PROFILE TECHNOLOGIES, INC.
1077 Northern Blvd.
Roslyn, NY 11576
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 16, 1998
THE ANNUAL MEETING of Shareholders of Profile Technologies, Inc. (the
"Company") will be held at 9:00 a.m. on Monday, November 16, 1998, at the Omni
Berkshire Place Hotel, 21 East 52nd Street, New York, New York 10022 for the
following purposes:
1. To elect a Board of Directors consisting of six persons to serve a term
of one year (until the next annual Shareholder's Meeting) or until their
respective successors are elected and have been qualified;
2. To consider and vote upon a proposal to ratify and approve the Company=s
1999 Stock Plan;
3. To transact such other business as may properly come before the Annual
Meeting and any postponement or adjournment thereof.
The Board of Directors has fixed October 13, 1998, as the record date for
determining the shareholders of the Company entitled to notice of and to vote at
the meeting and any adjournment of the meeting. The transfer books for the
Company will not be closed, but only common stock shareholders of the Company of
record at the close of business on the record date will be entitled to notice of
and to vote at the meeting or any adjournment thereof.
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THIS MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE IF MAILED
IN THE UNITED STATES. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE
IN PERSON IF YOU ATTEND THE MEETING AND WILL ASSURE THAT YOUR SHARES ARE VOTED
IF YOU ARE UNABLE TO ATTEND.
BY ORDER OF THE BOARD OF DIRECTORS
October 14, 1998
Henry Gemino
Chief Operating Officer
<PAGE>
PROFILE TECHNOLOGIES, INC.
1077 Northern Blvd.
Roslyn, N.Y. 11576
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To be held on November 16, 1998
INTRODUCTION
The enclosed Proxy is solicited by and on behalf of the Board of Directors
of Profile Technologies, Inc., a Delaware corporation (the "Company"), to be
voted at the Annual Meeting of Shareholders to be held at the Omni Berkshire
Place Hotel, 21 East 52nd Street, New York, New York 10022 at 9:00 a.m. on
November 16, 1998 and at any and all adjournments of the meeting. The enclosed
materials will be mailed to Shareholders on or about October 14, 1998.
The matters listed below will be considered and voted upon at the meeting:
1. To elect a Board of Directors consisting of six persons to serve a term
of one year (until the next annual Shareholder's Meeting) or until their
respective successors are elected and have been qualified;
2. To consider and vote upon a proposal to ratify and approve the Company=s
1999 Stock Plan;
3. To transact such other business as may properly come before the Annual
Meeting and any postponement or adjournment thereof.
Shares of common stock as to which Proxies have been executed will be voted
as specified in the Proxies. If no specifications are made, the shares will be
voted "For" Management's nominees for Director, "For" proposal (2) and will be
voted at the discretion of the proxy with respect to other matters which may
properly come before the meeting pursuant to item 3 above. A Proxy may be
revoked at any time before it is voted by filing with the Secretary of the
Company either a written revocation or a duly executed Proxy bearing a later
date. Additionally, attendance at the meeting and voting shares in person will
revoke any prior proxy relating to such shares.
The presence, in person or by proxy, of the holders of a majority of the
outstanding Common Stock of the Company is necessary to constitute a quorum at
the meeting. Votes cast by proxy or in person at the Annual Meeting will be
counted by a person appointed by the Company to act as the election inspector
for the meeting. The election inspector will treat shares represented by proxies
that reflect abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum.
<PAGE>
All of the officers and directors and their affiliates (who own in the
aggregate approximately 1,240,000 of the shares outstanding) have informed the
Company that they intend to vote in favor of each of the matters set forth
herein.
VOTING SECURITIES
The total number of outstanding shares of the Company's $.001 par value
Common Stock entitled to vote at the meeting, based upon the shares of record at
the close of business on October 13, 1998 (the "Record Date") is 4,273,846. As
of the Record Date, the only outstanding voting securities of the Company were
shares of Common Stock, each of which is entitled to one vote on each matter to
come before the meeting.
PROPOSAL 1
----------
ELECTION OF DIRECTORS
The current Board of Directors of the Company consists of Gale D. Burnett,
Henry Gemino, G.L. Scott, John Tsungfen Kuo, Murphy Evans and Allen G. Reeves.
Each of these persons has agreed to be renominated to stand for election to the
position of director at the annual shareholders meeting. If one or more of the
nominees is unable to serve or for good cause will not serve at the time of the
meeting, the shares represented by the proxies solicited by the Board of
Directors will be voted for the other nominees and for any substitute nominee(s)
designated by the Board of Directors. A quorum being present, a favorable vote
of a majority of shares present and voting, either in person or by proxy, is
required for the election of any Director. Under applicable Delaware law, in
tabulating the vote, abstentions and broker non-votes will be disregarded and
will have no effect on the outcome of the vote. The Company currently has a
standing audit committee of its Board of Directors consisting of Murphy Evans,
Allen G. Reeves and Henry Gemino. The Company has no compensation committee.
During the year ended June 30, 1998, the Company's Board of Directors held 4
meetings. All persons who were directors during the year ended June 30, 1998
attended all of the meetings held.
Nominees for Election to the Board of Directors:
PRINCIPAL DIRECTOR
NAME OCCUPATION SINCE
---- ---------- -----
G.L. Scott Chief Executive Officer 1988
Chairman of the Board
2
<PAGE>
PRINCIPAL DIRECTOR
NAME OCCUPATION SINCE
---- ---------- -----
Gale D. Burnett President, Director 1988
Henry Gemino Executive Vice President, 1988
Chief Operating Officer,
Chief Financial Officer,
Secretary, Director
Murphy Evans President, 1995
L & S Holding Company
John Tsungfen Kuo Professor Emeritus - 1995
Columbia University
Allen G. Reeves Attorney 1997
Set forth below is information regarding the directors as well as all
nominees for director:
G.L. Scott. Mr. Scott, since 1988, has been Chairman of the Board of
Profile Technologies, Inc. From 1984 to the present, he has been Ranch Manager
of the GX2 Ranch in Rogue River, Oregon. From 1978 to 1984 Mr. Scott was Chief
Executive Officer and later Chairman of the Board of NORPAC Exploration
Services, Inc. of Denver, Colorado. While involved with NORPAC, he facilitated
the merger of several oil service companies into a conglomerate that included
oil exploration, drilling, data sales and brokerage, tape reproduction and data
storage. NORPAC went public in 1981 and was acquired by a subsidiary of Texas
Eastern Pipeline Co., in 1984.
Gale D. Burnett. Mr. Burnett has spent approximately 30 years in the
computer and high technology manufacturing industry. He participated at high
level engineering or management positions in seven different IBM compatible disk
projects, including employment between 1962 and 1980 with IBM, Memorex, Caelus
Memories, Telex and Storage Technology Corporation, Inc. In 1980 he founded
Advanced Monitoring Systems, Inc., a public Company that developed a
computerized pipeline testing tool. Since 1987, he has been founder and
President of Profile Technologies, Inc., and continues his research and
development of the Company's products and technology.
Henry Gemino. Mr. Gemino has been involved in the stock brokerage and money
management industries for 15 years. Over this period he has been a Vice
President at Oppenheimer Co., Drexel Burnham and Bear Stearns & Co. in New York.
From 1980 to 1991 he was President of H. Edmund Associates, where he directed
all money management, venture capital and investment banking operations. From
1988 to the present, he has been a co-founder and executive Vice President of
Profile Technologies, Inc.
3
<PAGE>
Murphy Evans. Mr. Evans is President of L & S Holding Co., a family owned
holding company that is engaged in several different businesses. Mr. Evans
received a AB degree in history from Princeton University in 1954 and an MBA
degree from the Harvard Graduate School of Business Administration in 1958.
John Tsungfen Kuo, Ph.D., Sc.D. Dr. Kuo has been a director of and
consultant to the Company since 1995. Dr. Kuo is currently the Ewing and Worzel
professor emeritus at Columbia University and is an expert in acoustic, elastic,
hydrodynamics, and electromagnetic wave propogation. Born in China, Dr. Kuo
immigrated to the United States in 1949 and became a naturalized United States
citizen in 1967. He received a BS degree in Geology, Physics and Mathematics
from the University of Redlands in 1952 and an honorary Sc.D. from the same
school in 1978. He received an MS degree in Geophysics from the California
Institute of Technology in 1954 and a Ph.D. in Geophysics from Stanford
University in 1958. Among his teaching positions, he was professor from
1967-1983, Vinton professor from 1983-1985 and Ewing and Worzel professor from
1985-1992, all at Columbia University. He has been involved in numerous research
projects involving various aspects of Geophysics for almost 40 years. He was the
recipient of the Alexander Vin Humboldt award for Distinguished U.S. senior
scientists from the Federal Republic of Germany in 1986. He was a distinguished
senior scholar at the University of Cambridge, England from 1970-1971; visiting
professor at the University of Texas in Austin from 1978-1979 as well as a
visiting professor in 1978; adjunct professor 1992 -at Cornell University; and
visiting professor at the Technical University of Clausthal in the Federal
Republic of Germany in 1986-1987. He was also director of the Lamont-Doherty
Earth Observatory's underground Geophysical observatory in Ogdensburg, New
Jersey from 1967-1977. He is also associate life editor of Geophysics review (a
publication of the American Geophysics Union) and a member of numerous other
professional and scientific organizations.
Allen G. Reeves. Mr. Reeves has been the Company's outside legal counsel
since 1991. He received his BA degree from Colorado College in 1969 and his JD
degree from the University of Colorado in 1972. He has been in private practice
in Denver, Colorado for the last 23 years, specializing in securities law,
corporate transactions and mergers and acquisitions.
There are no family relationships among the directors. There are no
arrangements or understandings between any directors and any other person
pursuant to which that director was elected.
The Company has no compensation, pension, profit sharing or similar plans
in effect. It provides a medical reimbursement plan and medical insurance
coverage to officers and may provide other benefits to officers and employees in
the future. It also pays a director's fee to non-employee directors of $1,000
per month and to the Chairman of the Board of Directors, $2,000 per month. The
Company also reimburses actual expenses incurred in attending Board meetings.
4
<PAGE>
PROPOSAL II
-----------
TO RATIFY AND APPROVE THE 1999 STOCK PLAN
General
- - -------
The Company's Board of Directors is submitting the 1999 Stock Plan (the
APlan@) for shareholder adoption and approval at the Annual Meeting. The Plan
sets aside 500,000 shares of the Company's Common Stock for the granting of
options and awards to officers, employees, directors and outside consultants of
the Company as an inducement to them to advance the Company=s interests and to
remain involved with the affairs of the Company.
The Plan is designed to satisfy the requirements for incentive stock option
plans under the Economic Recovery Tax Act of 1981 as modified by the Tax Reform
Act of 1986. Incentive stock options (i.e., qualified for favorable tax
treatment) are options which the Board, acting through an employee-benefit plan
committee, is authorized to grant to employees of the Company or any subsidiary.
The Plan provides flexibility by also providing for non-qualified stock options,
stock appreciation rights and stock grants that do not qualify for the favorable
tax treatment that are available to incentive stock options.
Shareholder approval is necessary to permit the Plan to qualify as an
incentive stock option plan under applicable provisions of the Internal Revenue
Code. The affirmative vote of the holders of a majority of the shares present at
the meeting (in person or by proxy) is required for approval.
Principal Provisions of The Plan
- - --------------------------------
The Plan grants authority to the Company's Board of Directors to grant
options, awards, grants and other stock rights for up to 500,000 shares of the
Company=s Common Stock to Directors, officers, eligible employees of the Company
and its subsidiaries and outside consultants and advisors.
The Board of Directors is authorized to appoint an employee Benefit Plan
committee, which shall consist of not less than three members, which will have
the discretion to determine from time to time the eligible optionees or
recipients to whom options or other stock rights shall be granted, the amount of
stock to be optioned to each, the time when such options or stock rights shall
become exercisable, and the conditions, if any, which must be met before
exercise. The price of the Common Stock offered to optionees may be set by the
committee that grants the option but must be at least 100% of the fair market
value of such stock on the date of grant. If at the time an incentive option is
5
<PAGE>
granted the optionee owns more than 10% of the total combined voting power of
all classes of the Company's stock, or of the stock of an affiliate, the option
price for any incentive stock option must be at least 110% of fair market value.
For all options, the Plan provides that the committee that grants the
option may determine the term of each option, which may not exceed ten years
from the date of grant. If at the time an incentive option is granted, the
optionee owns more than 10% of the total combined voting power of all classes of
the Company=s stock, the term of the option may not exceed five years.
An incentive option may not be exercised prior to the expiration of six
months after its grant for up to 100% of the total shares included, except that
the committee which granted the option may impose any restriction that it
chooses on the time of exercise if the committee believes that such restrictions
are in the best interests of the Company. No incentive stock option granted
under the Plan may be exercised until all incentive stock options previously
granted to the optionee (under the Plan or any former plan) to purchase shares
of the Company or an affiliate have been exercised in full or have expired.
No employee eligible to participate in the Plan shall be granted incentive
Options to purchase Common Shares which are exercisable during any one calendar
year to the extent that the fair market value of such shares (determined at the
time of the grant of the Option) exceeds $100,000. No employee shall be given
the opportunity to exercise incentive Options granted under the Plan with
respect to shares valued in excess of $100,000 in any calendar year except and
to the extent that the Options shall have accumulated over a period in excess of
one year.
No shares of Common Stock will be issued or delivered to an optionee until
the Company receives full payment of the option exercise price.
Except in cases of death or permanent and total disability of the optionee,
options are exercisable only by the optionee. Options may not be assigned or
pledged, or be subject to execution, or be transferred in any manner except by
will or the laws of descent and distribution.
If an optionee is an employee of the Company and the optionee's employment
terminates for any reason other than retirement or death, any unexercised
options granted to the optionee remain exercisable (to the extent vested on the
effective date of the optionee=s termination of employment) for a period of
three months after the effective date of the termination of employment provided
that they are exercised within the term prescribed in the option agreement but
in any event not more than five years after the date upon which such Option was
granted. In the event of the optionee's termination of employment because of
6
<PAGE>
death any option held by him becomes exercisable in full on the date of death.
Any option held by the optionee who at the time of his death is employed by the
Company will be transferred as provided in his will or as determined by the laws
of descent and distribution, and may be exercised, in whole or in part, by the
estate of the optionee, or by any person who acquired the option by bequest or
inheritance from the optionee, at any time or from time to time within the
earlier of one year after the date of death but not more than five years after
the Option was granted.
The number of shares of Common Stock deliverable with respect to each
payment of the option exercise price is subject to appropriate adjustment upon
any stock split or combination of shares, or upon any stock dividend. Upon the
occurrence of any corporate merger, consolidation, sale of all or substantially
all of the Company=s assets, or other reorganization, or a liquidation, any
optionee holding an outstanding option, regardless of the current status of its
exercisability, is entitled to exercise his option in whole or in part and to
receive upon the exercise those shares, securities, assets, or payment which the
optionee would have received if the optionee had exercised the option prior to
such occurrence and had been a shareholder of the Company with respect to such
Common Stock.
Federal Income Tax Matters
- - --------------------------
With regard to incentive stock options, the optionee does not incur income
tax liability either at the time the option is granted or at the time it is
exercised. When the optionee sells stock acquired under an incentive stock
option, however, the optionee will be taxed at long-term capital gains rates.
Any excess of the sales price over the option price will be taxable to the
optionee as ordinary income and the Company will be entitled to a deduction
equal to such excess.
Indemnification
- - ---------------
Members of the Board of Directors are indemnified for any act or omission
in connection with the Plan or any option granted thereunder.
Stock Appreciation Rights
- - -------------------------
Stock appreciation right may be granted under the Plan. A Astock
appreciation right@ means a right to receive the excess of the fair market value
of a share of the Company's Common Stock on the date on which an appreciation
right is exercised over the option price provided for in the related option
right and which is issued in consideration of services performed for the Company
or for its benefit by the Optionee. An appreciation right only exists along with
an option right and is immediately forfeited if the related option right is
exercised. The Committee reserves the right to determine whether the Optionee=s
stock appreciation rights are to be paid in cash or Common Stock or some
combination thereof.
7
<PAGE>
The Committee also retains the right to determine, including at the time of
exercise, the maximum amount of cash or stock which may be given upon exercise
of any stock appreciation right in any year, provided, however, that all such
amounts shall be paid in full no later than the end of the year immediately
following the year in which the Optionee exercised such stock appreciation
rights.
Federal Income Tax Matters With Respect to Non-qualified Options
- - ----------------------------------------------------------------
A nonstatutory stock option, for federal income tax purposes, is a
compensatory option that does not satisfy the statutory stock option
requirements. A nonstatutory stock option is therefore any stock option other
than an incentive stock option or an option issued under an employee stock
purchase plan.
The optionee realizes compensation income when the option is granted if the
option has a readily ascertainable fair market value at that time, or upon
transfer of stock pursuant to the exercise of the option if the option cannot be
valued at the time of grant. The Company can take a corresponding compensation
deduction in the same tax year (i.e., the year of grant or exercise) but the
optionee must include the compensation income in his gross income.
Vote Required
- - -------------
A favorable vote of a majority of the shares issued and outstanding, either
in person or by proxy, is required to approve this proposal. A copy of the 1999
Stock Plan is attached to this Proxy Statement as Exhibit A and by this
reference made a part hereof.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the record date by
(i) all persons who own of record or are known to the Company to beneficially
own more than 5% of the issued and outstanding shares of common stock, and (ii)
by each director, each director nominee, each of the executive officers named in
the tables under "Executive Compensation" and by all executive officers and
directors as a group:
<TABLE>
<CAPTION>
Amount and Nature of Percent of Class
Positions and Beneficial Common Based on Beneficial
Name and Address Offices Held Stock Ownership(1) Ownership(1)
- - ---------------- ------------ ------------------ -------------------
<S> <C> <C> <C>
Gale D. Burnett President, 884,000(2) 20.1%
9191 Northwood Rd. Director
Lynden, WA 98264
Henry Gemino Executive Vice 596,000(3) 13.4%
5 Strickland Place President, Chief
Manhasset, L.I., NY 11030 Operating Officer,
Secretary, Director
G.L. Scott Chief Executive Officer, 188,000(4) 4.4%
P.O. Box 986 Chairman of the Board
Rogue River, OR 97537 of Directors
8
<PAGE>
Amount and Nature of Percent of Class
Positions and Beneficial Common Based on Beneficial
Name and Address Offices Held Stock Ownership(1) Ownership(1)
- - ---------------- ------------ ------------------ -------------------
Murphy Evans Director 221,000(5) 5.1%
204 Rosiland Street
Laurinburg, NC 28352
P.O. Box 688
John Tsungfen Kuo Director 350,000(6) 7.6%
11 Hoffman Lane
Blauvelt, NY 10913
Allen G. Reeves Director 130,000(6) 3.09%
900 Equitable Bldg.
730 17th Street
Denver, CO 80202
Frank Goodhart, Jr. Shareholder 250,000 5.8%
1069 Old Forge Crossing
Lancaster, PA 17601
All Directors and 2,219,000(7) 42.9%(7)
Officers as a Group
(5 persons)
</TABLE>
- - ------------------
(1) Calculated pursuant to rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed.
(2) Includes 765,000 shares issued in the name of Sonja Burnett, wife of Gale
D. Burnett. Also includes warrants for Gale D. Burnett to acquire 110,000
shares of Common Stock. During the last fiscal year, Mr. Burnett also
relinquished voting power on 180,000 shares issued to his adult children
and for which he had previously exercised full voting power. Also includes
150,000 shares which are subject to a purchase option in favor of Henry
Gemino.
(3) Includes warrants to purchase 270,000 of Common Stock. Also includes an
option to acquire 150,000 shares of Common Stock from Sonja Burnett.
(4) Includes 40,000 shares issued in the name of the relatives of G.L. Scott or
in the name of Mr. Scott's wife. Also includes warrants to purchase 45,000
shares of Common Stock issued to Mr. Scott.
(5) Includes 30,000 shares held in the name of Mr. Evans' wife. Also includes
40,000 shares held in the name of Falco Enterprises, Inc., controlled by
Mr. Evans. Also includes warrants to purchase 65,000 shares of Common
Stock.
(6) Consists entirely of warrants to purchase Common Stock.
(7) Assumes exercise of all warrants and options owned by all officers and
directors.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information regarding the executive officers of the Company
follows:
Officer of
Position Held the Company
Name Age With Company Since
- - ---- --- ------------ -----
G.L.Scott 72 Chief Executive 1988
Officer, Chairman
of the Board
Gale D. Burnett 60 President, Director 1988
9
<PAGE>
Henry Gemino 47 Executive Vice- 1988
President, Chief
Operating Officer,
Chief Financial
Officer, Secretary,
Director
In addition, John Tsungfen Kuo has been the chief technical consultant to
the Company since 1995. Biographical information concerning all of the executive
officers as well as Dr. Kuo can be found under Proposal 1 - Election of
Directors appearing elsewhere in this Proxy Statement.
There are no family relationships among the executive officers. There are
no arrangements or understandings between any officers and any other person
pursuant to which that officer was selected.
EXECUTIVE COMPENSATION
Employment Contracts.
- - ---------------------
None of the executive officers are employed pursuant to employment
contracts. However, the Company has entered into confidentiality agreements with
each executive officer concerning the confidentiality of information in
connection with the Company's technology.
Cash Compensation
- - -----------------
The following table shows all cash compensation paid or to be paid by the
Company as well as other compensation paid or accrued during the fiscal years
indicated to the chief executive officer and the highest paid executive officers
of the Company as of the end of the Company's last fiscal year whose salary and
bonus for such period in all capacities in which the executive officer served
exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted
Name and Annual Stock LTIP All Other
Principal Compen- Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) $ SARs(#)(1) ($) sation($)
- - -------- ---- --------- -------- --------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
G.L. Scott 1998 $24,000 0 0 0 0 0 0
Chief 1997 8,500 0 0 0 25,000 0 0
Executive 1996 0 0 0 0 15,000 0 0
Officer
Gale D. Burnett 1998 $120,923 0 0 0 0 0 0
President 1997 104,561 0 0 0 0 0 0
1996 96,000 0 0 0 0 0 0
10
<PAGE>
Henry Gemino 1998 $120,923 0 0 0 0 0 0
Executive Vice 1997 104,561 0 0 0 0 0 0
President, 1996 88,000 0 0 0 0 0 0
Chief Operating
Officer, Chief
Financial
Officer
</TABLE>
(1) Common Stock Purchase Warrants
Consulting Agreements
- - ---------------------
Dr. John Tsungfen Kuo acts as a consultant to the Company with respect to
scientific and technological matters in connection with the Company's ongoing
research and development activities. Under the terms of his consulting
agreement, Dr. Kuo is paid a consulting fee of $10,000 per month. The consulting
agreement expires December 1, 1998. In the year ended June 30, 1998, Dr. Kuo
received total consulting fees of $117,500. He is also reimbursed for direct
expenses incurred in the performance of his consulting duties.
Dr. Kuo is entitled to receive a royalty equal to one percent of all net
pre-tax profits of the Company. Thusfar no royalty payments have been earned by
or paid to Dr. Kuo.
Options/SAR Exercises and Holdings
- - ----------------------------------
The following table sets forth information with respect to the named
executives, concerning the exercise of options and/or limited SARs during the
last fiscal year and unexercised options and limited SARs held as of the end of
the fiscal year June 30, 1998.
Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Options/SAR
Values:
<TABLE>
<CAPTION>
(a) (b) (c) (d)(2) (e)(2)
Number of Securities Value of
Shares Underlying Unexercised Unexercised In-the-Money
Acquired Value Options/SARs at FY-End(#) Options/SARs at FY End ($)
Name On Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
G.L. Scott --- --- 45,000(1) $654,000(1)
Gale D. Burnett --- --- 110,000(1) $1,187,500(1)
Henry Gemino --- --- 270,000(1) $4,406,000(1)
</TABLE>
(1) Exercisable
(2) All Options/SARs are in the form of common stock purchase warrants
There have been no awards of options, stock purchase warrants or SAR=s, nor
any adjustments or amendments to the exercise price of stock options or SARs
previously awarded to any of the named executive officers, whether through
amendment, cancellation or replacement grants or any other means during the last
fiscal year ended June 30, 1998 of the Company.
11
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1988 at the time Gale D. Burnett first transferred certain
technology, know-how and patent rights to the Company, a royalty interest of 4%
of all pre-tax profits derived from the technology and know-how thus transferred
was granted to Northwood Enterprises, Inc., a family owned company controlled by
Mr. Burnett. Northwoods Enterprises subsequently assigned such royalty interest
back to Mr. Burnett. In turn, Mr. Burnett, on April 8, 1996, assigned half of
this royalty interest (2%) as follows: to Mr. Henry Gemino, executive
vice-president, and chief financial officer, chief operating officer and
director (1 1/4%); to Mr. G.L. Scott, Chairman of the Board of Directors (1/2%).
A further 1/4% was assigned to the Company's legal counsel. This royalty
arrangement also applies to all future patent rights and technology developed by
Mr. Burnett and assigned to the Company.
In March 1996 the Company granted a net pre-tax royalty on profits equal to
1% to Dr. John Kuo in return for his assignment of certain patent rights,
technological know-how and proprietary information and trade secrets. The effect
of these various royalty interests is that a total of 5% of any net pre-tax
earnings of the Company derived from the use of said technology developed by Mr.
Burnett or Dr. Kuo is subject to distribution as above described. To date, no
royalty interest has been earned or distributed.
In December 1996, the Company issued 285,000 Common stock purchase warrants
to Dr. Kuo at an exercise price of $3.50 per share. The Company and Dr. Kuo also
agreed to extend his existing agreement with the Company for a period of one
year. The warrants to be issued to Dr. Kuo expire October 31, 2004.
The Company utilized space for administrative and office facilities at the
residence of both Gale D. Burnett and Henry Gemino free of additional charge
during the year ended June 30, 1997.
Consulting fees were paid to a director of the Company, Dr. John Kuo,
totaling approximately $117,500 and $79,4877 for the years ended June 30, 1998
and 1997, respectively.
OTHER MATTERS TO BE VOTED UPON
Management does not know of any other matters to be brought before the
meeting. If any other matters not mentioned in the proxy statement are properly
brought before the meeting, the individuals named in the enclosed proxy intend
to vote such proxy in accordance with their best judgment on such matters.
12
<PAGE>
COMPLIANCE WITH SECTION 16(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
The Company's executive officers and directors are required to file reports
of ownership and changes in ownership of the Company's securities with the
Securities and Exchange Commission as required under provisions of the
Securities Exchange Act of 1934. Based solely on the information provided to the
Company by individual directors and executive officers, the Company believes
that during the last fiscal year all directors and executive officers have
complied with applicable filing requirements.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected KPMG Peat Marwick LLP as the
independent certified public accountants to audit the books, records and
accounts of the Company for its 1999 fiscal year. To the knowledge of
management, neither such firm nor any of its members has any direct or material
indirect financial interest in the Company nor any connection with the Company
in any capacity otherwise than as independent accountants.
A representative of KPMG Peat Marwick LLP is expected to be present at the
annual meeting of shareholders to answer proper questions and will be afforded
an opportunity to make a statement regarding the financial statements.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 annual
meeting of Stockholders must be received by the Company on or before September
15, 1999, in order to be eligible for inclusion in the Company's proxy statement
and form of proxy. To be so included, a proposal must also comply with all
applicable provisions of Rule 14a-8 under the Securities Exchange Act of 1934.
BY ORDER OF THE BOARD OF DIRECTORS,
Henry Gemino
Chief Operating Officer
October 14, 1998
<PAGE>
PROFILE TECHNOLOGIES, INC.
1999
STOCK PLAN
----------
1. Purpose and Eligibility. This Stock Plan (the "Plan") is intended to
advance the interests of Profile Technologies, Inc. (the "Company") by enhancing
the ability of the Company to attract and retain qualified employees,
consultants, officers and directors by creating incentives and rewards for their
contributions to the success of the Company. This Plan will provide to: (a)
officers and other employees of the Company opportunities to purchase stock in
the Company pursuant to Options granted hereunder which qualify as incentive
stock Options ("ISOs") under Section 422A(b) of the Internal Revenue Code of
1986, as amended (the "Code"); (b) directors, officers, employees and
consultants of the Company opportunities to purchase stock in the Company
pursuant to Options granted hereunder which do not qualify as ISOs
("Non-Qualified Options") and to receive stock appreciation rights ("SARs")
pursuant to such Non-Qualified Options; (c) directors, officers, employees and
consultants of the Company awards of stock in the Company ("Awards"); (d)
directors, officers, employees and consultants of the Company opportunities to
make direct purchases of stock in the Company ("Purchases"); and (e) directors
of the Company who are not officers or employees of the Company with the
opportunities to purchase stock in the Company pursuant to Options granted
hereunder ("Non-Discretionary Options"). ISOs, Non-Discretionary Options,
Non-Qualified Options and Stock Appreciation Rights are referred to hereafter as
"Options". Options, Awards and authorizations to make Purchases are referred to
hereafter collectively as "Stock Rights".
2. Administration of the Plan
--------------------------
a. The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may, in its discretion, delegate its powers
with respect to the Plan to an employee benefit plan committee or any other
committee (the "Committee"). The Committee shall consist of not fewer than two
Directors. Each of the Directors must be a "Non-Employee Director" as that term
is defined in Rule 16b-3 adopted pursuant to the Securities Exchange Act of 1934
(the "Exchange Act"). A majority of the members of any such Committee shall
constitute a quorum, and all determinations of the Committee shall be made by
the majority of its members present at a meeting. Any determination of the
Committee under the Plan may be made without notice or meeting of the Committee
by a writing signed by all of the Committee members. Subject to ratification of
the grant or authorization of each Stock Right by the Board (but only if so
required by applicable state law), and subject to the terms of the Plan, the
Committee shall have the authority to (i) determine the employees of the Company
Corporations (from among the class of employees eligible under Paragraph 3 to
receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under Paragraph 3 to receive
Non-Qualified Options and Awards and to make Purchases) to whom Non-Qualified
Options, Awards and authorizations to make Purchases may be granted; (ii)
determine the time or times at which Options or Awards may be granted or
Purchases made; (iii) determine the exercise price of shares subject to each
Exhibit A
<PAGE>
Option which price for any ISO shall not be less than the minimum price
specified in Paragraph 7, and the purchase price of shares subject to each
Purchase; (iv) determine whether each Option granted shall be an ISO or a
Non-Qualified Option; (v) determine (subject to paragraph 9) the time or times
when each Option, except for non-discretionary Options, shall become
exercisable, the duration of the exercise period and when each Option shall
vest; (vi) determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options, Awards and Purchases and the nature of
such restrictions, if any, and (vii) interpret the Plan and promulgate and
rescind the rules and regulations relating to it. The interpretation and
construction by the Committee of any provisions of the Plan or of any Stock
Right granted under it shall be final, binding and conclusive unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best.
b. The Committee may select one of its members as its chairman and
shall hold meetings at such time and places as it may determine. All references
in the Plan to the Committee shall mean the Board if no Committee has been
appointed. From time to time the Board may increase the size of the Committee
and appoint additional member thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused
or remove all members of the Committee and thereafter directly administer the
Plan.
c. Stock rights may be granted to members of the Board, whether such
grants are in their capacity as directors, officers, or consultants, but no
discretionary Stock Rights shall be granted to any person who is, at the time of
the proposed grant, a member of the Board unless such grant has been approved as
provided in paragraph 2d. All grants of Stock Rights to members of the Board
shall in all other respects be made in accordance with the provisions of this
Plan applicable to other eligible persons. Members of the Board who are either
(i) eligible for Stock Rights pursuant to the Plan or (ii) have been granted
Stock Rights may vote on any matters affecting the administration of the Plan or
the grant of any Stock Rights pursuant to the Plan, except that no such member
shall act upon the granting to himself of discretionary Stock Rights but any
such member may be counted in determining the existence of a quorum at any
meeting of the Board during which action is taken with respect to the granting
to him of Stock Rights.
d. Notwithstanding any other provision of Paragraph 2, any
discretionary grants to a person who is a member of the Board shall be made only
by the Board provided, however, that if a majority of the Board is eligible to
participate in the Plan or in any other stock option or other stock plan of the
Company or has been so eligible at any time within the preceding year, any grant
to directors of Stock Rights must be made by, or only in accordance with the
recommendation of a Committee consisting of three or more persons, who shall be
directors of the Company, appointed by the Board but having full authority to
act on the matter, none of whom is eligible to participate in this Plan or any
other stock option or other stock plan of the Company or any of its affiliates,
2
<PAGE>
or has been eligible at any time within the preceding year. The requirements
imposed by this subparagraph 2d shall also apply with respect to grants to
officers who are also directors. Once appointed, such Committee shall continue
to serve until otherwise directed by the Board.
e. In addition to such other rights of indemnification as he may have
as a member of the Board, and with respect to administration of the Plan and the
granting of Options under it, each member of the Board and of the Committee
shall be entitled without further act on his part to indemnification from the
Company for all expenses (including advances in litigation expenses, the amount
of judgment and the amount of approved settlements made with a view to the
curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of any
action, suit or proceeding with respect to the administration of the Plan or the
granting of Options under it in which he may be involved by reason of his being
or having been a member of the Board or the Committee, whether or not he
continues to be such member of the Board or the Committee at the time of the
incurring of such expenses. A person shall only be indemnified if (i) he
conducted himself in good faith, (ii) he reasonably believed that his conduct
was for a purpose he reasonably believed to be in the interests of the
participants or beneficiaries of this Plan and (iii) in the case of any criminal
proceeding, he had no reasonable cause to believe that his conduct was unlawful.
Provided however, a director shall not be entitled to indemnification in
connection with a proceeding by or on behalf of the Company in which the
director is adjudged liable to the Company or in connection with any proceeding
charging improper personal benefit to the director in which the director is
found to be personally liable on the basis that personal benefit was improperly
received by him. Provided further that no right of indemnification under the
provisions set forth herein shall be available to any such member of the Board
or the Committee unless within 10 days after the later of institution of or
learning of any such action, suit or proceeding he shall have offered the
Company in writing the opportunity to handle and defend such action, suit or
proceeding at its own expense. The foregoing right of indemnification shall
inure to the benefit of the heirs, executors or administrators of each such
member of the Board or the Committee and shall be in addition to all other
rights to which such member of the Board or the Committee would be entitled to
as a matter of law, contract or otherwise. The indemnification provided by this
Section 2e shall only be made after the requirements of Section 145(d) of the
Delaware General Corporation Law (the "Law") have been complied with except that
the Company may pay for or reimburse reasonable expenses incurred by a director
who is a party to a proceeding in advance of the final disposition of the
proceeding in accordance with the requirement of Section 145(e) of the Law.
3. Eligible Employees and Others.
------------------------------
a. ISOs may be granted to any employee of the Company. Those officers
and directors of the Company who are not employees may not be granted ISOs under
3
<PAGE>
the Plan. Subject to compliance with Rule 16b-3 and other applicable securities
laws, Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any director (whether or not an employee), officer, employee or
consultant of the Company. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant an ISO, a
Non-Qualified Option or an authorization to make a Purchase. Granting of any
Stock Right to any individual or entity shall neither entitle that individual or
entity to, nor disqualify him from participation in any other grant of Stock
Rights.
b. All directors of the Company who are not employees of the Company
shall automatically receive Non-Qualified Options (i) upon election or
appointment to the Board if not a member of the Board at the time this Plan is
adopted by the Board; and (ii) upon election to the Board after all stock grants
and Options previously granted have vested. The amount and terms of such
Non-Qualified Options shall be determined by the Board in full compliance with
the terms of the Plan.
(1) The exercise price of the Options shall be fair market value
on the date of grant as defined by Paragraph 7.
(2) The Options granted to each Director pursuant to this
subparagraph b shall vest in increments as the Board shall determine,
provided that the director is still serving as a director on the Company.
To the extent that any Options which have not been exercised do not vest,
the Options shall lapse and no longer be exercisable
c. The Options shall be exercisable for a period of 5 years from the
date of grant.
4. Stock. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common stock or shares of Common Stock
reacquired by the Company in any manner. The aggregate number of shares of
Common Stock which may be issued pursuant to the Plan is 500,000, subject to
adjustment as provided in Paragraph 15. Any such shares may be issued as ISOs,
Non-Qualified Options or Awards, or to persons or entities making Purchases, so
long as the number of shares so issued does not exceed such number, as adjusted.
If any Option granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, or if the Company shall reacquire any unvested
shares issued pursuant to Awards or Purchases, the unpurchased shares subject to
such Options and any unvested shares so reacquired by the Company shall again be
available for grants of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan
at any time on and after the date this Plan is approved by the Company's
shareholders, provided however that no ISO shall be granted more than 10 years
4
<PAGE>
after the effective date of this Plan. The date of grant of a Stock Right under
the Plan will be the date of grant by the Committee unless otherwise specified
at the time it grants the Stock Right; provided, however, that such date shall
not be prior to the date on which the Committee acts to approve the grant. The
Committee shall have the right with the consent of the optionee, to convert an
ISO granted under the Plan to a Non-Qualified Option pursuant to Paragraph 18.
6. Sale of Shares. Any shares of the Company's Common Stock granted
pursuant to an Award or acquired pursuant to a Purchase as set forth herein,
cannot be sold for at least six months after acquisition except in case of death
or disability. Nothing in this paragraph 6 shall be deemed to reduce the holding
period set forth under the applicable securities laws.
7. ISO Minimum Option Price and Other Limitations.
-----------------------------------------------
a. The exercise price per share specified in the stock option
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock which represents more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than 110 percent of the fair
market value per share of Common Stock on the date of grant and such ISO shall
not be exercisable after the expiration of five years from the date of grant.
b. In no event shall the aggregate fair market value (determined at
the time an ISO is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any calendar
year (under all stock option plans of the Company and any Related Corporation)
exceed $100,000.
c. If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean:
(1) the average closing price of the Company's shares appearing
on the NASDAQ Smallcap if such shares are listed thereon or if not listed,
appearing on the National Associates of Securities Dealers, Inc.'s
electronic bulletin board; or
(2) If the Company's shares are not listed on the National
Association of Securities Dealers, Inc's electronic bulletin board, then
the average bid and asked price for the Company's shares as listed in the
National Quotation Bureau's "pink sheets", or
5
<PAGE>
(3) If there are no listed bid and asked prices published in the
pink sheets, then the fair market value shall be based upon the average
closing bid and asked price as determined following a polling of all
dealers making a market in the Company's shares.
(4) By private determination of the Board based upon the assets,
net worth and other factors as the Board may deem relevant if (1), (2) or
(3) above are not applicable.
8. Stock Appreciation Rights.
--------------------------
a. Stock appreciation rights may be granted by the Company under this
Plan upon such terms and conditions as the Committee may prescribe. A stock
appreciation right may be granted only in connection with a Non-Qualified Option
right previously granted or to be granted under this Plan. Each stock
appreciation right shall contain a provision that it shall become
non-exercisable and be forfeited if the related option right is exercised.
"Stock Appreciation right" as used in this Plan means a right to receive the
excess of the fair market value of a share of the Company's Common Stock on the
date on which an appreciation right is exercised over the option price provided
for in the related stock option and which is issued in consideration of services
performed for the Company or for its benefit by the optionee. Such excess is
hereafter called "the differential". "Option right" means the right to purchase
shares of the Company's Common Stock under a Non-Qualified Option granted under
this Plan.
b. Stock appreciation rights shall be exercisable and be payable in
the following manner:
(1) A stock appreciation right shall be exercisable by the
optionee at any time the option to which it relates could be exercised. An
optionee wishing to exercise a stock option appreciation right shall give
written notice of such exercise to the Company addressed to the Company's
Secretary, which such notice shall be forwarded by the Company's Secretary
to the Committee. Upon receipt of such notice, the Committee shall
determine whether the optionee's stock appreciation rights shall be paid in
cash or Common Stock or a combination of cash and shares. Upon receipt of
such notice, the Company shall, without transfer or issue tax to the
optionee or other person entitled to exercise the stock appreciation
rights, deliver to the person exercising such right a certificate or
certificates for shares of the Common Stock which are issuable upon
exercise of the stock appreciation right or cash or a combination thereof
as the case may be. The date the Company's Secretary receives the written
notice of exercise hereunder is referred to herein as the exercise date.
6
<PAGE>
(2) The exercise of a stock appreciation right shall
automatically result in the surrender of the related stock option right by
the grantee on a share for share basis to the extent shares under such
related stock option are used to calculate the shares or cash or
combination thereof to be received by such grantee upon the exercise of
such stock appreciation right. Shares covered by such surrendered option
rights shall not be available for granting further options under this Plan.
(3) The Committee may impose any other conditions it prescribes
upon the exercise of a stock appreciation right, which conditions may
include a condition that the stock appreciation right may only be exercised
in accordance with rules and regulations adopted by the Committee from time
to time.
(4) Upon the exercise of a stock appreciation right and surrender
of the related option right, the Company shall give to the person
surrendering the related option right an amount equivalent to the
differential, in cash or shares of the Company's Common Stock or any
combination thereof as determined in accordance with subdivision b (1) of
this paragraph 8. The shares to be issued upon the exercise of a stock
appreciation right may consist either in whole or in part of shares of the
Company's authorized and issued Common Stock reacquired by the Company and
held in its treasury. No fractional share of Common Stock shall be issued
and the Committee shall determine whether cash shall be given in lieu of
such fractional share or whether such fractional share shall be eliminated.
c. Notwithstanding any other provision of this Plan, the Committee may
from time to time determine, including at the time of exercise, the maximum
amount of cash or stock which may be given upon exercise of any stock
appreciation right in any year provided, however, that all such amounts shall be
paid in full no later than the end of the year immediately following the year in
which the optionee exercised such stock appreciation rights. Any determination
under this paragraph may be changed by the Committee from time to time provided
that no such change shall require the holder to return to the Company any amount
theretofore received or to extend the period within which the Company is
required to make full payment of the amount due as the result of the exercise of
the optionee's stock appreciation right.
d. Stock appreciation rights granted pursuant to this paragraph shall
terminate or expire as follows:
(1) Each stock appreciation right and all rights and obligations
thereunder shall expire on a date to be determined by the Committee, such
date, however, in no event to be later than ten years from the date on
which the related option right was granted.
7
<PAGE>
(2) A stock appreciation right shall terminate and may no longer
be exercised upon the termination of the related option right.
9. Duration of Stock Rights. Subject to earlier termination as provided in
Paragraph 11 and 12, each Stock Right shall expire on the date specified in the
original instrument granting such Stock Right, (except with respect to any part
of an ISO that is converted into a Non-Qualified Option pursuant to Paragraph
18) provided, however, that such instrument must comply with Section 422A of the
Code with regard to ISOs granted to all employees and Rule 16b-3 of the Exchange
Act with regard to all Stock Rights granted to executive officers, directors and
10% stockholders of the Company.
10. Exercise of Options. Subject to the provisions of Paragraphs 3b and 11
through 15, each Option granted under the Plan shall be exercisable as follow:
a. The Options shall either be fully exercisable from the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
b. Once an installment becomes exercisable it shall remain exercisable
until expiration or termination of the Option, unless otherwise specified by the
Committee.
c. Each Option or installment, once it becomes exercisable, may be
exercised at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.
d. The Committee shall have the right to accelerate the date of
exercise of any installment of any Option; provided that the Committee shall not
accelerate the exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 18) if such acceleration would violate the annual vesting
limitation contained in Section 422A(d) of the Code as described in Paragraph
7(b). The date of exercise of all Options shall accelerate in the event of any
of the following: (i) the Company is to merge or consolidate with or into any
other corporation or entity except a transaction where the Company is the
surviving corporation or change of domicile merger or similar transaction exempt
from registration under the Securities Act of 1933, (ii) the sale of all or
substantially all of the Company's assets, (iii) the sale of at least 60% of the
outstanding Common Stock of the Company to a third party (subparagraphs (i),(ii)
and (iii) collectively referred to as an "Acquisition"); or (iv) the Company is
dissolved. Upon a minimum of 20 days prior written notice to the optionees, the
exercisability of such Options shall commence two business days prior to the
earlier of the scheduled closing of an Acquisition or proposed dissolution or
the actual closing of an Acquisition or proposed dissolution.
8
<PAGE>
e. All Options and stock grants shall be subject to any vesting
requirements imposed by the Committee. In the event of any Acquisition or
dissolution of the Company, all unvested Options and stock grants shall
immediately vest two business days prior to the earlier of the scheduled closing
of the Acquisition or proposed dissolution or the actual closing of the
Acquisition or proposed dissolution and a minimum of 20 days notice of such
vesting shall be give to the holders of such Options and unvested shares of
Common Stock.
11. Termination of Employment. Subject to any greater restrictions or
limitations as may be imposed by the Committee upon the granting of any ISO, if
an ISO optionee ceases to be employed by the Company other than by reason of
death or disability as defined in Paragraph 12, no further installments of his
ISOs shall become exercisable or vest, and his ISOs shall terminate on the day
three months after the day of the termination of his employment, but in no event
later than on their specified expiration dates, except to the extent that such
ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to Paragraph 18. Employment shall be considered
as continuing uninterpreted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to re-employment is guaranteed by statute. A
leave of absence with the written approval of the Company's Board shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company to continue employment of
the optionee after the approved period of absence. ISOs granted under the Plan
shall not be affected by any change of employment within or among the Company so
long as the optionee continues to be an employee of the Company.
12. Death or Disability. Subject to any greater restrictions or limitations
as may be imposed by the Committee upon the granting of any ISO:
a. If an ISO optionee ceases to be employed by the Company by reason
of his death, any ISO of his may be exercised to the extent of the number of
shares with respect to which he could have exercised it on the date of his
death, by his estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, at any time prior to
the earlier of the ISO's specified expiration date or three months from the date
of the optionee's death.
b. If an ISO optionee ceases to be employed by the Company by reason
of his disability, he shall have the right to exercise any ISO held by him on
the date of termination of employment to the extent of the number of shares with
respect to which he could on the earlier of the ISO's specified expiration date
or one year from the date of the termination of the optionee's employment. For
the purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22 (e)(3) of the Code or successor statute.
9
<PAGE>
13. Assignability. No Option granted to an executive officer or director of
the Company or beneficial owner of 10% or more of the Company's equity
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934 and no ISO shall be assignable or transferable by the grantee except by
will or by laws of descent and distribution and during the lifetime of the
grantee each Option shall be exercisable only by him, his guardian or legal
representative.
14. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in Paragraph 7 through 13 hereof and may contain such other
provisions as the Committee deems advisable which are not inconsistent with the
Plan, including restrictions applicable to shares of Common Stock issuable upon
exercise of Options. In granting any Non-Qualified Option, the Committee may
specify that such Non-Qualified Option shall be subject to the restrictions set
forth herein with respect to ISOs, or to such other termination and cancellation
provisions as the Committee may determine. The Committee may from time to time
confer authority and responsibility on one or more of its own members and/or one
or more officers of the Company to execute and deliver such instruments. The
proper officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of such
instruments.
15. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
a. If the shares of Common Stock shall be subdivided or combined into
a greater or smaller number of shares or if the Company shall issue any shares
of Common Stock as a stock dividend on its outstanding Common Stock, the number
of shares of Common Stock deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
b. If the Company is to be consolidated with or acquired by another
entity pursuant to an Acquisition, the Committee or the board of directors of
any entity assuming the obligations of the Company hereunder (the "Successor
Board") shall, as to outstanding Options not exercised pursuant to Paragraph 9,
either (i) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such Options
10
<PAGE>
the consideration payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition; or (ii) terminate all Options in exchange
for a cash payment equal to the excess of the fair market value of the shares
subject to such Options over the exercise price thereof.
c. In the event of a recapitalization or reorganization of the Company
(other than a transaction described in subparagraph b above) pursuant to which
securities of the Company or of another corporation are issued with respect to
the outstanding shares of Common Stock, an optionee upon exercising an Option
shall be entitled to receive for the purchase price paid upon such exercise the
securities he would have received if he had exercised his Option prior or such
recapitalization or reorganization.
d. Notwithstanding the foregoing, any adjustments made pursuant to
subparagraphs a,b or c with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company, determines whether
such adjustments would constitute a "modification" of such ISOs (as that term is
defined in Section 425(h) of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification of such
ISOs it may refrain from making such adjustments.
e. Except as expressly provided herein, no issuance by the Company of
shares of Common Stock of any class or securities convertible into shares of
Common Stock of any class shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares subject to Options.
No adjustments shall be made for dividends or other distributions paid in cash
or in property other than securities of the Company.
f. No fractional share shall be issued under the Plan and the optionee
shall receive from the Company cash in lieu of such fractional shares.
g. Upon the happening of any of the foregoing events described in
subparagraphs a, b or c above, the class and aggregate number of shares set
forth in Paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this Paragraph 15 and, subject to Paragraph 2, its determination
shall be conclusive. If any person or entity owning restricted Common Stock
obtained by exercise of a Stock Right made hereunder receives shares or
securities or cash in connection with a corporate transaction described in
subparagraphs a, b and c above as a result owning such restricted Common Stock,
such shares or securities or cash shall be subject to all of the conditions and
restrictions applicable to the restricted Common Stock with respect to which
such shares or securities or cash were issued, unless otherwise determined by
the Committee or the Successor Board.
11
<PAGE>
16. Means of Exercising Stock Rights.
---------------------------------
a. A Stock Right (or any part or installment thereof) shall be
exercised by giving written notice to the Company at its principal office
address. Such notice shall identify the Stock Right being exercised and specify
the number of shares as to which such Stock Right is being exercised,
accompanied by full payment of the purchase or exercise price therefor either
(i) in United States dollars in cash or by check; (ii) at the discretion of the
Committee, through delivery of shares of Common Stock having a fair market value
equal as of the date of the exercise to the cash exercise price of the Stock
Right; (iii) at the discretion of the Committee, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the lowest applicable federal rate, as defined in Section
1275(d) of the Code, or (iv) at the discretion of the Committee, by any
combination of (i), (ii) and (iii) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (ii), (iii) or (iv) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of Stock right shall not have the rights of a shareholder
with respect to the shares covered by his Stock Right until the date of issuance
of a stock certificate to him for such shares. Except as expressly provided
above in Paragraph 15 with respect to changes in capitalization and stock
dividends, no adjustment shall be made for dividends or similar rights for which
the record date is before the date such stock certificate is issued.
b. Each notice of exercise shall, unless the Option shares are covered
by a then current registration statement under the Securities Act of 1933, as
amended (the "Act"), contain the optionee's acknowledgment in form and substance
satisfactory to the Company that (i) such Option shares are being purchased for
investment and not for distribution or resale (other than a distribution or
resale which, in the opinion of counsel satisfactory to the Company, may be made
without violating the registration provision of the Act), (ii) the optionee has
been advised and understands that (1) the Option shares have not been registered
under the Act and are "restricted securities" within the meaning of Rule 144
under the Act and are subject to restrictions on transfer and (2) the Company is
under no obligation to register the Option shares under the Act or to take any
action which would make available to the optionee any exemption from such
registration, and (iii) such Option shares may not by transferred without
compliance with all applicable federal and state securities laws. Not
withstanding the above, should the Company be advised by counsel that issuance
of shares should be delayed pending registration under federal or state
securities laws or the receipt of an opinion than an appropriate exemption
therefrom is available, the Company may defer exercise of any option granted
hereunder until either such event has occurred.
17. Terms and Amendment of Plan. This Plan was adopted by the Board on
October 15, 1998 and if not approved by the holders of at least a majority of
all shares present in person and by proxy and entitled to vote therein at a
meeting of the stockholders of the Company within 12 months from the date of the
12
<PAGE>
Plan's adoption by the Board, no ISOs may be granted pursuant to the Plan. Nor
shall the Plan in such event conform to Rule 16b-3 promulgated under the
Securities Exchange Act of 1934. This Plan shall have no expiration date,
provided however that no ISOs shall be granted more than 10 years after the
Plan's effective date. The Board may terminate or amend the Plan in any respect
at any time. However, if not approved by the stockholders on or before October
15, 1999, approval of the stockholders must be obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) increase of the total number of shares that may be issued under the Plan
(except by adjustment pursuant to Paragraph 15); (b) modification of the
provisions of Paragraph 3 regarding eligibility for grants of ISOs; and (c) any
other act requiring stockholder approval under Rule 16b-3 (or successor rule)
promulgated under the Securities Exchange Act of 1934. Except as provided herein
or as specified in the original instrument granting such Stock Right, no action
of the Board or stockholders may alter or impair the rights of a grantee,
without his consent, under any Stock Right previously granted to him.
18. Conversion of ISOs into Non-Qualified Options; Termination of ISOs The
Committee, at the written request of any optionee, may in its discretion take
such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise period of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
condition shall not be inconsistent with this Plan. Nothing in the Plan shall be
deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
19. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
20. Government Regulations. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
21. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, the granting or vesting of an Award, the Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
13
<PAGE>
Disposition (as defined in Paragraph 22) the Company, in accordance with Section
3402(a) of the Code may require the optionee, award recipient or purchaser to
pay additional withholding taxes in respect of the amount that is considered
compensation includable in such person's gross income. The Committee in its
discretion may condition (i) the exercise of any Option; (ii) the granting or
vesting of an award; or (iii) the making of a purchase of Common Stock for less
than its fair market value on the payment of such withholding taxes.
To the extent that the Company is required to withhold taxes for federal
income tax purposes in connection with the exercise of any Option, the optionee
shall have the right to elect to satisfy such withholding requirement, subject
to Company approval, by (i) paying the amount of the requires withholding tax to
the Company; (ii) delivering to the Company shares of its Common Stock
previously owned by the optionee; or (iii) having the Company retain a portion
of the shares covered by the Option exercise. The number of shares to be
delivered to or withheld by the Company times the fair market value of such
shares shall equal the cash of required to be withheld. To the extent that the
Participant elects to either deliver or have withheld shares of the Company's
Common Stock, the Board, or the Committee, may require him to make such election
only during certain periods of time as may be necessary to comply with
appropriate exemptive procedures regarding the "short-swing" profit provisions
of Section 16(b) of the Securities Exchange Act of 1934 or to meet certain Code
requirements.
22. Notice of Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (i)
two years after the date of employee was granted the ISO or (ii) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
23. Continued Employment. The grant of an Option pursuant to the Plan shall
not be construed to imply or to constitute evidence of any agreement, express or
implied, on the part of the Company to retain any optionee in the employ of the
Company or Related Corporation, as a member of the Company's board of directors
or in any other capacity, whichever the case may be.
24. Bonuses or Loans to Exercise Options. If requested by any person to
whom a grant of a Stock Right has been made, the Company may loan such person or
guarantee a bank loan to such person for the purpose of paying for the shares of
the Common Stock. If requested by any person to whom a grant of a Stock Right
has been made, the Company may loan such person, guarantee a bank loan to such
person, or pay such person additional compensation equal to the amount of money
necessary to pay the federal income taxes incurred as a result of the grant of
the Stock Rights or the Exercise of any Options, assuming that such person is in
14
<PAGE>
the maximum federal income tax bracket six months from the time of grant or
exercise and assuming that such person has no deductions which would reduce the
amount of such tax owed. The tax loan shall be made or tax offset bonus paid on
or before April 15th of the year following the year in which the amount of tax
is determined, and any loan shall be made on such terms as the Company or
lending bank determines.
25. Governing Law; Construction. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine and neuter, unless
the context otherwise requires.
15
<PAGE>
PROFILE TECHNOLOGIES, INC.
1077 Northern Blvd.
Roslyn, N.Y. 11576
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF PROFILE TECHNOLOGIES, INC.
The undersigned having received the Notice of Annual Meeting of
Stockholders and Proxy Statement dated October 14, 1998, hereby appoints Henry
Gemino or his designee with full power of substitution and revocation to
represent the undersigned and to vote all the shares of the common stock of
Profile Technologies, Inc. (the "Company") which the undersigned is entitled to
vote at the Annual Meeting of the Shareholders of the Company to be held on
November 16, 1998 and any postponement or adjournment thereof.
(1) ELECTION OF DIRECTORS: [ ] For all nominees listed [ ] WITHHOLD AUTHORITY
below (except indicated to vote for all
to the contrary below) nominees listed
below
GALE D. BURNETT, HENRY GEMINO, G.L. SCOTT, MURPHY EVANS, DR. JOHN TSUNGFEN KUO,
ALLEN G. REEVES
INSTRUCTION: To withhold authority to vote for any individual nominee, draw a
line through or otherwise strike out his name. If authority is not withheld, the
execution of this Proxy shall be deemed to grant such authority.
(2) PROPOSAL TO RATIFY AND ADOPT THE 1999 STOCK PLAN.
[ ] For [ ] Against [ ] Abstain
(3) IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
[ ] For [ ] Against [ ] Abstain
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned Shareholder. If no direction is made, this Proxy will
be voted for all nominated Directors and for proposals 2 and 3.
The undersigned hereby revokes any proxies as to said shares heretofore
given by the undersigned, and ratifies and confirms all that said attorneys and
proxies may lawfully do by virtue hereof.
THIS PROXY CONFERS DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN
OR DETERMINED AT THE TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF
SHAREHOLDERS TO THE UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders and Proxy Statement furnished therewith.
Dated: , 1998
--------------------------------------
Signature(s) of Shareholder(s)
--------------------------------------
Print Name of Shareholders
Signature(s) should agree with the
name(s) appearing hereon. Executors,
administrators, trustees, guardians
and attorneys should indicate when
signing. Attorneys should submit
powers of attorney.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PROFILE
TECHNOLOGIES, INC. PLEASE SIGN AND RETURN THIS PROXY TO PROFILE TECHNOLOGIES,
INC., 1077 NORTHERN BLVD., ROSLYN, N.Y. 11576. THE GIVING OF A PROXY WILL NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THIS MEETING.
