemed to have terminated
as of the date the Employee's military service ended.
2.6 RESTRICTIONS ON TRANSFER. Each Stock Option granted under this Plan shall
be transferable only by will or the laws of descent and distribution. No
interest of any Employee under this Plan shall be subject to attachment,
execution, garnishment, sequestration, the laws of bankruptcy or any other
legal or equitable process. Each Stock Option granted under this Plan
shall be exercisable during an Employee's lifetime only by the Employee or
by the Employee's legal representative.
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2.7 TERMINATION OF EMPLOYMENT.
2.7.1 Upon an Employee's Retirement, Disability (both terms being defined below)
or death, (a) all Stock Options to the extent then presently exercisable
shall remain in full force and effect and may be exercised pursuant to the
provisions thereof, including expiration at the end of the fixed term
thereof, and (b) unless otherwise provided by the Committee, all Stock
Options to the extent not then presently exercisable by the Employee shall
terminate as of the date of such termination of employment and shall not
be exercisable thereafter.
2.7.2 Upon the termination of the employment of an Employee with the Company for
any reason other than the reasons set forth in Paragraph 2.7.1 hereof, (a)
all Stock Options to the extent then presently exercisable by the Employee
shall remain exercisable only for a period of 90 days after the date of
such termination of employment (except that the 90 day period shall be
extended to 12 months if the Employee shall die during such 90 day
period), and may be exercised pursuant to the provisions thereof,
including expiration at the end of the fixed term thereof, and (b) unless
otherwise provided by the Committee, all Stock Options to the extent not
then presently exercisable by the Employee shall terminate as of the date
of such termination of employment and shall not be exercisable thereafter.
2.7.3 For purposes of this Plan:
(a) "Retirement" shall mean an Employee's retirement from the employ of
the Company on or after the date on which the Employee attains the
age of 65 years; and
(b) "Disability" shall mean total and permanent incapacity of an
Employee, due to physical impairment or legally established mental
incompetence, to perform the usual duties of the Employee's
employment with the Company, which disability shall be determined
(i) on medical evidence by a licensed physician designated by the
Committee, or (ii) on evidence that the Employee has become entitled
to receive primary benefits as a disabled employee under the Social
Security Act in effect on the date of such disability.
3. PROVISIONS RELATING TO AWARDS.
3.1 GRANT OF AWARDS. Subject to the provisions of this Plan, the Committee
shall have full and complete authority, in its discretion, but subject to
the express provisions of this Plan, to (1) grant Awards pursuant to this
Plan, (2) determine the number of shares of the Common Stock subject to
each Award (the "Award Shares"), (3) determine the terms and conditions
(which need not be identical) of each Award, including the consideration
(if any) to be paid by the Employee for such the Common Stock, which may,
in the Committee's discretion, consist of the delivery of the Employee's
promissory note meeting the requirements of Paragraph 2.4.1, (4) establish
and modify performance criteria for Awards, and (5) make all of the
determinations necessary or advisable with respect to Awards under this
Plan. Each Award under this Plan shall consist of a grant of shares of the
Common Stock subject to a restriction period (after which the restrictions
shall lapse), which shall be a period commencing on the date the Award is
granted and ending on such date as the Committee shall determine (the
"Restriction Period"). The Committee may provide for the lapse of
restrictions in installments, for acceleration of the lapse of
restrictions upon the satisfaction of such performance or other criteria
or upon the occurrence of such events as the Committee shall determine,
and for the early expiration of the Restriction Period upon an Employee's
death, Disability or Retirement as defined in Paragraph 2.7.3, or,
following a Change of Control, upon termination of an Employee's
employment by the Company without "Cause" or by the Employee for "Good
Reason," as those terms are defined herein. For purposes of this Plan:
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"Change of Control" shall be deemed to occur (a) on the date the Company
first has actual knowledge that any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) has become the beneficial
owner (as defined in Rule 13(d)-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 40 percent or more
of the combined voting power of the Company's then outstanding securities,
or (b) on the date the stockholders of the Company approve (i) a merger of
the Company with or into any other corporation in which the Company is not
the surviving corporation or in which the Company survives as a subsidiary
of another corporation, (ii) a consolidation of the Company with any other
corporation, or (iii) the sale or disposition of all or substantially all
of the Company's assets or a plan of complete liquidation.
"Cause," when used with reference to termination of the employment of an
Employee by the Company for "Cause," shall mean:
(a) The Employee's continuing willful and material breach of his duties
to the Company after he receives a demand from the Chief Executive
of the Company specifying the manner in which he has willfully and
materially breached such duties, other than any such failure
resulting from Disability of the Employee or his resignation for
"Good Reason," as defined herein; or
(b) The conviction of the Employee of a felony; or
(c) The Employee's commission of fraud in the course of his employment
with the Company, such as embezzlement or other material and
intentional violation of law against the Company; or
(d) The Employee's gross misconduct causing material harm to the
Company.
"Good Reason" shall mean any one or more of the following, occurring
following or in connection with a Change of Control and within 90 days
prior to the Employee's resignation, unless the Employee shall have
consented thereto in writing:
(a) The assignment to the Employee of duties inconsistent with his
executive status prior to the Change of Control or a substantive
change in the officer or officers to whom he reports from the
officer or officers to whom he reported immediately prior to the
Change of Control; or
(b) The elimination or reassignment of a majority of the duties and
responsibilities that were assigned to the Employee immediately
prior to the Change of Control; or
(c) A reduction by the Company in the Employee's annual base salary as
in effect immediately prior to the Change of Control; or
(d) The Company requiring the Employee to be based anywhere outside a
35-mile radius from his place of employment immediately prior to the
Change of Control, except for required travel on the Company's
business to an extent substantially consistent with the Employee's
business travel obligations immediately prior to the Change of
Control; or
(e) The failure of the Company to grant the Employee a performance bonus
reasonably equivalent to the same percentage of salary the Employee
normally received prior to the Change of Control, given comparable
performance by the Company and the Employee; or
(f) The failure of the Company to obtain a satisfactory Assumption
Agreement (as defined in Paragraph 4.12 of this Plan) from a
successor, or the failure of such successor to perform such
Assumption Agreement.
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3.2 INCENTIVE AGREEMENTS. Each Award granted under this Plan shall be
evidenced by a written agreement (an "Incentive Agreement") in a form
approved by the Committee and executed by the Company and the Employee to
whom the Award is granted. Each Incentive Agreement shall be subject to
the terms and conditions of this Plan and other such terms and conditions
as the Committee may specify.
3.3 WAIVER OF RESTRICTIONS. The Committee may modify or amend any Award under
this Plan or waive any restrictions or conditions applicable to the Award;
provided, however, that the Committee may not undertake any such
modifications, amendments or waivers if the effect thereof materially
increases the benefits to any Employee, or adversely affects the rights of
any Employee without his consent.
3.4 TERMS AND CONDITIONS OF AWARDS. Upon receipt of an Award of shares of the
Common Stock under this Plan, even during the Restriction Period, an
Employee shall be the holder of record of the shares and shall have all
the rights of a stockholder with respect to such shares, subject to the
terms and conditions of this Plan and the Award.
3.4.1 Except as otherwise provided in this Paragraph 3.4, no shares of the
Common Stock received pursuant to this Plan shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period applicable to such shares. Any purported disposition of
such the Common Stock in violation of this Paragraph 3.4.2 shall be null
and void.
3.4.2 If an Employee's employment with the Company terminates prior to the
expiration of the Restriction Period for an Award, subject to any
provisions of the Award with respect to the Employee's death, Disability
or Retirement, or Change of Control, all shares of the Common Stock
subject to the Award shall be immediately forfeited by the Employee and
reacquired by the Company, and the Employee shall have no further rights
with respect to the Award. In the discretion of the Committee, an
Incentive Agreement may provide that, upon the forfeiture by an Employee
of Award Shares, the Company shall repay to the Employee the consideration
(if any) which the Employee paid for the Award Shares on the grant of the
Award. In the discretion of the Committee, an Incentive Agreement may also
provide that such repayment shall include an interest factor on such
consideration from the date of the grant of the Award to the date of such
repayment.
3.4.3 The Committee may require under such terms and conditions as it deems
appropriate or desirable that (a) the certificates for the Common Stock
delivered under this Plan are to be held in custody by the Company or a
person or institution designated by the Company until the Restriction
Period expires, (b) such certificates shall bear a legend referring to the
restrictions on the Common Stock pursuant to this Plan, and (c) the
Employee shall have delivered to the Company a stock power endorsed in
blank relating to the Common Stock.
4. MISCELLANEOUS PROVISIONS.
4.1 ADJUSTMENTS UPON CHANGE IN CAPITALIZATION.
4.1.1 At the discretion of the board of directors, the number and class of
shares subject to each outstanding Stock Option, the Exercise Price
thereof (but not the total price), the maximum number of Stock Options
that may be granted under this Plan, the minimum number of shares as to
which a Stock Option may be exercised at any one time, and the number and
class of shares subject to each outstanding Award, may be retained or may
be, at the option of the board of directors, proportionately adjusted in
the event of any increase or decrease in the number of the issued shares
of the Common Stock which results from a split-up or consolidation of
shares, payment of a stock dividend or
7
dividends exceeding a total of five percent for which the record dates
occur in any one fiscal year, a recapitalization (other than the
conversion of convertible securities according to their terms), a
combination of shares or other like capital adjustment, so that (a) upon
exercise of the Stock Option, the Employee shall receive the number and
class of shares the Employee would have received had the Employee been the
holder of the number of shares of the Common Stock for which the Stock
Option is being exercised upon the date of such change or increase or
decrease in the number of issued shares of the Company, and (b) upon the
lapse of restrictions of the Award Shares, the Employee shall receive the
number and class of shares the Employee would have received if the
restrictions on the Award Shares had lapsed on the date of such change or
increase or decrease in the number of issued shares of the Company.
4.1.2 Upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company is not the surviving
corporation or in which the Company survives as a wholly-owned subsidiary
of another corporation, or upon a sale of all or substantially all of the
property of the Company to another corporation, or any dividend or
distribution to stockholders of more than 10 percent of the Company's
assets, adequate adjustment or other provisions shall be made by the
Company or other party to such transaction so that there shall remain
and/or be substituted for the Option Shares and Award Shares provided for
herein, the shares, securities or assets which would have been issuable or
payable in respect of or in exchange for such Option Shares and Award
Shares then remaining, as if the Employee had been the owner of such
shares as of the applicable date. Any securities so substituted shall be
subject to similar successive adjustments.
4.2 WITHHOLDING TAXES. The Company shall have the right at the time of
exercise of any Stock Option, the grant of an Award, or the lapse of
restrictions on Award Shares, to make adequate provision for any federal,
state, local or foreign taxes which it believes are or may be required by
law to be withheld with respect to such exercise (the "Tax Liability"), to
ensure the payment of any such Tax Liability. The Company may provide for
the payment of any Tax Liability by any of the following means or a
combination of such means, as determined by the Committee in its sole and
absolute discretion in the particular case (1) by requiring the Employee
to tender a cash payment to the Company, (2) by withholding from the
Employee's salary, (3) by withholding from the Option Shares which would
otherwise be issuable upon exercise of the Stock Option, or from the Award
Shares on their grant or date of lapse of restrictions, that number of
Option Shares or Award Shares having an aggregate Fair Market Value
(determined in the manner prescribed by Paragraph 2.2) as of the date the
withholding tax obligation arises in an amount which is equal to the
Employee's Tax Liability or (4) by any other method deemed appropriate by
the Committee. Satisfaction of the Tax Liability of a Section 16 Reporting
Person may be made by the method of payment specified in clause (3) above
only if the following two conditions are satisfied:
(a) The withholding of Option Shares or Award Shares and the exercise of
the related Stock Option occur at least six months and one day
following the date of grant of such Stock Option or Award; and
(b) The withholding of Option Shares or Award Shares is made either (i)
pursuant to an irrevocable election (the "Withholding Election")
made by the Employee at least six months in advance of the
withholding of Options Shares or Award Shares, or (ii) on a day
within a 10-day "window period" beginning on the third business day
following the date of release of the Company's quarterly or annual
summary statement of sales and earnings.
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Anything herein to the contrary notwithstanding, a Withholding Election
may be disapproved by the Committee at any time.
4.3 RELATIONSHIP TO OTHER EMPLOYEE BENEFIT PLANS. Stock Options and Awards
granted hereunder shall not be deemed to be salary or other compensation
to any Employee for purposes of any pension, thrift, profit-sharing, stock
purchase or any other employee benefit plan now maintained or hereafter
adopted by the Company.
4.4 AMENDMENTS AND TERMINATION. The Board of Directors may at any time
suspend, amend or terminate this Plan. No amendment, except as provided in
Paragraph 2.8, or modification of this Plan may be adopted, except subject
to stockholder approval, which would (1) materially increase the benefits
accruing to the Employees under this Plan, (2) materially increase the
number of securities which may be issued under this Plan (except for
adjustments pursuant to Paragraph 4.1 hereof), or (3) materially modify
the requirements as to eligibility for participation in this Plan.
4.5 SUCCESSORS IN INTEREST. The provisions of this Plan and the actions of the
Committee shall be binding upon all heirs, successors and assigns of the
Company and of the Employees.
4.6 OTHER DOCUMENTS. All documents prepared, executed or delivered in
connection with this Plan (including, without limitation, Option
Agreements and Incentive Agreements) shall be, in substance and form, as
established and modified by the Committee; provided, however, that all
such documents shall be subject in every respect to the provisions of this
Plan, and in the event of any conflict between the terms of any such
document and this Plan, the provisions of this Plan shall prevail.
4.7 NO OBLIGATION TO CONTINUE EMPLOYMENT. This Plan and the grants which might
be made hereunder shall not impose any obligation on the Company to
continue to employ any Employee. Moreover, no provision of this Plan or
any document executed or delivered pursuant to this Plan shall be deemed
modified in any way by any employment contract between an Employee (or
other employee) and the Company.
4.8 MISCONDUCT OF AN EMPLOYEE. Notwithstanding any other provision of this
Plan, if an Employee commits fraud or dishonesty toward the Company or
wrongfully uses or discloses any trade secret, confidential data or other
information proprietary to the Company, or intentionally takes any other
action materially inimical to the best interests of the Company, as
determined by the Committee, in its sole and absolute discretion, the
Employee shall forfeit all rights and benefits under this Plan.
4.9 TERM OF PLAN. This Plan was adopted by the Board effective January 23,
2004. No Stock Options or Awards may be granted under this Plan after
January 23, 2014.
4.10 GOVERNING LAW. This Plan shall be construed in accordance with, and
governed by, the internal laws of the State of Nevada without regard to
conflicts of laws.
4.11 APPROVAL. No Stock Option shall be exercisable, or Award granted, unless
and until the Directors of the Company have approved this Plan and all
other legal requirements have been met.
9
4.12 ASSUMPTION AGREEMENTS. The Company will require each successor, (direct or
indirect, whether by purchase, merger, consolidation or otherwise), to all
or substantially all of the business or assets of the Company, prior to
the consummation of each such transaction, to assume and agree to perform
the terms and provisions remaining to be performed by the Company under
each Incentive Agreement and Stock Option and to preserve the benefits to
the Employees thereunder. Such assumption and agreement shall be set forth
in a written agreement in form and substance satisfactory to the Committee
(an "Assumption Agreement"), and shall include such adjustments, if any,
in the application of the provisions of the Incentive Agreements and Stock
Options and such additional provisions, if any, as the Committee shall
require and approve, in order to preserve such benefits to the Employees.
Without limiting the generality of the foregoing, the Committee may
require an Assumption Agreement to include satisfactory undertakings by a
successor:
(a) To provide liquidity to the Employees at the end of the Restriction
Period applicable to the Common Stock awarded to them under this
Plan, or on the exercise of Stock Options;
(b) If the succession occurs before the expiration of any period
specified in the Incentive Agreements for satisfaction of
performance criteria applicable to the Common Stock awarded
thereunder, to refrain from interfering with the Company's ability
to satisfy such performance criteria or to agree to modify such
performance criteria and/or waive any criteria that cannot be
satisfied as a result of the succession;
(c) To require any future successor to enter into an Assumption
Agreement; and
(d) To take or refrain from taking such other actions as the Committee
may require and approve, in its discretion.
The Committee referred to in this Paragraph 4.12 is the Committee
appointed by a Board of Directors in office prior to the succession then
under consideration or the Board of Directors in office prior to the
succession then under consideration in the event the Board of Directors
did not apoint a Committee.
4.13 COMPLIANCE WITH RULE 16B-3. Transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3. To the extent that
any provision of this Plan or action by the Committee fails to so comply,
it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
4.14 INFORMATION TO SHAREHOLDERS. The Company shall furnish to each of its
stockholders financial statements of the Company at least annually.
IN WITNESS WHEREOF, this Plan has been executed effective as of July 20,
2004.
PTS, INC.
By: /s/ Peter Chin
--------------------------
Peter Chin, President
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