August 18, 2000
Dear Frisby Technologies Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of Frisby Technologies, Inc., which will be held on September 26, 2000 at 9:00
a.m. at Greensboro Airport Marriott Hotel in Greensboro, North Carolina.
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, authorization to increase the number of shares of Common Stock
authorized, an amendment to the 1998 Stock Option Plan to increase the number of
authorized shares, approval of the 2000 Employee Stock Purchase Plan and the
ratification of the appointment of Ernst & Young LLP as independent auditors for
2000.
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/ Greg Frisby
---------------
Greg Frisby
Chairman of the Board
<PAGE>
FRISBY TECHNOLOGIES, INC.
--------------------------
3195 Centre Park Boulevard
Winston-Salem, North Carolina 27107
--------------------------
NOTICE OF 2000 ANNUAL MEETING
OF STOCKHOLDERS AND
PROXY STATEMENT
--------------------------
2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT 9:00 A.M. ON SEPTEMBER 26, 2000
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders (the
"Meeting") of FRISBY TECHNOLOGIES, INC. (the "Company") will be held on
September 26, 2000 at 9:00 a.m. at Greensboro Airport Marriott Hotel, 1 Marriott
Drive, Greensboro, North Carolina 27409. 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 August 18, 2000 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 increase the Company's
authorized shares of Common Stock from 10,000,000 shares to 30,000,000
shares;
(3) 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 750,000 shares
to 1,250,000 shares;
(4) to consider and to act upon a proposal to establish the 2000 Employee
Stock Purchase Plan;
(5) ratification of the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000; and
(6) 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 August 18, 2000 will be entitled to vote. A total of
6,575,413 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 August 30, 2000. The mailing address of the Company's principal
executive offices is 3195 Centre Park Boulevard, Winston-Salem, North Carolina
27107.
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
August 30, 2000 until the Meeting for examination by any stockholder for any
purpose germane to the Meeting. This list will also be available at the Meeting.
Abstentions and "broker non-votes" (shares held of record by brokers or
nominees which are not voted on a particular matter because the broker or
nominee has not received voting instructions from the beneficial owner of such
shares and does not have discretionary voting power with respect to that matter)
will be treated as present for purposes of determining the presence of a quorum
for the transaction of business at the Meeting. Broker non-votes on a matter
will not be treated as voted on such matter and, accordingly, will have no
effect on the outcome of the proposals herein.
If a proxy card is properly signed and returned to the Company at or prior
to the Meeting, unless subsequently properly revoked, the shares represented by
that proxy card will be voted at the Meeting in accordance with the instructions
specified thereon. If a proxy card is properly signed and returned to the
Company at or prior to the Meeting without voting instructions, it will be voted
"FOR" each of the proposals herein. If any other matters are properly presented
at the Meeting, the persons appointed as proxies in the proxy card will have the
discretionary authority to vote or act thereon in accordance with their best
judgment.
1. ELECTION OF DIRECTORS
The Company's Board of Directors presently consists of six (6) 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. The Company intends to increase the Board of Directors to
seven (7) members at a later time during the next twelve months.
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:
<TABLE>
<CAPTION>
Year Term Expires
Name Age Position if Elected
---- --- -------- ----------
<S> <C> <C> <C>
Gregory S. Frisby (1) 41 Chairman of the Board of Directors and 2001
Chief Executive Officer
Duncan Russell (2) 51 President and Chief Operating Officer 2001
Jeffry D. Frisby (1) 44 Director 2001
Pietro A. Motta 62 Director 2001
Domenico DeSole 56 Director 2001
Robert C. Grayson 55 Director 2001
<FN>
(1) Gregory S. Frisby and Jeffry D. Frisby are brothers.
(2) Elected to the Board of Directors in June, 2000.
</FN>
</TABLE>
Information Regarding Executive Officers
The following is information concerning the executive officers of the
Company other than those who also serve as directors:
Name Age Position
Douglas J. McCrosson 38 Vice President - Market
Development; Secretary
Stephen P. Villa 36 Chief Financial Officer;
Treasurer
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. In recent years, he has served as the Chairman of the
National Advisory Board for the Small Business Development Center Program for
the Small Business Administration, 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 as 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.
Duncan Russell became the President and Chief Operating Officer and a
member of the Company's Board of Directors in June 2000. He had served as the
Vice President - Sales and Marketing of the Company from December 1998 until
June 2000 and as the Director of Global Brand Strategy since December 1998. Mr.
Russell, who had been at 3M since 1973, helped lead a doubling of Minnesota
Mining and Manufacturing ("3M") Thinsulate(TM) brand sales since 1991.
Thinsulate(TM) is the world's number one brand of thermal insulation for
apparel, accessories and footwear. He served most recently as Marketing
Operations and International Manager of the Insulation Products Division at 3M.
He is also the holder of two U.S. and international patents for insulating
products. He received his Bachelor of Science degree in Business Administration
from Northeastern University in 1972 and MBA from Hofstra University in 1980.
Jeffry D. Frisby is a director of the Company. From 1986 to the present,
Jeffry D. Frisby has been the President of Frisby Aerospace, A Triumph Group
company. Jeffry D. Frisby also serves on the Board of Visitors of the Calloway
School of Business & Accountancy at Wake Forest University, and is a past member
of 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. 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 and Chairman of the
Group's Management Board. 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, Inc., the company's largest retail
subsidiary, from 1984 to 1994. Prior to joining Gucci, Mr. DeSole was a partner
in the Washington law firm of Patton, Boggs & Blow. 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 Grayson Associates, Inc., a Connecticut based management consulting
firm, and is also a partner in Berglass-Grayson, 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.
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.
Stephen P. Villa has been the Chief Financial Officer of the Company since
April 1998 and Treasurer of the Company since June 1999. 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 September 1986 through January 1997, Mr. Villa held numerous positions with
Price Waterhouse LLP in their New York and Paris offices. Mr. Villa's last
position with Price Waterhouse LLP was audit senior manager. Mr. Villa is a
certified public accountant. Mr. Villa received his Bachelor of Science degree
in accounting from Babson College in 1986.
Mr. Villa has resigned his position as Chief Financial Officer effective
September 1, 2000. He will continue with the Company as a consultant in order to
provide continuity to the Company and support to its next Chief Financial
Officer.
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, as amended in May 2000, provides for a base salary of
$200,000 per year for the remainder of the agreement, 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.
Effective January 1, 1998, the Company entered into an employment agreement
with Douglas J. McCrosson (the "McCrosson Employment Agreement"), pursuant to
which the Company will employ Mr. McCrosson until December 31, 2000, unless
sooner terminated for death, physical or mental incapacity or cause. The
McCrosson Employment Agreement provides a base salary of $88,400 for 1998,
$96,200 for 1999 and $105,300 for the year 2000, an automobile allowance of $400
per month and three weeks paid vacation each year.
If the McCrosson Employment Agreement is terminated early for death or
physical or mental incapacity by the Company, the Company will pay Douglas J.
McCrosson, or his estate, any accrued but unpaid salary (including any declared
but unpaid bonus) and a severance payment equal to two months of his then
current salary.
If, following 30 days notice and opportunity to cure, the Company
terminates Mr. McCrosson for cause, he shall be entitled only to accrued but
unpaid salary and benefits (including declared but unpaid bonus). "Cause" is
defined under the McCrosson Employment Agreement to include: (i) the commission
of any material breach of any of the provisions or covenants of his employment
agreement; (ii) the commission of any act of willful misconduct or gross
negligence in the performance of his duties or obligations under his employment
agreement, or, without proper cause, the willful refusal or habitual neglect of
the performance of his employment duties or obligations under his employment
agreement; (iii) the commission of any act of dishonesty, breach of trust,
fraud, or embezzlement; or (iv) his conviction, or plea of guilty or nolo
contendere to, a felony or indictable offense (unless committed in the
reasonable, good faith belief that the Executive's actions were in the best
interests of the Company and its stockholders and would not violate criminal
law).
The Company may terminate the McCrosson Employment Agreement without cause
following 30 days notice. Following 30 days notice and opportunity to cure, Mr.
McCrosson may terminate the McCrosson Employment Agreement if the Company has
materially breached the McCrosson Employment Agreement. If the McCrosson
Employment Agreement is terminated pursuant to this paragraph, Mr. McCrosson
will be entitled to a severance payment equal to four months of his then current
salary and all accrued and unpaid salary and benefits (including any declared
but unpaid bonus).
The McCrosson Employment Agreement also contains (i) a non-competition
provision that precludes Mr. McCrosson from competing with the Company for a
period of three years from the date of termination of his employment; (ii) a
non-disclosure and confidentiality provision; and (iii) a non-interference
provision whereby, for a period of three years after the termination of his
employment with the Company, he will not interfere with the Company's
relationship with its strategic partners, customers or employees.
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 1999. The
Compensation/Stock Option Committee met one time in fiscal year 1999. The Board
of Directors met on four (4) 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 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, 1999, 1998 and 1997:
Summary Compensation Table
Annual Compensation
Name and Principal Position Year Salary Other Stock Options
--------------------------- ---- ------ ----- -------------
Gregory S. Frisby 1999 $224,800 (1) -- --
Chairman of the Board; 1998 204,800 (1)(2) -- --
Chief Executive Officer 1997 52,000 -- --
Duncan Russell 1999 $115,000 $46,900 (3) 6,000
President; 1998 9,500 (4) -- 20,000
Chief Operating Officer 1997 -- -- --
Stephen P. Villa 1999 $137,100 (1) $25,863 (5) 16,700
Chief Financial Officer; 1998 97,200 (1)(4) -- 20,000
Treasurer 1997 -- -- --
Douglas J. McCrosson 1999 $101,000 (1) -- 15,000
Vice President-Market 1998 93,200 (1) -- 40,000
Development; Secretary 1997 75,600 -- --
(1) Amounts include a $400 monthly allowance for automobile expense.
(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.
(3) Amount represents a signing bonus and an allowance to cover moving and
relocation related expenses. The allowance was grossed up to cover tax
expenses.
(4) Amounts represent salary for a partial year.
(5) Amount represents an allowance to cover moving and relocation related
expenses. The allowance was grossed up to cover tax expenses.
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.
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, D.
Russell 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.
Directors, Named Executives Amount and Nature of Percentage of
and 5% Stockholders Beneficial Ownership Beneficial Ownership
Gregory S. Frisby 2,872.786(1) 43.6%
Jeffry D. Frisby 1,424,643(1) 21.7%
Duncan Russell 12,000(2) *
Pietro A. Motta 22,500(3) *
Domenico DeSole 22,500(4) *
Robert C. Grayson 147,500(5) 2.2%
Luca Bassani Antivari 2,139,827(6) 30.0%
MUSI Investments, S.A 2,112,827(6) 29.7%
Jean Moore 494,500(7) 7.3%
Douglas J. McCrosson 52,300(8) *
Stephen P. Villa 36,700(9) *
--------------------
All officers and directors 3,166,286** 46.2%
(8 persons)
* 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. Also includes only vested
portion of two option grants for Greg Frisby to acquire 44,000 and 10,000
shares of the Company's Common Stock at $4.75 and $4.50 per share,
respectively.
(2) Includes only vested portion of five option grants to acquire 16,000,
20,000, 16,000, and 250,000 shares of the Company's Common Stock at
exercise prices of $3.63, $4.50, $4.75 and $4.94 per share, respectively.
(3) Includes only vested portion of three option grants to acquire 7,500 shares
of the Company's Common Stock at exercise prices of $3.63, $4.75 and $7.00
per share, respectively.
(4) Includes only vested portion of three options grants to acquire 7,500
shares of the Company's Common Stock at exercise prices of $3.63, $4.75 and
$7.25 per share, respectively.
(5) Includes only vested portion of 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 three option
grants to acquire 7,500 shares of the Company's Common Stock at exercise
prices of $3.63, $4.75 and $7.25 per share, respectively.
(6) Includes only 27,000 shares owned indirectly by the reporting person; also
includes 2,112,827 shares of common stock and warrants to purchase shares
of common stock owned directly by MUSI Investments, S.A. ("MUSI").
(7) Includes amounts held directly and indirectly by Ms. Jean Moore.
(8) Includes only vested portion of three option grants to acquire 15,000,
16,000 and 40,000 shares of the Company's Common Stock at exercise prices
of $3.63, $4.75 and $7.00 per share, respectively.
(9) Includes only vested portion of four option grants to acquire 16,700,
10,000, 16,000 and 20,000 shares of the Company's Common Stock at exercise
prices of $3.63, $4.50, $4.75, and $7.25, respectively.
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 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. 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.
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. This agreement was
terminated in December 1999.
In May 2000, the Company entered into a $4,000,000 private placement equity
transaction with an investor group, which included MUSI. This transaction was a
unit (the "Unit") consisting of one share of Frisby common stock on the Nasdaq
SmallCap Market and one five-year warrant to buy a share of common stock at an
exercise price of $7.00 per share. The purchase price of this offering was $5.00
per Unit. MUSI purchased 550,000 shares and 550,000 warrants to purchase shares
of the Company's Common Stock. The Company agred to file a registration
statement to register the MUSI shares no later than September 30, 2000.
Additionally, other minor amendments were made to the existing Other
Stockholders Agreement.
During 2000, the Company entered in a $2,000,000 committed line of credit
with Bank of America ("BOA"), which had been jointly and severally guaranteed by
Gregory S. Frisby, and Jeffry D. Frisby. At June 30, 2000, the entire BOA
facility was either borrowed against or used as collateral for existing Letters
of Credit with suppliers. The loan agreement between the Company and BOA was
filed as an exhibit to the 10-KSB filed on April 14, 2000.
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.
2. PROPOSAL TO INCREASE THE COMPANY'S AUTHORIZED SHARES OF COMMON STOCK FROM
10,000,000 SHARES TO 30,000,000 SHARES
The Board of Directors has adopted, subject to stockholder approval, an
amendment to Article FOURTH of the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
10,000,000 shares to 30,000,000 shares. The relevant portion of the text of the
Article, as it is proposed to be amended, is as follows:
"The total number of shares which the Company shall
have authority to issue is Thirty-One Million (31,000,000)
shares, consisting of Thirty Million (30,000,000) shares of
common stock, par value $.001 per share (the "Common Stock"),
and One Million (1,000,000) shares of preferred stock, par
value $.001 per share (the "Preferred Shares"), issuable as
provided hereinbelow."
The proposed amendment will authorize sufficient additional shares of
Common Stock to provide the Company with the flexibility to make such issuances
from time to time for any proper purpose approved by the Board of Directors,
including issuances to effect acquisitions or raise capital and issuances in
connection with future stock splits or dividends, without the necessity of
delaying such activities for further stockholder approval except as may be
required in a particular case by the Company's charter documents, applicable law
or the rules of any stock exchange or other system on which the Company's
securities may then be listed. There are currently no arrangements, agreements
or understandings for the issuance or use of additional shares of authorized
Common Stock (other than issuances permitted or required under the Company's
stock-based employee benefit plans or awards made pursuant to those plans).
The additional Common Stock to be authorized by adoption of the proposed
amendment would have rights identical to the currently outstanding Common Stock
of the Company. Adoption of the proposed amendment and issuance of the Common
Stock would not affect the rights of the holders of currently outstanding Common
Stock, except for effects incidental to increasing the number of shares of the
Common Stock outstanding, such as dilution of earnings per share and voting
rights of current holders of Common Stock. The holders of Common Stock do not
presently have preemptive rights to subscribe for the additional Common Stock
proposed to be authorized. If the amendment is adopted, it will become effective
upon filing of a Certificate of Amendment of the Company's Second Amended and
Restated Certificate of Incorporation with the Secretary of State of Delaware.
The proposal could have an anti-takeover effect, although that is not its
intention. For example, if the Company were the subject of a hostile takeover
attempt, it could try to impede the takeover by issuing shares of Common Stock,
thereby diluting the voting power of the other outstanding shares and increasing
the potential cost of the takeover. The availability of this defensive strategy
to the Company could discourage unsolicited takeover attempts, thereby limiting
the opportunity for the Company's stockholders to realize a higher price for
their shares than in generally available in the public markets. The Board of
Directors is not aware of any attempt, or contemplated attempt, to acquire
control of the Company, and this proposal is not being presented with the intent
that it be utilized as a type of anti-takeover device.
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 increase the Company's authorized shares of
Common Stock from 10,000,000 to 30,000,000.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE PROPOSAL TO INCREASE THE
COMPANY'S AUTHORIZED SHARES OF COMMON STOCK FROM 10,000,000 SHARES TO 30,000,000
SHARES.
3. AMENDMENT OF 1998 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES RESERVED
FOR ISSUANCE THEREUNDER FROM 750,000 TO 1,250,000
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 750,000
to 1,250,000. 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 June 30, 2000, 750,000 options were granted under the 1998 Option
Plan, leaving no available 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 750,000 TO 1,250,000
4. PROPOSAL TO ESTABLISH THE 2000 EMPLOYEE STOCK PURCHASE PLAN
At the Meeting, the Company's stockholders will be asked to approve a
proposal to establish the 2000 Employee Stock Purchase Plan. This Plan was
adopted by the Board of Directors of the Company on October 27, 1999.
The 2000 Employee Stock Purchase Plan would be authorized to issue up to
200,000 shares of the Company's Common Stock over a 10-year period.
The 2000 Employee Stock Purchase Plan enables employees to buy shares of
the Company's common stock at a price equaled to 85% of the lower of market
price at the beginning and end of the six month period. The six-month periods
begin on January 1 and July 1 of each year.
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 2000 Employee Stock Purchase 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 granted. 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 proposal is approved by the Stockholders, additional
shares of Common Stock will be issued under this Plan, the timing and amounts of
which cannot be determined at this time.
The full text of the 2000 Employee Stock Purchase Plan, 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 establish the 2000 Employee Stock Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE PROPOSAL TO ESTABLISH THE
2000 EMPLOYEE STOCK PURCHASE PLAN.
5. 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, 2000. 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, 1999.
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, 2000.
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, 2000
6. 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 3195 Centre Park
Boulevard, Winston-Salem, North Carolina 27107, on or before December 15, 2000.
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
/s/ Douglas J. McCrosson
------------------------
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, 1999. Such request should be addressed to Frisby Technologies,
Inc., Investor Relations, 3195 Centre Park Boulevard, Winston-Salem, North
Carolina 27107.
Dated: August 18, 2000
