SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission only (as permitted by Rule
14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 140-11(c) or Rule 240-2
FRISBY TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate Number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] 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.:
3) Filing Party:
4) Date Filed:
<PAGE>
April 30, 1999
Dear Frisby Technologies Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Frisby Technologies, Inc., which will be held on June 10, 1999
at 9:00 a.m. at Tribeca Grill, Screening Room, 375 Greenwich Street, New York,
New York 10013.
The major items of business, as outlined in the following Notice of
Annual Meeting of Stockholders and Proxy Statement, will be the election of the
directors, an amendment to the 1998 Stock Option Plan to increase the number of
authorized shares, and the ratification of the appointment of Ernst & Young LLP
as independent auditors for 1999.
Whether you plan to come to the Annual Meeting or not, your
representation and vote are important and your shares should be voted. Please
complete, date, sign and return the enclosed proxy card promptly.
We look forward to seeing you at the meeting.
Very truly yours,
/s/Gregory S. Frisby
Chairman of the Board
<PAGE>
FRISBY TECHNOLOGIES, INC.
--------------------------
77 East Main Street
Bay Shore, New York 11706
--------------------------
NOTICE OF 1999 ANNUAL MEETING
OF STOCKHOLDERS AND
PROXY STATEMENT
--------------------------
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT 9:00 A.M. ON JUNE 10, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders
(the "Meeting") of FRISBY TECHNOLOGIES, INC. (the "Company") will be held on
June 10, 1999 at 9:00 a.m. at Tribeca Grill, Screening Room, 375 Greenwich
Street, New York, New York 10013.The enclosed proxy is solicited by the
management of the Company in connection with the Meeting and any adjournment
thereof. The Board of Directors has set April 26, 1999, at the close of
business, as the record date for the determination of stockholders entitled to
notice of and to vote at the Meeting. A stockholder executing and returning a
proxy has the power to revoke it at any time before it is exercised by filing a
later proxy with, or other communication to, the Secretary of the Company or by
attending the Meeting and voting in person. The proxy will be voted in
accordance with your directions as to:
(1) election of the persons listed herein as directors of the Company;
(2) to consider and to act upon a proposal to amend the Company's 1998
Stock Option Plan to increase the number of shares employees, directors and
consultants may purchase thereunder from 250,000 shares to 750,000 shares;
(3) ratification of the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999; and
(4) such other matters as may properly come before the Meeting.
In the absence of direction, the proxy will be voted in favor of these
proposals.
The entire cost of soliciting proxies will be borne by the Company. The
cost of solicitation, which represents an amount believed to be normally
expended for a solicitation relating to an uncontested election of directors,
will include the cost of supplying necessary additional copies of the
solicitation materials and the Company's 1999 Annual Report to Stockholders (the
"Annual Report") to beneficial owners of shares held of record by brokers,
dealers, banks, trustees, and their nominees, including the reasonable expenses
of such recordholders for completing the mailing of such materials and Annual
Report to such beneficial owners.
Only stockholders of record of the Company's Common Stock outstanding
at the close of business on April 26, 1999, will be entitled to vote. A total of
5,708,113 shares of Common Stock was outstanding on the Record Date. Each share
of Common Stock is entitled to one vote. Holders of a majority of the
outstanding shares of Common Stock must be represented in person or by proxy in
order to achieve a quorum. The Notice of Meeting and Proxy Statement, the
enclosed form of Proxy and the Annual Report are being mailed to stockholders on
or about May 5, 1999. The mailing address of the Company's principal executive
offices is 77 East Main Street, Bay Shore, New York 11706.
A complete list of stockholders entitled to vote at the Meeting shall
be available at the offices of the Company during ordinary business hours from
May 10, 1999 until the Meeting for examination by any stockholder for any
purpose germane to the Meeting. This list will also be available at the Meeting.
<PAGE>
1. ELECTION OF DIRECTORS
The Company's Board of Directors presently consists of five (5) members
with the term of office of the current directors scheduled to expire at the next
annual meeting of stockholders or until the election and qualification of their
respective successors.
All directors are to be elected as directors by a plurality of the
votes cast at the Meeting. Unless otherwise directed, the persons named in the
accompanying Proxy have advised management that it is their intention to vote
for the election of directors set forth in this proxy.
Each of the nominees for election as a director has advised the Company
of his willingness to serve as a director and management believes that each
nominee will be able to serve. If any nominee becomes unavailable, proxies may
be voted for the election of such person or persons who may be designated by the
Board of Directors.
Recommendation and Vote Required
The vote of the holders of a majority of the shares of the Company's
Common Stock present or in person or represented by proxy at the Meeting is
required to adopt the foregoing proposal to elect the directors set forth
herein.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ELECTION
OF DIRECTORS SET FORTH IN THIS PROXY.
Information Regarding Directors
The following table sets forth certain information with
respect to the nominees for the election of directors:
<PAGE>
<TABLE>
<CAPTION>
Year Term Expires
Name Age Position if Elected
<S> <C> <C> <C>
Gregory S. Frisby(1) 39 Chairman of the Board of Directors; 2000
President; Chief Executive Officer; Treasurer
Jeffry D. Frisby(1) 43 Director 2000
Pietro A. Motta 61 Director 2000
Domenico DeSole 55 Director 2000
Robert C. Grayson 53 Director 2000
</TABLE>
Information Regarding Executive Officers
The following is information concerning the executive officers of the
Company other than those who also serve as directors:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Richard J. Dauksys 58 Vice President -
Technology & Operations
Douglas J. McCrosson 36 Vice President - Market
Development; Secretary
Ted Mielnik 41 Vice President -
Business Development
Stephen P. Villa 35 Chief Financial Officer
</TABLE>
<PAGE>
Gregory S. Frisby has been the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since its inception in
1989. From 1991 to 1997, Gregory S. Frisby was also the Chief Executive Officer
of Frisby Aerospace. He serves as a member of the Board of Directors of Applied
Technology Center Corporation since 1995. From 1993 to 1994, Gregory S. Frisby
was Chairman of the National Advisory Board for the Small Business Development
Center Program for the Small Business Administration, from 1991 to 1993 he was a
member of the advisory panel assessing U.S. technology and the transition to a
peacetime economy for the Congressional Office of Technology Assessment, and
from 1995 to 1996 he was a member of the CEM Task Force on Privatization at the
U.S. Department of Energy. He received his Bachelor of Science degree in
Business Administration from Wake Forest University in 1981.
Jeffry D. Frisby is a director of the Company. From 1986 to the
present, Jeffry D. Frisby has been the President and a director of Frisby
Aerospace. Jeffry D. Frisby also serves on the Industrial Advisory Board of the
American Society of Mechanical Engineers. He received his Bachelor of Science
degree in Business Administration from Wake Forest University in 1977.
Pietro A. Motta is a director of the Company. Since 1984, he has
provided independent legal and financial advisory services for corporate
transactions to private financial, industrial and real estate groups. He is also
a director of SMEF, the investment banking unit of Compagnie Monegasque de
Banque, and an international advisor to HSBC Investment Banking of Hong Kong &
Shanghai Bank. Mr. Motta received his Bachelors degree from Collegio San Carlo &
Liceo Manzoni in 1956 and his Juris Doctor degree from Universita degli Studi di
Milano in 1960.
Domenico DeSole is a director of the Company. Since 1995, he has been
the president and chief executive officer of Gucci Group NV. Mr. DeSole formerly
held the position of chief operating officer of Gucci from 1994 to 1995 and was
president and chief executive officer of Gucci America, the company's largest
retail subsidiary, from 1984 to 1994. Mr. DeSole also serves on the board of
directors of Bausch & Lomb. Mr. DeSole received an undergraduate degree from the
University of Rome and a law degree from The Harvard Law School.
Robert C. Grayson is a director of the Company. Mr. Grayson is the
president of GGC, Inc., a Connecticut based management consulting firm, and is
also a partner in Leslie Berglass Associates, a New York based executive search
firm. Mr. Grayson has also served as a vice chairman of Tommy Hilfiger
Corporation from 1992 to 1996 and held several senior executive positions with
The Limited Stores from 1970 to 1992. Mr. Grayson currently serves on the boards
of directors of Ann Taylor, Sunglass Hut, and Kenneth Cole. Mr. Grayson received
an undergraduate degree from Indiana University.
Richard Dauksys has been the Vice President - Technology & Operations since
September 1998. Mr. Dauksys formerly managed development of engineering plastics
and products at BASF for more than ten years. Prior to this time, Mr. Dauksys
held executive positions at Loctite Corporation, Fothergill Composites, and the
U.S. Air Force Materials Laboratory. Mr. Dauksys hold a M.S. degree in
engineering from Massachusetts Institute of Technology and a B.S. from the
University of Massachusetts, Lowell in Plastics Engineering.
Douglas J. McCrosson has been the Vice President of Market Development and
Secretary of the Company since 1997. Mr. McCrosson became the Vice President of
Technical Operations in 1997 and from 1992 through 1997, he was the Group
Director responsible for all of the Company's thermal product development
programs. From 1988 to 1992, Mr. McCrosson was employed as an engineering
manager at Frisby Aerospace. From 1984 to 1988, Mr. McCrosson was a hydraulic
systems engineer for the Gruman Corporation. Mr. McCrosson received his Bachelor
of Science degree in Mechanical Engineering from the State University of New
York at Buffalo in 1984 and his Masters of Science degree in Management from
Polytechnic University in 1990.
Ted Mielnik has been the Vice President - Business Development since August
1998. Mr. Mielnik has nearly twenty years' experience in high-technology
development at leading healthcare and medical product suppliers, including AMSCO
International, Inc. from 1979 to 1995 and AbTox, Inc. from 1995 to 1998. Mr.
Mielnik obtained an M.B.A. degree from Gannon University and a Bachelor of
Science degree in mechanical engineering from The Pennsylvania State University.
Stephen P. Villa has been the Chief Financial Officer of the Company
since April 1998. From January 1997 to March 1998, Mr. Villa was the controller
of Harman Consumer Group, an operating company of Harman International, Inc.,
which sells consumer electronic products. From mid-1996 through January 1997,
Mr. Villa was an audit senior manager with Price Waterhouse LLP in New York. Mr.
Villa is a certified public accountant. From 1993 to mid-1996, Mr. Villa was an
audit senior manager with Befec-Price Waterhouse in Paris, France. From 1986 to
1993, Mr. Villa was an audit manager with Price Waterhouse LLP in New York. Mr.
Villa received his Bachelor of Science degree in accounting from Babson College
in 1986.
<PAGE>
Employment Agreements
Effective January 1, 1998, the Company entered into an employment
agreement with Gregory S. Frisby (the "Frisby Employment Agreement"), pursuant
to which the Company will employ Gregory S. Frisby until December 31, 2002,
unless sooner terminated for death, physical or mental incapacity or cause. The
Frisby Employment Agreement provides for a base salary of $200,000 per year,
with an annual increase of ten (10%) percent per year after the first year, a
bonus equal to two (2%) percent of the Company's pre-tax profits, an automobile
allowance of $400 per month, five (5) weeks paid vacation each year and, until
the second anniversary of the consummation of the Offering, a Company-provided
life insurance policy payable to his named beneficiaries having a death benefit
of $7,500,000.
If the Frisby Employment Agreement is terminated early for death or
physical or mental incapacity by the Company, the Company will pay Gregory S.
Frisby, or his estate, any accrued but unpaid salary, bonus, vacation pay,
reimbursement, benefits due to him as a former employee of the Company pursuant
to any of the Company's benefit plans and he shall continue to receive his then
current salary for a period of three (3) months (or a shorter period ending when
disability insurance payments under the Company's disability insurance policy
are at least sixty (60%) percent of his then current salary).
If following thirty (30) days notice, the Company terminates Gregory S.
Frisby for cause, he shall be entitled only to accrued but unpaid salary and
benefits (excluding any declared but unpaid bonus). "Cause" is defined under the
Frisby Employment Agreement to include: (i) any act of fraud or embezzlement in
respect of the Company or its funds, properties or assets; (ii) his conviction
of a felony under the laws of the United States or any state thereof unless such
acts were committed with the knowledge and approval of the Company's independent
members of the Board of Directors and counsel in the reasonable, good faith
belief that such actions were in the best interests of the Company and its
stockholders and would not violate criminal law; (iii) the willful misconduct or
gross negligence by him in connection with the performance of his duties that
has caused or is highly likely to cause a material adverse effect, to the
Company's business or its results of operations; or (iv) the intentional
dishonesty, of Gregory S. Frisby in the performance of his duties hereunder
which has a material adverse effect on the Company.
The Company may terminate the Frisby Employment Agreement without cause
following thirty (30) days notice. Additionally, Gregory S. Frisby may terminate
the Frisby Employment Agreement if the Company has materially breached the
Frisby Employment Agreement and such breach continues for thirty (30) days after
notice by Gregory S. Frisby or five (5) days after notice of any subsequent
breach. If the Frisby Employment Agreement is terminated pursuant to this
paragraph, Gregory S. Frisby will be entitled to any reimbursement due to him,
any benefits due to him as a former employee of the Company and to continue to
receive his then current salary through December 31, 2002.
If the Company does not elect to renew or extend Gregory S. Frisby's
employment arrangement after December 31, 2002, Gregory S. Frisby will be
entitled to a severance payment equal to one (1) year of his then current
salary. However, the Company will not be liable for any payments under this
paragraph if the Company offers to extend the Frisby Employment Agreement for a
period of at least three (3) years on terms at least as favorable to Gregory S.
Frisby as those in the Frisby Employment Agreement but no agreement is reached.
Additionally, pursuant to the Frisby Employment Agreement, Gregory S.
Frisby has agreed (i) both during and after his employment not to disclose or
misappropriate confidential information of the Company; (ii) to disclose and
upon request convey to the Company any intellectual property originated by him
during his employment by the Company or one (1) year thereafter, or with the
Company's time, material or funds; (iii) not to compete (as defined) with the
Company for a period of twelve (12) months from the termination or expiration of
the Frisby Employment Agreement, or such shorter time as may be determined by
the Board of Directors, provided that the Company shall pay to him monthly
during such period an amount equal to the aggregate of his base salary (as in
effect as of the termination or expiration of the Frisby Employment Agreement),
benefits and bonus unless he has received certain severance payments otherwise
due him.
<PAGE>
Board of Directors
The Company does not have a nominating committee of the Board of
Directors. In 1998, the Company formed an Audit Committee comprised of Messrs.
J. Frisby, Motta, and DeSole and a Compensation/Stock Option Committee comprised
of Messrs. J. Frisby, Motta, Grayson and DeSole. The function of the Audit
Committee is to recommend annually to the Board of Directors the appointment of
the independent auditors of the Company and review the results and scope of the
audit and other services provided by the Company's independent auditors. The
function of the Compensation/Stock Option Committee is to approve salaries and
certain incentive compensation (including stock options) for management and key
employees of the Company. The Audit Committee met one time in fiscal year 1998.
The Compensation/Stock Option Committee met one time in fiscal year 1998. The
Board of Directors met on five (5) occasions during the last fiscal year.
Executive Compensation
The table below sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to the Company's Chief
Executive Officer and the most highly compensated executive officers of the
Company whose aggregate cash compensation exceeded $100,000 (collectively, the
"Named Executives") during the three (3) fiscal years ended December 31, 1998,
1997 and 1996:
<TABLE>
<CAPTION>
Summary Compensation Table (1)
Annual Compensation
Name and Principal Position Year Salary Bonus
- --------------------------- ---- ------ -----
<S> <C> <C> <C>
Gregory S. Frisby 1998 $204,800(2) --
Chairman of the Board, and 1997 $52,000 --
Chief Executive Officer 1996 $52,000 --
</TABLE>
(1) Table does not reflect three (3) individuals who would otherwise
qualify as Named Executives had they been employed and compensated by
the Company for the full fiscal year 1998. These individuals are
Messrs. Villa, Dauksys and Mielnik.
(2) Increase in 1998 reflects the relinquishment of Mr. Frisby's dual role
as CEO of Frisby Aerospace and the Company and increased
responsibilities with the Company. Amount includes a $400 monthly
allowance for automobile expense.
<PAGE>
Stock Option Plan
1998 Stock Option Plan. On March 13, 1998, the Board of Directors of
the Company adopted, and the stockholders approved, the 1998 Stock Option Plan
(the "1998 Option Plan"). The 1998 Option Plan has 250,000 shares of Common
Stock reserved for issuance upon the exercise of options designated as either
(i) incentive stock options ("ISOs") under the Code or (ii) non-qualified
options. ISOs may be granted under the 1998 Option Plan to employees and
officers of the Company. Non-qualified options may be granted to consultants,
directors (whether or not they are employees), employees or officers of the
Company.
The purpose of the 1998 Option Plan is to encourage stock ownership by
certain directors, officers and employees of the Company and certain other
persons instrumental to the success of the Company and to give them a greater
personal interest in the success of the Company. The 1998 Option Plan is
administered by the Stock Option Committee of the Board of Directors. The Stock
Option Committee, within the limitations of the 1998 Option Plan, determines the
persons to whom options will be granted, the number of shares to be covered by
each option, whether the options granted are intended to be ISOs, option
exercise price per share, the manner of exercise, the time, manner and form of
payment upon exercise of an option, and restrictions or obligations of the
Company. Options granted under the 1998 Option Plan may not be granted at a
price less than the fair market value of the Common Stock on the date of grant
(or 110% of fair market value in the case of persons holding 10% or more of the
voting stock of the Company). The aggregate fair market value of shares 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) may not exceed $100,000. Options granted under the
1998 Option Plan will expire not more than ten years from the date of grant
(five years in the case of ISOs granted to persons holding 10% or more of the
voting stock of the Company). Options granted under the 1998 Option Plan are
generally not transferable during an optionee's lifetime but are transferable at
death by will or by the laws of descent and distribution.
As of April 26, 1999, the Company has granted options to purchase
229,000 (excluding cancelled options) shares of Common Stock at exercise prices
ranging from $3.00 to $7.25 per share and 21,000 shares remain available for
future option grants under the 1998 Option Plan.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
It is important to note that the Compensation/Stock Option Committee of
the Board of Directors (the "Committee"), established in September 1998, assumes
responsibility for all fiscal compensation decisions. The Committee is composed
of independent outside directors.
Compensation/Stock Option Committee
The Committee met one time during fiscal 1998 to carry out its
responsibilities including the development and administration of policies
governing annual compensation for senior executives of the Company.
In developing and administering these policies, the Committee has
focused on compensating Company executives:
(1) on a competitive basis with other comparably sized and managed
companies;
(2) in a manner consistent and supportive of overall Company objectives;
and
(3) balancing the long-term and short-term strategic initiatives of the
Company.
The Company's compensation for executive officers generally consists of
a fixed base salary and long-term incentive compensation. In addition, Company
executives are able to participate in various benefit plans generally available
to other full-time employees of the Company.
<PAGE>
Directors' Compensation
All directors currently serve for one-year terms and until their
successors have been elected and qualified. Each director, other than Messrs. G.
Frisby and J. Frisby, receives from the Company for their service an annual
grant of 7,500 non-qualifying options, plus reimbursement of expenses related to
attendance at Board meetings.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of the date hereof, by (i)
each person known to the Company to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each of the Company's Named Executives;
and (iii) all Executive Officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
Directors, Named Executives Amount and Nature of Percentage of
and 5% Stockholders Beneficial Ownership Beneficial Ownership
<S> <C> <C>
Gregory S. Frisby 2,854,286(1) 45.2%
Jeffry D. Frisby 1,424,643(1) 22.6%
Pietro A. Motta 17,500(2) *
Domenico DeSole 7,500(3) *
Robert C. Grayson 132,500(4) 2.1%
Luca Bassani Antivari 1,049,827(5) 16.6%
MUSI Investments, S.A. 1,038,827(6) 16.4%
- --------------------
All officers and directors 3,116,086** 49.3%
(9 persons)
</TABLE>
* Indicates less than one (1%) percent beneficial ownership.
** Includes only those shares directly owned by the Company's officers and
directors in order to avoid double counting and a figure in excess of 100% of
the outstanding shares of the Company.
(1) Includes 1,424,643 shares of the Company's Common Stock owned of record
by Jeffry D. Frisby with respect to which Gregory S. Frisby has been granted
voting rights but no dispositive power pursuant to a Shareholders Agreement
between Gregory S. Frisby and Jeffry D. Frisby.
(2) Includes an option to acquire 7,500 shares of the Company's Common
Stock at an exercise price of $7.00 per share.
(3) Includes an option to acquire 7,500 shares of the Company's Common
Stock at an exercise price of $7.25 per share.
(4) Includes options to acquire a total of 110,000 shares of the Company's
Common Stock at an exercise price of $7.25 per share, which are exercisable by
GGC, Inc., a corporation of which Mr. Grayson is the President and 90%
shareholder. Also includes options to acquire 7,500 shares of the Company's
Common Stock at an exercise price of $7.25 per share.
(5) Includes 11,000 shares owned indirectly by the reporting person; also
includes 451,327 shares owned directly by MUSI Investments, S.A. ("MUSI") and
587,500 shares of Common Stock obtained upon conversion of 587,500 shares of
Convertible Preferred Stock owned directly by MUSI as a result of the election
on April 6, 1999 by MUSI of its right to convert such shares of Convertible
Preferred Stock to Common Stock on a share for share basis. (See note (6)
below).
(6) Includes 587,500 shares of Common Stock obtained upon conversion of
587,500 shares of Convertible Preferred Stock owned directly by MUSI as a result
of the election on April 6, 1999 by MUSI of its right to convert such shares of
Convertible Preferred Stock to Common Stock on a share for share basis.
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who own more than ten (10%) percent
of a registered class of the Company's equity securities (collectively, the
"Reporting Persons") to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish the Company with copies of
these reports. Based solely on the Company's review of the copies of such forms
received by it during its fiscal year ended December 31, 1998, the Company
believes that all filing requirements applicable to the Reporting Persons were
complied with.
Certain Transactions
On November 3, 1989, the Company issued 567,857 shares of Common Stock
in equal portions to each of five siblings of the Frisby family, including
Gregory S. Frisby, President, Founder and Chief Executive Officer of the Company
for a nominal amount. Pursuant to Stock Option Agreements entered into in
November 1996 by the five siblings, Gregory S. Frisby and Jeffry D. Frisby
exercised options in November 1997 to purchase the 60% of the outstanding shares
not then owned by them of the Company and two affiliated companies, Frisby
Aerospace and Frisby Industries, from the other siblings for the previously
negotiated aggregate purchase price of $4,078,854. As a result of that
transaction, Gregory S. Frisby and Jeffry D. Frisby each owned 50% of the shares
of the Company.
On December 10, 1997, Gregory S. Frisby and Jeffry D. Frisby entered
into a Shareholder Agreement (the "JF/GF Agreement") pursuant to which Jeffry D.
Frisby agreed to vote all of his shares in accordance with Gregory S. Frisby's
direction. As a result, Gregory S. Frisby will have effective control of the
Company and will continue to have the power to control the outcome of matters
submitted to a vote of the Company's stockholders, such as the election of at
least a majority of the members of the Company's Board of Directors and to
direct the future operations of the Company. Such concentration of voting power
may have the effect of discouraging, delaying or preventing a change in control
of the Company. The JF/GF Agreement prohibits the transfer of shares by either
party except in accordance with its terms which include a right of first refusal
to purchase one another's stock on the same terms as any potential third-party
purchaser. Pursuant to the terms of the JF/GF Agreement, upon the death of
Gregory S. Frisby, Jeffry D. Frisby will have voting control of all shares then
owned by Gregory S. Frisby and upon the death of either Gregory S. Frisby or
Jeffry D. Frisby, the Company may, at its election, purchase the shares of
Common Stock then owned by such stockholder for a per share price equal to the
fair market value of the Common Stock as then determined by the Company's Board
of Directors.
The assets of Frisby Aerospace and Frisby Industries were sold to an
unaffiliated third party on February 10, 1998.
The Company has, since the consummation of its initial public offering
in April 1998, received from Frisby Aerospace certain accounting, clerical and
office services from Frisby Aerospace without charge. During 1997, the Company
borrowed operating capital from Frisby Aerospace and, as of December 30, 1997,
the Company repaid the entire balance of $517,000 with a portion of the proceeds
of a 1997 private placement. The Company occupied a portion of Frisby
Aerospace's New York facility and subleased its North Carolina offices from
Frisby Aerospace. No lease for the New York facility exists between the Company
and Frisby Aerospace and no rental payments were made by the Company to Frisby
Aerospace with respect to such facility. The Company moved to Bay Shore, New
York in May 1998. The Company's North Carolina lease with Frisby Aerospace
expired on November 30, 1997 and has been extended until terminated December
1998. The rental payment for the North Carolina lease was $2,520 per month. For
each of the years ended December 31, 1996, 1997, and 1998 the Company made
aggregate rental payments of approximately $30,000 to Frisby Aerospace with
respect to the North Carolina facility.
During 1997, the Company exhausted its $500,000 existing line of credit
with European American Bank ("EAB"), which had been jointly and severally
guaranteed by Gregory S. Frisby, Jeffry D. Frisby and Frisby Aerospace, which
guarantees were released after the consummation of the Offering. The EAB loan
was repaid in full in December 1997 with a portion of the proceeds of the
Private Placement. From September 30, 1997 until December 29, 1997 the Company
was not in compliance with a convenant under the EAB loan which required that
the Company maintain a positive net worth. On December 29, 1997 the Company
restored its compliance with this covenant. In June 1998, the line of credit
with EAB was extended to $1,000,000 with an expiration date of June 30, 1999.
<PAGE>
In March 1998, the Company entered into a lease with an unrelated third
party for a new facility in North Carolina. The Company planned to move its
North Carolina and South Carolina facilities into the new North Carolina
facility by June 1998. However, on August 27, 1998, the facility to which the
Company was relocating its North Carolina operations was destroyed by fire.
While there was no significant impact on operations of the Company, the Company
was unable to move into the building it intended to occupy.
In December 1997, pursuant to a Purchase Agreement (the "Purchase
Agreement") the Company issued to MUSI 441,327 shares of the Company's Common
Stock and the Private Placement Option for an aggregate purchase price of
$2,500,000. MUSI exercised the Private Placement Option on February 27, 1998 for
587,500 shares of the Company's Convertible Preferred Stock at an exercise price
of $2,500,000. On April 6, 1999, MUSI exercised its rights to convert the
587,500 shares of the Company's Convertible Preferred Stock on a share for share
basis and received 587,500 shares of the Company's Common Stock. The Company
paid $300,000 to an entity designated by MUSI in respect of related transaction
costs incurred by MUSI.
In connection with MUSI's purchase of the Common Stock, MUSI, the
Company, Gregory S. Frisby and Jeffry D. Frisby entered into a Stockholders
Agreement in December 1997 (the "Other Stockholders Agreement"). The Other
Stockholders Agreement provides for restrictions on the transfers of shares,
rights of first refusal, the designation by MUSI of one nominee for director
(the "MUSI Designee") and the designation by management of the remaining
nominees (the "Frisby Designees") and prior to the Offering, the requirement
that the MUSI Designee and the Frisby Designees must agree in order for the
Company to take certain actions. Pursuant to the Other Stockholders Agreement,
Gregory S. Frisby and Jeffry D. Frisby agree to use their best efforts to cause
the MUSI Designee to be elected as a director of the Company.
Additionally, the Other Stockholders Agreement provides that MUSI, at
any time beginning eighteen (18) months after the Company's Offering, may
require the Company to register, on two occasions, at the Company's expense, all
or an amount equal to or exceeding $500,000 of MUSI's Common Stock in a public
offering pursuant to the Securities Act. The Other Stockholders Agreement grants
to MUSI, Gregory S. Frisby and Jeffry D. Frisby the right to "piggyback" their
Common Stock in any registration by the Company of its Common Stock, other than
the Offering, subject to the right of the managing underwriter to restrict or
limit the registration of such shares if the number of such shares requested to
be sold would have an adverse effect on the Offering. The expenses incurred in
connection with a "piggyback" registration, other than underwriter's discounts
and commissions, are to be paid by the Company. In the event MUSI, Gregory S.
Frisby or Jeffry D. Frisby own less than 25% of the number of the Company's
Common Stock owned by them on the date of the Other Stockholders Agreement,
their rights under the Other Stockholders Agreement shall terminate.
The Company has agreed to indemnify MUSI from all losses, costs,
damages, liabilities and expenses resulting from any misrepresentation or breach
of any representation, warranty, covenant or undertaking made or to be performed
by the Company in accordance with the terms of the Purchase Agreement between
the Company and MUSI.
In April 1998, the Company entered into a two year consulting agreement
with GGC, Inc., a corporation of which a director of the Company, Mr. Grayson,
is the President and 90% shareholder. In conjunction with this agreement, the
Company has issued warrants to purchase 110,000 shares of the Company's Common
Stock at an exercise price equal to the then market price.
The Company believes that all of the transactions described above are
at least as favorable to the Company as those available on an arms-length basis.
In the future, all material transactions entered into between the Company and
affiliated entities will be on terms no less favorable to the Company than can
be obtained from unaffiliated parties and will not be entered into or terminated
except on the affirmative vote of a majority of the disinterested directors.
<PAGE>
2. AMENDMENT OF 1998 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES
RESERVED FOR ISSUANCE THEREUNDER FROM 250,000 TO 750,000
At the Meeting, the Company's stockholders will be asked to approve an
amendment to the 1998 Stock Option Plan (the "1998 Option Plan") to increase the
number of shares of Common Stock authorized for issuance thereunder from 250,000
to 750,000. The 1998 Option Plan was adopted by the Board of Directors of the
Company on March 13, 1998, and approved by the Stockholders of the Company on
March 13, 1998.
As of February 28, 1999, 229,000 options were granted under the 1998 Option
Plan, leaving available 21,000 shares for future purchase under the 1998 Option
Plan.
The Board believes that in order to enable the Company to continue to
attract and retain personnel of the highest caliber, provide incentives for
employees of the Company and to continue to promote the well-being of the
Company, it is in the best interest of the Company and its Stockholders to
provide to such persons the opportunity to participate in the value and/or
appreciation in value of the Company's Common Stock. The Board has found that
the 1998 Option Plan has proven to be a valuable tool in attracting and
retaining key employees. It believes that such authority, in view of the
substantial growth of the Company and need to continue to expand, should be
expanded to increase the number of options which may be granted under the 1998
Option Plan. The Board believes that such authority (i) will provide the Company
with significant means to attract and retain talented personnel; (ii) will
result in saving cash, which otherwise would be required to maintain current key
employees and adequately attract and reward key personnel; and (iii)
consequently will prove beneficial to the Company's ability to be competitive.
If the above-described amendment to the 1998 Option Plan is approved by the
Stockholders, additional options may be granted under the 1998 Option Plan, the
timing, amounts and specific terms of which cannot be determined at this time.
The full text of the 1998 Option Plan, as proposed to be amended, is
available upon written request to the Company.
Recommendation and Vote Required
The vote of the holders of a majority of the shares of the Company's Common
Stock present or in person or represented by proxy at the Meeting is required to
adopt the foregoing proposal to amend the 1998 Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" THE AMENDMENT TO THE
COMPANY'S 1998 STOCK OPTION PLAN TO
INCREASE THE NUMBER OF SHARES
RESERVED FOR ISSUANCE FROM 250,000
TO 750,000
<PAGE>
3. SELECTION OF AUDITORS
The Board of Directors recommends that the stockholders ratify the
selection of Ernst & Young LLP, independent auditors, which served as the
Company's independent auditors to audit the Company's consolidated financial
statements for the fiscal year ending December 31, 1999. A representative of
Ernst & Young LLP is expected to be present at the Meeting and will be given the
opportunity to make a statement and to answer any questions a stockholder may
have with respect to the consolidated financial statements of the Company for
the year ended December 31, 1998.
Recommendation and Vote Required
The vote of the holders of a majority of the shares of the Company's Common
Stock present or in person or represented by proxy at the Meeting is required to
adopt the foregoing proposal to select Ernst & Young LLP as the Company's
independent auditors for the fiscal year ended December 31, 1999.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE
SELECTION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999
4. OTHER MATTERS
The Board of Directors has no knowledge of any other matters which may come
before the Meeting and does not intend to present any other matters. However, if
any other matters shall properly come before the Meeting or any adjournment
thereof, the persons named as proxies will have discretionary authority to vote
the shares of Common Stock represented by the accompanying proxy in accordance
with their best judgment.
Stockholder's Proposals
Any stockholder of the Company who wishes to present a proposal to be
considered at the next annual meeting of stockholders of the Company and who
wishes to have such proposal presented in the Company's proxy statement for such
Meeting must deliver such proposal in writing to the Company at 77 East Main
Street, Bay Shore, New York 11706, on or before December 15, 1999. In order to
curtail controversy as to the date on which the proposal was received by the
Company, it is suggested that proponents submit their proposals by certified
mail, return receipt requested.
By order of the Board of Directors
Douglas J. McCrosson, Secretary
The Company will furnish without charge to each person whose proxy is being
solicited by this proxy statement, on the written request of such person, a copy
of the Company's Annual Report on Form 10-KSB, for its fiscal year ended
December 31, 1998. Such request should be addressed to Frisby Technologies,
Inc., Investor Relations, 77 East Main Street, Bay Shore, New York 11706.
Dated: April 30, 1999
<PAGE>
COMMON STOCK PROXY
FRISBY TECHNOLOGIES, INC.
77 East Main Street
Bay Shore, New York 11706
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned, revoking all previous proxies, hereby appoints Gregory S.
Frisby and Stephen P. Villa, and each of them, proxies with power of
substitution to each, for and in the name of the undersigned to vote all shares
of Common Stock of Frisby Technologies, Inc. (the "Company"), held of record by
the undersigned on April 26, 1999 which the undersigned would be entitled to
vote if present at the Annual Meeting of Shareholders of the Company to be held
on June 10, 1999, at 9:00 a.m. at Tribeca Grill, Screening Room, 375 Greenwich
Street, New York, New York 10013, and any adjournments thereof, upon the matters
set forth in the Notice of Annual Meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement.
1. ELECTION OF DIRECTORS
FOR all nominees listed below (except as Withhold Authority to vote for all
marked to the contrary below) nominees listed below
(Instruction: To withhold authority to vote for an individual nominee
strike a line through such nominee's name in the list below).
GREGORY S. FRISBY
JEFFRY D. FRISBY
PIETRO A. MOTTA
ROBERT C. GRAYSON
DOMENICO DESOLE
2. TO APPROVE THE PROPOSED AMENDMENT TO THE COMPANY'S 1998 STOCK OPTION
PLAN TO INCREASE THE NUMBER OF SHARES EMPLOYEES MAY PURCHASE THEREUNDER FROM
250,000 SHARES TO 750,000 SHARES.
FOR AGAINST ABSTAIN
3. RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
FOR AGAINST ABSTAIN
4. TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
FOR AGAINST ABSTAIN
PLEASE SIGN ON THE REVERSE SIDE AND RETURN THIS PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and when
properly executed will be voted as directed herein. If no direction is given,
this Proxy will be voted FOR Proposal.
(Date)
(Signature)
(Signature, if held jointly)
Please sign exactly as name appears below. If Shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please list full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Please sign, date and return promptly in the enclosed envelope. No envelope
need be affixed if mailed in the United States.
<PAGE>
ANNEX A
--------
FRISBY TECHNOLOGIES, INC.
1998 STOCK OPTION PLAN
1. Plan; Purpose; General. The purpose of this Stock Option Plan (the
"Plan") is to advance the interests of Frisby Technologies, Inc. and any present
and future subsidiaries (as defined below) of Frisby Technologies, Inc.
(hereinafter inclusively referred to as the "Company") by enhancing the ability
of the Company to attract and retain selected employees, consultants, advisors
and directors (collectively the "Participants") by creating for such
Participants incentives and rewards for their contributions to the success of
the Company, and by encouraging such Participants to become owners of shares of
the Company's Common Stock, par value $.001 per share, as the title or par value
may be amended (the "Shares").
2. Effective Date of Plan. The Plan will become effective upon approval by
the Board of Directors of the Company (the "Board"), and shall be subject to the
approval by the shareholders of the Company as provided under the Securities Act
of 1933, as amended (the "Act").
3. Administration of the Plan. (a) The Plan will be administered by the
Board, subject to Paragraph 3(b). The Board will have authority, not
inconsistent with the express provisions of the Plan, to take all action
necessary or appropriate thereunder, to interpret its provisions, and to decide
all questions and resolve all disputes which may arise in connection therewith.
Such determinations of the Board shall be conclusive and shall bind all parties.
(b) 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"), in which event all references to "the Board" hereunder, including
without limitation the references in Section 9, but excluding the references in
Section 2, shall be deemed to refer to the Committee. The Committee shall
consist of not fewer than two (2) members of the Board; provided, however, that
if, at any time the awards under the Plan are granted, the Company is subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), each of the members of the Committee must be a
"non-employee director" as that term is defined in Rule 16b-3 as promulgated and
amended from time to time by the Securities and Exchange Commission under the
Exchange Act, or any successor thereto ("Rule 16b-3"). In addition, at any time
the Company is subject to Section 162(m) of the Code, each member of the
Committee shall be an "outside director" within the meaning of such Section. A
majority of the members of the Committee shall constitute a quorum, and all
determinations of the Committee (including determinations of eligibility, the
number of Options granted to a Participant and the exercise price of Options)
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.
4. Eligibility. The Participants in the Plan shall be all employees,
consultants, advisors and directors of the Company who are selected by the Board
whether or not they are also officers of the Company; provided, however, that
Incentive Options shall only be granted to employees of the Company, and
provided further, however, that Gregory S. Frisby and Jeffry D. Frisby shall not
be eligible Participants.
<PAGE>
5. Grant of Options. (a) The Board shall grant Options to Participants that
it, in its sole discretion, selects. Options shall be granted in accordance with
the terms and conditions set forth in Section 6 hereof and on such other terms
and conditions as the Board shall determine. Such terms and conditions may
include a requirement that a Participant sell to the Company any Shares acquired
upon exercise of Options upon the Participant's termination of employment upon
such terms and conditions as the Board may determine. Incentive Options shall be
granted on terms that comply with the Code and Regulations thereunder. (b)
Options granted pursuant to the Plan (the "Options") may be (i) incentive stock
options ("Incentive Options") that are intended to qualify under the Internal
Revenue Code of 1986, as amended (the "Code"), or, (ii) options that are not
intended to so qualify, or, (iii) both. The proceeds received from the sale of
Shares pursuant to the Plan shall be used for general corporate purposes. (c) No
Options shall be granted after December 31, 2007 but Options previously granted
may be exercised after that date until the expiration of the Option.
6. Terms and Conditions of Options
(a) Exercise Price. The purchase price per share for Shares issuable upon
exercise of Options shall be a minimum of one hundred (100%) percent of fair
market value on the date of grant as determined by the Board. For this purpose,
"fair market value" will be determined as set forth in Section 8 hereof.
Notwithstanding the foregoing, if any person to whom an Option is to be granted
owns in excess of ten (10%) percent of the combined voting power of all classes
of outstanding capital stock of the Company (a "Principal Shareholder"), then no
Option may be granted to such person for less than one hundred ten (110%)
percent of the fair market value on the date of grant as determined by the
Board.
(b) Period of Options. The expiration of each Option shall be fixed by the
Board, in its discretion, at the time such Option is granted. No Option shall be
exercisable after the expiration of five (5) years from the date of its grant
and each Option shall be subject to earlier termination as expressly provided in
this Section 6 hereof or as determined by the Board, in its discretion, on the
date such Option is granted.
(c) Payment for Delivery of Shares. Shares which are subject to Options
shall be issued only upon receipt by the Company of full payment of the purchase
price for the Shares as to which the Option is exercised. Payment for Shares may
be made (as determined by the Board at the time the Option is granted) (i) in
cash; (ii) by certified or bank check payable to the order of the Company in the
amount of the purchase price; (iii) by delivery of Shares owned by the
Participant having a fair market value equal to the purchase price; or (iv) by
any combination of the methods of payment described in (i) through (iii) above,
as determined by the Board at the time the Option is granted.
In addition, any grant of a nonqualified Option may provide that payment of
the purchase price for the Option may also be made in whole or in part in the
form of Shares that are subject to risk of forfeiture or restrictions of
transfer. Unless otherwise determined by the Board on or after the date of
grant, whenever any purchase price for an Option is paid in whole or in part by
means of any of the forms of consideration specified in this Section 6(c), the
Shares received by the Participant upon the exercise of the nonqualified Option
shall be subject to the same risk of forfeiture or restrictions on transfer as
those that applied to the consideration surrendered by the Participant;
provided, however, that such risks of forfeiture and restrictions on transfer
shall apply only to the same number of Shares received by the Participant as
applied to the forfeitable or restricted Shares surrendered by the Participant.
Any grant may, if there is then a public market for the Shares, provide for
deferred payment of the purchase price for the Option from the proceeds of sale
through a broker of some or all of the Shares to which the exercise relates.
The Company shall not be obligated to deliver any Shares unless and until,
in the opinion of the Company's counsel, all applicable federal and state laws
and regulations have been complied with and until all other legal matters in
connection with the issuance and delivery of Shares have been approved by the
Company's counsel. Without limiting the generality of the foregoing, the Company
may require from the person exercising an Option such investment representation
or such agreement, if any, as counsel for the Company may consider necessary in
order to comply with the Act and applicable state securities laws.
(d) Legend on Certificates. The stock certificates representing the Shares
shall carry such appropriate legends, and such written instructions shall be
given to the Company's transfer agent, as may be deemed necessary or advisable
by counsel to the Company in order to comply with the requirements of the Act or
any state securities laws.
<PAGE>
(e) Rights as Shareholder. A Participant or a transferee of an Option shall
have no rights as a Shareholder with respect to any Shares covered by the Option
until the date of the issuance of a stock certificate to him for such Shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distribution of other rights for which
the record date is prior to the date such stock certificate is issued, except as
provided in Section 7 hereof. Each grant of Options shall be evidenced by an
agreement, which shall be executed on behalf of the Company and delivered to and
accepted by the Participant and shall contain such terms and provisions as the
Board may determine consistent with the Plan.
(f) Vesting. Options granted shall vest in the Participant and become
immediately exercisable by the Participant on the fourth (4th) anniversary of
the date of grant or such earlier date as the Board of Directors, at its sole
discretion, may determine, provided, however, for every option granted for more
than 50,000 Shares, no more than one-third (1/3) of such shares shall become
vested and exercisable earlier than twelve (12) months following the date of the
grant, and no more than a total of two-thirds (2/3) of such Shares shall become
vested and exercisable earlier than thirty (30) months following the date of the
grant.
(g) Non-Transferability of Options. Except as provided in Sections 6(h)(ii)
and (iii), Options granted under this Plan may not be exercised during a
Participant's lifetime except by the Participant, other than by will or the laws
of descent and distribution. Options may not be sold, assigned or otherwise
transferred or disposed of in any manner whatsoever except as provided in
Section 6(h) hereof. Notwithstanding the foregoing, the Board, in its sole
discretion, may provide for the transferability of particular awards under this
Plan so long as such provisions would not disqualify the exemption for other
awards under Rule 16b-3, if then applicable to awards under the Plan. Moreover,
any grand made under this Plan may provide that all or any part of the Shares
issued or transferred by the Company upon exercise of Options shall be subject
to further restrictions on transfer.
(h) Termination of Relationship. Except as otherwise provided in an Option
or other agreement between the Company and a Participant, upon the termination
of a Participant's status as an employee, consultant, advisor or director, for
any reason other than as set forth in subsections (ii) and (iii) below, at a
time when the Shares are then Publicly Traded (as defined below), then the
following provisions shall apply:
(i) Such Participant may exercise Options to the extent exercisable on the
date of termination not later than three (3) months (or such shorter time as may
be specified in the grant), after the date of such termination. To the extent
that the Participant was not entitled to exercise the Option at the date of such
termination, or does not exercise such Option within the time specified herein,
such Option shall expire and terminate. Notwithstanding anything else herein, if
the employment or other relationship of any Participant shall be terminated
voluntarily by the Participant and without the consent of the Company, or for
"Cause" (as hereinafter defined), then any Option granted to such Participant
(whether or not then vested in the Participant) to the extent not previously
exercised shall expire immediately on the date of termination. For purposes of
the Plan, "Cause" shall mean "Cause" as defined in any employment agreement
between any employee Participant and the Company ("Employment Agreement"), and
in the absence of an Employment Agreement or in the absence of a definition of
"Cause" in such Employment Agreement, "Cause" shall mean: (i) any continued
failure by the employee Participant to obey the reasonable instructions of the
president or any member of the Board; (ii) continued neglect by the Participant
of his duties and obligations as an employee of the Company or a failure to
perform such duties and obligations to the reasonable satisfaction of the
president or the Board; (iii) willful misconduct of the Participant or other
actions in bad faith by the Participant which are to the detriment of the
Company, including, without limitation, commission of a felony, embezzlement or
misappropriation of funds or of confidential information or commission of any
act of fraud; or (iv) a breach of any material provision of any Employment
Agreement not cured within ten (10) days after written notice thereof.
<PAGE>
(ii) Notwithstanding the provisions of subsection (i) above, in the event
of termination of a Participant's status as an employee as a result of
"permanent disability" (as such term is defined in any contract of employment
between the Company and the Participant or, if not defined, then such term shall
mean the inability to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of twelve (12) months), the Participant (or, in the case of
the Participant's legal incapacity, such Participant's guardian or legal
representative acting in a fiduciary capacity on behalf of the Participant under
state law and court supervision) may exercise the Option, but only to the extent
such Option was exercisable on the date the Participant ceased working as the
result of the permanent disability. Such exercise must occur within six (6)
months (or such shorter time as is specified in the grant) from the date on
which the Participant ceased working as a result of the permanent disability. To
the extent that the Participant was not entitled to exercise such Option on the
date the Participant ceased working, or does not exercise such Option within the
time specified herein, such Option shall terminate.
(iii) Notwithstanding the provisions of subsection (i) above, in the event
of the death of a Participant, the Option may be exercised, at any time within
six (6) months following the date of death (or such shorter time as may be
specified in the grant), by the Participant's estate or by a person who acquired
the right to exercise the Option by will or the applicable laws of descent and
distribution, but only to the extent such Option was exercisable on the date of
the Participant's death. To the extent that the Participant was not entitled to
exercise such Option on the date of death, or the Option is not exercised within
the time specified herein, such Option shall terminate. (iv) Notwithstanding
subsections (i), (ii), and (iii) above, the Board shall have the authority to
extend the expiration date of any outstanding Option in circumstances in which
it deems such action to be appropriate (provided that no such extension shall
extend the term of an Option beyond the date on which the Option would have
expired if no termination of the Participant's relationship's with the Company
had occurred).
(h) Financial Assistance. The Company is vested with authority under this
Plan to assist any employee to whom an Option is granted hereunder (including,
to the extent permitted by law, any director or officer of the Company who is
also an employee of the Company) in the payment of the purchase price payable on
exercise of that Option, by lending the amount of such purchase price to such
employee on such terms and at such rates of interest and upon such security (or
unsecured) as shall have been authorized by or under authority of the Board.
(i) Withholding Taxes. To the extent required by applicable federal, state,
local or foreign law, a Participant shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise by
reason of an Option exercise or any sale of Shares. The Company shall not be
required to issue Shares until such obligations are satisfied. The Board may
permit these obligations to be satisfied by having the Company withhold a
portion of the Shares that otherwise would be issued to the Participant upon
exercise of the Option, or to the extent permitted, by tendering Shares
previously acquired.
<PAGE>
7. Shares Subject to Plan.
(a) Number of Shares and Stock to be Delivered. Shares delivered pursuant
to this Plan shall in the discretion of the Board be authorized but unissued
Shares or previously issued Shares acquired by the Company. The unexercised
portion of any expired, terminated or cancelled Option shall again be available
for the grant of Options under the Plan. Subject to adjustment as described
below, the aggregate number of Shares which may be delivered under this Plan
shall not exceed seven hundred fifty thousand (750,000) Shares.
(b) Changes in Stock. In the event of a stock dividend, stock split,
combination of Shares, recapitalization or similar change in the capital
structure of the Company, merger in which the Company is the surviving Company,
consolidation, spin-off, split up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of warrants or other
rights to purchase securities or any other corporate transaction or event having
any effect similar to any of the foregoing, the number and kind of Shares of
stock or securities of the Company to be subject to the Plan and to Options then
outstanding or to be granted thereunder, the maximum number of Shares or
securities which may be delivered under the Plan, the Option price and other
relevant provisions may be appropriately adjusted by the Board, whose
determination shall be binding on all persons. In the event of a consolidation,
merger or tender offer in which the Company is not the surviving Company or
which results in the acquisition of substantially all the Company's outstanding
stock by a single person or entity, or in the event of the sale or transfer of
substantially all the Company's assets, all outstanding Options, whether or not
then exercisable, shall immediately become exercisable. In such event, the Board
shall notify the Participants that all outstanding Options shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period.
The Board may also adjust the number of Shares subject to outstanding
Options, the exercise price of outstanding Options and the terms of outstanding
Options to take into consideration material changes in accounting practices or
principles, consolidations or mergers (except those described in the immediately
preceding paragraph), acquisitions or dispositions of stock or property or any
other event if it is determined by the Board that such adjustment is appropriate
to avoid distortion in the operation of the Plan.
8. Certain Definitions.
Certain terms used in the Plan have been defined above. In addition, as
used in the Plan, the following terms shall have the following meanings:
(a) A "subsidiary" is any company (i) in which the Company owns, directly
or indirectly, stock possessing fifty (50%) percent or more of the total
combined voting power of all classes of stock or (ii) over which the Company has
effective operating control.
(b) The "fair market value" of the Shares shall mean:
(i) If the Shares are then Publicly Traded: The closing price of the Shares
as of the day in question (or, if such day is not a trading day in the principal
securities market or markets for such Shares, on the nearest preceding trading
day), as reported with respect to the market (or the composite of markets, if
more than one) in which Shares are then traded, or, if no such closing prices
are reported, on the basis of the mean between the high bid and low asked prices
that day on the principal market or quotation system on which Shares are then
quoted, or, if not so quoted, as furnished by a professional securities dealer
making a market in such Shares selected by the Board; or
(ii) If the Shares are then not Publicly Traded: The price at which one
could reasonably expect such Shares to be sold in an arm's length transaction,
for cash, other than on an installment basis, to a person not employed by,
controlled by, in control of or under common control with the issuer of such
Shares. Such fair market value shall be that which has concurrently or most
recently been determined for this purpose by the Board, or at the discretion of
the Board by an independent appraiser or appraisers selected by the Board, in
either case giving due consideration to recent transactions involving Shares, if
any, the issuer's net worth, prospective earning power and dividend-paying
capacity, the goodwill of the issuer's business, the issuer's industry position
and its management, that industry's economic outlook, the value of securities of
issuers whose Shares are Publicly Traded and which are engaged in similar
businesses, the effect of transfer restrictions to which such Shares may be
subject under law and under the applicable terms of any contract governing such
Shares, the absence of a public market for such Shares and other matters as the
Board or its appraiser or appraisers deem pertinent. The determination by the
Board or its appraiser or appraisers of the fair market value shall, if not
unreasonable, be conclusive and binding notwithstanding the possibility that
other persons might make a different, and also reasonable, determination. If the
fair market value to be used was thus fixed more than twelve (12) months prior
to the day as of which fair market value is being determined, it shall in any
event be no less than the book value of the Shares being valued at the end of
the most recent period for which financial statements of the Company are
available; or
<PAGE>
(iii) Shares are "Publicly Traded" if stock of that class is listed or
admitted to unlisted trading privileges on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") or if
sales or bid and offer quotations are reported for that class of stock in the
automated quotation system ("NASDAQ") operated by the NASD.
9. Indemnification of Board. In addition to and without affecting such
other rights of indemnification as they may have as members of the Board or
otherwise, each member of the Board shall be indemnified by the Company to the
extent legally possible against expenses, including reasonable attorney's fees,
actually and reasonably incurred in connection with any appeal therein, to which
he may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any Option granted thereunder, and against all
judgments, fines and amounts paid by him in settlement thereof; provided that
such payment of amounts so indemnified is first approved by a majority of the
members of the Board who are not parties to such action, suit or proceedings, or
by independent legal counsel selected by the Company, in either case on the
basis of a determination that such member acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; and except that no indemnification shall be made in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Board member is liable for a breach of the duty of loyalty, bad faith or
intentional misconduct in his duties; and provided further, that the Board
member shall in writing offer the Company the opportunity, at its own expense,
to handle and defend same.
10. Amendments. The Board may at any time discontinue granting Options
under the Plan. The Board may at any time or times amend the Plan or amend any
outstanding Option or Options for the purpose of satisfying the requirements of
any changes in applicable laws or regulations or for any other purpose which may
at the time be permitted by law, provided that (except to the extent explicitly
required or permitted hereinabove) no such amendment will, without the approval
of the shareholders of the Company: (a) increase the maximum number of Shares
available under the Plan; (b) reduce the Option price of outstanding Options or
reduce the price at which Options may be granted; (c) extend the time within
which Options may be granted, however, this period shall not exceed the term
provided in Section 5(c) hereof; (d) amend the provisions of this Section 10 of
the Plan; (e) adversely affect the rights of any Participant (without his
consent) under any Options theretofore granted; (f) cause any award under the
Plan to cease to qualify for any applicable exceptions to Section 162(m) of the
Code, or (g) be effective if shareholder approval is required by applicable
statute, rule or regulation.
11. Miscellaneous Provisions.
(a) Rule 16b-3. With respect to Participants subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable provisions of Rule 16b-3. To the extent any provision of the Plan or
action by the Plan administrators fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Board.
(b) Underscored References. The underscored references contained in the
Plan and in any Option agreement are included only for convenience, and they
shall not be construed as a part of the Plan or Option agreement or in any
respect affecting or modifying its provisions.
(c) Number and Gender. The masculine, feminine and neuter, wherever used in
the Plan or in any Option agreement, shall refer to either the masculine,
feminine or neuter and, unless the context otherwise requires, the singular
shall include the plural and the plural the singular.
(d) Governing Law. The place of administration of the Plan and each Option
agreement shall be in the State of New York. The corporate law of the Company's
state of incorporation shall govern issues related to the validity and issuance
of Shares. Otherwise, this Plan and each Agreement shall be construed and
administered in accordance with the laws of the State of New York, without
giving effect to principles relating to conflict of laws.
(e) No Employment Contract. Neither the adoption of the Plan nor any
benefit granted hereunder shall confer upon any Participant any right to
continued employment or other service with the Company, nor shall the Plan or
any benefit interfere in any way with the right of the Company to terminate any
Participant's employment or other service at any time.
