SCHEDULE 14A
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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
WINDSWEPT ENVIRONMENTAL GROUP, INC.
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement if other than 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>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 5, 2001
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To the Stockholders of
WINDSWEPT ENVIRONMENTAL GROUP, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Windswept
Environmental Group, Inc. will be held at our offices, located at 100
Sweeneydale Avenue, Bay Shore, New York 11706, on Monday, March 5, 2001,
commencing at 10:30 a.m. (local time), or at any adjournment or postponement
thereof, for the following purposes:
1. To elect nine directors to our board of directors;
2. To consider and act upon a proposal to approve our 2001 Equity
Incentive Plan;
3. To consider and act upon a proposal to amend our Restated Certificate
of Incorporation, as amended, to increase the number of authorized
shares of our common stock to 150,000,000 from 100,000,000; and
4. To consider and act upon such other business as may properly
come before the annual meeting or any adjournment thereof.
These matters are more fully described in the proxy statement accompanying
this notice to which your attention is directed.
Only our stockholders of record at the close of business on January 12,
2001 will be entitled to vote at the annual meeting or at any adjournment
thereof. You are requested to sign, date and return the enclosed proxy at your
earliest convenience in order that your shares may be voted for you as
specified.
By Order of the Board of Directors,
Michael O'Reilly
President and Chief Executive Officer
February __, 2001
Bay Shore, New York
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
100 Sweeneydale Avenue
Bay Shore, New York 11706
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
March 5, 2001
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The 2001 annual meeting of our stockholders will be held on Monday, March
5, 2001 at our offices, located at 100 Sweeneydale Avenue, Bay Shore, New York
11706, commencing at 10:30 a.m. (local time), and any adjournments and
postponements thereof, for the purposes set forth in the accompanying notice of
annual meeting of stockholders. THE ENCLOSED PROXY IS SOLICITED BY AND ON BEHALF
OF OUR BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING, AND AT ANY ADJOURNMENTS
AND POSTPONEMENTS OF THE ANNUAL MEETING. The approximate date on which this
proxy statement and the enclosed proxy are being first mailed to stockholders is
February 7, 2001.
If a proxy in the accompanying form is duly executed and returned, the
shares represented by such proxy will be voted as specified, subject to any
applicable voting or irrevocable proxy agreements. Any person executing an
enclosed proxy may revoke it prior to its exercise either by letter directed to
us or in person at the annual meeting.
Throughout this proxy statement, the terms "we," "us," "our" and "our
company" refers to Windswept Environmental Group, Inc., a Delaware corporation,
and, unless the context indicates otherwise, our subsidiaries on a consolidated
basis.
VOTING RIGHTS
Only stockholders of record at the close of business on January 12, 2001
(the "Record Date") will be entitled to vote at the annual meeting or any
adjournment thereof. We currently have outstanding three classes of voting
capital stock, namely, shares of common stock, par value $.0001 per share,
Series A convertible preferred stock, par value $.01 per share, and Series B
convertible preferred stock, par value $.01 per share. As of the Record Date,
there were 38,456,254 shares of our common stock, 1,300,000 shares of our Series
A preferred stock and 9,346 shares of our Series B preferred stock issued and
outstanding. Shares of Series A preferred stock are convertible, on a
share-for-share basis, into shares of our common stock, and each share of Series
B preferred stock is convertible into 1,000 shares of our common stock. Holders
of our common stock are entitled to one vote on all matters presented to
stockholders for each share registered in their respective names, and holders of
our Series A preferred stock and our Series B preferred stock, voting together
with the holders of our common stock (except as otherwise set
<PAGE>
forth herein), are entitled to one vote on all matters presented to
stockholders for each share of our common stock issuable upon conversion of each
share of Series A preferred stock and Series B preferred stock, respectively,
registered in their respective names. Cumulative voting is not permitted.
Directors are elected by a plurality of the votes entitled to be cast in
person or by proxy and actually cast at the annual meeting with respect to
Proposal Number 1. The affirmative vote of a majority of the votes entitled to
be cast in person or by proxy and actually cast at the annual meeting will be
required to approve our 2001 Equity Incentive Plan with respect to Proposal
Number 2. The affirmative vote of the majority of the votes entitled to be cast
at the annual meeting and the affirmative vote of the majority of the
outstanding shares of our common stock voting as a class is required for
increasing the number of authorized shares of our common stock with respect to
Proposal Number 3.
For purposes of determining whether proposals have received a majority of
votes cast, abstentions will not be included in the vote totals and, in
instances where brokers are prohibited from exercising discretionary authority
for beneficial owners who have not returned a proxy (so called "broker
non-votes"), those votes will not be included in the vote totals. Therefore, the
effect of abstentions and broker non-votes will have no effect on the vote on
Proposal Number 1 and Proposal Number 2, and will have the same effect as a "no"
vote on Proposal Number 3. However, abstentions will be counted in the
determination of whether a quorum exists for the purposes of transacting
business at the annual meeting.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
There are nine nominees for election as directors. Each nominee shall, upon
being elected, hold office until the next annual meeting of stockholders to be
held in 2002, or until his successor has been duly elected and qualified, unless
he shall resign, become disqualified, disabled or shall otherwise be removed
from office. We currently have eight existing members of our board of directors,
and, except for Mr. Bongiorno, each nominee named below is currently a director
of our company.
Shares represented by executed proxies in the form enclosed will be voted,
if authority to do so is not withheld, for the election as directors of each of
the nine nominees named below, unless any nominee shall be unavailable for
election, in which case such shares will be voted for a substitute nominee
designated by our board. Our board has no reason to believe that any nominee
will be unavailable or, if elected, will decline to serve.
Directors will be elected by a plurality of the votes entitled to be cast
in person or by proxy and actually cast at the annual meeting.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NAMED NOMINEES AS DIRECTORS.
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<PAGE>
The names of the nominees, their ages as of the Record Date, and certain
other information about them, are set forth below:
DIRECTOR-NOMINEES
NAME AGE POSITIONS AND OFFICES
---- --- ---------------------
Michael O'Reilly 50 Director, President and Chief Executive Officer
Charles L. Kelly, Jr. 41 Director and Chief Financial Officer
Peter A. Wilson 56 Chairman of the Board of Directors
Brian S. Blythe 61 Director
John J. Bongiorno 60 Director Nominee
Ronald B. Evans 61 Director
Samuel Sadove 45 Director
Anthony Towell 69 Director and Secretary
Dr. Kevin Phillips 52 Director
PRINCIPAL OCCUPATIONS OF DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The following is a brief summary of the business experience and background
of our directors, director nominees and executive officers based upon
information provided to us by such persons.
MICHAEL O'REILLY has served as our President and Chief Executive Officer
and a director since 1996, and has been President of our Trade-Winds
Environmental Restoration, Inc. subsidiary since 1993. From 1996 to 1999, he was
also the Chairman of our board of directors. Prior to joining us, Mr. O'Reilly
was Vice President and Chief Operating Officer of North Shore Environmental
Solutions, Inc., an environmental remediation firm which provided a wide array
of services, including asbestos, hazardous materials and lead removal. He has
seventeen years experience as an executive in the environmental industry.
CHARLES L. KELLY, JR. has served as a director since October 1999 and as
our Chief Financial Officer since April 2000. Since April 1995, Mr. Kelly has
been the Vice President of Finance and Administration of Spotless Plastics
(USA), Inc. Prior to that, Mr. Kelly held senior financial positions at Luitpold
Pharmaceuticals, Inc., IMC Magnetics Corp. and was a senior audit manager at
PricewaterhouseCoopers, LLP.
PETER A. WILSON has served as Chairman of our board of directors since
October 1999. Mr. Wilson is the President and CEO of Spotless Plastics (USA),
Inc. and is the Executive Director Plastics Division of Spotless Group Limited,
an Australian company which indirectly owns Spotless Plastics (USA), Inc. Mr.
Wilson has held various senior executive positions within Spotless Group Limited
since 1976 and has been a member of Spotless Group Limited's Board of Directors
since 1984.
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<PAGE>
BRIAN S. BLYTHE has served as a director since October 1999. Since 1992,
Mr. Blythe has been the chairman of the board of directors of Spotless Group
Limited. Between 1972 and 1992, Mr. Blythe has held numerous executive positions
with Spotless Group Limited, including managing director of Spotless Group
Limited and managing director of its Spotless Services Limited subsidiary. Mr.
Blythe is also the chairman of the board of directors of Taylor's Group Limited,
a New Zealand company, and was a member of the Police Board of Victoria,
Australia between 1993 and 1998.
JOHN J. BONGIORNO has been the Director of Finance of Spotless Group
Limited since 1986. Mr. Bongiorno is also a director of directors of Spotless
Group Limited, Taylor's Group Limited and is chairman of the board of directors
of National Can Industries Limited, an Australian corporation.
RONALD B. EVANS has served as a director since October 1999. Since 1978,
Mr. Evans has been Executive Director of Spotless Group Limited. Between 1969
and 1999, Mr. Evans has held numerous executive positions at Spotless Group
Limited. Since 1998, he has been the Chairman of the Australian Football League.
Mr. Evans is also a director of Taylor's Group Limited and is a director of
Health Scope Limited, an Australian company.
SAMUEL SADOVE, PH.D has served as a director since 1996. Dr. Sadove is a
marine biologist who was the director of the Okeanos Ocean Research Foundation,
Inc. since founding the organization in 1980 until 1996. He is an adjunct
Professor at Long Island University, Southhampton College. Dr. Sadove received
an honorary Ph.D in Marine Sciences from Universite d'Aux Marseille. Dr. Sadove
is a member of the Technical Advisory Board of the Peconic National Estuary
Program, the U.S. Department of State's Habitat Working Group, and the Board of
Trustees of The Coastal Research and Education Society of Long Island.
ANTHONY TOWELL has served as a director since November 1996. Prior to
January 2001, he was the Vice President, Co-Chairman, and a director of Worksafe
Industries, Inc., a manufacturing company that specialized in industrial safety.
He had held executive positions during a 25-year career with the Royal Dutch
Shell Group. Mr. Towell is also a director of DiaSys Corporation
and chairman of the board of directors of Gulf West Oil.
DR. KEVIN PHILLIPS has served as a director since March 1998. Over the past
five years, Dr. Phillips has been a partner, principal and director of FPM Group
Ltd., formerly known as Fanning, Phillips & Molnar, an engineering firm located
on Long Island, New York. Dr. Phillips has a M.S. Degree in Hydrodynamics from
the Massachusetts Institute of Technology and a Ph.D. in Environmental
Engineering from the Polytechnic Institute of New York. He is a licensed
professional engineer in eight states, including New York, New Jersey and
Connecticut, with over 20 years experience in geohydrology and environmental
engineering.
JOSEPH MURPHY, age 42, has served as the Vice President of Finance and
Administration since April 2000. Prior to that, Mr. Murphy held senior financial
positions with Staff Builders, Inc. from 1998 to 2000 and Colorado Prime
Corporation from 1987 to 1998.
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<PAGE>
DIRECTORS' COMPENSATION
Each of our non-employee directors, that is, our directors who are not
employees of our company or of any of our parent, affiliate or subsidiary
companies ("Non-Employee Directors"), will receive $5,000 annually for service
on our board of directors. In addition, as compensation for service on our board
of directors during our fiscal year ended April 30, 2000, each of these
Non-Employee Directors will receive a grant of options to purchase an aggregate
of 100,000 shares of our common stock under our 2001 Equity Incentive Plan, at
an exercise price equal to the fair market value at the date of grant, if the
2001 Plan is approved by our stockholders. All other directors receive no cash
compensation for their services as directors. All of our directors are
reimbursed for expenses actually incurred in connection with attending meetings
of our board of directors.
In June 1999, we granted 5,000 shares of restricted common stock to each of
our directors as compensation for serving on our board of directors during
fiscal year ended April 30, 1999. In June 1999, we granted options to purchase
an aggregate of 500,000 shares of our common stock at an exercise price of
$.1875 per share to our Non-Employee Directors.
BOARD MEETINGS AND COMMITTEES
During fiscal 2000, our board of directors met or acted by written consent
seven times. All of our current directors attended not less than 75% of such
meetings (or executed written consents) of the board of directors and committees
on which such director served.
The audit committee of our board of directors is currently comprised of
Messrs. Towell, Phillips and Sadove, each of whom are "independent" and do not
have any relationship with us that may interfere with the exercise of
independent judgement in carrying out the responsibilities of a director. The
audit committee did not meet or act by unanimous written consent during the last
fiscal year, but did meet on September 12, 2000 with our independent auditors to
discuss the results of their review of our Quarterly Report on Form 10-Q for the
quarter ended July 31, 2000 and the results of their audit of our company for
fiscal 2000 and on December 13, 2000 with our independent auditors to discuss
the results of their review of our Quarterly Report on Form 10-Q for the quarter
and six months ended October 31, 2000.
The audit committee operates pursuant to a charter approved by our board of
directors. The audit committee charter sets out the responsibilities, authority
and duties of the audit committee. The audit committee recommends engagement of
our independent certified public accountants, and is primarily responsible for
reviewing and approving the scope of the audit and other services performed by
our independent certified public accountants. The audit committee also reviews
our accounting principles and practices, systems of internal controls, quality
of financial reporting and accounting and financial staff, as well as any
reports or recommendations issued by the independent accountants. A copy of the
audit committee charter is attached to this proxy statement as Appendix A.
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<PAGE>
The compensation committee of our board of directors is currently comprised
of Messrs. Towell and Sadove. The compensation committee generally reviews and
approves executive compensation and administers our existing stock plans. Our
compensation committee acted by unanimous written consent on four occasions
during the last fiscal year.
Our board of directors has no nominating committee.
SECURITY OWNERSHIP
The following table sets forth, as of the Record Date, information with
respect to the beneficial ownership of each class of our voting stock by:
- each person known by us to beneficially own 5% or more of
the outstanding shares of any class of our voting stock, based on
filings with the Securities and Exchange Commission and certain other
information,
- each of our executive officers, directors and director
nominees, and
- all of our executive officers, directors and director nominees as a
group.
<TABLE>
<CAPTION>
Number of Shares Beneficially Owned and Percent of Class (1)
------------------------------------------------------------------------------------------------
Percent
of Percent Percent % of
Name and Address of Common Common Series A of Series B of Voting Voting
Beneficial Owner Stock Stock Preferred Series A Preferred Series B Power Power
-------------------- ------ ------- --------- -------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Spotless Group Limited (2) 59,042,866 (3) 78.5% - - 9,346 100% 59,042,866 77.2%
Michael O'Reilly (4) 4,418,904 (5) 10.4% - - - - 4,418,904 8.3%
Samuel Sadove (4) 461,000 (6) 1.2% - - - - 461,000 *
Anthony Towell (4) 1,790,586 (7) 4.4% - - - - 1,790,586 3.5%
Brian S. Blythe (8) - (9) - - - - - - -
John J. Bongiorno (8) - (10) - - - - - - -
Ronald B. Evans (8) - (11) - - - - - - -
Charles L. Kelly, Jr. (8) - (12) - - - - - - -
Peter A. Wilson (8) - (13) - - - - - - -
Dr. Kevin Phillips (14) 1,300,839 (15) 3.3% 650,000 50% - - 1,300,839 2.6%
Gary Molnar (14) 1,000,839 (16) 2.6% 650,000 50% - - 1,000,839 2.0%
All directors, director
nominees and executive
officers as a group
(9 individuals) 7,971,329 (17) 17.3% 650,000 50% - - 7,971,329 14.2%
* Less than 1 percent
<FN>
(1) Beneficial ownership is determined in accordance with the rules of
the SEC and includes voting and investment power. In addition, under
SEC rules, a person is deemed to be the beneficial owner of securities
which may be acquired by such person upon the exercise of options and
warrants of the conversion of convertible securities within 60 day from
the date on which beneficial ownership is to be determined. Unless
otherwise indicated in
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<PAGE>
the footnotes below, we believe that the persons and entities
named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) The address of Spotless Group Limited ("Spotless Group") is c/o Spotless
Plastics (USA) Inc., 150 Motor Parkway, Suite 413, Hauppauge, New York
11788. Spotless Group directly owns 100% of the voting stock of
Spotless Plastics Pty. Ltd., a company organized under the laws of
Victoria, Australia, which in turn directly owns 100% of the
voting stock of Spotless Plastics (USA), Inc., a Delaware corporation
("Spotless"). Spotless directly owns 100% of the voting stock of
Windswept Acquisition Corporation, a Delaware corporation and our
majority stockholder ("Acquisition Corp.").
(3) Includes 22,284,683 shares of our common stock sold to Acquisition
Corp. pursuant to a subscription agreement, 9,346,000 shares of our
common stock issuable upon conversion of the 9,346 shares of Series B
preferred stock held by Acquisition Corp., 25,304,352 shares of our
common stock issuable upon conversion of the outstanding principal of a
secured convertible promissory note (the "Note") and 2,107,831 shares of
our common stock issuable upon conversion of the accrued and unpaid
interest related to the Note. Spotless Group, Spotless and Acquisition
Corp. may be deemed to share the voting and investment power over all of
these shares.
(4) The address for this person is c/o Windswept Environmental Group, Inc.,
100 Sweeneydale Avenue, Bayshore, New York 11706.
(5) Includes 177,333 shares of our common stock directly held by Mr.
O'Reilly and options under which he may purchase 4,241,571 shares of our
common stock which are exercisable within 60 days. Does not include
11,000 shares of our common stock directly held by JoAnn O'Reilly, the
wife of Mr. O'Reilly, and options under which she may purchase 300,000
shares of our common stock which are exercisable within 60 days, as to
each of which Mr. O'Reilly disclaims beneficial ownership. Also does not
include an aggregate of 4,594,738 shares of our common stock issuable
upon conversion of options granted to Mr. O'Reilly in connection with
our debt and equity transaction with Spotless, which have not yet vested
and are not exercisable within 60 days.
(6) Includes 11,000 shares of our common stock directly by held by Mr.
Sadove and options under which he may purchase 450,000 shares of our
common stock which are exercisable within 60 days.
(7) Includes 24,533 shares of our common stock directly held by Mr.
Towell, 9,066 shares of our common stock held jointly by Mr. Towell and
his wife, Jacqueline Towell, options under which he may purchase 650,000
shares of our common stock which are exercisable within 60 days, 666,667
shares of our common stock issuable upon conversion of the outstanding
principal of a $100,000 demand convertible note directly held by Mr.
Towell which is convertible within 60 days and 440,320 shares of our
common stock issuable upon conversion of accrued and unpaid interest on
the convertible note.
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<PAGE>
(8) The address for this person is c/o Spotless Enterprises Inc., 150 Motor
Parkway, Suite 413, Hauppauge, New York 11788.
(9) Excludes shares beneficially held by Spotless Group. Mr. Blythe is a
director and executive officer of Spotless Group and may be deemed to
share voting or investment power with respect to these shares.
Mr. Blythe disclaims beneficial ownership of these shares.
(10) Excludes shares beneficially held by Spotless Group. Mr. Bongiorno is
a director and executive officer of Spotless Group and may be deemed to
share voting or investment power with respect to these shares.
Mr. Bongiorno disclaims beneficial ownership of these shares.
(11) Excludes shares beneficially held by Spotless Group. Mr. Evans is a
director and executive officer of Spotless Group and may be deemed to
share voting or investment power with respect to these shares.
Mr. Evans disclaims beneficial ownership of these shares.
(12) Excludes shares held of record by Acquisition Corp. and beneficially
held by Spotless. Mr. Kelly is an executive officer of Acquisition Corp.
and Spotless and may be deemed to share voting or investment power with
respect to these shares. Mr. Kelly disclaims beneficial ownership of
these shares.
(13) Excludes shares beneficially held by Spotless Group. Mr. Wilson is a
director and executive officer of Spotless Group and may be deemed to
share voting or investment power with respect to these shares.
Mr. Wilson disclaims beneficial ownership of these shares.
(14) The address for this person is c/o FPM Group Ltd., 909 Marconi Avenue,
Ronkonkoma, New York 11779.
(15) Includes 245,839 shares of our common stock directly held by Dr.
Phillips, options under which he may purchase 405,000 shares of our
common stock that are exercisable within 60 days and 650,000 shares of
common stock issuable upon conversion of 650,000 shares of our Series A
preferred stock directly held by Dr. Phillips.
(16) Includes 235,839 shares of our common stock directly held by Mr.
Molnar, options under which he may purchase 115,000 shares of our common
stock that are exercisable within 60 days and 650,000 shares of common
stock issuable upon conversion of 650,000 shares of our Series A
preferred stock held by Mr. Molnar.
(17) Includes options under which members of the group may purchase an
aggregate of 5,746,571 shares of our common stock which are exercisable
within 60 days, 666,667 shares of our common stock issuable upon
conversion of a demand convertible note held by a member of the group,
440,320 shares of our common stock issuable upon conversion
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<PAGE>
of accrued and unpaid interest related to the convertible note and
650,000 shares of our common stock issuable upon conversion of 650,000
shares of our Series A preferred stock directly held by a member of
the group. Does not include (a) the shares issuable upon exercise of
the options granted to Mr. O'Reilly in connection with our company's
debt and equity transaction with Spotless which have not yet vested
and are not exercisable within 60 days, and (b) shares of our common
stock directly held by JoAnn O'Reilly and the options under which
JoAnn O'Reilly may purchase shares of our common stock, as to each
of which Michael O'Reilly disclaims beneficial ownership.
</FN>
</TABLE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the cash and other
compensation paid during the last three fiscal years to Michael O'Reilly, our
Chief Executive Officer and President. No other individual served as an
executive officer of our company during fiscal 2000 whose total compensation for
services rendered during fiscal 2000 was $100,000 or more.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- Awards
------
Other Restricted Securities
Fiscal Annual Stock Underlying
Name and Principal Position(s) Year Salary Bonus($) Compensation (4) Awards($) Options
------------------------------ ---- ------ -------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Michael O'Reilly, 2000 $260,000 $55,000 (1) - $50,000 (1) 5,736,309 (2)
Chief Executive Officer 1999 259,615 3,846 - 2,400 (1) 250,000 (3)
and President 1998 220,000 72,765 - 938 (1) 200,000 (3)
-------------------------------------
<FN>
(1) Mr. O'Reilly received an aggregate of $50,000 and 133,333 shares of our
common stock in fiscal 1999, the fair value of which shares was $50,000 on
the date of grant, representing a bonus based upon a calculation of net
profits at the end of the second quarter of fiscal 1999. Due to subsequent
losses incurred in the third and fourth quarters, the bonus was due back to
us and, accordingly, recorded as a loan receivable from officer. In fiscal
2000, we forgave the loan. He received 5,000 shares of our common stock in
fiscal 1999 for service on our board of directors in fiscal 1998, the fair
value of which shares was $2,400 on the date of the grant. He received
1,000 shares of our common stock in fiscal 1998 for director services
rendered in fiscal 1997, the fair value of which was $938 on the date of
grant. All of these shares were fully vested on the date of grant. The
aggregate value of Mr. O'Reilly's restricted stock holdings as of the
Record Date was $25,891. All of these shares are entitled to dividends to
the extent declared on the common stock.
(2) On June 28, 1999, Mr. O'Reilly was granted an option to purchase
250,000 shares of our common stock at an exercise price of $.1875 per
share, the fair market value on the date of grant. Such option is fully
vested. On October 29, 1999, Mr. O'Reilly was granted an option to purchase
2,674,714 shares of our common stock at an exercise price of $.07904 per
share, the fair market value at the date of grant. Such option vested to
the extent of
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<PAGE>
one third of the option grant on October 29, 2000. An additional
one third of such option shall vest on October 29, 2001 and the final
third shall vest on October 29, 2002. Additionally, on October 29,
1999, Mr. O'Reilly was granted an option to purchase 2,811,595 shares of
common stock at an exercise price of $.07904 per share, the fair market
value at the date of grant. Such option vests upon the earlier of (i) the
conversion of the Note dated October 29, 1999 issued to Spotless or (ii)
October 29, 2006.
(3) On December 29, 1997, Mr. O'Reilly was granted an option to purchase
200,000 shares of our common stock at an exercise price of $.22 per share,
the fair market value on the date of grant. On August 18, 1998, Mr.
O'Reilly was granted an option to purchase 250,000 shares of our common
stock at an exercise price of $ 0.34 per share, the fair market value on
the date of the grant. Each of these options is fully vested.
(4) The value of all perquisites provided did not exceed the lesser of
$50,000 or 10% of the officer's salary and bonus.
</FN>
</TABLE>
OPTION/STOCK APPRECIATION RIGHTS ("SAR") GRANTS IN LAST FISCAL YEAR
The following table sets forth with respect to Michael O'Reilly, our only
executive officer listed in the summary compensation table above, (a) the number
of shares underlying options granted to Mr. O'Reilly during fiscal 2000, (b) the
percentage the grant represents of the total number of options granted to all of
our employees during fiscal 2000, (c) the per share exercise price of each
option, and (d) the expiration date of each option.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SAR's
Underlying Granted to Exercise
Options/SAR's Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date
---- ------------- ----------- --------- ----
<S> <C> <C> <C> <C>
Michael O'Reilly 250,000 4.2% $0.1875 June 27, 2004
Michael O'Reilly 5,486,309 92.7% $0.07904 October 1, 2009
</TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Set forth in the table below is information with respect to Michael
O'Reilly, our only executive officer listed in the summary compensation table
above as to the (a) number of shares acquired during fiscal 2000 upon each
exercise of options granted, (b) the aggregate value realized upon each exercise
(i.e. the difference between the market value of the shares at exercise and
their exercise price), (c) the total number of unexercised options held on April
30, 2000, separately identified between those exercisable and those not
exercisable, and (d) the aggregate value of in-the-money, unexercised options
held on April 30, 2000, separately identified between those exercisable and
those not exercisable.
-10-
<PAGE>
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year-End In-the-Money Options
Shares Acquired Value (#) Exercisable/ at Fiscal Year-End ($)
Name on Exercise (#) Realized ($) Unexercisable Exercisable/Unexercisable
---- --------------- ------------ -------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael O'Reilly -0- -0- 3,350,000/5,486,309 (1) $230,000/$252,151 (2)
<FN>
(1) In October 1999, in connection with the change in control of company,
pursuant to the provisions of Mr. O'Reilly's employment agreement, dated
November 1, 1996, his option to purchase 2,000,000 shares of our common
stock, previously granted, vested. In connection with our debt and equity
transaction with Spotless (the "Spotless Transaction"), Mr. O'Reilly was
granted an option to purchase 2,674,714 shares of common stock at $.07904
per share. Such option vested to the extent of one third of the option
grant on October 29, 2000. An additional one third of such option shall
vest on October 29, 2001 and the final third shall vest on October 29,
2002. Mr. O'Reilly was also granted an option to purchase 2,811,595 shares
of our common stock at $.07904 per share that becomes exercisable upon the
earlier of (i) the conversion of the Note dated October 29, 1999 issued to
Spotless or (ii) October 29, 2006.
(2) The value is calculated based on the aggregate amount of the excess of
$.125 (the closing sale price per share for our common stock on April 30,
2000) over the relevant exercise price(s).
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
On October 29, 1999, in connection with the Spotless Transaction, we
entered into an amended and restated employment agreement with Michael O'Reilly
pursuant to which he will be employed as our Chief Executive Officer and
President for a term of five years, subject to renewal of successive periods of
one year each, at a salary of $260,000 per year plus an annual bonus equal to
2.5% of our pre-tax income, as such amount is determined under the employment
agreement. Pursuant to the employment agreement, we also agreed to purchase
(unless such purchase would impair our capital) in a single transaction any or
all shares of our common stock held by Mr. O'Reilly on October 29, 1999 and any
shares issuable to him pursuant to options outstanding on October 29, 1999 (to
the extent vested) (the "O'Reilly Shares") (i) upon the expiration of the
employment agreement, (ii) if we terminate Mr. O'Reilly other than for cause,
death or disability or (iii) if Mr. O'Reilly terminates the employment agreement
by reason of resignation for good reason (as determined under the employment
agreement). Spotless agreed, that if such purchase would impair our capital,
Spotless will purchase such shares. Michael O'Reilly currently holds 177,333
shares of our common stock, vested options to purchase 4,241,571 shares of our
common stock and options which have not yet vested to purchase 4,594,738 shares
of our common stock.
Additionally, pursuant to a letter agreement, dated as of October 29, 1999,
between Michael O'Reilly and Spotless (the "Letter Agreement"), Michael O'Reilly
has the right, upon receipt of notice that Spotless and its affiliates have
acquired a beneficial ownership (as defined
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<PAGE>
in the Letter Agreement) of more than seventy-five percent (75%) of the
outstanding shares of our common stock (on a fully diluted basis), to require
Spotless to purchase, in a single transaction, the O'Reilly Shares. The purchase
price applicable to any such purchase shall be at a price mutually agreed upon.
If the parties are not able to agree upon a purchase price, then the purchase
price will be determined based upon a procedure using the appraised value of our
company at the time such obligation to purchase arises. As a condition precedent
to requiring us or Spotless, as the case may be, to repurchase the O'Reilly
Shares, Michael O'Reilly must forfeit the option granted to him in connection
with the Spotless Transaction to purchase 2,811,595 shares of common stock that
becomes exercisable upon the earlier of (i) the conversion of the Note dated
October 29, 1999 issued to Spotless or (ii) October 29, 2006 (the "Conversion
Date Option"), except to the extent that the Conversion Date Option is at that
time vested and exercisable.
Prior to the Spotless Transaction, we had an employment contract with
Michael O'Reilly which provided for a base salary of $260,000 plus a bonus of 2%
of gross revenues, up to a maximum of 25% of pre-tax profit, payable 50% in cash
and 50% in restricted stock, as well as certain other fringe benefits.
OUR STOCK PLANS
We adopted our various stock plans in order to assist us in attracting and
retaining qualified employees and consultants, and to align the interests of
such persons with those of our stockholders. The following is a brief
description of our stock plans:
1998 STOCK INCENTIVE PLAN
Our 1998 Stock Incentive Plan ("1998 Plan") provides for the grant of
non-qualified stock options, stock appreciation rights, restricted stock,
performance grants and other types of awards to our officers, key employees,
consultants and independent contractors.
The 1998 Plan, which is administered by the compensation committee of our
board of directors, currently authorizes the issuance of a maximum of 2,000,000
shares of our common stock, which may be either newly issued shares, treasury
shares, re-acquired shares, shares purchased in the open market or any
combination thereof. Non-qualified stock options may be granted at an exercise
price of not less than 85% of such fair market value. If any award under the
1998 Plan terminates, expires unexercised or is canceled, the shares of our
common stock that would otherwise have been issuable pursuant thereto will be
available for issuance pursuant to the grant of new awards. We have issued an
aggregate of 1,691,764 shares of our common stock and options to purchase an
aggregate of 100,000 shares of our common stock under the 1998 Plan as of the
Record Date and 208,236 shares remain available for issuance under the 1998
Plan. The 1998 Plan expires in August 2008.
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<PAGE>
1997 STOCK INCENTIVE PLAN
Our 1997 Stock Incentive Plan ("1997 Plan") provides for the grant of
incentive stock options within the meaning of the Section 422 of the Internal
Revenue Code of 1986, non- qualified stock options, or restricted stock to our
officers, employees, consultants and advisors.
The 1997 Plan, which is administered by the compensation committee of our
board of directors, currently authorizes the issuance of a maximum of 1,000,000
shares of our common stock, which may be either newly issued shares, treasury
shares, re-acquired shares, shares purchased in the open market or any
combination thereof. Incentive stock options generally may be granted at an
exercise price of not less than the fair market value of shares of common stock
on the date of grant. If any award under the 1997 Plan terminates, expires
unexercised or is canceled, the shares of our common stock that would otherwise
have been issuable pursuant thereto will be available for issuance pursuant to
the grant of new awards. We have issued an aggregate of 1,000,000 shares of our
common stock under the 1997 Plan as of the Record Date, and no shares remain
available for issuance. The 1997 Plan expires in December 2007.
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Delaware Law")
provides that indemnification of directors, officers, employees and other agents
of a corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, may be provided by such
corporation.
Our certificate of incorporation includes provisions eliminating the
personal liability of our directors for monetary damages resulting from breaches
of their fiduciary duty except, in accordance with Delaware Law,
- for any breach of the director's duty of loyalty to us or our
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- where the liability arises from an unlawful payment of a
dividend or an unlawful stock purchase or redemption by us which was
approved by the directors for whom liability is sought, or
- with respect to any transaction from which the director derived
an improper personal benefit.
Our by-laws provide indemnification to our directors, officers, employees
and agents, including indemnification against claims brought under state or
Federal securities laws, to the full extent allowable under Delaware law. We
also maintain a directors and officers liability insurance policy in a coverage
amount of $27,000,000, subject to a $54,000 deductible.
-13-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 29, 1999, we entered into a subscription agreement with Spotless
pursuant to which we sold to Acquisition Corp. 22,284,683 shares (the
"Acquisition Corp. Common Shares") of our common stock and 9,346 shares of our
Series B preferred stock for an aggregate subscription price of $2,500,000 or
$.07904 per share of our common stock and $79.04 per share of our Series B
preferred stock. Each share of our Series B preferred stock has the equivalent
voting power of 1,000 shares of our common stock. Each share of our Series B
preferred stock is convertible into 1,000 shares of our common stock. As of the
Record Date, the Acquisition Corp. Common Shares represented approximately 58%
of our outstanding common stock and the Acquisition Corp. Common Shares and
shares of Series B preferred stock collectively represented approximately 66% of
the voting power of our outstanding securities.
In addition, our company and our wholly owned subsidiaries, Trade-Winds
Environmental Restoration, Inc. ("Trade-Winds"), New York Testing Laboratories
Inc. and North Atlantic Laboratories, Inc., as joint and several obligors
(collectively, the "Obligors"), borrowed $2,000,000 from Spotless. This
borrowing is evidenced by the Note dated October 29, 1999. Outstanding principal
under the Note bears interest at a rate equal to LIBOR plus an additional 1% and
is payable monthly. The Note matures on October 29, 2004, unless Spotless elects
to defer repayment until October 29, 2005. The outstanding principal amount and
all accrued and unpaid interest under the Note is convertible, at the option of
Spotless, in whole or in part, at any time, into shares of our common stock at
the rate of one share of our common stock for every $.07904 of principal and
accrued interest so converted (or, in the event that certain approvals have not
been obtained at the time of conversion, into shares of our Series B preferred
stock at the rate of one share of our Series B preferred stock for every $79.04
of principal and accrued interest so converted). In connection with the Note,
each of the Obligors granted to Spotless a security interest in all of their
respective assets pursuant to a security agreement dated October 29, 1999.
As a result of the conversion features of the Series B preferred stock and
the Note, as of the Record Date, if Acquisition Corp. were to convert its shares
of Series B preferred stock into our common stock and Spotless were to convert
all of the outstanding $2 million principal amount and $166,603 accrued and
unpaid interest under the Note into our common stock, Acquisition Corp. and
Spotless would collectively own 59,042,866 shares, or approximately 79%, of the
then issued and outstanding shares of our common stock.
In September 1999, we borrowed $100,000 from Spotless Enterprises, Inc., an
affiliate of Spotless. The borrowing bore interest at a rate of 6% and was
repaid with accrued interest in November 1999. In March and April 2000, we
borrowed an aggregate of $500,000 from Spotless for working capital
requirements. In September 2000, we borrowed an additional $500,000 from
Spotless for working capital requirements. These borrowings bear interest at
LIBOR plus 1 percent. As of the Record Date, interest of $44,954 was accrued on
these borrowings.
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<PAGE>
On November 3, 2000, our Trade-Winds subsidiary entered into a time and
materials contract with a customer to provide mold remediation services on a
building under construction. In order to finance the additional outlay of
payroll and other expenses required to perform this contract, we entered into an
agreement with Spotless, dated November 4, 2000, to borrow an additional amount
of up to $1,000,000 under a secured line of credit. Amounts borrowed under this
loan facility bear interest at the rate of 10% per annum. All loans thereunder
are evidenced by a promissory note and are secured by our accounts receivable
arising from the contract and all equipment purchased by us or our Trade-Winds
subsidiary for use under the contract as set forth in the Security Agreement,
dated November 4, 2000, between us and Spotless. During November and December
2000, we borrowed $1,000,000 under this secured line of credit. As of the Record
Date, we have repaid to Spotless all such borrowings.
During fiscal 1999, Michael O'Reilly, our President and Chief Executive
Officer, received an aggregate of $50,000 and 133,333 shares of our common
stock, the fair value of which shares was $50,000 on the date of grant,
representing a bonus based upon a calculation of net profits at the end of the
second quarter of fiscal 1999. Due to subsequent losses we incurred in the third
and fourth quarters, the bonus was due back to us and, accordingly, recorded as
a loan receivable from Mr. O'Reilly. In fiscal 2000, we forgave the loan.
In fiscal 2000, we amended Michael O'Reilly's employment agreement.
In fiscal 1997, Anthony Towell, a director, loaned us $100,000 and was
issued a 12% convertible promissory note providing for, at the option of Mr.
Towell, the conversion of the principal and accrued and unpaid interest at the
rate of $.25 per share of our common stock. On December 31, 1997, the conversion
price was adjusted to $0.15 per share of our common stock. As of the Record
Date, an aggregate of 1,106,987 shares of our common stock are issuable upon
conversion of the principal and accrued and unpaid interest under the
convertible promissory note. $66,048 of unpaid interest was accrued as of the
Record Date. Mr. Towell is also an officer and director of Worksafe Industries,
Inc., which sold approximately $3,118 and $189,778 of material and supplies to
us that were used on remediation projects during fiscal 2000 and 1999,
respectively.
On December 16, 1998, we entered into an operating lease arrangement with
our Chief Executive Officer. Under the arrangement, we leased a forty-two foot
fully-equipped custom Topaz boat for a period of two years. Annual rental is
approximately $60,000. The leasing arrangement was necessitated by a Marine
Assistance Contract entered into with Keyspan Energy Corporation covering the
period January 1, 1999 through December 31, 2000. The arrangement provides us
with our largest floating vessel capable of handling specialty equipment and
facilitating an offshore support crew. The lease carries a one year renewal
option. We are responsible for all taxes, insurance and reports.
At April 30, 2000 and 1999, Dr. Kevin Phillips, a director, directly held
650,000 shares of our Series A preferred stock. Our Series A preferred stock is
convertible into our common stock at the rate of one share of our common stock
for every one share of our Series A preferred stock. In fiscal 2000, dividends
and interest of $35,268 were paid by the issuance of 112,857 shares of
-15-
<PAGE>
our common stock. In fiscal 1999, dividends and interest of $60,368 were
paid to Dr. Phillips, which amount consisted of $9,750, 122,982 shares of our
common stock and an option to purchase 15,000 shares of our common stock
exercisable at $.41 per share. As of the Record Date, the Company owed $54,601
in dividend arrearages plus interest to Dr. Phillips. In addition, our
subsidiaries sold approximately $261,203 and $7,800 of services to FPM Group
Ltd., formerly known as Fanning Phillips & Molnar, a company of which Dr.
Phillips is a principal, in fiscal 2000 and 1999, respectively. As of April 30,
2000, FPM Group Ltd. owed us $139,788 for such services.
We are required to pay quarterly dividends on our Series A preferred stock.
These dividends accrue from the initial date of issuance of the Series A
preferred stock, are cumulative, and, if not paid when due, bear interest on the
unpaid amount of the past due dividends at the prime rate published in The Wall
Street Journal on the date the dividend was payable, plus 3%. We believe,
however, that we are legally prohibited from paying dividends on our capital
stock due to the provisions of Section 170 of the Delaware Law, which require a
company to pay dividends on its capital stock only our of its capital surplus or
net profits in one of the two last years. We are currently in arrears on out
Series A preferred stock dividend payments and interest in the aggregate amount
of approximately $109,000. If we fail to make any four consecutive quarterly
dividends payments on the Series A preferred stock, the majority in interest of
the holders of our Series A preferred stock, which includes Dr. Phillips, have
the right to elect an additional director to our board of directors, to serve as
a director until such accrued and unpaid dividends have been paid in full. We
were unable to pay our fourth consecutive quarterly dividend payment to the
holders of the Series A preferred stock on September 15, 2000, and there can be
no assurance when or if we will make any Series A preferred stock dividend
payments in the future. The holders of the Series A preferred stock have not
exercised their right to elect an additional director.
Dr. Samuel Sadove, a director, performs consulting services for us. We paid
Dr. Sadove $42,400 for such services in each of fiscal 2000 and fiscal 1999.
In fiscal 1999, we entered into a contract for approximately $170,000 to
construct an employee's dwelling. As of April 30, 2000, we recognized losses
under this contract of approximately $130,000. In fiscal 1998, we entered into a
contract for $1,100,000 to construct a dwelling for a partner of our former law
firm. Subsequent change orders have brought the contract value to approximately
$2,111,000 at April 30, 2000. We have recognized losses under this contract of
approximately $532,000 as of April 30, 2000.
We believe that all transactions we entered into with our officers,
directors and principal stockholders have been on terms no less favorable to us
than those available from unrelated third parties.
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<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers,
directors and persons who beneficially own more than ten percent of a registered
class of our equity securities ("Reporting Persons") to file reports of
beneficial ownership and changes in beneficial ownership on Forms 3, 4 and 5
with the SEC and the National Association of Securities Dealers ("NASD"). These
Reporting Persons are required by SEC regulation to furnish us with copies of
all Forms 3, 4 and 5 that they file with the SEC and NASD. Based solely upon our
review of the copies of all Forms 3, 4 and 5 and amendments to these forms, we
believe that all Reporting Persons complied on a timely basis with all filing
requirements applicable to them with respect to transactions since fiscal 1997,
except that the following Reporting Persons failed to report the following
transactions on a timely basis: (a) Samuel S. Sadove failed to timely file his
Form 5 for fiscal 1998 with respect to a grant by our board of directors on May
13, 1997 of 1,000 shares of our common stock as compensation for director
services and (b) Anthony P. Towell failed to file his (i) Form 5 for fiscal 1997
with respect to a grant by our board of directors on May 2, 1996 of 3,533 shares
of our common stock as compensation for director services, (ii) Form 5 for
fiscal 1998 with respect to (A) grants by our board of directors on each of July
30, 1997 and November 11, 1997 of 1,000 and 4,533 shares of our common stock,
respectively, as compensation for director services and (B) the reduction of the
conversion price on December 31, 1997 of a certain convertible promissory note
dated October 15, 1996 pursuant to which an additional 266,667 shares of our
common stock became subject to issuance under the note, and (iii) Form 5 for
fiscal 1999 with respect to a grant by our board of directors on May 26, 1998 of
5,000 shares of our common stock as compensation for director services.
PROPOSAL NUMBER 2
TO APPROVE OUR
2001 EQUITY INCENTIVE PLAN
Our board of directors has adopted our 2001 Equity Incentive Plan (the
"2001 Plan") and is recommending that our stockholders approve the 2001 Plan at
the annual meeting.
The 2001 Plan is integral to our compensation strategies and programs. In
order to retain and secure employees in a competitive employment environment, we
must have competitive compensation programs, particularly with respect to
equity-based awards. The use of stock options and other stock awards is widely
prevalent and continues to increase. The 2001 Plan will give us more flexibility
to keep pace with our competitors.
With stockholder approval of the 2001 Plan, we expect to continue our
efforts to use stock options as our most widely used form of long-term
incentive. The 2001 Plan will also permit stock bonus grants, restricted stock
grants, performance stock grants, stock appreciation rights grants and other
types of awards.
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<PAGE>
PLAN SUMMARY
A summary of the principal features of the 2001 Plan is provided below, but
is qualified in its entirety by reference to the 2001 Plan. The full text of the
2001 Plan is attached as Appendix B to this proxy statement.
PURPOSE
The purposes of the 2001 Plan are to:
- enable us and our subsidiaries and affiliates to attract and retain
highly qualified personnel who will contribute to our success, and
- provide incentives to participants in the 2001 Plan that are
linked directly to increases in stockholder value which will therefore
inure to the benefit of all of our stockholders.
SHARES AVAILABLE FOR ISSUANCE
The maximum number of shares of our common stock that initially may be
issued under the 2001 Plan is 5,000,000. This number of shares represents
approximately 13% of the outstanding shares of our common stock as of the Record
Date. In the event of a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change in our
capital structure involving our common stock, then the number of shares that may
be granted pursuant to the 2001 Plan and the exercise prices of and number of
shares subject to outstanding options and other awards will be proportionately
adjusted, subject to any required action by our board of directors or
stockholders and compliance with applicable securities laws.
ADMINISTRATION
The 2001 Plan will be administered by our board of directors or, to the
extent the board elects to delegate the administration of the 2001 Plan, to a
committee of the board. Throughout the remainder of this discussion of the 2001
Plan, the term "administrator" refers to our board or any committee delegated
authority to administer the 2001 Plan.
The 2001 Plan provides for the administrator to have full authority,
in its discretion, to:
- select the persons to whom awards will be granted,
- grant awards,
- determine the number of shares to be covered by each award,
- determine the type, nature, amount, pricing, timing and other
terms of each award, and
- interpret, construe and implement the provisions of the 2001 Plan,
including the authority to adopt rules and regulations.
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<PAGE>
ELIGIBILITY
Participation in the 2001 Plan is limited to our, our subsidiaries' and
affiliates':
- employees,
- officers,
- directors,
- consultants, and
- advisors.
TYPES OF AWARDS
Under the 2001 Plan, the administrator is authorized to award:
- stock options,
- stock bonuses,
- restricted stock,
- stock appreciation rights, commonly referred to as "SARs,"
- performance grants, and
- other types of awards.
Stock Options
-------------
The administrator is authorized to grant stock options, which may be either
incentive stock options, referred to as "ISOs," or nonqualified stock options,
referred to as "NSOs." The exercise price of any NSO must be no less than 85% of
the fair market value of our common stock on the date of the grant; and the
exercise price of an ISO must be no less than 100% of such fair market value.
For purposes of the 2001 Plan, fair market value shall be equal to the closing
market price of our common stock on the principal stock market in which our
common stock trades. In the absence of a market price, fair market value shall
be determined in such manner as the administrator may deem equitable, or as
required by applicable law or regulation.
At the time of grant, the administrator will determine when options are
exercisable and when they expire. In absence of such determination, each option
will have a ten year term, with one quarter of the shares subject to the option
becoming exercisable on the first anniversary of the option grant and with an
additional one-quarter becoming exercisable on each of the next three
anniversary dates. The term of an option cannot exceed ten years, except in the
case of an ISO granted to a person who beneficially owns 10% or more of the
total combined voting power of all of our equity securities, referred to as a
"10% stockholder." An ISO granted to a 10% stockholder cannot have a term
exceeding five years nor may such an ISO be exercisable at less than 110% of the
fair market value of our common stock on the date of grant. ISOs may not be
granted more than ten years after the date of adoption of the 2001 Plan by our
board of directors, which was January 12, 2001.
There is no limit on the number of shares subject to options granted to any
one individual. However, the aggregate fair market value of shares exercisable
in any calendar year by one individual under ISOs, whether under the 2001 Plan
or any other plan of our company, may not
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<PAGE>
exceed $100,000. In such an event, the shares in excess of such $100,000
limitation shall be deemed granted under an NSO.
Payment for shares purchased upon exercise of a stock option must be made
in full at the time of purchase. Payment may be made in cash or:
- by reduction of indebtedness we owe to the optionee,
- by the transfer to us of shares of our common stock owned by the
participant for at least six months valued at fair market value on
the date of transfer,
- in the case of employees, officers and directors, by interest bearing
promissory note, or
- through a "same day sale" or "margin" commitment by an NASD member
broker-dealer.
Restricted Stock Grants
-----------------------
Restricted stock consists of shares which are transferred or sold to a
participant, but are subject to substantial risk of forfeiture and to
restrictions on their sale or other transfer by the participant. The
administrator determines the eligible participants to whom, and the time or
times at which, grants of restricted stock will be made, the number of shares to
be granted, the price to be paid, if any, the time within which the shares
covered by such grants will be subject to forfeiture, the time at which the
restrictions will terminate, and all other terms and conditions of the grants.
Restrictions could include, but are not limited to, performance criteria,
continuous service with us, the passage of time or other restrictions. In the
case of a 10% stockholder, restricted stock will only be issued at fair market
value.
Awards of restricted stock and other incentives under the 2001 Plan may be
made subject to the attainment of performance goals relating to one or more
business criteria within the meaning of Section 162(m) of the Code, including,
but not limited to:
- cash flow,
- cost,
- ratio of debt to equity,
- profit before tax,
- earnings before interest and taxes,
- the ratio of earnings to capital spending,
- free cash flow,
- net profit,
- net sales,
- price of our common stock,
- return on net assets, equity, or stockholders' equity,
- market share, or
- total return to stockholders.
Any performance criteria may be used to measure our performance as a whole
or the performance of any of our subsidiaries, affiliates or business units. Any
performance criteria may be adjusted to include or exclude extraordinary items.
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SARs
----
A SAR is a right, denominated in shares, to receive an amount, payable in
shares, in cash or a combination thereof, that is equal to the excess of: (i)
the fair market value of our common stock on the date of exercise of the right
over (ii) the fair market value of our common stock on the date of grant of the
right, multiplied by the number of shares for which the right is exercised. SARs
may be awarded either in combination with the grant of an option or other type
of award or individually.
Stock Bonus Awards
------------------
The administrator may award shares of our common stock to participants
without payment therefor, as additional compensation for service to us, our
subsidiaries or affiliates.
Performance Grants
------------------
The 2001 Plan authorizes the administrator to award performance grants.
Performance grant awards are earned over a performance period determined by the
administrator at the time of the award. There may be more than one performance
award in existence at any one time, and the performance periods may differ or
overlap. Further, performance grants can be awarded separately or in tandem with
other awards.
At the time a performance grant is awarded, the administrator will
establish minimum and maximum performance goals over the performance period. The
portion of the performance award earned by the participant will be determined by
the administrator, based on the degree to which the performance goals are
achieved. No performance grants will be earned by the participant unless the
minimum performance goals are met.
AMENDMENT OF THE 2001 PLAN
Except as may be required for compliance with Rule 16b-3 under the Exchange
Act and Section 162(m) of the Internal Revenue Code, our board of directors has
the right and power to amend the 2001 Plan; provided, however, that our board of
directors may not amend the 2001 Plan in a manner which would impair or
adversely affect the rights of the holder of an outstanding award without such
holder's consent. If the Code or any other applicable statute, rule or
regulation, including, but not limited to, those of any securities exchange,
requires stockholder approval with respect to the 2001 Plan or any type of
amendment thereto, then, to the extent so required, stockholder approval will be
obtained.
TERMINATION OF THE 2001 PLAN
Subject to earlier termination by our board of directors, the 2001 Plan
will terminate on March 4, 2011, subject to a five-year extension at the
discretion of the board. Termination will not in any manner impair or adversely
affect any award outstanding at the time of termination.
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ADMINISTRATOR'S RIGHT TO MODIFY BENEFITS
Any award granted may be converted, modified, forfeited, or canceled, in
whole or in part by the administrator if and to the extent permitted in the 2001
Plan, or applicable agreement entered into in connection with an award grant or
with the consent of the participant to whom such award was granted.
CHANGE IN CONTROL
Upon the occurrence of a change in control:
- all outstanding options and SARs shall become immediately
exercisable,
- all restrictions on restricted stock shall lapse and our right to
repurchase such restricted stock shall terminate, and
- the maximum amount payable under a performance grant through
the end of the quarter in which the change in control occurs shall
become due.
A change of control will be deemed to have occurred if:
- any person acquires beneficial ownership of 50% or more of the voting
power of our then-outstanding voting securities, or
- we are a party to a merger, consolidation, liquidation,
dissolution or sale of all or substantially all of our assets, other
than a merger in which we are the surviving corporation and such
merger does not result in any other manner in a change in control.
REUSAGE
If a stock option expires or is terminated, surrendered or canceled without
having been fully exercised or if restricted stock or SARs are forfeited or
terminated without the issuance of all of the shares subject to such award, the
shares covered by such awards will again be available for use under the 2001
Plan. Shares covered by an award granted under the 2001 Plan will not be counted
as used unless and until they are actually and unconditionally issued and
delivered to a participant. The number of shares which are transferred to us by
a participant to pay the exercise or purchase price of an award will be
subtracted from the number of shares issued with respect to such award for the
purpose of counting shares used. Shares withheld to pay withholding taxes in
connection with the exercise or payment of an award will not be counted as used.
Shares covered by an award granted under the 2001 Plan which is settled in cash
will not be counted as used.
TERMINATION OF OPTIONS
Upon the termination of an optionee's employment or other service with us,
the optionee will have three months to exercise options exercisable as of the
date of termination, except where such termination is for cause, in which event
the option will expire immediately. However, if, the termination is due to the
optionee's death or disability, then the optionee or the optionee's estate shall
have the right to exercise any vested options for twelve months after such death
or disability. The administrator, in its discretion, may delay the termination
of such an option, but
-22-
<PAGE>
only for up to the earlier of: (a) five years from such termination or (b)
the option's original expiration date.
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A GENERAL SUMMARY, AS OF THE DATE OF THIS PROXY STATEMENT,
OF THE FEDERAL INCOME TAX CONSEQUENCES TO US AND PARTICIPANTS UNDER THE 2001
PLAN. FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES FOR ANY SUCH PARTICIPANT WILL DEPEND UPON HIS, HER OR ITS
INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN AND IS ENCOURAGED TO SEEK
THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
PARTICIPATION IN THE 2001 PLAN.
ISOs
----
An optionee does not generally recognize taxable income upon the grant or
upon the exercise of an ISO. Upon the sale of shares received upon exercise of
an ISO, the optionee recognizes income in an amount equal to the difference, if
any, between the exercise price of the ISO shares and the fair market value of
those shares on the date of sale. The income is taxed at long-term capital gains
rates if the optionee has not disposed of the stock within two years after the
date of the grant of the ISO and has held the shares for at least one year after
the date of exercise and we will not be entitled to a federal income tax
deduction. The holding period requirements are waived when an optionee dies.
The exercise of an ISO may in some cases trigger liability for the
alternative minimum tax.
If an optionee sells ISO shares before having held them for at least one
year after the date of exercise and two years after the date of grant, the
optionee recognizes ordinary income to the extent of the lesser of: (i) the gain
realized upon the sale or (ii) the difference between the exercise price and the
fair market value of the shares on the date of exercise. Any additional gain is
treated as long-term or short-term capital gain depending upon how long the
optionee has held the ISO shares prior to disposing of them in a disqualifying
disposition. In the year of disposition, we will receive a federal income tax
deduction in an amount equal to the ordinary income which the optionee
recognizes as a result of the disposition.
NSOs
----
An optionee does not recognize taxable income upon the grant of an NSO.
Upon the exercise of an NSO, the optionee recognizes ordinary income to the
extent the fair market value of the shares received upon exercise of the NSO on
the date of exercise exceeds the exercise price. We will receive an income tax
deduction in an amount equal to the ordinary income which the optionee
recognizes upon the exercise of the stock option. If an optionee sells shares
received upon the exercise of an NSO, the optionee recognizes capital gain
income to the extent the sales proceeds exceed the fair market value of such
shares on the date of exercise.
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<PAGE>
Restricted Stock
----------------
A participant who receives an award of restricted stock does not generally
recognize taxable income at the time of the award or payment. Instead, the
participant recognizes ordinary income in the first taxable year in which his or
her interest in the shares becomes either: (i) freely transferable or (ii) no
longer subject to substantial risk of forfeiture. On the date restrictions
lapse, the participant includes in taxable income the fair market value of the
shares less the cash, if any, paid for the shares.
A participant may elect to recognize income at the time he or she receives
restricted stock in an amount equal to the fair market value of the restricted
stock (less any cash paid for the shares) on the date of the award.
We will receive a compensation expense deduction in the taxable year in
which restrictions lapse (or in the taxable year of the award if, at that time,
the participant had filed a timely election to accelerate recognition of
income).
Other Benefits
--------------
In the case of an exercise of a SAR or an award of a performance grant, or
stock bonus, the participant will generally recognize ordinary income in an
amount equal to any cash received and the fair market value of any shares
received on the date of payment or delivery. In that taxable year, we will
receive a federal income tax deduction in an amount equal to the ordinary income
which the participant has recognized.
Million Dollar Deduction Limit
------------------------------
We may not deduct compensation of more than $1,000,000 that is paid to an
individual who, on the last day of the taxable year, is either our chief
executive officer or is among one of the four other most highly-compensated
officers for that taxable year. The limitation on deductions does not apply to
certain types of compensation, including qualified performance- based
compensation. We believe that awards in the form of stock options, performance
stock, SARs and performance-based restricted stock constitute qualified
performance-based compensation and, as such, will be exempt from the $1,000,000
limitation on deductible compensation.
REGISTRATION AND EFFECT OF STOCK ISSUANCE
We intend to register under the Securities Act the shares of our common
stock issuable under the 2001 Plan. This will make such shares immediately
eligible for resale in the public market.
The issuance of shares of our common stock under the 2001 Plan will dilute
the voting power of our stockholders.
-24-
<PAGE>
NEW PLAN BENEFITS
The following table sets forth, to the extent determinable, the benefits
under the 2001 Plan described in Proposal Number 2 to be received upon
stockholder approval of such proposal.
<TABLE>
<CAPTION>
2001 Equity Incentive Plan
--------------------------
Shares
Dollar Underlying
Name Value ($) Options
---- --------- ----------
<S> <C> <C> <C>
Non-Employee Directors as a Group (1) 300,000 (2)
(3 persons)
-----------
<FN>
(1) All options will be granted at an exercise price equal to the fair
market value of the underlying shares of our common stock on the date of
grant.
(2) Each of our three Non-Employee Directors, as compensation for service
on our board of directors during our fiscal year ended April 30, 2000, will
receive a grant of options to purchase an aggregate of 100,000 shares of
our common stock under our 2001 Equity Incentive Plan, if the 2001 Plan is
approved by our stockholders.
</FN>
</TABLE>
APPROVAL OF STOCKHOLDERS
In order to be adopted, the 2001 Plan must be approved by the affirmative
vote of a majority of the votes entitled to be cast in person or by proxy and
actually cast at the annual meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE 2001 PLAN.
PROPOSAL NUMBER 3
APPROVING AN AMENDMENT TO OUR CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
Our certificate of incorporation presently provides that the number of
shares of common stock which we are authorized to issue is 100,000,000. Our
board of directors has determined that it is advisable to increase the number of
authorized shares of common stock to 150,000,000 and has authorized such
amendment to our certificate of incorporation, subject to stockholder approval.
Under the proposed amendment, subject to and upon stockholder approval,
paragraph (a) of Article FOURTH of our certificate of incorporation would be
amended to read as follows:
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<PAGE>
"(a) Common Stock: One Hundred Fifty Million (150,000,000) shares of
Common Stock, par value $.0001 per share."
If Proposal Number 3 is approved by our stockholders, the additional shares
of common stock so authorized, as well as shares of common stock presently
authorized but not issued or outstanding, may be issued from time to time upon
authorization of our board of directors, without further approval by our
stockholders, unless required by applicable law, and for such consideration as
the board of directors may determine and as may be permitted by applicable law.
Our board of directors believes the increase in the authorized shares is
necessary to provide us with the flexibility to act in the future with respect
to financing programs, acquisitions, stock splits and other corporate purposes
(although no such specific activities are currently contemplated), without the
delay and expense associated with obtaining special stockholder approval each
time an opportunity requiring the issuance of shares may arise. Such a delay
might deny us the flexibility our board of directors views as important in
facilitating the effective use of our securities.
The increase in authorized shares is not being proposed as a means of
preventing or dissuading a change in control or takeover of our company.
However, use of these shares for such a purpose is possible. Shares of
authorized but unissued securities, for example, could be issued in an effort to
dilute the stock ownership and voting power of persons seeking to obtain control
or could be issued to purchasers who would support our board of directors in
opposing a takeover proposal. In addition, the increase in authorized shares, if
approved, may have the effect of discouraging a challenge for control or making
it less likely that such a challenge, if attempted, would be successful.
The proposed amendment does not change the terms of the common stock.
Neither our certificate of incorporation nor Delaware law grants holders of
common stock any preemptive rights. The additional shares of common stock for
which authorization is sought will have the same voting rights, the same rights
to dividends and distributions and will be identical in all other respects to
the shares of common stock now authorized. Adoption of the proposed amendment to
the certificate of incorporation would not affect the rights of the holders of
our currently outstanding shares of common stock.
The authorization of additional shares of our common stock pursuant to this
proposal will have no dilutive effect upon the proportionate voting power of our
present shareowners. However, to the extent that shares are subsequently issued
to persons other than the present stockholders and/or in proportions other than
the proportion that presently exists, such issuance could have a substantial
dilutive effect on present stockholders.
As of the Record Date, we had 38,456,254 shares of our common stock
outstanding and 54,368,024 shares of our common stock reserved for issuance
pursuant to our stock plans (208,236 shares) and other outstanding options,
warrants and convertible securities (54,159,788 shares) to purchase our common
stock.
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<PAGE>
The following table illustrates the effect of the increase in the number of
authorized shares of our common stock, assuming Proposal Number 3 is approved.
<TABLE>
<CAPTION>
Before the After the
Amendment Amendment
---------- ---------
<S> <C> <C>
Authorized . . . . . . . . . . . . . 100,000,000 150,000,000
Outstanding . . . . . . . . . . . . 38,456,254 38,456,254
Reserved . . . . . . . . . . . . . . 54,368,024 59,368,024
Available for future issuance. . . . 7,175,722 52,175,722
</TABLE>
In order to be adopted, the amendment to our certificate of incorporation
must be approved by the affirmative vote of a majority of the votes entitled to
be cast at the meeting.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDMENT TO
OUR CERTIFICATE OF INCORPORATION.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche, LLP acted as our independent auditors for the year ended
April 30, 2000. Deloitte & Touche, LLP also has been selected to act as our
independent auditors for our fiscal year ending April 30, 2001. We anticipate
that a representative of Deloitte & Touche, LLP will be present at the annual
meeting. The auditors' representative will have the opportunity to make a
statement, if the auditors desire to do so, and will be available to respond to
appropriate questions from stockholders.
ANNUAL REPORT
A copy of our Annual Report on Form 10-KSB for the fiscal year ended April
30, 2000 is being mailed with this proxy statement to all stockholders as of
the Record Date.
MISCELLANEOUS INFORMATION
OTHER BUSINESS
As of the date of this proxy statement, our board of directors does not
know of any business other than specified above to come before the annual
meeting, but, if any other business does lawfully come before the annual
meeting, it is the intention of the persons named in the enclosed proxy to vote
in regard thereto in accordance with their judgment.
-27-
<PAGE>
COST OF SOLICITING PROXIES
We will pay the cost of soliciting proxies in the accompanying form. In
addition to solicitation by use of the mails, certain of our officers and
regular employees may solicit proxies by telephone, telegraph or personal
interview. We also request brokerage houses and other custodians, and, nominees
and fiduciaries, to forward soliciting material to the beneficial owners of our
common stock held of record by such persons, and we may make reimbursement for
payments made for their expense in forwarding soliciting material to the
beneficial owners of the stock held of record by such persons.
STOCKHOLDER PROPOSALS
Stockholder proposals with respect to our next annual meeting of
stockholders must be received by us at our corporate headquarters no later than
July 1, 2002 to be considered for inclusion in our proxy statement for our 2002
annual meeting of stockholders. Stockholders interested in submitting such a
proposal are advised to contact knowledgeable counsel with regard to the
detailed requirements of applicable securities laws. The submission of a
stockholder proposal does not guarantee that it will be included in such proxy
statement.
For any proposal that is not submitted for inclusion in our proxy statement
for our 2002 annual meeting of stockholders, but is instead sought to be
presented directly at such annual meeting, SEC rules permit management to vote
proxies in management's discretion if we either:
- receive notice of the proposal before the close of business
on August 1, 2002 and advise our stockholders in our proxy statement
for our 2002 annual meeting of stockholders about the nature of the
matter and how management intends to vote on such matter, or
- do not receive notice of the proposal prior to the close of business
on August 1, 2002.
Notices of intention to present proposals at the 2002 annual meeting of
stockholders should be addressed to us at our corporate headquarters.
By Order of the Board of Directors,
Michael O'Reilly,
President and Chief Executive Officer
February __, 2001
Bay Shore, New York
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<PAGE>
APPENDIX A
WINDSWEPT ENVIRONMENTAL GROUP, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The primary purpose of the Audit Committee (the "Committee") of Windswept
Environmental Group, Inc. (the "Company") is to assist the Board of Directors
(the "Board") of the Company in fulfilling its responsibility to oversee
management's conduct of the Company's financial reporting process, including by
overviewing the financial reports and other financial information provided by
the Company to any governmental or regulatory body, the public or other users
thereof, the Company's systems of internal accounting and financial controls,
the annual independent audit of the Company's financial statements and the
Company's legal compliance and ethics programs as established by management and
the Board.
In discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities and personnel of the Company and the power to retain outside counsel,
auditors or other experts for this purpose. The Board and the Committee are in
place to represent the Company's shareholders; accordingly, the outside auditor
is ultimately accountable to the Board and the Committee.
The Committee shall review the adequacy of this Charter on an annual basis.
MEMBERSHIP
The Committee shall be comprised of not less than three members of the Board,
and the Committee's composition will meet the requirements of the Audit
Committee Policy of the NASD.
Accordingly, all of the members will be directors:
1. Who have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company; and
2. Who are financially literate or who become financially literate within a
reasonable period of time after appointment to the Committee. In addition,
at least one member of the Committee will have accounting or related
financial management expertise.
KEY RESPONSIBILITIES
The Committee's job is one of oversight and it recognizes that the Company's
management is responsible for preparing the Company's financial statements and
that the outside auditors are responsible for auditing those financial
statements. Additionally, the Committee recognizes that
A - 1
<PAGE>
financial management including any internal audit staff, as well as the
outside auditors, have more time, knowledge and more detailed information on the
Company than do Committee members; consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special assurance
as to the Company's financial statements or any professional certification as to
the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Committee may diverge from this guide
as appropriate given the circumstances.
- The Committee shall review with management and the outside auditors
the audited financial statements to be included in the Company's Annual
Report on Form 10-K or 10- KSB (or the Annual Report to Shareholders if
distributed prior to the filing of Form 10-K or 10-KSB) and review and
consider with the outside auditors the matters required to be discussed by
Statement of Auditing Standards ("SAS") No. 61.
- As a whole, or through the Committee chair, the Committee shall review
with the outside auditors the Company's interim financial results to be
included in the Company's quarterly reports to be filed with Securities and
Exchange Commission and the matters required to be discussed by SAS No. 61;
this review will occur prior to the Company's filing of the Form 10-Q or
10-QSB.
- The Committee shall discuss with the outside auditors the quality and
adequacy of the Company's accounting principles as applied in its financial
reporting including, but not limited to:
- The clarity of the Company's financial disclosures and
degree of aggressiveness or conservatism of the Company's accounting
principles and underlying estimates; and
- other significant decisions made by management in preparing the
financial disclosure.
- The Committee shall discuss with management and the outside auditors
the quality and adequacy of the Company's internal controls.
- The Committee shall:
- request from the outside auditors annually, a formal written
statement delineating all relationships between the auditor and the
Company consistent with Independence Standards Board Standard Number
1;
- discuss with the outside auditors any such disclosed
relationships or services and their impact on the outside auditor's
objectivity and independence; and
A - 2
<PAGE>
- recommend that the Board take appropriate action to oversee
the independence of the outside auditor.
- The Committee, subject to any action that may be taken by the full
Board, shall have the ultimate authority and responsibility to select (or
nominate for shareholder approval), evaluate and, where appropriate,
replace the outside auditor.
A - 3
<PAGE>
APPENDIX B
WINDSWEPT ENVIRONMENTAL GROUP, INC.
2001 EQUITY INCENTIVE PLAN
ARTICLE 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
1.1. Purpose. The purposes of this 2001 Equity Incentive Plan are (a) to
enable Windswept Environmental Group, Inc. and its subsidiaries and
affiliates to attract and retain highly qualified personnel who will
contribute to the success of Windswept Environmental Group, Inc. and
(b) to provide incentives to participants in this 2001 Equity
Incentive Plan that are linked directly to increases in stockholder
value which will therefore inure to the benefit of all stockholders of
Windswept Environmental Group, Inc.
1.2. Definitions. For purposes of this Equity Incentive Plan, except as
otherwise defined, capitalized terms shall have the meanings assigned
to them in this Section 1.2.
"Administrator" means the Board or, if and to the extent the
Board elects to delegate the administration of the Plan or does
not administer the Plan, the Committee.
"Affiliate" means any entity or person that directly, or
indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, another entity,
where "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or
indirectly, of the power to cause the direction of the management
and policies of the entity, whether through the ownership of
voting securities, by contract or otherwise.
"Award" means any award under the Plan.
"Award Agreement" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting
forth the terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Cause" means the commission of any act of a material theft,
embezzlement or fraud involving the Company or any Parent,
Subsidiary or Affiliate of the Company, or a breach of fiduciary
duty to the Company or any Parent, Subsidiary or Affiliate of the
Company.
"Change of Control" shall have the meaning assigned to such term
in Section 15.2.
B-1
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
"Committee" means compensation or other any committee the Board
may appoint to administer the Plan. To the extent necessary and
desirable, the Committee shall be composed entirely of
individuals who meet the qualifications referred to in
Section 162(m) of the Code and Rule 16b-3 under the Exchange Act.
If at any time or tho any extent the Board shall not administer
the Plan, then the functions of the Board specified in the Plan
shall be exercised by the Committee.
"Common Stock" means the common stock, par value $.0001 per
share, of the Company.
"Company" means Windswept Environmental Group, Inc., a Delaware
corporation, or any successor corporation.
"Disability" means the inability of a Participant to perform
substantially his or her duties and responsibilities to the
Company or to any Parent, Subsidiary or Affiliate by reason of a
physical or mental disability or infirmity for a continuous
period of six months, as determined by the Administrator. The
date of such Disability shall be the last day of such six-month
period or the date on which the Participant submits such medical
evidence, satisfactory to the Administrator, that the Participant
has a physical or mental disability or infirmity that will likely
prevent the Participant from performing the Participant's work
duties for a continuous period of six months or longer, as the
case may be.
"Eligible Recipient" means an officer, director, employee,
consultant or advisor of the Company or of any Parent, Subsidiary
or Affiliate. For purposes of the Plan, the term "employee"
shall include all those individuals whose service with or for
the Company and/or any Parent, Subsidiary or Affiliate of the
Company, is within the definition of "employee" in the Rule as to
the Use of Form S-8 contained in the General Instructions for the
registration statement on Form S-8 promulgated by the Securities
and Exchange Commission.
"Employee Director" means any director of the Company who is also
an employee of the Company or of any Parent, Subsidiary or
Affiliate.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Exercise Price" means the per share price at which a holder of
an Award may purchase the Shares issuable upon exercise of such
Award.
"Fair Market Value" as of a particular date shall mean the fair
market value of a share of Common Stock as determined by the
Administrator; provided, however,
B-2
<PAGE>
that Fair Market Value shall mean (i) if the Common Stock is
listed or admitted to trade on a national securities exchange,
the closing price of the Common Stock on the Composite Tape, as
published in The Wall Street Journal, of the principal national
securities exchange on which the Common Stock is so listed or
admitted to trade, on such date, or, if there is no trading of
the Common Stock on such date, then the closing price of the
Common Stock as quoted on such Composite Tape on the next
preceding date on which there was trading in such shares; (ii) if
the Common Stock is not listed or admitted to trade on a national
securities exchange but is listed and quoted on The Nasdaq Stock
Market ("Nasdaq"), the last sale price for the Common Stock on
such date as reported by Nasdaq, or, if there is no reported
trading of the Common Stock on such date, then the last sale
price for the Common Stock on the next preceding date on which
there was trading in the Common Stock; (iii) if the Common Stock
is not listed or admitted to trade on a national securities
exchange and is not listed and quoted on Nasdaq, the mean
between the closing bid and asked price for the Common Stock on
such date, as furnished by the National Association of Securities
Dealers, Inc. ("NASD"); (iv) if the Common Stock is not listed or
admitted to trade on a national securities exchange, not listed
and quoted on Nasdaq and closing bid and asked prices are not
furnished by the NASD, the mean between the closing bid and asked
price for the Common Stock on such date, as furnished by the
National Quotation Bureau ("NQB") or similar organization; (v) if
the stock is not listed or admitted to trade on a national
securities exchange, not listed and quoted on Nasdaq and if bid
and asked prices for the Common Stock are not furnished by the
NASD, NQB or a similar organization, the value established in
good faith by the Administrator; and (vi) in the case of a
Limited Stock Appreciation Right, the Fair Market Value of a
share of Common Stock shall be the "Change in Control Price"
(as defined in the Award Agreement evidencing such Limited Stock
Appreciation Right) of a share of Common Stock as of the date of
exercise.
"Family Member" means, with respect to any Participant, any of
the following:
(a) such Participant's child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, sister-in-law,
including any such person with such relationship to the
Participant by adoption;
(b) any person (other than a tenant or employee) sharing
such Participant's household;
(c) a trust in which the persons identified in clauses (a)
and (b) above have more than fifty percent of the beneficial
interest;
(d) a foundation in which the persons identified in clauses
(a) and (b) above or the Participant control the management
of assets; or
(e) any other entity in which the persons identified in
clauses (a) and (b) above or the Participant own more than
fifty percent of the voting interest.
B-3
<PAGE>
"Incentive Stock Option" means any Option intended to be
designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
"Incumbent Board" means (i) the members of the Board of the
Company on March 5, 2001, to the extent that they continue to
serve as members of the Board, and (ii) any individual who
becomes a member of the Board after March 5, 2001,
if such individual's election or nomination for election as a
director was approved by a vote of at least three-quarters of the
then Incumbent Board.
"Limited Stock Appreciation Right" means a Stock Appreciation
Right that can be exercised only in the event of a "Change in
Control" (as defined in the Award Agreement evidencing such
Limited Stock Appreciation Right).
"Non-Employee Director" means a director of the Company who is
not an employee of the Company or of any Parent, Subsidiary or
Affiliate.
"Non-Qualified Stock Option" means any Option that is not an
Incentive Stock Option, including, but not limited to, any Option
that provides (as of the time such Option is granted) that it
will not be treated as an Incentive Stock Option.
"Option" means an option to purchase Shares granted pursuant to
Article 5.
"Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each
of the corporations in the chain (other than the Company) owns
stock possessing 50% or more of the combined voting power of all
classes of stock in one of the other corporations in the chain.
"Participant" means any Eligible Recipient selected by the
Administrator, pursuant to the Administrator's authority to
receive grants of Options, Stock Appreciation Rights, Limited
Stock Appreciation Rights, awards of Restricted Stock,
Performance Shares, other types of awards, or any combination of
the foregoing.
"Performance Grant" shall have the meaning assigned to the term
in Article 8.
"Performance Shares" means Shares that are subject to
restrictions based upon the attainment of specified performance
objectives granted pursuant to Article 8.
"Permitted Transfer" means, as authorized by the Plan and the
Administrator, with respect to an interest in a Non-Qualified
Stock Option, any transfer effected by the Participant during the
Participant's lifetime of an interest in such Non-Qualified Stock
Option but only such transfers which are by gift or pursuant to
domestic relations orders. A permitted transfer does not include
any transfer for value and neither transfers under a domestic
relations order in settlement of marital property rights or to
an entity in which more than 50% of the voting interests are
owned by
B-4
<PAGE>
Family Members or the Participant in exchange for an
interest in that entity are deemed transfers for value.
"Plan" means this 2001 Equity Incentive Plan.
"Related Employment" means the employment or performance of
services by an individual for an employer that is neither the
Company, any Parent, Subsidiary nor Affiliate, provided that (i)
such employment or performance of services is undertaken
by the individual at the request of the Company or
any Parent, Subsidiary or Affiliate, (ii) immediately
prior to undertaking such employment or performance of services,
the individual was employed by or performing services
for the Company or any Parent, Subsidiary or Affiliate or was
engaged in Related Employment, and (iii) such employment or
performance of services is in the best interests of the Company
and is recognized by the Administrator, as Related Employment.
The death or Disability of an individual during a period of
Related Employment shall be treated, for purposes of this Plan,
as if the death or onset of Disability had occurred while the
individual was employed by or performing services for the Company
or a Parent, Subsidiary or Affiliate.
"Restricted Stock" means Shares subject to certain restrictions
granted pursuant to Article 7.
"Restricted Period" means the period of time Restricted Stock
remains subject to restrictions imposed on the Award of such
Restricted Stock.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Shares" means shares of Common Stock reserved for issuance under
or issued pursuant to the Plan, as adjusted pursuant to Article
4, and any successor security.
"Stock Appreciation Right" means the right pursuant to an Award
granted under Article 6 to receive an amount equal to the excess,
if any, of (i) the Fair Market Value, as of the date such Stock
Appreciation Right or portion thereof is surrendered, of the
Shares covered by such right or such portion thereof, over (ii)
the aggregate exercise price of such right or such portion
thereof as established by the Administrator at the time of the
grant of such Award (or such other exercise price thereafter
established by the Administrator with the consent of the
Participant granted such Award where required by the Plan).
"Stock Bonus" means an Award granted pursuant to Article 9.
"Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if
each of the corporations (other than the last corporation) in
the unbroken chain owns stock possessing 50%
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or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
"Ten Percent Stockholder" shall have the meaning assigned to it
in Section 5.4.
"Termination" or "Terminated" means, for purposes of the Plan
with respect to a Participant, that such Participant has for any
reason ceased to provide services as an employee, officer,
director, consultant, independent contractor, or advisor to
the Company or any Parent, Subsidiary or Affiliate of the
Company. A Participant will not be deemed to have ceased to
provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the
Administrator, provided, that such leave is for a period of not
more than 90 days, unless reemployment or reinstatement upon the
expiration of such leave is guaranteed by contract or statute or
unless provided otherwise pursuant to formal policy adopted from
time to time by the Company and issued and promulgated to
employees and other participants in writing. In the case of any
Participant on an approved leave of absence, the Administrator
may make such provisions respecting suspension of vesting of any
Award previously granted to such Participant while such
Participant is on leave from the Company or any Parent,
Subsidiary or Affiliate of the Company as the Administrator may
deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the
Award Agreement with respect to such Option. The Administrator
will have sole discretion to determine whether a Participant has
ceased to provide services and the applicable Termination Date.
"Termination Date" means the effective date of Termination, as
determined by the Administrator.
ARTICLE 2. ADMINISTRATION.
2.1. Administration in Accordance with the Code and Exchange Act. The Plan
shall be administered in accordance with the requirements of Section
162(m) of the Code (but only to the extent necessary and desirable to
maintain qualification of Awards under the Plan under Section 162(m) of
the Code) and, to the extent applicable, Rule 16b-3 under the Exchange
Act ("Rule 16b-3"), by the Board or, at the Board's sole discretion, by
the Committee, which shall be appointed by the Board, and which shall
serve at the pleasure of the Board.
2.2. Administrator's Powers. Subject to the general purposes, terms and
conditions of this Plan, the Administrator will have full power to
implement and carry out this Plan. The Administrator will have the
authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
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(b) prescribe, amend and rescind rules and regulations relating
to this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent,
Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in the Plan, any Award or any Award Agreement;
(j) to make any adjustments necessary or desirable as a result
of the granting of an Award to an Eligible Participant located
outside the United States;
(k) determine whether an Award has been earned; and
(l) make all other determinations necessary or advisable for the
administration of the Plan.
2.3. Administrator's Discretion Final. Any determination made by the
Administrator with respect to any Award will be made in its sole
discretion at the time of grant of the Award or, unless in
contravention of any express term of the Plan or Award, at any later
time, and such determination will be final and binding on the Company
and on all persons having an interest in any Award under the Plan.
2.4. Administrator's Method of Acting; Liability. The Administrator may act
only by a majority of its members then in office, except that the
members thereof may authorize any one or more of their members or any
officer of the Company to execute and deliver documents or to take any
other ministerial action on behalf of the Administrator with
respect to Awards made or to be made to Eligible Participants. No
member of the Administrator and no officer of the Company shall be
liable for anything done or omitted to be done by such member or
officer, by any other member of the Administrator or by any officer of
the Company in connection with the performance of duties under the
Plan, except for such member's or officer's own willful misconduct or
as expressly provided by law.
ARTICLE 3. PARTICIPATION.
3.1. Affiliates. If a Parent, Subsidiary or Affiliate of the Company wishes
to participate in the Plan and its participation shall have been
approved by the Board, the board of directors or other governing body
of the Parent, Subsidiary or Affiliate, as the case may be, shall
adopt a resolution in form and substance satisfactory to the
Administrator authorizing participation by the Parent, Subsidiary or
Affiliate in the Plan. A Parent, Subsidiary or Affiliate participating
in the Plan may cease to be a participating company at any time by
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action of the Board or by action of the board of directors or other
governing body of such Parent, Subsidiary or Affiliate, which latter
action shall be effective not earlier than the date of delivery to the
Secretary of the Company of a certified copy of a resolution of the
Parent, Subsidiary or Affiliate's board of directors or other governing
body taking such action. If the participation in the Plan of a Parent,
Subsidiary or Affiliate shall terminate, such termination shall not
relieve the Parent, Subsidiary or Affiliate of any obligations
theretofore incurred by the Parent, Subsidiary or Affiliate, except
as may be approved by the Administrator.
3.2. Participants. Incentive Stock Options may be granted only to employees
(including officers and directors who are also employees) of the
Company, or any Parent, Subsidiary or Affiliate of the Company.
All other Awards may be granted to employees, officers,
directors, consultants, independent contractors and advisors
of the Company or any Parent, Subsidiary or Affiliate of
the Company; provided, that such consultants, contractors and advisors
render bona fide services to the Company or such Parent, Subsidiary or
Affiliate of the Company not in connection with the offer and sale of
securities in a capital-raising transaction. An Eligible Participant
may be granted more than one Award under the Plan.
ARTICLE 4. AWARDS UNDER THE PLAN.
4.1. Types of Awards. Awards under the Plan may include, but need not be
limited to, one or more of the following types, either alone or in any
combination thereof:
(a) Options;
(b) Stock Appreciation Rights;
(c) Restricted Stock;
(d) Performance Grants;
(e) Stock Bonuses; and
(f) any other type of Award deemed by the Administrator to be
consistent with the purposes of the Plan (including but not limited
to, Awards of or options or similar rights granted with respect to
unbundled stock units or components thereof, and Awards to be made
to participants who are foreign nationals or are employed or
performing services outside the United States).
4.2. Number of Shares Available Under the Plan. Subject to Section 4.4, the
total number of Shares reserved and available for grant and issuance
pursuant to the Plan will be 5,000,000, plus Shares that are subject
to:
(a) issuance upon exercise of an Option previously granted but
cease to be subject to such Option for any reason other than
exercise of such Option;
(b) an Award previously granted but forfeited or repurchased by
the Company at the original issue price; and
(c) an Award previously granted that otherwise terminates without
Shares being issued.
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Shares may consist, in whole or in part, of authorized and unissued
shares or treasury shares.
The number of Shares which are transferred to the Company by a
Participant to pay the exercise or purchase price of an award will be
subtracted from the number of Shares issued with respect to such Award for the
purpose of counting Shares used under the Plan. Shares withheld to pay
withholding taxes in connection with the exercise or repayment of an Award will
not be counted as used under the Plan. In addition, shares covered by an award
granted under the Plan which is settled in cash will not be counted as used
under the Plan.
4.3. Reservation of Shares. At all times, the Company shall reserve and
keep available a sufficient number of Shares as shall be required to
satisfy the requirements of all outstanding Options granted
under the Plan and all other outstanding but unexercised Awards
granted under the Plan.
4.4. Adjustment in Number of Shares Available Under the Plan. In the event
that the number of outstanding shares of Common Stock is changed by a
stock dividend, recapitalization, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the
capital structure of the Company without consideration, then (a) the
number of Shares reserved for issuance under the Plan, (b) the number
of Shares that may be granted pursuant to the Plan, (c) the Exercise
Prices of and number of Shares subject to outstanding Options and other
awards, and (d) the exercise prices of and number of Shares subject to
other outstanding Awards, will be proportionately adjusted, subject to
any required action by the Board or the stockholders of the Company
and compliance with applicable securities laws; provided, however,
that, upon occurrence of such an event, fractions of a Share will not
be issued upon exercise of an Award but will, upon such exercise,
either be replaced by a cash payment equal to the Fair Market Value of
such fraction of a Share on the effective date of such an event or will
be rounded up to the nearest whole Share, as determined by the
Administrator.
4.5. Rights with Respect to Common Shares and Other Securities.
(a) Unless otherwise determined by the Administrator, a
Participant to whom an Award of Restricted Stock has been made
(and any person succeeding to such Participant's rights with
respect to such Award pursuant to the Plan) shall have,
after issuance of a certificate or copy thereof for the number of
Shares so awarded and prior to the expiration of the Restricted
Period or the earlier repurchase of such Shares as provided in the
Plan or Award Agreement with respect to such Award of Restricted
Stock, ownership of such Shares, including the right to vote
the same and to receive dividends or other distributions made or
paid with respect to such Shares (provided that such Shares, and
any new, additional or different shares, or other securities or
property of the Company, or other forms of consideration which the
participant may be entitled to receive with respect to such
Shares as a result of a stock split, stock dividend or any other
change in the corporate or capital structure of the Company, shall
be subject to the restrictions of
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the Plan as determined by the Administrator), subject, however, to
the options, restrictions and limitations imposed thereon pursuant
to the Plan. Notwithstanding the foregoing, unless otherwise
determined by the Administrator, a Participant with whom an Award
Agreement is made to issue Shares in the future shall have no
rights as a stockholder with respect to Shares related to such
Award Agreement until a stock certificate evidencing such Shares
is issued to such Participant.
(b) Unless otherwise determined by the Administrator, a
Participant to whom a grant of Stock Options, Stock Appreciation
Rights, Performance Grants or any other Award is made (and any
person succeeding to such Participant's rights pursuant to the
Plan) shall have no rights as a stockholder with respect to any
Shares or as a holder with respect to other securities, if any,
issuable pursuant to any such Award until the date a stock
certificate evidencing such Shares or other instrument of
ownership, if any, is issued to such Participant. Except as
provided in Section 4.4, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary,
and whether in cash, securities, other property or other forms of
consideration, or any combination thereof) for which the record
date is prior to the date such stock certificate or other
instrument of ownership, if any, is issued.
ARTICLE 5. STOCK OPTIONS.
5.1. Grant; Determination of Type of Option. The Administrator may grant
one or more Options to an Eligible Participant and will determine (a)
whether each such Option will be an Incentive Stock Option or a
Non-Qualified Stock Option, (b) the number of Shares subject to each
such Option, (c) the Exercise Price of each such Option, (d) the period
during which each such Option may be exercised, and (e) all other terms
and conditions of each such Option, subject to the terms and conditions
of this Article 5. The Administrator may grant an Option either alone
or in conjunction with Stock Appreciation Rights, Performance Grants
or other Awards, either at the time of grant or by amendment
thereafter.
5.2. Form of Option Award Agreement. Each Option granted under the Plan
will be evidenced by an Award Agreement which will expressly identify
the Option as an Incentive Stock Option or a Non-Qualified Stock
Option, will be in such form and contain such provisions (which need
not be the same for each Participant or Option) as the Administrator
may from time to time approve, and which will comply with and be
subject to the terms and conditions of the Plan.
5.3. Date of Grant. The date of grant of an Option will be the date on
which the Administrator makes the determination to grant such Option,
unless otherwise specified by the Administrator.
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5.4. Exercise Period. Each Option shall be exercisable within the times or
upon the occurrence of one or more events determined by the
Administrator and set forth in the Award Agreement governing such
Option; provided, however, that no Option will be exercisable after
the expiration of ten years from the date the Option is granted; and
provided, further, however, that no Incentive Stock Option granted to
a person who directly or by attribution owns more than 10% of the total
combined voting power of all classes of stock of the Company or of any
Parent, Subsidiary or Affiliate of the Company (each, a "Ten Percent
Stockholder") will be exercisable after the expiration of five years
from the date such Incentive Stock Option is granted. The
Administrator also may provide for an Option to become exercisable at
one time or from time to time, periodically or otherwise, in such
number of Shares or percentage of Shares as the Administrator
determines. Unless otherwise determined by the Administrator, an
Option shall be exercisable as follows:
(a) up to 25% of the number of Shares subject to such Option
commencing on the first anniversary of the date of grant of such
Option;
(b) up to an additional 25% of the number of Shares subject to
such Option commencing on the second anniversary of the date of
grant of such Option;
(c) up to an additional 25% of the number of Shares subject to
such Option commencing on the third anniversary of the date of
grant of such Option; and
(d) up to an additional 25% of the number of Shares subject to
such Option commencing on the fourth anniversary of the date of
grant of such Option.
5.5. Exercise Price. The Exercise Price of an Option will be determined by
the Administrator when the Option is granted and may be not less than
85% of the per share Fair Market Value of the Shares subject to such
Option on the date of grant of such Option; provided, however, that:
(a) the Exercise Price of an Incentive Stock Option will be not less
than 100% of the per share Fair Market Value of such Shares on the
date of such grant and (b) the Exercise Price of any Incentive Stock
Option granted to a Ten Percent Stockholder will not be less than 110%
of the per share Fair Market Value of such Shares on the date
of such grant. Payment for the Shares purchased shall be made in
accordance with Article 10 of the Plan.
5.6. Method of Exercise. An Option may be exercised only by delivery to the
Company of an irrevocable written exercise notice (a) identifying the
Option being exercised, (b) stating the number of Shares being
purchased, (c) providing any other matters required by the
Award Agreement with respect to such Option, and (d) containing
such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be
required or desirable by the Company to comply with applicable
securities laws. Such exercise notice shall be accompanied by payment
in full of the Exercise Price for the number of Shares being purchased
in accordance with Article 10 and the executed Award Agreement with
respect to such Option.
5.7. Termination. Notwithstanding anything contained in Section 5.4 or in
an Award Agreement, exercise of Options shall always be subject to the
following:
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(a) If the Participant is Terminated for any reason except death
or Disability, then the Participant may exercise each of such
Participant's Options (i) only to the extent that such Options
would have been exercisable on the Termination Date and (ii) no
later than three months after the Termination Date (or such
longer time period not exceeding five years as may be determined
by the Administrator, with any exercise beyond three months after
the Termination Date deemed to be an exercise of an Non-Qualified
Stock Option), but in any event, no later than the original
expiration date of such Option;
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three months
after a Termination other than for Cause or because of
Participant's Disability), then each of such Participant's
Options (i) may be exercised only to the extent that such Option
would have been exercisable by Participant on the Termination Date
and (ii) must be exercised by Participant (or Participant's legal
representative or authorized assignee) no later than twelve months
after the Termination Date (or such longer time period not
exceeding five years as may be determined by the Administrator,
with any such exercise beyond (A) three months after the
Termination Date when the Termination is for any reason other than
the Participant's death or Disability or (B) twelve months after
the Termination Date when the Termination is because of
Participant's death or Disability, deemed to be an exercise of a
Non-Qualified Stock Option), but in any event no later than the
original expiration date of such Option;
(c) Notwithstanding the provisions in paragraphs 5.7(a) and
5.7(b), if a Participant is terminated for Cause, neither the
Participant, the Participant's estate nor such other person who
may then hold an Option shall be entitled to exercise
such Option whatsoever, whether or not, after the Termination
Date, the Participant may receive payment from the Company or any
Parent, Subsidiary or Affiliate of the Company for vacation pay,
for services rendered prior to the Termination Date, for services
rendered for the day on which Termination occurs, for salary in
lieu of notice, for severance or for any other benefits; provided,
however, in making such a determination, the Administrator shall
give the Participant an opportunity to present to the
Administrator evidence on Participant's behalf that the provisions
of this paragraph 5.7(c) should not apply and, in the alternative,
paragraph 5.7(a) or 5.7(b) shall apply; provided, further,
however, that, for the purpose of this paragraph 5.7(c),
Termination shall be deemed to occur on the date when the Company
dispatches notice or advice to the Participant that such
Participant is Terminated.
5.8. Limitations on Exercise. The Administrator may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an
Option, provided, that such minimum number will not prevent Participant
from exercising the Option for the full number of Shares for which the
Option is then exercisable.
5.9. Limitations on Incentive Stock Options. The aggregate Fair Market
Value (as determined as of the date of grant) of Shares with respect to
which an Incentive Stock Option are
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exercisable for the first time by a Participant during any calendar
year (under the Plan or under any other incentive stock
option plan of the Company, and any Parent, Subsidiary
and Affiliate of the Company) will not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which
Incentive Stock Option(s) are exercisable for the first time by a
Participant during any calendar year exceeds $100,000, then the
Option(s) for the first $100,000 worth of Shares to become exercisable
in such calendar year will be deemed Incentive Stock Option(s) and the
Option(s) that become exercisable in such calendar year for the number
of Shares which have a Fair Market Value in excess of $100,000 will be
deemed to be Non-Qualified Stock Option(s). In the event that the Code
or the regulations promulgated thereunder are amended after the
effective date of the Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to Incentive Stock
Options, such different limit will be automatically incorporated herein
and will apply to any Options granted after the effective date of such
amendment.
5.10. Modification, Extension or Renewal. The Administrator may modify,
extend or renew any outstanding Option and authorize the grant of one
or more new Options in substitution therefor; provided that any such
action may not, without the written consent of a Participant, impair
any of such Participant's rights under any Option previously
granted. Any outstanding Incentive Stock Option that is modified,
extended, renewed or otherwise altered will be treated in accordance
with Section 424(h) and other applicable provisions of the Code.
The Administrator may reduce the Exercise Price of any outstanding
Option of a Participant without the consent of the Participant affected
by delivering a written notice to the Participant; provided, however,
that the Exercise Price may not be reduced below the minimum Exercise
Price that would be permitted under Section 5.5 for Options granted on
the date the action is taken to reduce such Exercise Price.
5.11. No Disqualification. Notwithstanding any other provision in the Plan,
no term of the Plan relating to an Incentive Stock Option will be
interpreted, amended or altered, nor will any discretion or authority
granted under the Plan be exercised, so as to disqualify the Plan
under Section 422 of the Code or, without the consent of the
Participant affected, to disqualify any Incentive Stock Option under
Section 422 of the Code.
5.12. Prohibition Against Transfer. No Option may be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by
will or the laws of descent and distribution or pursuant to a domestic
relations order, and a Participant's Option shall be exercisable during
such Participant's lifetime only by such Participant or such person
receiving such Option pursuant to a domestic relations order.
ARTICLE 6. STOCK APPRECIATION RIGHTS.
6.1 Grant of Stock Appreciation Rights.
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(a) The Administrator may grant Stock Appreciation Rights either
alone, or in conjunction with the grant of an Option, Performance
Grant or other Award, either at the time of grant or by amendment
thereafter. Each Award of Stock Appreciation Rights granted under
the Plan shall be evidenced by an instrument in such form as the
Administrator shall prescribe from time to time in accordance
with the Plan and shall comply with the following terms and
conditions, and with such other terms and conditions, including,
but not limited to, restrictions upon the Award of Stock
Appreciation Rights or the Shares issuable upon exercise
thereof, as the Administrator shall establish.
(b) The Administrator shall determine the number of Shares to be
subject to each Award of Stock Appreciation Rights. The number of
Shares subject to an outstanding Award of Stock Appreciation Rights
may be reduced on a share-for-share or other appropriate basis, as
determined by the Administrator, to the extent that Shares under
such Award of Stock Appreciation Rights are used to calculate the
cash, Shares, or other securities or property of the Company, or
other forms of payment, or any combination thereof, received
pursuant to exercise of an Option attached to such Award of Stock
Appreciation Rights, or to the extent that any other Award granted
in conjunction with such Award of Stock Appreciation Rights is
paid.
6.2. Prohibition Against Transfer. No Award of Stock Appreciation Rights
may be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of the descent and distribution
or pursuant to a domestic relations order, and Stock Appreciation
Rights Awarded to a Participant shall be exercisable during such
Participant's lifetime only by such Participant or such person
receiving such Option pursuant to a domestic relations order. Unless
the Administrator determines otherwise, the Award of Stock Appreciation
Rights to a Participant shall not be exercisable for at least six
months after the date of grant, unless such Participant is Terminated
before the expiration of such six-month period by reason of such
Participant's Disability or death.
6.3. Exercise. The Award of Stock Appreciation Rights shall not be
exercisable:
(a) in the case of any Award of Stock Appreciation Rights that
are attached to an Incentive Stock Option granted to a Ten Percent
Employee, after the expiration of five years from the date such
Incentive Stock Option is granted, and, in the case of any other
Award of Stock Appreciation Rights, after the expiration of ten
years from the date of such Award. Any Award of Stock Appreciation
Rights may be exercised during such period only at such time or
times and in such installments as the Administrator may establish;
(b) unless the Option or other Award to which the Award of Stock
Appreciation Rights is attached is at the time exercisable; and
(c) unless the Participant exercising the Award of Stock
Appreciation Rights has been, at all times during the period
beginning with the date of the grant thereof and ending on the date
of such exercise, employed by or otherwise performing services for
the Company or any Parent, Subsidiary or Affiliate of the
Company, except that
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(i) in the case of any Award of Stock Appreciation Rights
(other than those attached to an Incentive Stock Option), if such
Participant is Terminated solely by reason of a period of Related
Employment, the Participant may, during such period of Related
Employment, exercise the Award of Stock Appreciation Rights as if
such Participant had not been Terminated;
(ii) if such Participant is Terminated by reason of such
Participant's Disability or early, normal or deferred retirement
under an approved retirement program of the Company or any Parent,
Subsidiary or Affiliate of the Company (or such other plan or
arrangement as may be approved by the Administrator for this
purpose) while holding an Award of Stock Appreciation Rights which
has not expired and has not been fully exercised, such Participant
may, at any time within three years (or such other period
determined by the Administrator) after the Termination Date
(but in no event after the Award of Stock Appreciation Rights has
expired), exercise the Award of Stock Appreciation Rights with
respect to any Shares as to which such Participant could have
exercised the Award of Stock Appreciation Rights on the Termination
Date, or with respect to such greater number of Shares as
determined by the Administrator;
(iii) if such Participant is Terminated for reasons other than
Related Employment, Disability, early, normal or deferred
retirement or death while holding an Award of Stock Appreciation
Rights which has not expired and has not been fully exercised, such
person may exercise the Award of Stock Appreciation Rights at any
time during the period, if any, which the Administrator approves
(but in no event after the Award of Stock Appreciation Rights
expires) following such Participant's Termination Date with respect
to any Shares as to which such Participant could have exercised the
Award of Stock Appreciation Rights on such Participant's
Termination Date or as otherwise permitted by the Administrator; or
(iv) if any Participant to whom an Award of Stock Appreciation
Rights has been granted shall die holding an Award of Stock
Appreciation Rights which has not expired and has not been fully
exercised, such Participant's executors, administrators, heirs or
distributees, as the case may be, may, at any time within one year
(or such other period determined by the Administrator) after the
date of death (but in no event after the Award of Stock
Appreciation Rights has expired), exercise the Award of
Stock Appreciation Rights with respect to any Shares as to which
the decedent Participant could have exercised the Award of Stock
Appreciation Rights at the time of such death, or with respect to
such greater number of Shares as may be determined by the
Administrator.
6.4. Exercise.
(a) An Award of Stock Appreciation Rights shall entitle the
Participant (or any person entitled to act under the provisions of
clause (iv) of Paragraph 6.3(c) to
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either (i) exercise such Award and receive payment in accordance
with such Award or (ii) surrender unexercised the Option (or other
Award) to which the Stock Appreciation Rights is attached (or any
portion of such Option or other Award) to the Company and to
receive from the Company in exchange therefor, without payment to
the Company, that number of Shares having an aggregate
value equal to the excess of the Fair Market Value of one Share,
at the time of such exercise, over the Exercise Price per share,
times the number of Shares subject to the Award or the Option (or
other Award), or portion thereof, which is so exercised or
surrendered, as the case may be. The Administrator shall be
entitled to elect to settle the obligation arising out of the
exercise of Stock Appreciation Rights by the payment of cash or
other securities or property of the Company, or other forms of
payment, or any combination thereof, as determined by the
Administrator, equal to the aggregate value of the Shares the
Company would otherwise be obligated to deliver. Any such
election by the Administrator shall be made as soon as practicable
after the receipt by the Company of written notice of the exercise
of such Stock Appreciation Rights. The value of a Share,
other securities or property of the Company, or other forms of
payment determined by the Administrator for this purpose shall be
the Fair Market Value of a Share on the last business day next
preceding the date of the election to exercise such Stock
Appreciation Rights, unless the Administrator determines
otherwise and is set forth in the Award Agreement with respect to
such Stock Appreciation Rights.
(b) An Award of Stock Appreciation Rights may provide that such
Stock Appreciation Rights shall be deemed to have been exercised
at the close of business on the business day preceding the
expiration date of such Stock Appreciation Rights or of the
related Option (or other Award), or such other date
as specified by the Administrator, if at such time such Stock
Appreciation Rights has a positive value. Such deemed exercise
shall be settled or paid in the same manner as a regular exercise
thereof as provided in Paragraph 6.4(a).
6.5. Fractional Shares. No fractional shares may be delivered under this
Article 6, but, in lieu thereof, a cash or other adjustment shall be
made as determined by the Administrator.
ARTICLE 7. RESTRICTED STOCK.
7.1. Grant. An Award of Restricted Stock is an offer by the Company to sell
to an Eligible Participant Shares that are subject to restrictions.
The Administrator will determine to whom an offer will be made, the
number of Shares the person may purchase, the Exercise Price to be
paid, the restrictions to which the Shares will be subject, and all
other terms and conditions of the Restricted Stock Award, subject to
the provisions of this Article 7.
7.2 Form of Restricted Stock Award. All purchases under an Award of
Restricted Stock will be evidenced by an Award Agreement that will be
in such form (which need not be the
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same for each Award of Restricted Stock or Participant) as the
Administrator will from time to time approve, and will comply with and
be subject to the terms and conditions of the Plan. The offer of
Restricted Stock will be accepted by the Participant's execution
and delivery of the Award Agreement evidencing the offer to purchase
the Restricted Stock and full payment for the Shares to the Company
within 30 days from the date such Award Agreement is tendered to such
Eligible Participant. If such Eligible Participant does not execute
and deliver such Award Agreement along with full payment for the
Shares to the Company within such 30 day period, then such offer will
terminate, unless otherwise determined by the Administrator.
7.3. Purchase Price. The Exercise Price of Shares sold pursuant to an Award
of Restricted Stock will be determined by the Administrator on the date
such Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Exercise Price will be 100% of the per
share Fair Market Value on the date such Award is granted of the
Shares subject to the Award. Payment of the Exercise Price may be made
in accordance with Article 10 of the Plan.
7.4. Terms of Restricted Stock Awards. Each Award of Restricted Stock shall
be subject to such restrictions as the Administrator may impose. These
restrictions may be based upon completion of a specified number of
years of service with the Company or upon completion of the performance
goals as set out in advance in the Participant's individual
Award Agreement. Awards of Restricted Stock may vary from Participant
to Participant and between groups of Participants. Prior to the grant
of an Award of Restricted Stock, the Administrator shall:
(a) determine the nature, length and starting date of any
performance period for the Restricted Stock Award;
(b) select from among the performance factors to be used to
measure performance goals, if any; and
(c) determine the number of Shares that may be awarded to the
Participant.
Prior to the payment of any Restricted Stock pursuant to an Award, the
Administrator shall determine the extent to which such Restricted Stock
Award has been earned. Performance periods may overlap and
Participants may participate simultaneously with respect to Restricted
Stock Awards that are subject to different performance periods and
having different performance goals and other criteria.
7.5. Termination During Performance Period. If a Participant is Terminated
during a performance period with respect to any Award of Restricted
Stock for any reason, then such Participant will be entitled to payment
(whether in Shares, cash or otherwise) with respect to the Restricted
Stock Award only to the extent earned as of the date of Termination in
accordance with the Award Agreement with respect to such Restricted
Stock, unless the Administrator determines otherwise.
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ARTICLE 8. PERFORMANCE GRANTS.
8.1. Award. The Award of a Performance Grant ("Performance Grant") to a
Participant will entitle such Participant to receive a specified
amount (the "Performance Grant Actual Value") as determined by the
Administrator; provided that the terms and conditions specified in the
Plan and in the Award of such Performance Grant are satisfied. Each
Award of a Performance Grant shall be subject to the terms and
conditions set forth in this Article 8 and such other terms and
conditions, including, but not limited to, restrictions upon any cash,
Shares, other securities or property of the Company, or other
forms of payment, or any combination thereof, issued in respect of
the Performance Grant, as the Administrator shall establish, shall be
embodied in an Award Agreement in such form and substance as is
approved by the Administrator.
8.2. Terms. The Administrator shall determine the value or range of values
of a Performance Grant to be awarded to each Participant selected for
an Award of a Performance Grant and whether or not such Performance
Grant is granted in conjunction with an Award of Options, Stock
Appreciation Rights, Restricted Stock or other type of Award, or any
combination thereof, under the Plan (which may include, but need not be
limited to, deferred Awards) concurrently or subsequently granted to
such Participant (the "Associated Award"). As determined by the
Administrator, the maximum value of each Performance Grant (the
"Maximum Value") shall be:
(a) an amount fixed by the Administrator at the time the award is
made or amended thereafter;
(b) an amount which varies from time to time based in whole or in
part on the then current Fair Market Value of a Share, other
securities or property of the Company, or other securities or
property, or any combination thereof; or
(c) an amount that is determinable from criteria specified by the
Administrator.
Performance Grants may be issued in different classes or series having
different names, terms and conditions. In the case of a Performance
Grant awarded in conjunction with an Associated Award, the Performance
Grant may be reduced on an appropriate basis to the extent that the
Associated Award has been exercised, paid to or otherwise received by
the participant, as determined by the Administrator.
8.3. Award Period. The award period ("Performance Grant Award Period") in
respect of any Performance Grant shall be a period determined by the
Administrator. At the time each Performance Grant is made, the
Administrator shall establish performance objectives to be attained
within the Performance Grant Award Period as the means of determining
the Performance Grant Actual Value of such Performance Grant. The
performance objectives shall be based on such measure or measures of
performance, which may include, but need not be limited to, the
performance of the Participant, the Company, one or more Subsidiary,
Parent or Affiliate of the Company, or one or more of divisions or
units thereof, or any combination of the foregoing, as the
Administrator shall determine, and may be applied on an absolute basis
or be relative to industry or other indices, or any
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combination thereof. Each Performance Grant Actual Value of a
Performance Grant shall be equal to the Performance Grant Maximum Value
of such Performance grant only if the performance objectives are
attained in full, but the Administrator shall specify the manner
in which the Performance Grant Actual Value shall be determined if the
performance objectives are met in part. Such performance measures, the
Performance Grant Actual Value or the Performance Grant Maximum Value,
or any combination thereof, may be adjusted in any manner by the
Administrator at any time and from time to time during or as soon as
practicable after the Performance Grant Award Period, if it determines
that such performance measures, the Performance grant Actual Value or
the Performance Grant Maximum Value, or any combination thereof, are
not appropriate under the circumstances.
8.4. Termination. The rights of a Participant in Performance Grants awarded
to such Participant shall be provisional and may be canceled or paid in
whole or in part, all as determined by the Administrator, if such
Participant's continuous employment or performance of services for the
Company, any Parent, Subsidiary and Affiliate of the Company shall
terminate for any reason prior to the end of the Performance Grant
Award Period, except solely by reason of a period of Related
Employment.
8.5. Determination of Performance Grant Actual Values. The Administrator
shall determine whether the conditions of Paragraphs 8.2 or 8.3 have
been met and, if so, shall ascertain the Performance Grant Actual Value
of Performance Grants. If a Performance Grant has no Performance Grant
Actual Value, the Award of such Performance Grant shall be deemed to
have been canceled and the Associated Award, if any, may be canceled or
permitted to continue in effect in accordance with such Associated
Award's terms. If a Performance Grant has a Performance Grant Actual
Value and:
(a) was not awarded in conjunction with an Associated Award, the
Administrator shall cause an amount equal to the Performance Grant
Actual Value of such Performance Grant to be paid to the
Participant or the Participant's beneficiary as provided below; or
(b) was awarded in conjunction with an Associated Award, the
Administrator shall determine, in accordance with criteria
specified by the Administrator, whether to (i) to cancel such
Performance Grant, in which event no amount in respect thereof
shall be paid to the Participant or the Participant's beneficiary,
and the Associated Award may be permitted to continue in effect in
accordance with the Associated Award's terms, (ii) pay the
Performance Grant Actual Value to the Participant or the
Participant's beneficiary as provided below, in which event such
Associated Award may be canceled, or (iii) pay to the Participant
or the Participant's beneficiary as provided below, the Performance
Grant Actual Value of only a portion of such Performance Grant, in
which case a complimentary portion of the Associated Award may be
permitted to continue in effect in accordance with its terms or be
canceled, as determined by the Administrator.
Such determination by the Administrator shall be made as promptly as
practicable following the end of the Performance Grant Award Period or
upon the earlier termination
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of employment or performance of services, or at such other time or
times as the Administrator shall determine, and shall be made pursuant
to criteria specified by the Administrator.
8.6. Payment. Payment of any amount in respect of the Performance Grants
which the Administrator determines to pay as provided in this Article 8
shall be made by the Company as promptly as practicable after the end
of the Performance Grant Award Period or at such other time or times as
the Administrator shall determine, and may be made in cash, Shares,
other securities or property of the Company, or other forms of payment,
or any combination thereof or in such other manner, as determined by
the Administrator. Notwithstanding anything in this Article 8 to the
contrary, the Administrator may determine and pay out a Performance
Grant Actual Value of a Performance Grant at any time during the
Performance Grant Award Period.
ARTICLE 9. STOCK BONUSES.
9.1. Awards of Stock Bonuses. A Stock Bonus is an Award of Shares (which
may consist of Restricted Stock) for services rendered to the Company
or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus
may be awarded for past services already rendered to the Company, or
any Parent, Subsidiary or Affiliate of the Company pursuant
to an Award Agreement (the "Stock Bonus Agreement") that will be in
such form (which need not be the same for each Participant) as the
Administrator will from time to time approve, and will comply with and
be subject to the terms and conditions of the Plan. A Stock Bonus may
be awarded upon satisfaction of such performance goals as are set out
in advance in the Participant's individual Award Agreement that will be
in such form (which need not be the same for each Participant) as the
Administrator will from time to time approve, and will comply with and
be subject to the terms and conditions of the Plan. Stock Bonuses may
vary from Participant to Participant and between groups of
Participants, and may be based upon the achievement of the Company, any
Parent, Subsidiary or Affiliate of the Company and/or individual
performance factors or upon such other criteria as the Administrator
may determine.
9.2 Terms of Stock Bonuses. The Administrator will determine the number of
Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals set forth in an Award
Agreement, then the Administrator will:
(a) determine the nature, length and starting date of any
performance period for each Stock Bonus;
(b) select from among the performance factors to be used to
measure the performance, if any; and
(c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the
Administrator shall determine the extent to which such Stock
Bonuses have been earned. Performance periods may overlap and
Participants may participate simultaneously with respect to Stock
Bonuses that are subject to different performance periods and
different performance goals and other criteria. The
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number of Shares may be fixed or may vary in accordance with such
performance goals and criteria as may be determined by the
Administrator. The Administrator may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in
law and accounting or tax rules and to make such adjustments as the
Administrator deems necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
9.3. Form of Payment. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Administrator may determine. Payment may be
made in the form of cash or whole Shares or a combination thereof,
either in a lump sum payment or in installments, all as the
Administrator will determine.
ARTICLE 10. PAYMENT FOR SHARE PURCHASES.
10.1. Payment. Payment for Shares purchased pursuant to this Plan may be
made in cash (by check) or, where expressly approved for the
Participant by the Administrator and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of Shares that either (i) have been owned by the
Participant for more than six months and have been paid for within
the meaning of Rule 144 promulgated under the Securities Act (and,
if such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect
to such shares) or (ii) were obtained by Participant in the public
market;
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Administrator and bearing interest at a
rate sufficient to avoid imputation of income under Sections 483
and 1274 of the Code; provided, however, that Participants who are
not employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists, (i)
through a "same day sale" commitment from the Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD Dealer") whereby the Participant
irrevocably elects to exercise the Option and to sell a portion of
the Shares so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company, or (ii) through
a "margin" commitment from the Participant and an NASD Dealer
whereby the Participant irrevocably elects to exercise the Option
and to pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the NASD Dealer in the
amount of
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the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly
to the Company; or
(f) by any combination of the foregoing.
10.2. Loan Guarantees. The Company, in its sole discretion, may assist a
Participant in paying for Shares purchased under the Plan by
authorizing a guarantee by the Company of a third-party loan to the
Participant.
ARTICLE 11. DEFERRAL OF COMPENSATION.
11.1. Deferral Terms. The Administrator shall determine whether or not an
Award to a Participant shall be made in conjunction with deferral of
such Participant's salary, bonus or other compensation, or any
combination thereof, and whether or not such deferred amounts may be:
(a) forfeited to the Company or to other Participants, or any
combination thereof, under certain circumstances (which may
include, but need not be limited to, certain types of termination
of employment or performance of services for the Company, any
Parent, Subsidiary and Affiliate);
(b) subject to increase or decrease in value based upon the
attainment of or failure to attain, respectively, certain
performance measures; and/or
(c) credited with income equivalents (which may include, but need
not be limited to, interest, dividends or other rates of return)
until the date or dates of payment of such Award, if any.
ARTICLE 12. DEFERRED PAYMENT OF AWARDS.
12.1. Deferral Terms. The Administrator may specify that the payment of all
or any portion of cash, Shares, other securities or property of the
Company, or any other form of payment, or any combination thereof,
under an Award shall be deferred until a later date. Deferrals shall
be for such periods or until the occurrence of such events, and upon
such terms, as the Administrator shall determine. Deferred payments
of Awards may be made by undertaking to make payment in the future
based upon the performance of certain investment equivalents (which
may include, but need not be limited to, government securities, Shares,
other securities, property or consideration, or any combination
thereof), together with such additional amounts of income equivalents
(which may be compounded and may include, but need not be limited to,
interest, dividends or other rates of return, or any combination
thereof) as may accrue thereon until the date or dates of payment, such
investment equivalents and such additional amounts of income
equivalents to be determined by the Administrator.
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ARTICLE 13. AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THE PLAN.
13.1. Amendments and Substitutions. The terms of any outstanding Award under
the Plan may be amended from time to time by the Administrator in any
manner that the Administrator deems appropriate (including, but not
limited to, acceleration of the date of exercise of any Award and/or
payments thereunder, or reduction of the Exercise Price of an Award);
provided, however, that no such amendment shall adversely affect in a
material manner any right of a Participant under such Award without
the Participant's written consent. The Administrator may permit or
require holders of Awards to surrender outstanding Awards as a
condition precedent to the grant of new Awards under the Plan.
ARTICLE 14. DESIGNATION OF BENEFICIARY BY PARTICIPANT.
14.1. Designation. A Participant may designate one or more beneficiaries to
receive any rights and payments to which such Participant may be
entitled in respect of any Award in the event of such Participant's
death. Such designation shall be on a written form acceptable
to and filed with the Administrator. The Administrator shall have the
right to review and approve beneficiary designations. A Participant
may change the Participant's beneficiary(ies) from time to time in the
same manner as the original designation, unless such Participant has
made an irrevocable designation. Any designation of beneficiary
under the Plan (to the extent it is valid and enforceable under
applicable law) shall be controlling over any other disposition,
testamentary or otherwise, as determined by the Administrator. If no
designated beneficiary survives the Participant and is living on the
date on which any right or amount becomes payable to such Participant's
beneficiary(ies), such payment will be made to the legal
representatives of the Participant's estate, and the term "beneficiary"
as used in the Plan shall be deemed to include such person or persons.
If there is any question as to the legal right of any beneficiary to
receive a distribution under the Plan, the Administrator may determine
that the amount in question be paid to the legal representatives of the
estate of the Participant, in which event the Company, the
Administrator, the Board and the members thereof will have no further
liability to any person or entity with respect to such amount.
ARTICLE 15. CHANGE IN CONTROL.
15.1. Effect of a Change in Control. Upon any Change in Control:
(a) each Stock Option and Stock Appreciation Right that is
outstanding on the date of such Change in Control shall be
exercisable in full immediately;
(b) all restrictions with respect to Restricted Stock shall
lapse immediately, and the Company's right to repurchase or
forfeit any Restricted Stock outstanding on the date of such Change
in Control shall thereupon terminate and the certificates
representing such Restricted Stock and the related stock powers
shall be promptly delivered to the Participants entitled thereto;
and
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(c) all Performance Grant Award Periods for the purposes of
determining the amounts of Awards of Performance Grants shall end
as of the end of the calendar quarter immediately preceding the
date of such Change in Control, and the amount of the Performance
Grant payable shall be the portion of the maximum possible
Performance Grant allocable to the portion of the Performance
Grant Award Period that had elapsed and the results achieved during
such portion of the Performance Grant Award Period.
15.2. Change of Control. For this purpose, a Change in Control shall be
deemed to occur when and only when any of the following events first
occurs:
(a) any person who is not currently such becomes the
beneficial owner, directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of
the Company's then outstanding voting securities; or
(b) any merger (other than a merger where the Company is the
survivor and there is no accompanying Change in Control under clause
(a) of this Section 15.2), consolidation, liquidation or dissolution
of the Company, or the sale of all or substantially all of the
assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur pursuant to clause (a) of this Section 15.2 solely because 50%
or more of the combined voting power of the Company's outstanding
securities is acquired by one or more employee benefit plans maintained
by the Company or by any other employer, the majority interest in which
is held, directly or indirectly, by the Company. For purposes of
this Article 15, the terms "person" and "beneficial owner" shall have
the meaning set forth in Sections 3(a) and 13(d) of the Exchange Act,
and in the regulations promulgated thereunder.
ARTICLE 16. PLAN AMENDMENT OR SUSPENSION.
16.1. Plan Amendment or Suspension. The Plan may be amended or suspended in
whole or in part at any time and from time to time by the Board, but no
amendment shall be effective unless and until the same is approved by
stockholders of the Company where the failure to obtain such approval
would adversely affect the compliance of the Plan with Sections
162 and 422 of the Code, Rule 16b-3 and with other applicable law. No
amendment of the Plan shall adversely affect in a material manner any
right of any Participant with respect to any Award theretofore granted
without such Participant's written consent.
ARTICLE 17. PLAN TERMINATION.
17.1. Method of Plan Termination. The Plan shall terminate upon the earlier
of the following dates or events to occur:
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(a) upon the adoption of a resolution of the Board terminating
the Plan; or
(b) March 4, 2011; provided, however, that the Board may, prior to
the expiration of such ten-year period, extend the term of the Plan
for an additional period of up to five years for the grant of
Awards other than Incentive Stock Options.
17.2. Effect of Termination on Outstanding Awards. No termination of the
Plan shall materially alter or impair any of the rights or obligations
of any person, without such person's consent, under any Award
theretofore granted under the Plan, except that subsequent to
termination of the Plan, the Administrator may make amendments
permitted under Article 13.
ARTICLE 18. STOCKHOLDER ADOPTION.
18.1. Stockholder Approval. The Plan shall be submitted to the stockholders
of the Company for their approval and adoption at a meeting to be held
on or before March 31, 2001.
18.2. Effectiveness of Plan Prior to Stockholder Approval. The Plan shall
not be effective and no Award shall be made hereunder unless and until
the Plan has been approved by the stockholders of the Company as
provided in Section 18.1. The stockholders shall be deemed to have
approved and adopted the Plan only if it is approved at a meeting of
the stockholders duly held by vote taken in the manner required by the
laws of the State of Delaware and the applicable federal securities
laws.
ARTICLE 19. TRANSFERABILITY.
19.1. Transferability. Except as may be approved by the Administrator where
such approval shall not adversely affect compliance of the Plan with
Sections 162 and 422 of the Code and/or Rule 16b-3, a Participant's
rights and interest under the Plan may not be assigned or transferred,
hypothecated or encumbered in whole or in part either directly or by
operation of law or otherwise (except in the event of a Participant's
death) including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner;
provided, however, that any Option or similar right (including, but
not limited to, a Stock Appreciation Right) offered pursuant to the
Plan shall not be transferable other than by will or the laws of
descent or pursuant to a domestic relations order and shall be
exercisable during the Participant's lifetime only by such Participant
or such person receiving such option pursuant to a domestic relations
order.
ARTICLE 20. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.
20.1. Voting and Dividends. No Participant will have any of the rights of a
stockholder with respect to any Shares subject to or issued pursuant
to the Plan until such Shares are issued
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to the Participant. After Shares are issued to the Participant, the
Participant will be a stockholder and have all the rights of a
stockholder with respect to such Shares, including the right to vote
and receive all dividends or other distributions made or paid with
respect to such Shares; provided, however, that if such Shares are
Restricted Stock, then any new, additional or different securities the
Participant may become entitled to receive with respect to such Shares
by virtue of a stock dividend, stock split or any other change in the
corporate or capital structure of the Company will be subject to the
same restrictions as the Restricted Stock; provided, further, that the
Participant will have no right to retain such stock dividends or stock
distributions with respect to Restricted Stock that is repurchased at
the Participant's Exercise Price in accordance with an Award Agreement
with respect to such Restricted Stock.
20.2. Financial Statements. The Company will provide financial statements to
each Participant prior to such Participant's purchase of Shares under
the Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will
not be required to provide such financial statements to Participants
whose services in connection with the Company assure them access to
equivalent information.
20.3. Restrictions on Shares. At the discretion of the Administrator, the
Company may reserve to itself and/or its assignee(s) in the Award
Agreement a right to repurchase a portion of or all Shares issued
pursuant to such Award Agreement and held by a Participant
following such Participant's Termination at any time within 90 days
after the later of Participant's Termination Date or the date
Participant purchases Shares under the Plan, for cash and/or
cancellation of purchase money indebtedness, at the Participant's
Exercise Price or such other price as the Administrator may determine
at the time of the grant of the Award.
ARTICLE 21. CERTIFICATES.
21.1. Legal Restrictions; Stock Legends. All Shares or other securities
delivered under this Plan will be subject to such stock transfer
orders, legends and other restrictions as the Administrator may deem
necessary or advisable, including restrictions under any
applicable federal, state or foreign securities law, or any rules,
regulations and other requirements promulgated under such laws or any
stock exchange or automated quotation system upon which the Shares may
be listed or quoted and each stock certificate evidencing such Shares
and other certificates shall be appropriately legended.
ARTICLE 22. ESCROW; PLEDGE OF SHARES.
22.1 Deposit of Shares; Escrow. To enforce any restrictions on a
Participant's Shares, the Administrator may require the Participant to
deposit all stock certificates evidencing Shares, together with stock
powers or other instruments of transfer approved by the Administrator,
appropriately endorsed in blank, with the Company or an agent
designated
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by the Company to hold in escrow until such restrictions
have lapsed or terminated, and the Administrator may cause a legend or
legends referencing such restrictions to be placed on the certificates.
Any Participant who is permitted to execute a promissory note
as partial or full consideration for the purchase of Shares under the
Plan will be required to pledge and deposit with the Company all or
part of the Shares so purchased as collateral to secure the payment of
Participant's obligation to the Company under the promissory note;
provided, however, that the Administrator may require or accept other
or additional forms of collateral to secure the payment of such
obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any
pledge of the Participant's Shares or other collateral. In
connection with any pledge of the Shares, Participant will be required
to execute and deliver a written pledge agreement in such form as the
Administrator will from time to time approve. The Shares purchased
with the promissory note may be released from the pledge on a pro rata
basis as the promissory note is paid.
ARTICLE 23. EXCHANGE AND BUYOUT OF AWARDS.
23.1. Exchange. The Administrator may, at any time or from time to time,
authorize the Company, with the consent of the respective Participants,
to issue new Awards in exchange for the surrender and cancellation of
any or all outstanding Awards.
23.2 Buyout of Awards. The Administrator may, at any time or from time to
time, authorize the Company to buy from a Participant an Award
previously granted with payment in cash, Shares (including Restricted
Stock) or other consideration, based on such terms and conditions as
the Administrator and the Participant may agree.
ARTICLE 24. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE.
24.1. Compliance with Applicable Laws. An Award will not be effective unless
such Award is made in compliance with all applicable federal and state
securities laws, rules and regulations of any governmental body, and
the requirements of any stock exchange or automated quotation system
upon which the Shares may then be listed or quoted, as they are in
effect on the date of grant of the Award and also on the date of
exercise or other issuance. Notwithstanding any other provision in this
Plan, the Company will have no obligation to issue or deliver stock
certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the
Administrator determines are necessary or advisable; and/or
(b) completion of any registration or other qualification of such
Shares under any state or federal law or ruling of any governmental
body that the Administrator determines to be necessary or
advisable.
24.2. No Obligation to Register Shares or Awards. The Company will be under
no obligation to register the Shares under the Securities Act or to
effect compliance with the
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<PAGE>
registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the
Company will have no liability for any inability or failure to do so.
ARTICLE 25. NO OBLIGATION TO EMPLOY.
25.1. No Right to Employment or Continuation of Relationship. Nothing in
this Plan or any Award granted under the Plan will confer or be deemed
to confer on any Participant any right to continue in the employ of,
or to continue any other relationship with, the Company or any Parent,
Subsidiary or Affiliate of the Company or limit in any way the
right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate Participant's employment or other relationship at
any time, with or without cause.
ARTICLE 26. NONEXCLUSIVITY OF THE PLAN.
26.1. Neither the adoption of the Plan by the Board, the submission of the
Plan to the stockholders of the Company for approval, nor any provision
of this Plan will be construed as creating any limitations on the power
of the Board to adopt such additional compensation arrangements as the
Board may deem desirable, including, without limitation, the granting
of stock options and bonuses otherwise than under the Plan, and
such arrangements may be either generally applicable or applicable only
in specific cases.
ARTICLE 27. MISCELLANEOUS PROVISIONS.
27.1. No Rights Unless Specifically Granted. No employee or other person
shall have any claim or right to be granted an Award under the Plan
under any contract, agreement or otherwise. Determinations made by the
Administrator under the Plan need not be uniform and may be made
selectively among Eligible Participants under the Plan, whether or not
such Eligible Participants are similarly situated.
27.2. No Rights Until Written Evidence Delivered. No Participant or other
person shall have any right with respect to the Plan, the Shares
reserved for issuance under the Plan or in any Award, contingent or
otherwise, until written evidence of the Award, in the form of
an Award Agreement, shall have been delivered to the recipient and all
the terms, conditions and provisions of the Plan and the Award
applicable to such recipient (and each person claiming under or
through such recipient) have been met.
27.3 Compliance with Applicable Law. No Shares, other Company securities or
property, other securities or property, or other forms of payment shall
be issued hereunder with respect to any Award unless counsel for the
Company shall be satisfied that such issuance will be in compliance
with applicable federal, state, local and foreign legal, securities
exchange and other applicable requirements.
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<PAGE>
27.4 Compliance with Rule 16b-3. It is the intent of the Company that the
Plan comply in all respects with Rule 16b-3 under the Exchange Act,
that any ambiguities or inconsistencies in construction of the Plan be
interpreted to give effect to such intention and that if any provision
of the Plan is found not to be in compliance with Rule 16b-3, such
provision shall be deemed null and void to the extent required to
permit the Plan to comply with Rule 16b-3.
27.5. Right to Withhold Payments. The Company and any Parent, Subsidiary and
Affiliate of the Company shall have the right to deduct from any
payment made under the Plan, any federal, state, local or foreign
income or other taxes required by law to be withheld with respect to
such payment. It shall be a condition to the obligation of the Company
to issue Shares, other securities or property of the Company, other
securities or property, or other forms of payment, or any combination
thereof, upon exercise, settlement or payment of any Award under the
Plan, that the Participant (or any beneficiary or person entitled to
act) pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying any liability to
withhold federal, state, local or foreign income or other taxes. If
the amount requested is not paid, the Company may refuse to issue
Shares, other securities or property of the Company, other securities
or property, or other forms of payment, or any combination thereof.
Notwithstanding anything in the Plan to the contrary, the Administrator
may permit an Eligible Participant (or any beneficiary or person
entitled to act) to elect to pay a portion or all of the amount
requested by the Company for such taxes with respect to such Award, at
such time and in such manner as the Administrator shall deem to be
appropriate, including, but not limited to, by authorizing the Company
to withhold, or agreeing to surrender to the Company on or about the
date such tax liability is determinable, Shares, other securities or
property of the Company, other securities or property, or other forms
of payment, or any combination thereof, owned by such person or a
portion of such forms of payment that would otherwise be distributed,
or have been distributed, as the case may be, pursuant to such
Award to such person, having a fair market value equal to the amount
of such taxes.
27.6. Expenses of Administration. The expenses of the Plan shall be borne by
the Company. However, if an Award is made to an individual employed
by or performing services for a Parent, Subsidiary or Affiliate of the
Company:
(a) if such Award results in payment of cash to the
Participant, such Parent, Subsidiary or Affiliate shall pay to the
Company an amount equal to such cash payment unless the
Administrator shall otherwise determine;
(b) if the Award results in the issuance by the Company to the
Participant of Shares, other securities or property of the Company,
other securities or property, or other forms of payment, or any
combination thereof, such Parent, Subsidiary or Affiliate of the
Company shall, unless the Administrator shall otherwise determine,
pay to the Company an amount equal to the fair market value
thereof, as determined by the Administrator, on the date such
Shares, other securities or property of the Company, other
securities or property, or other forms of payment, or any
combination thereof, are issued (or, in the case of the issuance
of Restricted Stock or of Shares, other securities or property of
the Company, or
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<PAGE>
other securities or property, or other forms of payment subject to
transfer and forfeiture conditions, equal to the fair market value
thereof on the date on which they are no longer subject to such
applicable restrictions), minus the amount, if any, received by the
Company in respect of the purchase of such Shares, other
securities or property of the Company, other securities or property
or other forms of payment, or any combination thereof, all as the
Administrator shall determine; and
(c) the foregoing obligations of any such Parent, Subsidiary
or Affiliate of the Company shall survive and remain in effect and
binding on such entity even if its status as a Parent, Subsidiary
or Affiliate of the Company should subsequently cease, except as
otherwise agreed by the Company and such Parent, Subsidiary or
Affiliate.
27.7. Unfunded Plan. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the
Plan, and rights to the payment of Awards shall be no greater than the
rights of the Company's general creditors.
27.8. Acceptance of Award Deemed Consent. By accepting any Award or other
benefit under the Plan, each Participant and each person claiming under
or through such Participant shall be conclusively deemed to have
indicated such Participant's (or other person's) acceptance and
ratification of, and consent to, any action taken by the Company,
Administrator or Board or their respective delegates under the Plan.
27.9. Fair Market Value Determined By the Administrator. Fair market value
in relation to other securities or property of the Company, other
securities or property or other forms of payment of Awards under the
Plan, or any combination thereof, as of any specific time,
shall mean such value as determined by the Administrator in accordance
with the Plan and applicable law.
27.10. Use of Terms. For the purposes of the Plan, in the use of any term,
the singular includes the plural and the plural includes the singular
wherever appropriate.
27.11. Filing of Reports. The appropriate officers of the Company shall
cause to be filed any reports, returns or other information regarding
Awards hereunder or any Shares issued pursuant hereto as may be
required by Section 13 or 15(d) of the Exchange Act (or any
successor provision) or any other applicable statute, rule or
regulation.
27.12. Validity; Construction; Interpretation. The validity, construction,
interpretation, administration and effect of the Plan, and of its rules
and regulations, and rights relating to the Plan and Award Agreements
and to Awards granted under the Plan, shall be governed by the
substantive laws, but not the choice of law rules, of the State of
Delaware.
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<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
The undersigned hereby appoints Michael O'Reilly and Charles L. Kelly, Jr.,
or either of them, attorneys and proxies with full power of substitution in each
of them, in the name and stead of the undersigned, to vote as proxy all the
stock of the undersigned in WINDSWEPT ENVIRONMENTAL GROUP, INC., a Delaware
corporation (the "Company"), at the Company's Annual Meeting of Stockholders
scheduled to be held on March 5, 2001, and any adjournments or postponements
thereof.
(Continued and to be signed, on reverse side)
<PAGE>
The Board of Directors recommends a vote FOR the following proposals.
1. Election of the following nominees as directors, as set forth in the
Company's proxy statement:
Michael O'Reilly Charles L. Kelly, Jr.
Peter A. Wilson Brian S. Blythe
John J. Bongiorno Ronald B. Evans
Samuel Sadove Anthony Towell
Dr. Kevin Phillips
[ ] FOR the nominees listed above
[ ] WITHHOLD authority to vote for all nominees
[ ] Withhold authority to vote for the following individual
nominees:
----------------------------------------------------------
[Print Name]
2. Approval of the Company's 2001 Equity Incentive Plan:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of our common stock to
150,000,000 from 100,000,000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Upon such other business as may properly come before the meeting or any
adjournment thereof.
<PAGE>
[Reverse side of proxy card]
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY THE PROXIES, OR EITHER OF THEM,
AS SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED
FOR THE ABOVE-LISTED DIRECTOR-NOMINEES AND FOR PROPOSALS 2 AND 3, AS SET FORTH
ABOVE. RECEIPT OF THE COMPANY'S PROXY STATEMENT, DATED FEBRUARY __, 2001, IS
HEREBY ACKNOWLEDGED.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
[L.S.] [L.S.] Dated: , 2001
---------------- ---------------- --------------
(Note: Please sign exactly as your name appears hereon.
Executors, administrators, trustees, etc. should so
indicate when signing, giving full title as such. If
signer is a corporation, execute in full corporate name
by authorized officer. If shares are held in the name
of two or more persons, all should sign.)
