SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. 1)
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Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Soliciting Material Under Rule
|_| Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
GREENMAN TECHNOLOGIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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1) Title of each class of securities to which transaction applies:
___________________________________________________________________________
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previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:_______________________________________________
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GREENMAN TECHNOLOGIES, INC.
7 Kimball Lane, Building A
Lynnfield, Massachusetts 01940
(781) 224-2411
NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS
To Be Held June 16, 2005
TO OUR STOCKHOLDERS:
The Annual Meeting of Stockholders (the "Meeting") of GreenMan
Technologies, Inc. (together with its subsidiaries, "we", "us" or "our"), a
Delaware corporation, will be held on Thursday, June 16, 2005, at 9:00 A.M at
the Sheraton Colonial Hotel, One Audubon Road, Wakefield, Massachusetts, 01880
for the following purposes:
1. To elect five members of our Board of Directors.
2. To approve an amendment to our Restated Certificate of Incorporation
to increase the number of authorized shares of our common stock from
30,000,000 to 40,000,000.
3. To approve an amendment to our Restated Certificate of Incorporation
to eliminate the description of Class A Convertible Preferred Stock.
4. To approve, consider and act upon a proposal to approve the adoption
of the 2005 Stock Option Plan.
5. To approve, consider and act upon a proposal to approve the issuance
of up to 7,380,000 shares of common stock to Laurus Master Funds,
Ltd. in connection with a credit facility provided to our company.
6. To consider and act upon a proposal to ratify the selection of the
firm of Wolf & Company, P.C. as our independent auditors for the
fiscal year ending September 30, 2005.
7. To transact such other business as may properly come before the
Meeting and any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on May 2, 2005 are
entitled to notice of and to vote at the Meeting.
All stockholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors
ROBERT H. DAVIS
Chief Executive Officer
May 19, 2005
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED PROXY CARD AND RETURN
IT PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE.
GREENMAN TECHNOLOGIES, INC.
7 Kimball Lane, Building A
Lynnfield, Massachusetts 01940
(781) 224-2411
PROXY STATEMENT
May 19, 2005
Proxies in the form enclosed with this proxy statement are solicited by
our Board of Directors (the "Board of Directors") at our expense for use at the
Annual Meeting of Stockholders (the "Meeting") to be held on June 16, 2005 at
the Sheraton Colonial Hotel, One Audubon Road, Wakefield, Massachusetts, 01880.
Only stockholders of record as of May 2, 2005 will be entitled to vote at
the Meeting and any adjournments thereof. As of that date, 19,225,352 shares of
our Common Stock, par value $.01 per share, were issued and outstanding. The
holders of our common stock are entitled to one vote per share on any proposal
presented at the Meeting. Stockholders may vote in person or by proxy.
Execution of a proxy will not in any way affect a stockholder's right to
attend the Meeting and vote in person. Any stockholder giving a proxy has the
right to revoke it at any time before it is exercised by attending the Meeting
and voting in person or filing with our Secretary either a written instrument
revoking the proxy or another executed proxy bearing a later date.
All properly executed proxies returned in time to be counted at the
Meeting will be voted. With respect to the election of our Board of Directors,
shares represented by proxies will be voted as stated below under "Election of
Directors." Any stockholder submitting a proxy has the right to withhold
authority to vote for any individual nominee to the Board of Directors by
writing that nominee's name on the space provided on the proxy. In addition to
the election of Directors, the stockholders will consider and vote upon
proposals: (i) to approve an amendment to our Restated Certificate of
Incorporation to increase the number of authorized shares of our common stock
from 30,000,000 to 40,000,000, (ii) to approve an amendment to our Restated
Certificate of Incorporation to eliminate the description of Class A Convertible
Preferred Stock, (iii) to approve, consider and act upon a proposal to approve
the adoption of the 2005 Stock Option Plan, and (iv) to approve, consider and
act upon a proposal to approve the issuance of up to 7,380,000 shares of our
common stock to Laurus Master Funds, Ltd. in connection with a credit facility
provided to our company. In addition, the stockholders will consider and vote
upon a proposal to ratify the selection of Wolf & Company, P.C. as our
independent auditors, as further described in this proxy statement. Where a
choice has been specified on the proxy with respect to the foregoing matters,
the shares represented by the proxy will be voted in accordance with the
specification and will be voted FOR if no specification is made.
The representation in person or by proxy of a majority of the outstanding
shares of our common stock entitled to vote at the Meeting is necessary to
establish a quorum for the transaction of business. Votes withheld from any
nominee, abstentions and broker non-votes are counted as present or represented
for purposes of determining the presence or absence of a quorum. A "non-vote"
occurs when a broker holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the broker does not have
discretionary voting power and has not received instructions from the beneficial
owner. Directors are elected by a plurality of the votes cast by stockholders
entitled to vote at the Meeting. The affirmative vote of the holders of a
majority of the Common Stock issued and outstanding is required for approval of
the proposed amendments to our Restated Certificate of Incorporation and the
proposal to adopt the 2005 Stock Option Plan. The proposal to approve the
issuance of up to 7,380,000 shares of our common stock to Laurus Master Funds,
Inc. and the ratification of the selection of Wolf & Company, P.C. as our
independent auditors requires the affirmative vote of the majority of shares
present in person or represented by proxy at the Meeting. An automated system
administered by our transfer agent tabulates the votes. The vote on each matter
submitted to stockholders is tabulated separately. Abstentions are included in
the number of shares present or represented and voting on each matter.
The Board of Directors knows of no other matter to be presented at the
Meeting. If any other matter should be presented at the Meeting upon which a
vote properly may be taken, shares represented by all proxies received by us
will be voted with respect thereto in accordance with the judgment of the
persons named as attorneys in the proxies.
Our Annual Report, containing financial statements for fiscal year ended
September 30, 2004, and our Quarterly Report on Form 10-QSB, containing
financial statements for the fiscal quarter ended March 31, 2005, are being
mailed contemporaneously with this proxy statement to all stockholders entitled
to vote.
This proxy statement and the form of proxy were first mailed to
stockholders on or about May 19, 2005.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of May 2, 2005:
o by each person (including any "group" as used in Section 13(d) of
the Securities Exchange Act of 1934) who is known by us to own
beneficially 5% or more of the outstanding shares of common stock;
o by each of our directors and officers; and
o by all of our directors and officers as a group.
Unless otherwise indicated below, to the best of our knowledge, all
persons listed below have sole voting and investment power with respect to their
shares of common stock, except to the extent authority is shared by spouses
under applicable law. As of May 2, 2005, 19,225,352 shares of our common
stock were issued and outstanding.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
Number of Shares
Name (1) Beneficially Owned (2) Percentage of Class (2)
-------- ---------------------- -----------------------
Dr. Allen Kahn (3) ............................ 3,438,970 17.72%
Maurice E. Needham (4) ........................ 2,380,460 11.73%
Robert H. Davis (5) ........................... 1,398,700 7.02%
Charles E. Coppa (6) .......................... 669,210 3.42%
Mark T. Maust (7) ............................. 514,236 2.63%
Lew F. Boyd (8) ............................... 367,088 1.90%
Lyle Jensen (9) ............................... 15,300 *
All officers and directors as a group
(7 persons) ............................... 8,783,964 39.96%
* Less than 1%
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Number of Shares
Beneficially Owned Percentage of Class
------------------ -------------------
Richard Ledet (10) ............................ 1,455,629 7.57%
Laurus Master Fund, Ltd. (11) ................. 1,001,727 4.99%
(1) Except as noted, each person's address is care of GreenMan Technologies,
Inc., 7 Kimball Lane, Building A, Lynnfield, Massachusetts 01940.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
common stock that an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table.
(3) Includes 178,033 shares of common stock issuable pursuant to immediately
exercisable stock options and warrants.
(4) Includes 1,064,865 shares of common stock issuable pursuant to immediately
exercisable stock options. Also includes 59,556 shares of common stock
owned by Mr. Needham's wife.
(5) Includes 695,000 shares of common stock issuable pursuant to immediately
exercisable stock options.
(6) Includes 353,000 shares of common stock issuable pursuant to immediately
exercisable stock options.
(7) Includes 323,000 shares of common stock issuable pursuant to immediately
exercisable stock options.
(8) Includes 126,894 shares of common stock issuable pursuant to immediately
exercisable stock options.
(9) Includes 15,000 shares of common stock issuable pursuant to immediately
exercisable stock options.
(10) Mr. Ledet's address is 2960 NE Broadway, Des Moines, Iowa 50317.
(11) Laurus holds (i) warrants to purchase up to 1,380,000 shares of common
stock that are exercisable within 60 days (subject to the following
sentence) at exercise prices ranging from $1.56 to $2.29 per share, (ii) a
$4,000,000 convertible term note that is convertible into approximately
3
4,600,000 shares of common stock within 60 days (subject to the following
sentence) at a conversion price of $.79 per share for the first $1,000,000
and $.93 per share on the remaining balance, and (iii) $1,000,000 minimum
borrowing note that is convertible within 60 days (subject to the
following sentence) into approximately 1,400,000 shares of common stock at
a conversion price of $.79 per share. These warrants are not exercisable,
and these notes are not convertible, to the extent that (a) the number of
shares of our common stock held by Laurus and (b) the number of shares of
our common stock issuable upon exercise of the warrants and conversion of
the notes would result in beneficial ownership by Laurus of more than
4.99% of our outstanding shares of common stock. Laurus may waive these
provisions, or increase or decrease that percentage, with respect to the
warrants and/or the notes on 90 days' prior notice to us, or without
notice if we are in default under the notes. Laurus beneficially owns
1,001,727 shares of our common stock underlying warrants and the notes
that are exercisable or convertible, as the case may be, within 60 days.
Laurus's address is 825 Third Avenue, 14th Floor, New York, New York
10022.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Pursuant to Proposal No. 1, the five nominees listed below will be
nominated to serve until the next Annual Meeting of Stockholders and until their
successors are elected. Officers are elected by and serve at the discretion of
the Board of Directors, subject to their employment contracts.
Shares represented by all proxies received by the Board of Directors and
not so marked to withhold authority to vote for any individual nominee will be
voted (unless one or more nominees are unable or unwilling to serve) FOR the
election of all nominees. The Board of Directors knows of no reason why any such
nominees should be unable or unwilling to serve, but if such should be the case,
proxies may be voted for the election of some other person or for fixing the
number of directors at a lesser number.
The following information is set forth with respect to each nominee for
election as a director.
Nominee's Name Position(s) Held Year Term Will Expire
-------------- ---------------- ---------------------
Maurice E. Needham........ Chairman of the Board 2006
Robert H. Davis........... Chief Executive Officer, President and Director 2006
Lew F. Boyd............... Director 2006
Allen Kahn, M.D........... Director 2006
Lyle Jensen............... Director 2006
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED ABOVE.
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth all of the candidates for election of
directors at the Meeting, and our executive officers, their ages, and the
positions held by each such person within our company.
Our directors, nominees and executive officers are as follows:
Name Age Position
---- --- --------
Maurice E. Needham ..... 64 Chairman of the Board of Directors
Robert H. Davis ........ 62 Chief Executive Officer; President; Director
Charles E. Coppa ....... 42 Chief Financial Officer; Treasurer; Secretary
Dr. Allen Kahn ......... 84 Director
Lew F. Boyd ............ 59 Director
Lyle Jensen ............ 54 Director
4
We have established an Audit Committee consisting of Messrs. Jensen
(Chair) and Boyd and Dr. Kahn, and a Compensation Committee consisting of
Messrs. Boyd (Chair) and Jensen. Our Board of Directors has determined that Mr.
Jensen is an "audit committee financial expert" within the meaning given that
term by Item 401(e) of Regulation S-B and that Mr. Jensen is "independent"
within the meaning given to that term by Item 7(d)(3)(iv) of Schedule 14A under
the Exchange Act.
MAURICE E. NEEDHAM has been Chairman since June 1993. From June 1993 to
July 21, 1997, Mr. Needham also served as Chief Executive Officer. He has also
served as a Director of Comtel Holdings, an electronics contract manufacturer,
since April 1999. He previously served as Chairman of Dynaco Corporation, a
manufacturer of electronic components which he founded in 1987. Prior to 1987,
Mr. Needham spent 17 years at Hadco Corporation, a manufacturer of electronic
components, where he served as President, Chief Operating Officer and Director.
ROBERT H. DAVIS has been Chief Executive Officer and a Director since July
1997. Prior to joining us, Mr. Davis served as Vice President of Recycling for
Browning-Ferris Industries, Inc. of Houston, Texas ("BFI") since 1990. As an
early leader of BFI's recycling division, Mr. Davis grew that operation from
startup to $650 million per year in profitable revenues. A 30-year veteran of
the recycling industry, Mr. Davis has also held executive positions with Fibres
International, Garden State Paper Company, and SCS Engineers, Inc. Mr. Davis
currently serves as a Director and Audit Committee member of Waste Connections,
Inc., the fourth largest solid waste management company in the United States.
CHARLES E. COPPA has served as Chief Financial Officer, Treasurer and
Secretary since March 1998. From October 1995 to March 1998, he served as
Corporate Controller. Mr. Coppa was Chief Financial Officer and Treasurer of
Food Integrated Technologies, a publicly-traded development stage company, from
July 1994 to October 1995. Prior to joining Food Integrated Technologies, Inc.,
Mr. Coppa served as Corporate Controller for Boston Pacific Medical, Inc., a
manufacturer and distributor of disposable medical products, and Corporate
Controller for Avatar Technologies, Inc., a computer networking company.
ALLEN KAHN, M.D., has been a Director since March 2000. Dr. Kahn operated
a private medical practice in Chicago, Illinois, which he founded in 1953 until
his retirement in October 2002. Dr. Kahn has been actively involved as an
investor in "concept companies" since 1960. From 1965 through 1995 Dr. Kahn
served as a member of the Board of Directors of Nease Chemical Company
(currently German Chemical Company), Hollymatic Corporation and Pay Fone Systems
(currently Pay Chex, Inc.).
LEW F. BOYD has been a Director since August 1994. Mr. Boyd is the founder
and since 1985 has been the Chief Executive Officer of Coastal International,
Inc., an international business development and executive search firm,
specializing in the energy and environmental sectors. Previously, Mr. Boyd had
been Vice President/General Manager of the Renewable Energy Division of Butler
Manufacturing Corporation and had served in academic administration at Harvard
and Massachusetts Institute of Technology.
LYLE JENSEN has been a Director since May 2002. Mr. Jensen is currently a
Business Development and Operations Consultant. Prior to that he held executive
roles as Chief Executive Officer and minority owner of Comtel and Corlund
Electronics, Inc. He served as President of Dynaco Corporation from 1988 to
1997, General Manager of Interconics from 1984 to 1988 and various financial and
general management roles within Rockwell International from 1973 to 1984.
Code of Ethics
On May 28, 2004, we adopted a code of ethics which applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. We have posted
our code of ethics on our corporate website, www.greenman.biz.
5
Board Meetings
Our Board of Directors met nine times during the fiscal year ended
September 30, 2004. None of the directors attended fewer than 75% of the
meetings held during the period. There were no actions taken by unanimous
consent in lieu of a meeting during the fiscal year ended September 30, 2004.
Committees of the Board of Directors
Our Board of Directors has established an Audit Committee and a
Compensation Committee.
Audit Committee: The Audit Committee of the Board of Directors acts to:
(i) acquire a complete understanding of our audit functions; (ii) review with
management and our independent accountants our finances, financial condition and
interim financial statements; (iii) review with the independent accountants our
year-end financial statements; and (iv) review implementation with the
independent accountants and management any action recommended by our independent
accountants. The Audit Committee met four times during the fiscal year ended
September 30, 2004. None of the members of the Audit Committee attended fewer
than 75% of the meetings held during the period.
The Audit Committee adopted a written charter governing its actions on
June 1, 2000. The three members of the Audit Committee are "independent" within
the definition of that term as provided by Section 121(A) of the listing
standards of the American Stock Exchange.
Report of the Audit Committee
The Audit Committee has reviewed and discussed our audited consolidated
balance sheets and statements of operations, cash flows and stockholders'
equity for the fiscal years ended September 30, 2004 and 2003 with
management. The Audit Committee has discussed with Wolf & Company, P.C.,
our independent auditors, the matters required to be discussed by
Statement of Auditing Standards No. 61.
The Audit Committee has also received and reviewed written disclosures and
the letter from Wolf & Company, P.C. required by Independent Standards
Board No. 1 and has discussed with Wolf & Company, P.C. their
independence. Based on the foregoing review and discussions, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in our Annual Report on Form 10-KSB for the fiscal
year ended September 30, 2004 for filing with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Lyle Jensen (Chairman) Lew Boyd Dr. Allen Kahn
Compensation Committee: The Compensation Committee of the Board of
Directors sets the compensation of the Chief Executive Officer and reviews and
approves the compensation arrangements for all other officers. The Compensation
Committee met four times during the fiscal year ended September 30, 2004. None
of the members of the Compensation Committee attended fewer than 75% of the
meetings held during the period.
Our Board of Directors has not established a nominating committee. Our
Board believes that each of our current members should, and do, participate in
the consideration of director nominees. In accordance with Section 804 of the
American Stock Exchange's Company Guide, our independent directors recommend
nominees for selection as directors by the full Board. The policy of our Board
is to consider director candidates recommended by our stockholders. Stockholders
wishing to nominate director candidates must comply with certain procedures and
notice requirements set forth in our By-Laws. Nominations must be submitted in
writing to our principal executive office on a timely basis and must contain
certain information set forth in our By-Laws. See "Advance Notice Procedures"
below. Our Board has not established a formal charter regarding the nomination
and consideration of director candidates. We expect to establish a Nominating
and Governance Committee, and a charter governing its operations, in fiscal
2005. When adopted, the charter will be posted on our corporate website.
6
Stockholders may communicate directly with members of our Board of
Directors by sending a letter or other written communication to The Chairman of
the Board (or, if applicable to an individual director by name), in care of the
Corporate Secretary, GreenMan Technologies, Inc., 7 Kimball Lane, Building A,
Lynnfield, MA 01940. Our current policy is to forward all communications to the
Chairman of the Board or the individually named director, if applicable, but we
reserve the right to modify that policy in the future.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table summarizes the compensation paid or accrued for
services rendered during the fiscal years ended September 30, 2004, 2003 and
2002, to our Chief Executive Officer, former Vice President of Operations and
our Chief Financial Officer. We did not grant any restricted stock awards or
stock appreciation rights or make any long-term plan payouts during the periods
indicated.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- Securities
Name and Other Annual Underlying All Other
Principal Position Fiscal Year Salary Bonus Compensation (1) Options (2) Compensation
------------------ ----------- ------ ----- ---------------- ----------- ------------
Robert H. Davis .............. 2004 $230,000 $ -- $21,468 -- $ --
Chief Executive Officer 2003 230,000 -- 19,900 -- --
2002 230,000 23,000 16,817 7,500 --
Mark T. Maust ................ 2004 $140,000 $56,000 $22,598 -- $ --
Vice President (3) 2003 140,000 -- 18,908 -- --
2002 140,000 70,000 17,278 7,500 --
Charles E. Coppa ............. 2004 $130,000 $ -- $22,906 60,000 $ --
Chief Financial Officer 2003 130,000 -- 9,343 -- --
2002 130,000 5,000 7,200 7,500 --
(1) Represents payments made to or on behalf of Messrs. Davis, Maust and Coppa
for health, life and disability insurance and auto allowances.
(2) The fiscal 2004 grant represents options granted to Mr. Coppa in August
2004. The fiscal 2002 grants represent options granted to Mr. Davis, Mr.
Maust and Mr. Coppa in August 2002.
(3) Mr. Maust also served as our Vice President of Operations until April
2004, when we eliminated that position. Mr. Maust still serves as our
Midwest Regional Vice President.
Options/SAR Grants Table
The following table sets forth each grant of stock options made during the
year ended September 30, 2004 held by the executives named in the Summary
Compensation Table above.
Option Grants in Last Fiscal Year
Number of % of Total Market Price
Securities Options Granted Exercise On Date
Underlying to Employees in Price of Grant Expiration
Name Options Granted the Fiscal Year Per Share Per Share Date
---- --------------- --------------- --------- --------- ----
Charles E. Coppa.......... 60,000 11.2% $1.24 $1.24 8/4/14
Options granted have a ten year term and vest equally over a five-year
period from the date of grant.
7
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information concerning the value of
unexercised options as of September 30, 2004 held by the executives named in the
Summary Compensation Table above.
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised Options In-the-Money Options
Exercise (1) Realized (2) at September 30, 2004 (3) at September 30, 2004 (2)
------------ ------------ ------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Robert H. Davis ............ 185,000 $ 90,940 610,000 149,500 $ 153,540 $ 71,300
Mark T. Maust .............. -- -- 278,000 54,500 $ 147,250 $ 37,400
Charles E. Coppa ........... 20,000 16,600 323,000 104,500 $ 153,000 $ 30,800
(1) During the fiscal year ended September 30, 2004, Mr. Davis exercised
185,000 options at exercise prices ranging from $.40 to $.94 per share and
Mr. Coppa exercised 20,000 options at exercise prices ranging from $.38 to
$.40.
(2) Assumes that the value of shares of common stock is equal to $1.22 per
share, which was the closing bid price on the American Stock Exchange on
September 30, 2004.
(3) The options granted to the executive officers became exercisable
commencing July 17, 1998 in the case of Mr. Davis, December 30, 1997 in
the case of Mr. Maust and March 23, 1999 in the case of Mr. Coppa at an
annual rate of 20% of the underlying shares of our common stock. The
options granted to Mr. Davis pursuant to his April 1999 employment
agreement vest over a seven-year period.
Stock Option Plans
Our 1993 Stock Option Plan was established to provide options to purchase
shares of common stock to our employees, officers, directors and consultants. In
March 2001, our stockholders approved an increase to the number of shares
authorized under the 1993 Stock Option Plan to 3,000,000 shares. This plan
expired on June 10, 2004.
Our 2005 Stock Option Plan was adopted by the Board of Directors on March
18, 2005, and is subject to ratification by our stockholders. The 2005 Stock
Option Plan is intended to replace a plan adopted by our Board of Directors in
April 2004. The 2004 plan was not submitted for ratification by our stockholders
and was terminated by our Board on March 18, 2005. All options granted under
that plan have been terminated.
As of September 30, 2004, there were 1,670,356 options granted and
outstanding under the 1993 Stock Option Plan of which 1,498,356 options were
exercisable at prices ranging from $0.38 to $1.80. For a complete description of
the 2005 Stock Option Plan, see "Proposal No. 4 - Proposal to Approve the 2005
Stock Option Plan" below.
Non-Employee Director Stock Option Plan
Our 1996 Non-Employee Director Stock Option Plan is intended to promote
our interests by providing an inducement to obtain and retain the services of
qualified persons who are not officers or employees to serve as members of our
Board of Directors. The Board of Directors has reserved 60,000 shares of common
stock for issuance under Non-Employee Director Stock Option Plan.
Each person who was a member of the Board of Directors on January 24,
1996, and who was not an officer or employee, was automatically granted an
option to purchase 2,000 shares of common stock. In addition, after an
individual's initial election to the Board of Directors, any director who is not
an officer or employee and who continues to serve as a director will
automatically be granted on the date of the Annual Meeting of Stockholders an
additional option to purchase 2,000 shares of common stock. The exercise price
per share of options granted under the Non-Employee Director Stock Option Plan
is 100% of the fair-market value of the common stock on the business day
immediately prior to the date of the grant and each option is immediately
exercisable for a period of ten years from the date of the grant.
8
As of September 30, 2004, options to purchase 32,000 shares of our common
stock have been granted under the 1996 Non-Employee Director Stock Option Plan,
of which 22,000 are outstanding and exercisable at prices ranging from $0.38 to
$1.95.
Employee Benefit Plan
In August 1999, we implemented a Section 401(k) plan for all eligible
employees. Employees are permitted to make elective deferrals of up to 15% of
employee compensation and employee contributions to the 401(k) plan are fully
vested at all times. We may make discretionary contributions to the 401(k) plan
which become vested over a period of five years. We did not make any
discretionary contributions to the 401(k) plan during the fiscal years ended
September 30, 2004 and 2003.
Loans; Personal Guarantees
In January 1998, we advanced Mr. Davis $104,000 under an 8.5% secured loan
agreement with both principal and interest due January 2001. This note was
amended on September 30, 2000 to extend the maturity of the note until April 15,
2002 (subsequently extended to April 15, 2004) and increase the interest rate to
9.5%. On April 30, 2004 the remaining balance of $163,000, including interest,
was applied to offset obligations under our $400,000 September 30, 2003 note
payable due to Mr. Davis.
In January 1999, we advanced Messrs. Davis and Coppa $55,000, in
aggregate, under 8.5% secured promissory notes with both principal and interest
due January 2002 (subsequently extended to January 2004). The proceeds were used
to participate in a private placement of our common stock and the loans were
secured by 191,637 shares of common stock owned by Messrs. Davis and Coppa. In
June 2002, they repaid $5,000 each toward their respective then outstanding
balances. On March 31, 2004, Mr. Davis's remaining balance of $24,000 including
interest, was applied to offset obligations under our $400,000 September 30,
2003 note payable to him. On May 11, 2004, Mr. Coppa sold 36,717 shares of
common stock valued at $44,248 back to us in full settlement of all amounts due
under his note. We subsequently cancelled these shares, which reduced our total
shares issued and outstanding.
Dr. Kahn was owed $300,000 under the terms of an October 1999 private
offering of 10% convertible notes and warrants and $75,000 under the terms of a
February 2000 offering of 11% convertible notes and warrants. The warrants were
exercisable for a period of five years to purchase 125,000 shares of our common
stock at exercise prices ranging from $.31 to $.50 per share. The convertible
notes originally matured twelve months after issuance and were payable in cash
or unregistered shares of our common stock at a conversion price of $1.00 per
share. In September 2000 and June 2001, Dr. Kahn agreed to extend the maturity
date of each note for an additional twelve months from their original maturity.
In return for the June 2001 extension, we agreed to reduce the conversion price
to $.75 per share. In September 2002, Dr. Kahn again agreed to extend the
maturity of each note for an additional twenty-four months from their extended
maturity dates which range from October 2004 to February 2005. On February 16,
2004, Dr. Kahn converted these two notes, including $375,000 of principal and
$168,210 of accrued interest into 724,281 shares of our unregistered common
stock pursuant to the amended terms noted above. The warrants were exercised by
Dr. Kahn during fiscal 2003.
Dr. Kahn has also loaned us $200,000 under the terms of a November 2000
unsecured promissory note which bears interest at 12% per annum with interest
due monthly and the principal due in November 2001. In June 2001, Dr. Kahn
agreed to extend the maturity date of the note for an additional twelve months
from its original maturity. In September 2002, Dr. Kahn again agreed to extend
the maturity of the note until November 2004. In June 2004, Dr. Kahn agreed to
extend the maturity of this note until the earlier of when all amounts due under
the Laurus credit facility have been repaid or June 30, 2007.
During the period of June to August 2003, two immediate family members of
Mr. Needham loaned us a total of $400,000 under the terms of two-year, unsecured
promissory notes which bear interest at 12% per annum with interest due
quarterly and the principal due upon maturity. In March 2004, these same
individuals loaned us an additional $200,000 in aggregate, under similar terms
with the principal due upon maturity March 2006. These individuals each agreed
to invest the entire $100,000 principal balance of their June 2003 notes
($200,000 in aggregate) into the April 2004 private placement of investment
units and each received 113,636 units (113,636 shares of our common stock and
warrants to purchase 56,818 additional shares of our common stock at $1.80 per
share) in these transactions. At September 30, 2004, the remaining balance due
on these advances amounted to $400,000.In addition, the two individuals agreed
to extend the maturity of the remaining balance of these notes until the earlier
of when all amounts due under the Laurus credit facility have been repaid or
June 30, 2007.
9
In September 2003, Mr. Davis loaned us $400,000 under the terms of a
September 30, 2003 unsecured promissory note which bears interest at 12% per
annum with interest due quarterly and the principal due March 31, 2004
(subsequently extended to September 30, 2004). In 2004, Mr. Davis applied
approximately $114,000 of the balance due him plus $21,000 of accrued interest
to exercise options to purchase 185,000 shares of common stock as noted above.
In addition, he agreed to extend the maturity of the remaining balance of this
note until the earlier of when all amount due under the Laurus credit facility
have been repaid or June 30, 2007. At September 30, 2004, the remaining balance
due on this note amounted to $99,320.
In October 2003, Mr. Needham loaned us $75,000 under the terms of an
October 22, 2003 unsecured promissory note payable which bears interest at 12%
per annum with interest due quarterly and the principal due June 30, 2004.
During January and February 2004, Mr. Needham advanced us an additional $250,000
under substantially similar notes that are also due in June 2004. Mr. Needham
agreed to invest all unpaid principal and interest under these advances
amounting to approximately $350,000 into the April 2004 private placement of
units and received 339,806 units in this transaction (see above).
Related Party Transactions
We rent several pieces of equipment on a monthly basis from Valley View
Farms, Inc. and Maust Asset Management, LLC, two companies co-owned by Mr.
Maust. Rent expense associated with payments made to the two companies for the
fiscal years ended September 30, 2004 and 2003 was $248,560 and $281,143,
respectively.
In July 2002, our Minnesota subsidiary entered into a four-year equipment
lease with Valley View Farms. Under the terms of the lease, the subsidiary is
required to pay rent of $4,394 per month and has the ability to purchase the
equipment at the end of the lease at approximately 40% of its original value.
The lease is classified as a capital lease at September 30, 2004 with an
equipment value of $146,670.
Our majority-owned joint venture, Able Tire of Oklahoma, LLC which we
divested in April 2003, leased on a month-to-month basis, certain rolling stock
equipment from Gary Humphreys, an owner of Able Tire Company, LLC, the other
member of the joint venture. Payments made to Mr. Humphreys totaled $48,700
during the fiscal year ended September 30, 2003.
In April 2003, our Iowa subsidiary entered into a ten-year lease agreement
with Maust Asset Management Company, LLC for our Iowa facility. Maust Asset
Management is co-owned by one of our officers. Under the terms of the lease,
monthly rent payments of $8,250 are required for the first five years,
increasing to $9,000 per month for the remaining five years. The lease also
provides us a right of first refusal to purchase the land and buildings at fair
market value during the term of the lease. Maust Asset Management acquired the
property from the former lessor. For the fiscal years ended September 30, 2004
and 2003, payments made in connection with this lease amounted to $111,483 and
$41,250, respectively.
During March 2004, our Minnesota subsidiary sold all of its land and
buildings to an entity co-owned by Mr. Maust for $1,400,000, realizing a gain of
$437,337 which has been recorded as unearned income and classified as a non
current liability in the accompanying financial statements. Simultaneous with
the sale, we entered into an agreement to lease the property back for a term of
12 years at an annual rent of $195,000, increasing to $227,460 over the term of
the lease. The gain will be recognized as income ratably over the term of the
lease. The lease provides for two additional 4-year extensions. The lease is
classified as a capital lease at September 30, 2004 with an equipment value of
$1,400,000. For the fiscal year ended September 30, 2004, payments made in
connection with this lease amounted to $145,379.
On September 30, 2003, Mart Management, Inc., our Georgia subsidiary's
landlord, loaned us $100,000 under the terms of a September 30, 2003 unsecured
promissory note which bears interest at 12% per annum with interest due
quarterly and the principal due September 30, 2004. In June 2004, Mart
Management agreed to invest the entire $100,000 principal balance of the
unsecured promissory note plus accrued interest of $7,300 into the April 2004
private placement of investment units and received 121,932 Units in this
transaction.
All transactions, including loans, between us and our officers, directors,
principal stockholders, and their affiliates are approved by a majority of the
independent and disinterested outside directors on the Board of Directors.
Management believes these transactions were consummated on terms no less
favorable to us than could be obtained from unaffiliated third parties.
10
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than 10% of our common stock, to file with
the Securities and Exchange Commission initial reports of ownership of our
common stock and other equity securities on Form 3 and reports of changes in
such ownership on Form 4 and Form 5. Officers, directors and 10% stockholders
are required by the Securities and Exchange Commission regulations to furnish us
with copies of all Section 16(a) forms they file.
To the best of management's knowledge, based solely on review of the
copies of such reports furnished to us during and with respect to, our most
recent fiscal year, and written representation that no other reports were
required, all Section 16(a) filing requirements applicable to our officers and
directors have been complied with.
PROPOSAL NO. 2
PROPOSAL TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has resolved to recommend to the stockholders that
our company amend its Restated Certificate of Incorporation to increase the
number of authorized shares of common stock from 30,000,000 to 40,000,000
shares. The text of the proposed amendment is set forth in Exhibit I to this
Proxy Statement.
As of May 2, 2005, 19,225,352 shares of our common stock were issued and
outstanding, and we had reserved approximately 14,476,359 additional shares for
future issuance. These reserved shares relate to the following: shares for
issuance upon exercise of awards granted under our 1993 Stock Option Plan and
1996 Non-Employee Director Stock Option Plan and 4,756,003 shares for issuance
upon exercise of other stock options and stock purchase warrants. We have
reserved 2,000,000 shares for issuance under our 2005 Stock Option Plan which is
subject to pending stockholder approval. See "Proposal No. 4 - Proposal to
Approve the 2005 Stock Option Plan" below. In addition we have reserved
6,000,000 shares to be issued upon conversion of notes payable and accrued
interest. See "Proposal No. 5 - Proposal to Approve the Issuance of up to
7,380,000 Shares of Common Stock to Laurus Master Funds, Ltd." below.
The number of shares reserved by our company for future issuance exceeds
the number of shares authorized for issuance. Although the Board believes that
it is likely that we will have a sufficient number of authorized but unissued
shares to satisfy all exercises of vested options and warrants granted to date,
the Board believes that we will be severely constrained from making future
grants under the 2005 Stock Option Plan and that we will not have sufficient
shares to issue all potential shares to Laurus in connection with our credit
facility, unless the Restated Certificate of Incorporation is amended to
authorize additional shares of Common Stock.
If this proposal is approved, the Board of Directors will have the
authority to issue approximately 6,298,000 additional shares of common stock as
of May 2, 2005, and not including shares already reserved for issuance, as
described above, without further stockholder approval. The Board of Directors
believes that the increase in the number of authorized shares of Common Stock is
in the best interests of our company and our stockholders. The Board of
Directors believes that the authorized common stock should be increased to
provide sufficient shares for such corporate purposes as may be determined by
the Board of Directors. These purposes may include, among others, the issuance
of common stock to facilitate potential mergers or acquisitions, raising capital
or acquiring technology rights through the sale of stock, and/or attracting or
retaining valuable employees by the issuance of stock options. Except as
described above or elsewhere in this proxy statement, we have no plans,
understandings, commitments, agreements or undertakings concerning the issuance
of any such additional shares. The Board of Directors, however, considers the
authorization of additional shares of common stock advisable to ensure prompt
availability of shares for issuance should the occasion arise.
Under the Delaware General Corporation Law, the Board of Directors
generally may issue authorized but unissued shares of common stock without
further stockholder approval. Except as described in Proposal No. 5, below, the
Board of Directors does not currently intend to seek stockholder approval prior
to any future issuance of additional shares of common stock, unless stockholder
action is required in a specific case by applicable law, the rules of any
exchange or market on which our securities may then be listed or traded, or our
Restated Certificate of Incorporation or By-Laws then in effect. Frequently,
opportunities arise that require prompt action, and we believe that delay
necessitated for stockholder approval of a specific issuance could be
detrimental to our company and our stockholders.
11
The additional shares of common stock authorized for issuance pursuant to
this proposal will have the rights and privileges which the presently
outstanding shares of common stock possess under our Restated Certificate of
Incorporation. Shares of our common stock, including the additional shares
proposed for authorization, do not have preemptive or similar rights. The
increase in authorized shares would not affect the terms or rights of holders of
existing shares of common stock. The voting, dividend and liquidation rights of
the holders of common stock, however, may be subordinate to the rights of the
holders of the any preferred stock which may be issued from time to time. All
outstanding shares of common stock would continue to have one vote per share on
all matters to be voted on by the stockholders, including the election of
directors.
The issuance of any additional shares of common stock by our company may,
depending on the circumstances under which those shares are issued, reduce
stockholders' equity per share and, unless additional shares are issued to all
stockholders on a pro rata basis, will reduce the percentage ownership of common
stock of existing stockholders. We expect, however, to receive consideration for
any additional shares of common stock issued, thereby reducing or eliminating
any adverse economic effect to each stockholder of such dilution.
The authorized but unissued shares of common stock could be used to make
more difficult a change in control of our company. For example, such shares
could be sold to purchasers who might side with the Board of Directors in
opposing a takeover bid that the Board determines not to be in the best
interests of our company and our stockholders. Such a sale could have the effect
of discouraging an attempt by another person or entity, through the acquisition
of a substantial number of shares of our common stock, to acquire control of our
company since the issuance of new shares could be used to dilute the stock
ownership of the acquirer. Our Restated Certificate of Incorporation and By-Laws
contain certain provisions, including the grant of authority to the Board of
Directors to issue up to 1,000,000 shares of preferred stock in one or more
series (with such rights and preferences as the Board may determined), without
the approval of stockholders, and certain provisions relating to the calling of
stockholder meetings and the conduct of such meetings, that may be considered to
have an anti-takeover effect. We are not aware of any pending or threatened
efforts to obtain control of our company, and the Board of Directors has no
current intention to use the additional shares of common stock to impede a
takeover attempt or to propose any additional anti-takeover measures in future
proxy solicitations.
Approval of the amendment to increase the number of authorized shares of
common stock will require the affirmative vote of the holders of a majority of
the common stock issued and outstanding as of the record date. Abstentions will
have the same effect as a vote against the proposal; broker non-votes will have
no outcome on the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO OUR RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 30,000,000 TO 40,000,000 SHARES.
PROPOSAL NO. 3
PROPOSAL TO AMEND OUR RESTATED CERTIFICATE OF INCORPORATION
TO ELIMINATE THE DESCRIPTION OF CLASS A CONVERTIBLE PREFERRED STOCK
The Board of Directors has resolved to recommend to the stockholders that
our company further amend its Restated Certificate of Incorporation eliminate
all references to a Class A Convertible Preferred Stock. The text of the
proposed amendment is set forth in Exhibit II to this Proxy Statement.
The proposed amendment is intended to correct an oversight from an
amendment to our Certificate of Incorporation in April 2003. After our
Certificate of Incorporation was amended in 2003, our company had the authority
to issue up to 30,000,000 shares of common stock and 1,000,000 shares of
preferred stock the terms of which could be designated by the Board of
Directors. Notwithstanding that specific authorization, however, the amendment
failed to eliminate the description of the terms of a Class A Convertible
12
Preferred Stock that had been authorized some years earlier in connection with a
private placement of securities. No shares of Class A Convertible Preferred
Stock are currently issued or outstanding, and no such shares are reserved for
issuance. Because the Restated Certificate of Incorporation does not in fact
authorize the issuance of such shares, the description of their terms is
meaningless and potentially confusing. The proposed amendment would not affect
the rights of our stockholders or have any other affect on our company.
Approval of this amendment will require the affirmative vote of the
holders of a majority of the common stock issued and outstanding as of the
record date. Abstentions will have the same effect as a vote against the
proposal; broker non-votes will have no outcome on the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO OUR RESTATED CERTIFICATE OF INCORPORATION TO ELIMINATE THE DESCRIPTION OF
CLASS A CONVERTIBLE PREFERRED STOCK.
PROPOSAL NO. 4
PROPOSAL TO APPROVE THE 2005 STOCK OPTION PLAN
On March 18, 2005, our Board of Directors adopted the 2005 Stock Option
Plan (the "2005 Plan" or the "Plan"), subject to approval by our stockholders.
The 2005 Plan is intended to replace our 1993 Stock Option Plan, which expired
on June 10, 2004. In April 2004, our Board adopted a replacement stock option
plan but did not submit it for ratification by our stockholders. That plan and
was terminated by our Board on March 18, 2005, and all options granted under
that plan have been terminated.
The purpose of the 2005 Plan is to provide incentives to directors,
officers and employees of, and consultants to, our company and our subsidiaries
by providing them with opportunities to purchase our common stock pursuant to
options granted under the Plan. We believe that granting these options will
encourage loyalty to our company and better align the interests of our
directors, officers, employees and consultants with those of our stockholders.
The following is a summary of the material terms and conditions of the 2005
Plan. The full text of the 2005 Plan is attached as Exhibit III to this proxy
statement.
Summary of the 2005 Plan
Administration. Our Board of Directors and/or the Compensation Committee
of the Board of Directors administers the 2005 Plan, which includes determining:
o the individuals to receive options;
o whether the options will be "incentive stock options" or
"non-qualified options," as further described below;
o the terms and conditions of each option, including the number of
shares and exercise price of the options;
o whether restrictions such as repurchase options are to be imposed on
shares subject to options, and the nature of such restrictions; and
o the time when the options become exercisable.
The Compensation Committee has full authority to interpret the terms of
the 2005 Plan and awards granted under the Plan, to adopt, amend and rescind
rules and guidelines for the administration of the Plan and for its own acts and
proceedings and to decide all questions and settle all controversies and
disputes which may arise in connection with the Plan. The Compensation Committee
or the Board may, in its discretion, determine to accelerate the vesting of any
option; provided, however, that neither the Compensation Committee nor the Board
may, without the consent of the option holder, accelerate the vesting of an any
incentive stock option if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Internal Revenue Code, as amended
(the "Code").
Authorized Shares. We have reserved 2,000,000 shares of our common stock
for issuance under the 2005 Plan. As described below, the shares authorized
under the Plan will be subject to adjustment in the event of a stock dividend,
stock split or other change in corporate structure or capitalization affecting
our common stock. The number of shares delivered upon exercise of an option will
be determined net of any shares actually or constructively transferred by the
option holder to our company in payment of the exercise price or tax
withholding.
13
Eligibility. All directors, officers and employees of, or consultants to,
our company or any of its subsidiaries are eligible to participate in the 2005
Plan.
Types of Options. Options under the 2005 Plan may be in the form of
"incentive stock options" or "non-qualified options." Incentive stock options
are stock options that meet certain conditions imposed by Section 422A of the
Code. All other options are non-qualified options. The exercise price of an
incentive stock option may be not less than 100% (110% for an incentive stock
option granted to a 10% or more stockholder) of the fair market value of our
common stock on the date of grant. The aggregate fair market value, determined
on the date the option is granted, of the stock for which any person may be
granted incentive stock options which become exercisable for the first time by
such person in any calendar year cannot exceed the sum of $100,000 (determined
on the date such option is granted). No incentive stock option may be granted to
a person who is not an "employee" as defined in the applicable provisions of the
Code and regulations issued thereunder. An incentive stock option must expire in
ten years (five years in the case of an incentive stock option granted to a 10%
or more stockholder) after the date of grant. No incentive stock options can be
granted under the 2005 Plan after March 18, 2015, but options granted before
that date may be exercised thereafter.
Transferability. Options granted under the 2005 Plan are generally
non-transferable other than by will or by the laws of descent and distribution.
Non-qualified options may be transferred pursuant to qualified domestic
relations orders as defined in the Code or Title I of the Employee Retirement
Security Act of 1974. Options may be exercised by a person other than the person
to whom they were granted only in the circumstances outlined below.
Termination of Service. Under the 2005 Plan, all previously unexercised
incentive stock options terminate and are forfeited automatically upon the 90th
day after the termination of the option holder's service relationship with our
company and our subsidiaries, unless the Compensation Committee expressly
specifies otherwise. While not required to do so by the terms of the 2005 Plan,
the Board currently expects to impose similar conditions on non-qualified stock
options. In either case, however, if an option holder's service relationship is
terminated by reason of death or disability (as defined in the Plan), the
vesting of the options will cease upon the date of the termination of service
and the options may be exercised by the holder, the holder's executor or
administrator, or by the person to whom the option is transferred under the
applicable laws of descent or distribution, as the case may be, within 180 days
after the date of such termination of service. Notwithstanding the foregoing, in
no event may (i) any option be exercised beyond the date on which such option
would otherwise expire pursuant to its terms or (ii) any incentive stock option
be exercised after the expiration of ten years (five years in the case of an
incentive stock option granted to a 10% or more stockholder) from the date the
incentive stock option was granted. Shares of common stock which are not
delivered because of termination of awards may be reused for other awards.
Amendments. The Compensation Committee may at any time discontinue
granting awards under the 2005 Plan. The Board may terminate or amend the Plan
at any time, except that no amendment may adversely affect the rights of any
option holder without his or her consent and no amendment may, without the
approval of our stockholders obtained within 12 months after the Board adopts a
resolution authorizing such amendment: (i) materially increase the number of
shares of common stock available under the Plan (other than pursuant to a stock
dividend, stock split or other change in corporate structure or capitalization
affecting our common stock), (ii) change the group of persons eligible to
receive incentive stock options, (iii) change the exercise price at which shares
may be offered pursuant to incentive stock options (other than pursuant to a
stock dividend, stock split or other change in corporate structure or
capitalization affecting our common stock), or (iv) extend the expiration date
of the 2005 Plan.
Change in Corporate Structure or Capitalization; Change in Control. In the
event of a stock dividend, stock split or other change in corporate structure or
capitalization affecting our common stock, the number and kind of shares of
stock of our company then subject to the 2005 Plan and the options then
outstanding or to be granted thereunder, and the exercise price, if applicable,
will be appropriately adjusted. In the event our company is to be consolidated
with or acquired by another entity in a merger, sale of substantially all of our
assets or otherwise, then the Compensation Committee or the board of directors
of any entity assuming the obligations of our company under the 2005 Plan shall
either (i) make appropriate provision for the continuation of such options by
substituting on an equitable basis for the shares then subject to such options
the consideration payable with respect to the outstanding shares of our common
14
stock in connection with the acquisition; (ii) make appropriate provisions for
the continuation of such options by substituting on an equitable basis for the
shares then subject to such options any equity securities of the successor
corporation; (iii) upon written notice to the option holders, provide that all
options must be exercised, to the extent then exercisable, within a specified
number of days of the date of such notice, at the end of which period the
options shall terminate; (iv) terminate all options in exchange for a cash
payment equal to the excess of the fair market value of the shares subject to
such options (to the extent then exercisable) over the exercise price thereof;
(v) accelerate the date of exercise of such options or of any installment of
such options; or (vi) terminate all options in exchange for the right to
participate in any stock option or other employee benefit plan of any successor
corporation.
In the event of the proposed dissolution or liquidation of our company,
each option will terminate immediately prior to the consummation of such
proposed action or at such other time and subject to such other conditions as
shall be determined by the Compensation Committee.
Term. The 2005 Plan, unless sooner terminated by the Board of Directors,
will remain in effect until March 18, 2015. Federal Income Tax Consequences
The following is a summary of certain U.S. federal income tax aspects of
the 2005 Plan. This summary is not a complete description of such consequences.
Moreover, this summary relates only to federal income taxes; there may also be
federal estate and gift tax consequences associated with the 2005 Plan, as well
as foreign, state and local tax consequences. The 2005 Plan is not qualified
under Section 401(a) of the Code.
Incentive Stock Options. In general, neither the grant nor the exercise of
an incentive stock option granted under the 2005 Plan will result in taxable
income to the option holder or a deduction to our company. If the option holder
does not dispose of stock received upon exercise of an incentive stock option
within two years after the date the option is granted and within one year after
the date of exercise, any later sale of such stock will result in a capital gain
or loss.
If stock received upon the exercise of an incentive stock option is
disposed of before the holding period requirements described above have been
satisfied, the option holder will generally realize ordinary income at the time
of disposition. The amount of such ordinary income will generally be equal to
the difference between the fair market value of the common stock on the date of
exercise and the option price. In the case of a disqualifying disposition in
which a loss (if sustained) would be recognized, then the amount of ordinary
income will not exceed the excess of the amount realized on the sale over the
adjusted basis of the stock, that is, in general, the price paid for the stock.
We will generally be entitled to a deduction for federal income tax purposes
equal to the amount of ordinary income realized by the option holder, subject to
any necessary withholding and reporting requirements.
Certain option holders exercising incentive stock options may become
subject to the alternative minimum tax, under which the difference between (i)
the fair market value of stock purchased under incentive stock options,
determined on the date of exercise, and (ii) the exercise price, will be an item
of tax preference in the year of exercise for purposes of the alternative
minimum tax.
Non-Qualified Options. No income results upon the grant of a non-qualified
option with an exercise price that is not less than 100% of the fair market
value of our common stock on the date of grant. When an option holder exercises
a non-qualified option, he or she will realize ordinary income subject to
withholding. Generally, such income will be realized at the time of exercise and
in an amount equal to the excess, measured at the time of exercise, of the then
fair market value of our common stock over the option price. We will generally
be entitled to a deduction for federal income tax purposes equal to the amount
of ordinary income realized by the option holder, subject to certain withholding
and reporting requirements.
Under recent amendments to the Code, a recipient of a stock option granted
with an exercise price that is less than 100% of the fair market value of the
underlying common stock on the date of grant will realize ordinary income,
subject to withholding, in an amount equal to the excess of the fair market
value of the common stock on the date of grant over the option price. In
addition, the recipient will be subject to an additional excise tax equal to 20%
of such amount. Under such circumstances, we will generally be entitled to a
deduction for federal income tax purposes equal to the amount of ordinary income
(including the 20% excise tax) realized by the option holder.
15
New Incentive Plan Benefits
The future benefits or amounts that would be received under the 2005 Plan
by executive officers and other employees are discretionary and are therefore
not determinable at this time. In addition, the benefits or amounts which would
have been received by or allocated to such persons for the last completed fiscal
year if the 2005 Plan had been in effect cannot be determined.
APPROVAL OF THE 2005 PLAN WILL REQUIRE AFFIRMATIVE VOTE OF A MAJORITY OF
THE OUTSTANDING SHARES OF COMMON STOCK OF THE COMPANY REPRESENTED IN PERSON OR
BY PROXY AT THE ANNUAL MEETING. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
APPROVAL OF THE 2005 PLAN.
PROPOSAL NO. 5
PROPOSAL TO APPROVE THE ISSUANCE OF UP TO 7,380,000 SHARES OF
COMMON STOCK TO LAURUS MASTER FUNDS, LTD.
We entered into a $9,000,000 credit facility with Laurus Master Fund, Ltd.
in June 2004, which was amended on March 22, 2005. As more fully described
below, it is expected that our borrowings from, and other obligations to, Laurus
will be satisfied by issuing shares of our common stock to Laurus, which Laurus
will resell pursuant to one or more registration statements we are required to
file under the Securities Act of 1933, as amended. We currently estimate that we
will be required to issue up to 7,380,000 shares of common stock to Laurus over
the term of the credit facility. To date, we have registered 3,801,237 shares of
common stock under the Securities Act for resale by Laurus. That number
represents the largest number of shares we are permitted to list on the American
Stock Exchange without first obtaining the approval of our stockholders. Under
Rule 713 of the American Stock Exchange Company Guide, we may not list on the
Exchange (and therefore may not issue), in connection with a given transaction
or series of related transactions, a number of shares equal to 20% or more of
our presently outstanding common stock at a price less than the greater of book
or market value of our common stock.
The Board of Directors has resolved to recommend that the stockholders
approve the listing on the American Stock Exchange of all 7,380,000 shares of
common stock that we current expect to be required to issue to Laurus in
connection with the credit facility. As described below, the inability to issue
such shares to Laurus would be a default under the terms of the credit facility.
In the event of a default, Laurus has the right to limit our ability to borrow
under the credit facility, terminate the credit facility entirely, and/or charge
us substantial penalties and interest. Any of these actions would significantly
and adversely affect our liquidity and severely jeopardize our ability to
continue operations.
The Credit Facility
The credit facility consists of a $5,000,000 convertible, revolving
working capital line of credit and a $4,000,000 convertible term note. At
closing, we borrowed $4,000,000 under the term loan and $2,000,000 under the
line of credit, and used approximately $1,860,000 of the proceeds to repay the
outstanding indebtedness under our existing credit facility and approximately
$1,070,000 to repay our indebtedness to Cryopolymers Leasing. Additional
proceeds of the financing were used to increase working capital and to pay
certain costs and fees associated with this transaction including a $425,000
placement fee paid to our investment bank.
The line of credit has a three-year term. Borrowings generally bear
interest at the prime rate published in The Wall Street Journal from time to
time plus 1.0% (6.75% at April 30, 2005), and are convertible into shares of our
common stock at the option of Laurus. Except for downward adjustments provided
in the credit facility terms described below, the interest rate shall not be
below 5%. The amount we may borrow at any time under the line of credit is
generally limited to 90% of eligible accounts receivable (90 days or less) and
50% of eligible finished goods inventory, subject to certain limitations. Until
December 31, 2005, however, we will be permitted to maintain overadvances of up
16
to $2,000,000 under the line of credit. All overadvances outstanding from time
to time will bear interest, in addition to the interest otherwise required, at a
rate equal to 2% per annum on the amount of the overadvance. In the event that
at any time we have outstanding overadvances of more than $2,000,000, or if any
overadvance remains outstanding on or after January 1, 2006, the excess or
overdue overadvance will bear interest, in addition to that otherwise required,
at a rate equal to 2% per month for all times such amounts are outstanding. The
line of credit requires us to maintain a minimum borrowing of $1,000,000.
Subject to certain limitations, Laurus will have the right, but not the
obligation, to convert the first $1,000,000 of borrowings under the line of
credit into our common stock at a price of $.79 (85% of the average closing
price of our common stock for the five days immediately prior to the March 22,
2005 amendment to the credit facility). The conversion price for each subsequent
$1,000,000 of borrowings will be adjusted upward so that the conversion price
will always reflect a 10% premium over the 22-day trailing average closing price
computed on each $1,000,000 increment.
In connection with the line of credit, we issued Laurus a warrant to
purchase up to 990,000 shares of our common stock at prices ranging from $1.63
to $2.29. The warrant, valued at $82,731, is immediately exercisable, has a term
of ten years and allows for cashless exercise at the option of Laurus, and does
not contain any "put" provisions.
The term note also has a three-year term and bears interest at the prime
rate published in The Wall Street Journal from time to time plus 1.0% (6.75% at
April 30, 2005), with interest payable monthly. Except for downward adjustments
provided in the credit facility terms described below, the interest rate shall
not be below 5%. Principal is amortized over the term of the loan, commencing on
November 1, 2004, with minimum monthly principal payments of $125,000. Pursuant
to the amendment, however, principal payments otherwise due from January 1, 2005
through June 1, 2005 have been deferred and are payable in full on the maturity
date of the term note, together with all other amounts due and payable on that
date.
Laurus has the option to convert some or all of the principal and interest
payments into common stock at a fixed conversion price of $.93, the average
closing price of our common stock for the five days immediately prior the March
22, 2005 amendment, provided, that the first $1,000,000 of borrowings under the
term note is convertible into common stock at a price of $.79 (85% of the
average closing price of our common stock for the five days immediately prior to
the amendment. Subject to certain limitations, regular payments of principal and
interest will be automatically payable in common stock if the 5-day average
closing price of the common stock immediately preceding a payment date is
greater than or equal to 110% of such fixed conversion price.
In connection with the term note, we issued Laurus a warrant to purchase
up to 390,000 shares of our common stock at prices ranging from $1.56 to $2.18.
The warrant, valued at $37,161, is immediately exercisable, has a term of ten
years and allows for cashless exercise at the option of Laurus, and does not
contain any "put" provisions.
We will be required to pay a premium of 2% of the amount of each principal
payment made in cash under the line of credit and/or the term note. In addition,
we will be required to pay a penalty of 20% of the then-outstanding balance of
the term note if we prepay that note.
The interest rate under each of the notes is subject to downward
adjustment on a monthly basis (but not to less than 0%). The downward adjustment
will be in the amount of 200 basis points (2.0%) for each incremental 25%
increase in the average closing price of our common stock over the then
applicable conversion price of the note for the five-day period preceding such
monthly determination date if we have at that time registered for resale all of
the shares of our common stock underlying the notes and warrants we are issuing
to Laurus in this transaction, or 100 basis points (1.0%) for each incremental
25% increase in the average closing price of our common stock over the then
applicable conversion price of the note for the five-day period preceding such
monthly determination date if we have not at that time registered for resale all
of such shares.
The credit facility is secured by a first-priority security interest in
substantially all of our assets, including the capital stock of our active
subsidiaries. Our active subsidiaries have guaranteed our obligations to Laurus
and have granted Laurus a security interest in their assets to secure this
guarantee.
17
We incurred investment banking costs amounting to $559,000, including
$455,000 in cash and $103,840 in the form of 57,252 shares of our unregistered
common stock valued at $75,000 and warrants to purchase up to 270,000 shares of
our common stock valued at $28,840. The warrants are immediately exercisable,
have a term of five years and have exercise prices ranging from $1.64 to $2.29.
Total debt issuance costs incurred in connection with securing the Laurus
credit facility amounted to approximately $661,000 which have been recorded as
deferred financing costs to be amortized to interest expense over the three year
term. Additionally, a management fee amounting to $315,000 was paid to Laurus
from the closing proceeds, and was recorded as a debt discount to be amortized
to interest expense over the three year term.
We have agreed to register for resale under the Securities Act the shares
of common stock issuable to Laurus upon conversion of borrowings under the
credit facility and upon exercise of the warrants. To date, we have registered
3,801,237 shares of common stock for resale by Laurus. That number represents
the largest number of shares we are permitted to list on the American Stock
Exchange without first obtaining the approval of our stockholders. We are
required to file an additional registration statement with respect to the resale
of the balance of the 7,380,000 shares that we currently expect to be required
to issue to Laurus in connection with the credit facility. That registration
statement cannot be declared effective unless and until our stockholders approve
the issuance of such shares. The amount of our common stock Laurus may hold at
any given time is limited to no more than 4.99% of our outstanding capital stock
and no more than 25% of our aggregate daily trading volume determined over the
five-day period prior to the date of determination. These limitations may be
waived by Laurus on 90 days' prior notice, or without notice if we are in
default.
The conversion price applicable to each of the notes and the exercise
price of each of the warrants is subject to downward adjustment if we issue
shares of our common stock (or common stock equivalents) at a price per share
less than the applicable conversion or exercise price. There are exceptions for
issuances of stock and options to our employees and for certain other ordinary
course stock issuances.
Subject to applicable cure periods, amounts borrowed from Laurus are
subject to acceleration upon certain events of default, including: (i) any
failure to pay when due any amount we owe to Laurus; (ii) any material breach by
us of any other covenant made to Laurus; (iii) any misrepresentation made by us
to Laurus in the documents governing the credit facility; (iv) the institution
of certain bankruptcy and insolvency proceedings by or against us; (v) the entry
of certain monetary judgments against us that are not paid or vacated for a
period of 30 business days; (vi) suspensions of trading of our common stock;
(vii) any failure to deliver shares of common stock upon conversions under the
credit facility; (viii) certain defaults under agreements related to any of our
other indebtedness; (ix) payments of any dividends either in cash or stock and
(x) changes of control of our company. Substantial fees and penalties are
payable to Laurus in the event of default.
Impact of the Listing and Issuance of These Shares
If this proposal is approved, our company will have the authority to issue
to Laurus, without further stockholder approval, up to 7,380,000 shares of
common stock (including the shares already registered to date) upon the
conversion by Laurus of amounts outstanding under the credit facility into
common stock and upon the exercise by Laurus of warrants. Any shares of common
stock issued to Laurus will have the rights and privileges which the presently
outstanding shares of common stock possess under our Restated Certificate of
Incorporation. See "Proposal No. 2 - Proposal to Increase Authorized Shares of
Common Stock" above.
The issuance of shares of our common stock to Laurus may, depending on the
market value of our common stock at the time or times shares are issued to
Laurus, reduce stockholders' equity per share and will reduce the percentage
ownership of common stock of existing stockholders. The market "overhang"
created by the credit facility, i.e., the aggregate number of shares of common
stock issuable to Laurus under the facility, could have an adverse impact on the
value of our common stock. Similarly, a continuous series of debt conversions
and/or warrant exercises by Laurus, followed by sales of the common stock in the
public markets might adversely impact the value of our common stock. The Board
of Directors believes that Laurus will generally attempt to moderate the timing
and amount of its sales of our common stock to the public in an effort to
minimize any adverse pressure on the value of the stock. No assurance can be
given, however, that Laurus will attempt to do so or that any attempt it may
make will be successful.
18
As described above, the amount of our common stock Laurus may hold at any
given time is limited to no more than 4.99% of our outstanding capital stock and
no more than 25% of our aggregate daily trading volume determined over the
five-day period prior to the date of determination. However, Laurus may waive
these limitations on 90 days' prior notice, or without notice if we are in
default. If Laurus does waive these limitations, Laurus could become the holder
of a large block of our stock. Under these circumstances, Laurus could initiate
or participate in a takeover bid for our company or discourage a takeover bid by
siding with the Board of Directors in opposition to the bid. Moreover, if Laurus
accumulates a substantial portion of our common stock and then attempts to
rapidly liquidate its holdings, such actions would materially and adversely
affect the market for our common stock. While no assurance can be given that
Laurus would not use its stock position to influence control over the company or
to affect the value of our common stock, we are not aware of any attempts by
Laurus to do so with respect to other borrowers.
Approval of the proposed issuance of all 7,380,000 shares of common stock
that we currently expect to be required to issue to Laurus in connection with
the credit facility will require the affirmative vote of a majority of shares
present in person or represented by proxy at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED
ISSUANCE OF UP TO 7,380,000 SHARES OF COMMON STOCK THAT WE CURRENT EXPECT TO BE
REQUIRED TO ISSUE TO LAURUS IN CONNECTION WITH THE CREDIT FACILITY.
PROPOSAL NO. 6
RATIFICATION OF SELECTION OF AUDITORS
Our Board of Directors has selected the firm of Wolf & Company, P.C.,
independent certified public accountants, to serve as auditors for the fiscal
year ending September 30, 2005. Wolf & Company, P.C. has acted as our
independent auditor since inception. Stockholder ratification of our independent
auditors is not required under Delaware law or under our Restated Certificate of
Incorporation or By-Laws. If the stockholders do not ratify the selection of
Wolf & Company, P.C. as our independent auditors for the fiscal year ending
September 30, 2005, our Board of Directors will evaluate what would be in the
best interests of our company and our stockholders and consider whether to
select new independent auditors for the current fiscal year or whether to wait
until the completion of the audit for the current fiscal year before changing
independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF ITS SELECTION
OF WOLF & COMPANY, P.C. AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING
SEPTEMBER 30, 2005.
INDEPENDENT PUBLIC ACCOUNTANTS
In addition to audit services, Wolf & Company, P.C. also provided certain
non-audit services to us during the fiscal year ended September 30, 2004. The
Audit Committee has considered whether the provision of these additional
services is compatible with maintaining the independence of Wolf & Company, P.C.
Audit Fees. The aggregate fees billed for professional services rendered
by Wolf & Company, P.C. for (1) the audit of our financial statements as of and
for the fiscal year ended September 30, 2004 and (2) the review of the financial
statements included our company's Form 10-QSB filings for fiscal 2004 were
$190,300. The aggregate fees billed for professional services rendered by Wolf &
Company, P.C. for (1) the audit of our financial statements as of and for the
fiscal year ended September 30, 2003 and (2) the review of the financial
statements included in our Form 10-QSB filings for fiscal 2003 were $118,450.
19
Audit-Related Fees. The aggregate fees billed in fiscal 2004 and 2003 for
assurance and related services rendered by Wolf & Company, P.C. that are
reasonably related to the performance of the audit or review of our financial
statements, were $6,000 and $8,200, respectively. Services rendered in this
category consisted of (i) financial accounting and reporting consultations, and
(ii) participation in board and audit committee meetings and (iii) assurance
services on specific transactions. Tax Fees. The aggregate fees billed in fiscal
2004 and 2003 for professional services rendered by Wolf & Company, P.C. for tax
compliance, tax advice and tax planning, were $20,500 and $20,000, respectively.
All Other Fees. There were no fees billed in fiscal 2004 and 2003 for
products and services provided by Wolf & Company, P.C., other than services
reported above.
Pre-Approval Policies and Procedures. The Audit Committee has adopted
policies which provide that our independent auditors may only provide those
audit and non-audit services that have been pre-approved by the Audit Committee,
subject, with respect to non-audit services, to a de minimis exception
(discussed below) and to the following additional requirements: (1) such
services must not be prohibited under applicable federal securities rules and
regulations, and (2) the Audit Committee must make a determination that such
services would be consistent with the principles that the independent auditor
should not audit its own work, function as part of management, act as an
advocate of our company, or be a promoter of our company's stock or other
financial interests. The chairman of the Audit Committee has the authority to
grant pre-approvals of permitted non-audit services between meetings, provided
that any such pre-approval must be presented to the full Audit Committee at its
next scheduled meeting.
During fiscal 2004, all of the non-audit services provided by Wolf &
Company, P.C. were pre-approved by the Audit Committee. Accordingly, the Audit
Committee did not rely on the de minimis exception noted above. This exception
waives the pre-approval requirements for non-audit services if certain
conditions are satisfied, including, among others, that such services are
promptly brought to the attention of and approved by the Audit Committee prior
to the completion of the audit.
TRANSACTION OF OTHER BUSINESS
Our Board of Directors knows of no other matters which may be brought
before the Meeting. If any other matters properly come before the Meeting, or
any adjournment thereof, it is the intention of the persons named in the
accompanying form of proxy to vote the proxy on such matters in accordance with
their best judgment.
ADVANCE NOTICE PROCEDURES
Under our By-laws, nominations for a director may be made only by the
Board of Directors, a committee appointed by the Board of Directors, or by a
stockholder of record entitled to vote on the election of directors, who is also
a stockholder at the record date of the meeting and also on the date of the
meeting at which directors are to be elected, who has delivered notice to our
principal executive offices (containing certain information specified in the
By-laws) (i) not fewer than 60 days nor more than 90 days prior to the
anniversary date of the preceding year's annual meeting, or (ii) if the meeting
is called for a date not within thirty days before or after such anniversary
date, not later than the close of business on the 10th day following the date
notice of such meeting is mailed or made public, whichever is earlier.
Our By-laws also provide that no business may be brought before an annual
meeting of stockholders except as specified in the notice of the meeting or as
otherwise brought before the meeting by or at the direction of the Board of
Directors, the presiding officer or by a stockholder who shall have been a
stockholder of record on the record date for such meeting and who shall continue
to be entitled to vote thereafter, who has delivered notice to our principal
executive offices (containing certain information specified in the By-laws) (i)
not fewer than 60 days nor more than 90 days prior to the anniversary date of
the preceding year's annual meeting, or (ii) for a special meeting or an annual
meeting called for a date not within thirty days before or after such
anniversary date, not later than the close of business on the 10th day following
the date notice of such meeting is mailed or made public, whichever is earlier.
These requirements are separate and apart from and in addition to the
requirements that a stockholder must meet in order to have a stockholder
proposal included in our Proxy Statement under Rule 14a-8 of the Exchange Act. A
copy of the full text of the By-law provisions discussed above may be obtained
by writing to the Corporate Secretary, GreenMan Technologies, Inc., 7 Kimball
Lane, Building A, Lynnfield, MA 01940.
20
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement to
be mailed to all stockholders entitled to vote at our next annual meeting of
stockholders must be received at our principal executive offices not later than
January 19, 2006. In order to curtail controversy as to the date on which a
proposal was received by us, it is suggested that proponents submit their
proposals by Certified Mail Return Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation by proxies will be borne by us, in addition to
directly soliciting stockholders by mail, we may request banks and brokers to
solicit their customers who have our stock registered in the name of the nominee
and, if so, will reimburse such banks and brokers for their reasonable
out-of-pocket costs. Solicitation by our officers and employees may be made of
some stockholders in person or by mail or telephone.
INFORMATION INCORPORATED BY REFERENCE
Our Annual Report, containing financial statements and management's
discussion and analysis of our financial condition and results of operations for
the year ended September 30, 2004, and our Quarterly Report on Form 10-QSB,
containing financial statements and management's discussion and analysis of our
financial condition and results of operations for the fiscal quarter ended March
31, 3005, are being mailed contemporaneously with this proxy statement to all
stockholders entitled to vote, and are incorporated herein by this reference.
21
EXHIBIT I
PROPOSED AMENDMENT TO
THE RESTATED CERTIFICATE OF INCORPORATION
OF
GREENMAN TECHNOLOGIES, INC.
RESOLVED: That Article FOURTH of the Restated Certificate of Incorporation of
GreenMan Technologies, Inc. be and hereby is amended by deleting the
first paragraph thereof and inserting in its place the following:
This corporation is authorized to issue two classes of stock, to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares this corporation is authorized to issue is
Forty-One Million (41,000,000) shares of capital stock. Of such
authorized shares, Forty Million (40,000,000) shares shall be
designated "Common Stock" and have a par value of $0.01 per share.
One Million (1,000,000) shares shall be designated "Preferred Stock"
and have a par value of $1.00 per share.
I-1
EXHIBIT II
PROPOSED AMENDMENT TO
THE RESTATED CERTIFICATE OF INCORPORATION
OF
GREENMAN TECHNOLOGIES, INC.
RESOLVED: That Article FOURTH of the Restated Certificate of Incorporation of
GreenMan Technologies, Inc. be and hereby is amended by deleting
Part C of such Article in its entirety.
II-1
EXHIBIT III
GREENMAN TECHNOLOGIES, INC.
2005 STOCK OPTION PLAN
1. Purpose. This 2005 Stock Option Plan (the "Plan") is intended to
provide incentives: (a) to the officers and other employees of GreenMan
Technologies, Inc., a Delaware corporation (the "Company"), its parent (if any)
and any present or future subsidiaries of the Company (collectively, "Related
Corporations") by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which qualify as "incentive stock
options" under Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code") ("ISO" or "ISOs"); and (b) to directors, officers, employees and
consultants of the Company and Related Corporations by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"). As used herein, the terms "parent" and "subsidiary" mean "parent
corporation" and "subsidiary corporation", respectively, as those terms are
defined in Section 424 of the Code.
2. Administration of the Plan
A. Board or Committee Administration. The Plan shall be administered
by the Board of Directors of the Company (the "Board") or by a Committee
appointed by the Board pursuant to Section 2B of the Plan. Hereinafter, all
references in this Plan to the "Committee" shall mean the Board if no Committee
has been appointed. Subject to ratification of the grant or authorization of
each Option by the Board (if so required by applicable state law), and subject
to the terms of the Plan, the Committee shall have the authority to (i)
determine the employees of the Company and Related Corporations (from among the
class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may
be granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options) to whom
Non-Qualified Options may be granted; (ii) determine the time or times at which
Options may be granted; (iii) determine the option price of shares subject to
each Option, which price shall not be less than the minimum price specified in
paragraph 6; (iv) determine, with respect to each Option granted under the Plan,
whether such Option shall be an ISO or a Non-Qualified Option; (v) determine
(subject to paragraph 7) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi) determine whether
restrictions such as repurchase options are to be imposed on shares subject to
Options and the nature of such restrictions, if any, and (vii) interpret the
Plan and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. If
the Committee determines to issue an ISO, it shall take whatever actions it
deems necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as a Non-Qualified Option.
The interpretation and construction by the Committee of any provisions of the
Plan or of any Option granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under it.
III-1
B. The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) Directors (the "Committee"), each of the
members of which Committee shall be (i) a Non-Employee Director (as such term is
defined in Rule 16b-3(b)(3)(i)) and (ii) an "outside director" (within the
meaning of such term Section 1562(m) of the Code. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted form time to time by the Board.
C. Any requirement that each member of the Committee be a
"Non-Employee Director" shall not apply (i) after the date the Company ceases to
have any class of equity security registered under Section 12 of the Securities
Exchange Act of 1934, as amended, or (ii) if the Board expressly declares that
such requirement shall not apply.
3. Eligible Employees and Others. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options may he granted to any employee, officer or director
(including Non-Employee Directors) or consultant of the Company or any Related
Corporation. The Committee may take into consideration a recipient's individual
circumstances in determining whether to grant an ISO or a Non-Qualified Option.
Granting of any Options to any individual or entity shall neither entitle that
individual or entity to, nor disqualify him from, participation in any other
grants of Options.
4. Stock. The stock subject to Options shall be authorized but unissued
shares of Common Stock of the Company, par value $.01 per share (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner. The
aggregate number of shares which may be issued pursuant to the Plan is
2,000,000, subject to adjustment as provided in paragraph 13. Any such shares
may be issued as ISOs or Non-Qualified Options so long as the number of shares
so issued does not exceed such number, as adjusted. If any Option granted under
the Plan shall expire or terminate for any reason without having been exercised
in full or shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject to such Options shall again be available for grants
of Option under the Plan. The number of shares of Common Stock in respect of
which an optionee may receive Options under the Plan in any year shall not
exceed 500,000, subject to adjustment as provided in paragraph 13.
5. Granting of Options. Options may be granted under the Plan at any time
after March 18, 2005 and prior to March 18, 2015. The date of grant of Options
under the Plan will be the date specified by the Committee at the time it grants
the Option; provided, however, that such date shall not be prior to the date on
which the Committee acts to approve the grant. The Committee shall have the
right, with the consent of the optionee, to convert an ISO granted under the
Plan to a Non-Qualified Option pursuant to paragraph 16.
III-2
6. Minimum Option Price; ISO Limitation
A. Price for Non-Qualified Options. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted under
the Plan shall in no event be less than the minimum legal consideration required
therefor under the laws of the State of Delaware or the laws of any jurisdiction
in which the Company or its successors in interest may be organized.
B. Price for ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
C. $100,000 Annual Limitation on ISOs. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related Corporation, the
value of Common Stock (determined at the time ISOs were granted) which is
subject to ISOs that become exercisable for the first time by such employee
during any calendar year does not exceed $100,000. Any options granted to an
employee in excess of such amount will be granted as Non-Qualified Options.
D. Determination of Fair Value Market. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date such
Option is granted and shall mean (i) the average (on that date) of the high and
low prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market (or successor trading
system), if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ National Market
(or successor trading system). However, if the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market value"
shall be deemed to be the fair value of the Common Stock as determined by the
Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.
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8. Exercise of Option. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any Option granted to any employee as an ISO
(and not previously converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting limitation contained
in Section 422(d) of the Code, as described in paragraph 6(C).
E. Extension of Exercise Period. Notwithstanding any provision
herein to the contrary, the Committee may, in its discretion, extend the
exercise period with respect to any Non-Qualified Option.
9. Termination of Employment. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment (or at such earlier
date as may be specified in the optionee's option agreement), but in no event
later than on their specified expiration dates, except to the extent that such
ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 16. Employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed ninety (90) days or, if longer,
any period during which such optionee's right to reemployment is guaranteed by
statute. A bona fide leave of absence with the written approval of the Committee
shall not be considered an interruption of employment under the Plan, provided
that such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved period
of absence. ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations, so long as the
optionee continues to be an employee of the Company or any Related Corporation.
Nothing in the Plan shall be deemed to give any grantee of any Option the right
to be retained in employment or other service by the Company or any Related
Corporation for any period of time.
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10. Death; Disability
A. Death. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he could
have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the earlier of the specified
expiration date of the ISO or 180 days from the date of the optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his disability, he shall have
the right to exercise any ISO held by him on the date of termination of
employment, to the extent of the number of shares with respect to which he could
have exercised it on that date, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
termination of the optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in Section
22(e)(3) of the Code or successor statute.
11. Assignability. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution or, with
respect to Non-Qualified Options only, pursuant to a qualified domestic
relations order as defined in the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. During the lifetime of the
optionee each ISO shall be exercisable only by him. Any assignment or transfer,
or attempted assignment or transfer, of an Option in violation of this Section
11 shall be void.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. Consolidation or Mergers. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
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hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the shares then subject to such Options the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition; or (ii) make appropriate provisions for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options any equity securities of the successor
corporation; or (iii) upon written notice to the optionees, provide that all
Options must be exercised, to the extent then exercisable, within a specified
number of days of the date of such notice, at the end of which period the
Options shall terminate; or (iv) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value of the shares subject to
such Options (to the extent then exercisable) over the exercise price thereof;
or (v) accelerate the date of exercise of such Options or of any installment of
such Options; or (vi) terminate all Options in exchange for the right to
participate in any stock option or other employee benefit plan of any successor
corporation.
C. Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he would have
received if he had exercised his Option prior to such recapitalization or
reorganization.
D. Modifications of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall
be made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
F. Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities-
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. Adjustments. Upon the happening of any of the events described in
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Options which previously have
been or subsequently may be granted under the Plan, and the number of shares of
Common Stock in respect of which an optionee may receive Options under the Plan
III-6
in any year, shall also be appropriately adjusted to reflect the events
described in such subparagraphs. The Committee or the Successor Board shall
determine the specific adjustments to be made under this paragraph 13 and,
subject to paragraph 2, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by
exercise of an Option made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs A, B or C
above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
14. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the Option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, or (b) at the discretion of the Committee,
through delivery of shares of Common Stock having a fair market value equal as
of the date of the exercise to the cash exercise price of the Option, (c) at the
discretion of the Committee and consistent with applicable law, through the
delivery of an assignment to the Company of a sufficient amount of the proceeds
from the sale of the Common Stock acquired upon exercise of the Option and an
authorization to the broker, or selling agent to pay that amount to the Company,
which sale shall be at the participant's direction at the time of exercise, or
(d) at the discretion of the Committee, by any combination of (a), (b) and (c)
above. If the Committee exercises its discretion to permit payment of the
exercise price of an ISO by means of the methods set forth in clauses (b), (c)
or (d) of the preceding sentence, such discretion shall be exercised in writing
at the time of the grant of the ISO in question. The holder of an Option shall
not have the rights of a shareholder with respect to the shares covered by his
Option until the date of issuance of a stock certificate to him for such shares.
Except as expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. Terms and Amendment of Plan. This Plan was adopted by the Board on
March 18, 2005 subject to approval of the Plan by the stockholders of the
Company at the next Meeting of Stockholders or, in lieu thereof, by written
consent. If the approval of stockholders is not obtained prior to March 18,
2006, any grants of ISOs under the Plan made prior to that date will be
rescinded. The Plan shall expire at the end of the day on March 18, 2015 (except
as to Options outstanding on that date). Subject to the provisions of paragraph
5 above, Options may be granted under the Plan prior to the date of stockholder
approval of the Plan. The Board may terminate or amend the Plan in any respect
at any time, except that, without the approval of the stockholders obtained
within 12 months before or after the Board adopts a resolution authorizing any
of the following actions: (a) the total number of shares that may be issued
under the Plan may not be materially increased (except by adjustment pursuant to
paragraph 13); (b) the provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified; (c) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISOs may
III-7
not be modified (except by adjustment pursuant to paragraph 13); and (d) the
expiration date of the Plan may not be extended. Except as otherwise provided in
this paragraph 15, in no event may action of the Board or stockholders alter or
impair she rights of a grantee, without his consent, under any Option previously
granted to him.
16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISOs. At the
time of such conversion, the Committee (with the consent of the optionee) may
impose such conditions on the exercise of the resulting Non-Qualified Options as
the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted under the Plan shall be used for
general corporate purposes.
18. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option or the making of a Disqualifying Disposition (as defined in
paragraph 20), the Company, in accordance with Section 3402(a) of the Code, may
require the optionee to remit to the Company additional withholding taxes in
respect of the amount that is considered compensation includible in such
person's gross income. The Committee in its discretion may condition the
exercise of an option on the grantee's remission of such additional withholding
taxes.
20. Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. Governing Law; Construction. The validity and construction of the Plan
and the instruments evidencing Options shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
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