SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THIS SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement")
among FRISBY TECHNOLOGIES, INC., a Delaware corporation (the "Company"), JEFFRY
D. FRISBY ("J. Frisby"), GREGORY S. FRISBY ("G. Frisby") (each of J. Frisby and
G. Frisby, a "Frisby Stockholder" and, collectively, the "Frisby Stockholders")
and MUSI INVESTMENTS S.A., a Luxemburg societe anonyme ("MUSI") (each of the
Frisby Stockholders and MUSI, a "Stockholder" and, collectively, the
"Stockholders"), is made as of the 30th day of May 2000 for the purpose of
amending and restating the Amended and Restated Stockholders Agreement among the
Company and the Stockholders dated March 31, 1998 (the "Amended Agreement")
which amended and restated the Stockholders Agreement among the Company and the
Stockholders dated December 29, 1997 (the "Original Agreement").
RECITALS
A. J. Frisby owns 1,419,643 shares of Common Stock, G. Frisby owns
1,419,643 shares of Common Stock (collectively, the "Founder Shares") and MUSI
owns 1,039,827 shares of Common Stock and 550,000 warrants to acquire up to an
additional 550,000 shares of Common Stock, which shares (assuming exercise of
all warrants), collectively, constitute 67.5% percent of the outstanding capital
stock of the Company as of the date hereof.
B. The Company and the Stockholders believe it would be in their mutual
best interest to ensure a degree of continuity of management and ownership of
and certain rights in respect of the Company by imposing certain restrictions
and obligations on the ownership, retention and disposition of the capital stock
of the Company.
C. The parties hereby fully amend and restate the Amended Agreement, and
confirm that the reference to the Stockholders Agreement in the restrictive
legend in Section 2.2 is deemed to be a reference to the Original Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
I. DEFINITIONS
1.1 Definitions.
(a) Capitalized terms used herein which are not otherwise defined herein
shall have the meaning ascribed to them in the Purchase Agreement (as
hereinafter defined). In addition to the terms defined elsewhere herein, the
following terms have the following meanings when used herein with initial
capital letters:
"Agreement" means this Agreement, as the same may be amended from time to
time.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day except Saturday, Sunday or other day on which
commercial banks in the City of New York are authorized by law to close.
"Closing Date" means May 30, 2000
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001 per share, of the
Company.
"Director" means a member of the Board of Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Frisby Permitted Transferee" means, with respect to any Frisby
Stockholder, (i) any spouse or lineal descendant of such Frisby Stockholder,
(ii) any trust (or equivalent estate planning entity) where all of the
beneficial interest is held by such Frisby Stockholder and/or his spouse and/or
lineal descendants, or (iii) any other Frisby Stockholder; provided, however,
that each such transferee will be a Frisby Permitted Transferee for purposes of
this Agreement only if such transferee shall have executed and delivered to each
of MUSI and the Company an instrument reasonably satisfactory to MUSI pursuant
to which such transferee will have agreed to be bound by all of the terms of
this Agreement applicable to its transferor.
"Public Offering" means any public offering of equity securities of the
Company pursuant to an effective registration statement under the Securities
Act, other than pursuant to a registration on Form S-4 or Form S-8 or any
successor or similar form.
"Pro Rata" means, with respect to any offer including Common Stock, an
offer based on the relative percentages of Common Stock then held by all of the
holders of Common Stock to whom offer is made.
"Purchase Agreement" means the Purchase Agreement dated as of May 30, 2000
among the Company, MUSI and certain other investors named therein.
"Rule 144" means Rule 144 under the Securities Act, as such rule may be
amended from time to time.
"Third Party" means a prospective purchaser of the Common Stock in an
arm's-length transaction where such purchaser is not the Company, an Affiliate
of the Company or an Affiliate of any Stockholder or a Frisby Permitted
Transferee.
"Transferee" means any Person to whom any Stockholder Transfers any Common
Stock (other than in a sale pursuant to an effective registration statement or
without registration pursuant to Rule 144) in accordance with this Agreement and
who agrees to be bound by and to comply with all applicable provisions of this
Agreement.
(b) For purposes of this Agreement, any action or consent contemplated to
be taken or given by MUSI and its permitted Transferees will be effective if
taken or given, as the case may be, by MUSI or its permitted Transferees which
own the largest portion of the Common Stock owned by MUSI and all of its
permitted Transferees as of the relevant time.
II. RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER
2.1 Transfers. Until the third anniversary of the Closing Date, no Frisby
Stockholder may offer, sell, assign, grant a participation in, pledge or
otherwise transfer ("Transfer") any interest in any of its Founder Shares
without the prior written consent of MUSI, other than (i) to any Frisby
Permitted Transferee, (ii) as provided in Articles II or III of this Agreement,
or (iii) in sales made pursuant to an effective registration statement or
without registration pursuant to Rule 144.
2.2 Restrictive Legend. (a) Each certificate representing Common Stock
owned by any Stockholder will include the following legend (in addition to such
legends as may be appropriate under applicable securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCKHOLDERS AGREEMENT, DATED AS OF
DECEMBER 29, 1997, AS FROM TIME TO TIME AMENDED, A COPY OF WHICH MAY BE OBTAINED
FROM FRISBY TECHNOLOGIES, INC."
(b) Each certificate representing Common Stock owned by any Stockholder or
any Transferee thereof (other than shares that have been sold pursuant to an
effective registration statement under the Securities Act or in accordance with
Rule 144 under the Securities Act) will (unless otherwise permitted by the
provisions of Section 2.2(c)) include a legend substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM."
(c) Any Stockholder may, upon providing evidence (which, if required by the
Company, may include an opinion of counsel) reasonably satisfactory to the
Company that such Common Stock either are not "restricted securities" (as
defined in Rule 144) or may be sold pursuant to Rule 144(k), exchange the
certificate representing such Common Stock for a new certificate that does not
bear a legend relating to restrictions under the securities laws.
2.3 Third Party Transfers. (a) If any Frisby Stockholder desires to
Transfer any of its Founder Shares (other than pursuant to a Public Offering) to
a Third Party (a "Selling Frisby Stockholder"), such Selling Frisby Stockholder
may not effect such Transfer of such Founder Shares (the "Offered Stock") to a
Third Party (a "Third Party Sale") unless such Frisby Stockholder complies with
this Section 2.3.
(b) Prior to consummating a Third Party Sale, the Selling Frisby
Stockholder will deliver to each other Stockholder (the "Non-Offering
Stockholders") a written notice (an "ROFO Offer Notice") specifying (i) the
aggregate amount of cash consideration (the "Offer Price") for which the Selling
Frisby Stockholder proposed to sell the Offered Stock in such proposed Third
Party Sale, (ii) the identity and name of the purchaser, and if applicable, such
purchaser's ultimate beneficial owner(s), in such Third Party Sale, and (iii)
all other material terms of such proposed Third Party Sale. If a Non-Offering
Stockholder delivers to the Selling Frisby Stockholder a written notice (an
"Acceptance Notice") within 20 Business Days following the delivery of the ROFO
Offer Notice (such 20 Business Day period being referred to herein as the "ROFO
Acceptance Period") stating that the Non-Offering Stockholder is willing to
purchase all of the Offered Stock for the Offer Price and on the other terms set
forth in the ROFO Offer Notice, the Selling Frisby Stockholder will sell all
(but not less than all) of the Offered Stock to such Non-Offering Stockholder
and such Non-Offering Stockholder will purchase such Offered Stock from the
Selling Frisby Stockholder, on the terms and subject to the conditions set forth
below; provided, however, that if more than one Non-Offering Stockholder so
notifies the Selling Frisby Stockholder within the ROFO Acceptance Period that
it is willing to purchase all of the Offered Stock for the Offer Price and on
the terms set forth in the ROFO Offer Notice, the Offered Stock and the Offer
Price will be allocated among such Non-Offered Stockholders (each, a "Purchasing
Stockholder") proportionately based upon their respective percentage ownership
interest in the Company or as may otherwise be specified by such Purchasing
Stockholders.
(c) The consummation of any purchase of any Offered Stock by a Purchasing
Stockholder pursuant to this Section 2.3 (the "ROFO Closing") will occur not
earlier than 10 calendar days nor later than 120 calendar days following the
delivery of the Acceptance Notice (the intervening period being referred to
herein as the "ROFO Closing Period") at the principal executive offices of the
Company. At the ROFO Closing, (i) the Selling Frisby Stockholder will deliver to
the Purchasing Stockholder one or more certificates evidencing all of the
Offered Stock duly endorsed for transfer to the Purchasing Stockholder, together
with such other duly executed instruments or documents as may reasonably be
required to permit the Purchasing Stockholder to acquire the Offered Stock free
and clear of any claims, liens, pledges, options, encumbrances, security
interests, commitments and other restrictions of any kind (collectively,
"Encumbrances"), except for Encumbrances created by this Agreement, federal or
state securities laws, the Purchasing Stockholder or specified in the ROFO Offer
Notice and (ii) the Purchasing Stockholder will deliver to the Selling Frisby
Stockholder by wire transfer to an account designated by the Selling Frisby
Stockholder an amount in immediately available funds equal to the Offer Price.
In the event that any Third Party Sale provides that a portion of the Offer
Price is to be paid over time, as a condition to the obligation of the Selling
Frisby Stockholder to sell the Offered Stock, the Purchasing Stockholder will
provide the Selling Frisby Stockholder with suitable collateral as security for
such future payment obligations.
(d) If no Acceptance Notice relating to a proposed Third Party Sale shall
have been delivered to the Selling Frisby Stockholder prior to the expiration of
the ROFO Acceptance Period, if the Non-Offering Stockholders shall not have
delivered to the Selling Frisby Stockholder, prior to the expiration of the ROFO
Acceptance Period, written confirmation of the Non-Offering Stockholder's intent
not to purchase the Offered Shares ("Stockholder Rejection Notice"), or if the
ROFO Closing fails to occur prior to the expiration of the ROFO Closing Period
(unless the Purchasing Stockholder was ready, willing and able prior to the
expiration of the ROFO Closing Period to consummate the transaction to be
consummated by the Purchasing Stockholder at the ROFO Closing or the Purchasing
Stockholder was not so ready, willing and able to consummate the transaction to
be so consummated by the Purchasing Stockholder at the ROFO Closing as a result
of the Selling Frisby Stockholder's failure reasonably to cooperate in good
faith with the efforts of the Purchasing Stockholder to consummate such
transaction), the Selling Frisby Stockholder may consummate the proposed Third
Party Sale in accordance with this Section 2.3(d).
(e) The Selling Frisby Stockholder may consummate a Third Party Sale that
it is otherwise entitled to consummate pursuant to Section 2.3(d) only:
(i) during the 60 calendar day period immediately following the sooner to
occur of (x) the expiration of the ROFO Acceptance Period (in the event that no
Acceptance Notice was timely delivered to the Selling Frisby Stockholder), or
(y) the Selling Frisby Stockholder's receipt of the Stockholder Rejection Notice
from the Non-Offering Stockholder, or the 60 calendar day period immediately
following the expiration of the ROFO Closing Period (in the event that an
Acceptance Notice was timely delivered to the Selling Frisby Stockholder but the
ROFO Closing failed to timely occur);
(ii) at a price at least equal to the Offer Price; and
(iii) upon non-price terms no less favorable to the Selling Frisby
Stockholder than those set forth in the ROFO Offer Notice.
(f) Founder Shares acquired by a Third Party pursuant to a Third Party Sale
shall no longer be subject to the restrictions contained in this Section 2.3.
2.4 Improper Transfer. (a) Any attempt to Transfer any Founder Shares not
in compliance with this Agreement will be null and void and neither the Company
nor any transfer agent of the Company will register, or otherwise recognize in
the Company's records, any such improper Transfer. Any cost or loss incurred as
a result of any such attempt to transfer shall be borne by the Stockholder who
attempted such improper Transfer.
(b) No Stockholder will enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of any Person under this
Agreement, and any such transaction will be null and void and, to the extent
that such transaction requires any action by the Company, it will not be
registered or otherwise recognized in the Company's records or otherwise.
2.5 Transferees. (a) Except as otherwise specifically provided herein, any
and all provisions of this Agreement which apply to the Stockholders will apply
with equal force to any Transferee.
III. REGISTRATION RIGHTS
3.1 MUSI Registration. The Company shall promptly, but no later than 120
days after the Closing Date, file with the Commission a registration statement
to register the Common Stock and the Warrants held by MUSI in accordance with
the terms set forth in the Registration Rights Agreement dated as of the Closing
Date among the Company, MUSI and the other Persons party thereto.
IV. CERTAIN ARRANGEMENTS
4.1 Board of Directors. (a) The Stockholders acknowledge and agree that the
Board of Directors of the Company will consist of seven members, designated as
follows: (i) two persons designated from time to time by MUSI, (ii) two persons
designated from time to time by the Frisby Stockholders, (iii) two persons as
"outside" directors to be designated by mutual agreement of the Company and
MUSI, and (iv) the Chief Executive Officer of the Company (provided, however,
that if Greg Frisby is still serving as Chief Executive Officer, as of the
Closing Date, such position shall remain vacant until the appointment of a
successor Chief Executive Officer).
(b) Each of the Stockholders further agrees to vote all the shares of
Common Stock with respect to which it has voting rights, and to cause all
persons designated by it as Directors to vote (i) in favor of the removal from
the Board of Directors, upon notice to the other Stockholders, of any person or
persons designated by MUSI or the Frisby Stockholders, as the case may be, and
to elect to the unexpired term of each Director so removed another person
designated by MUSI or the Frisby Stockholders, as the case may be, and (ii) in
the event of any vacancy on the Board of Directors by reason of death or
resignation, to elect to such unexpired term another person designated in
accordance with Section 4.1(a) by the Stockholder that designated the deceased
or resigned Director.
(c) If at any time G. Frisby and J. Frisby collectively own less than 10%
of the Common Stock then outstanding, then they shall be entitled to designate
only one member to the Company's Board of Directors and at such time as G.
Frisby and J. Frisby collectively own less than 5% of the Common Stock then
outstanding, then they shall no longer be entitled to designate any members to
the Company's Board of Directors.
4.2 Certain Board Actions. The parties agree that without the prior
unanimous approval of the Directors designated by MUSI and the Frisby
Stockholders, the Company will not:
(a) dissolve, liquidate, recapitalize or reorganize the Company; or
(b) commence any case, proceeding or other action relating to bankruptcy or
reorganization of the Company.
4.3 Financial Information. From and after the date hereof, the Company will
transmit to MUSI copies of all financial information and other information
concerning the Company's operations at the same time such financial and other
information is given to the Directors. Without limiting the foregoing, the
Company will provide MUSI by facsimile monthly financial statements and other
financial information prepared for management on a regular basis, material
business transaction information and such other information concerning the
Company as may be reasonably requested by MUSI from time to time. In the event
the Company informs MUSI that the information provided pursuant to this Section
4.3 constitutes material non-public information, MUSI agrees that it will not
disclose such information in violation of applicable securities laws. MUSI
acknowledges that it is required to comply with applicable securities laws which
restrict the transfer of Common Stock while it is in possession of any such
material non-public information.
V. MISCELLANEOUS
5.1 Headings. The headings in this Agreement are for convenience of
reference only and will not control or affect the meaning or construction of any
provisions hereof.
5.2 Entire Agreement. This Agreement, the Purchase Agreement, the Warrant
Agreement and the Registration Rights Agreement constitute the entire agreement
between the parties with respect to the subject matter of this Agreement. This
Agreement, the Purchase Agreement, the Warrant Agreement and the Registration
Rights Agreement supersede all prior agreements and understandings, both oral
and written, between the parties with respect to the subject matter of this
Agreement, the Purchase Agreement, the Warrant Agreement and the Registration
Rights Agreement. None of this Agreement, the Purchase Agreement, the Warrant
Agreement or the Registration Rights Agreement is intended to confer upon any
Person other than the parties hereto and thereto any rights or remedies
hereunder or thereunder. In the event of any conflict between the provisions of
this Agreement and that certain Shareholder Agreement dated as of December 10,
1997 by and among the Company, J. Frisby, and G. Frisby, the applicable
provisions of this Agreement will prevail.
5.3 Notices. Any notice, request, instruction or other document required or
permitted to be given hereunder by any party hereto to another party hereto will
be in writing and will be given to such party at its address set forth in Annex
I attached hereto, with, in the case of the Company, a copy sent to Secretary,
Frisby Technologies, Inc. at its principal executive offices or, in the case of
a Transfer permitted hereunder, to the address of the Transferee specified by it
upon notice given in accordance with the terms hereof, or to such other address
as the party to whom notice is to be given may provide in a written notice to
the party giving such notice, a copy of which written notice will be on file
with the Secretary of the Company. Each such notice, request or other
communication will be effective (i) if given by certified mail, 72 hours after
such communication is deposited in the mails with certified postage prepaid
addressed as aforesaid, (ii) one Business Day after being furnished to a
nationally recognized overnight courier for next Business Day delivery, and
(iii) on the date sent if sent by electronic facsimile transmission, receipt
confirmed.
5.4 Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of laws rules of such state.
5.5 Severability. The invalidity or unenforceability of any provisions of
this Agreement in any jurisdiction will not affect the validity, legality or
enforceability of the remainder of this Agreement in such jurisdiction or the
validity, legality or enforceability of this Agreement, including any such
provision, in any other jurisdiction, it being intended that all rights and
obligations of the parties hereunder will be enforceable to the fullest extent
permitted by law.
5.6 Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties concerning the subject matter of this Agreement
and supersedes all prior agreements or understandings between the parties.
5.7 Termination; Termination of Rights. This Agreement may be terminated at
any time by an instrument in writing signed by the Company and Stockholders
owning at least 90% of the Common Stock owned by all Stockholders. At such time
as any Stockholder owns 25% or less of the Common Stock owned by such
Stockholder on the date hereof, all of such Stockholder's rights hereunder,
including without limitation such Stockholder's rights under Articles II and
III, will terminate; provided, however, that all of such Stockholder's
obligations hereunder will remain in full force and effect.
5.8 Successors, Assigns and Transferees. The provisions of this Agreement
will be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns. Except as expressly
contemplated hereby, neither this Agreement nor any provision hereof will be
construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement and their respective successors and permitted assigns.
5.9 Amendments; Waivers. (a) No failure or delay on the part of any party
in exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided will be cumulative and not exclusive of
any rights or remedies provided by law.
(b) Neither this Agreement nor any term or provision hereof may be amended
or waived except by an instrument in writing signed, in the case of an amendment
or waiver, by the Company and Stockholders owning at least 90% of the Common
Stock owned by all Stockholders.
5.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
5.11 Remedies. The parties hereby acknowledge that money damages would not
be adequate compensation for the damages that a party would suffer by reason of
a failure of any other party to perform any of the obligations under this
Agreement. Therefore, each party hereto agrees that specific performance is the
only appropriate remedy under this Agreement and hereby waives the claim or
defense that any other party has an adequate remedy at law.
5.12 Consent to Jurisdiction. Each of the Stockholders and the Company
irrevocably submits to the non-exclusive jurisdiction of any court located in
the Borough of Manhattan or the United States Federal Court sitting in the
Southern District of New York over any suit, action or proceeding arising out of
or relating to this Agreement. Each of the Stockholders and the Company consents
to process being served in any such suit, action or proceeding by serving a copy
thereof upon the agent for service of process, provided that to the extent
lawful and possible, written notice of such service will also be mailed to such
Stockholders or the Company, as the case may be. Each of the Stockholders and
the Company agrees that such service will be deemed in every respect effective
service of process upon such Stockholders or the Company, as the case may be, in
any such suit, action or proceeding and will be taken and held to be valid
personal service upon such Stockholder or the Company, as the case may be.
Nothing in this subsection will affect or limit any right to serve process in
any manner permitted by law, to bring proceedings in the courts of any
jurisdiction or to enforce in any lawful manner a judgment obtained in one
jurisdiction in any other jurisdiction. Each of the Stockholders and the Company
waives any right it may have to assert the doctrine of forum non conveniens or
to object to venue to the extent any proceeding is brought in accordance with
this Section 5.12.
5.13 Termination of Certain Right. MUSI's right to designate Directors
pursuant to Section 4.1 and MUSI's rights under Section 2.3 shall terminate if
MUSI transfers seventy percent (70%) or more of the Common Stock held by it as
of the date of this Agreement (after giving effect to MUSI's acquisition of
Common Stock pursuant to the Purchase Agreement or any other securities held by
MUSI as of the date hereof which are convertible into Common Stock) to one or
more Permitted Transferees.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
FRISBY TECHNOLOGIES, INC.
By:/s/ Gregory S. Frisby
------------------------
Name: Gregory S. Frisby
Title: Chairman and CEO
STOCKHOLDERS:
/s/ Gregory S. Frisby
---------------------------------
Gregory S. Frisby
/s/ Jeffry D. Frisby
---------------------------------
Jeffry D. Frisby
MUSI INVESTMENTS S.A.
By:/s/ Luca Bassani Antivari
-------------------------
Name: Dott. Luca Bassani Antivari
Title: President
[Signature Page to Second Amended and Restated Stockholders Agreement]
