As filed with the Securities and Exchange Commission on September 30, 2005
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under ss.240.14a-12
OVATION PRODUCTS CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
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(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offset fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
[Ovation Letterhead]
September 30, 2005
To Our Stockholders:
You are cordially invited to attend Ovation Products Corporation's Annual
Meeting of Stockholders. The meeting will be held at Ovation's corporate offices
located at 395 East Dunstable Road, Nashua, New Hampshire, on Friday, October
28, 2005 at 10:00 a.m., Eastern time.
At the annual meeting you will be asked to consider and approve the
election of directors, the ratification of the independent auditor's appointment
for the year 2005 and an increase in the number of shares of common stock that
may be issued or delivered under our 1999 Stock Option Plan.
Information about the annual meeting and the business to be considered and
voted upon at the annual meeting is included in the accompanying notice of
annual meeting and proxy statement. We encourage you to read and consider
carefully the information contained in the proxy statement. In addition, you may
find supplementary information about our company from documents we have filed
with the Securities and Exchange Commission ("SEC").
Your vote is important regardless of the number of shares you own. We urge
you to complete, sign, date and return the enclosed proxy card as soon as
possible, even if you currently plan to attend the meeting. Returning a proxy
card will not prevent you from attending the annual meeting and voting in
person, but will ensure that your vote is counted if you are unable to attend
the meeting.
Thank you for your interest and participation.
Sincerely,
/s/ William Zebuhr
------------------------------
William Zebuhr
Chairman of the Board
/s/ Robert R. MacDonald
------------------------------
Robert R. MacDonald
Chief Executive Officer
Neither the SEC nor any state securities commission has approved or
disapproved of the proposals being submitted to a vote, passed upon the merits
or fairness of the proposals, or passed upon the adequacy or accuracy of the
disclosure in this proxy statement. Any representation to the contrary is a
criminal offense.
OVATION PRODUCTS CORPORATION
395 East Dunstable Road
Nashua, New Hampshire 03062
(603) 891-3224
--------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------------
To Our Stockholders:
NOTICE IS HEREBY GIVEN that an annual meeting of stockholders of Ovation
Products Corporation will be held at Ovation's corporate offices located at 395
East Dunstable Road, Nashua, New Hampshire, on Friday, October 28, 2005 at 10:00
a.m., Eastern time, for the following purposes:
1. To re-elect William Zebuhr, Robert MacDonald, William Lockwood, Dr. Louis
Padulo, Laurie Lewandowski, Nathan Fetting, Yiannis Monovoukas and Kevin
Kreisler, who are currently serving as members of our board of directors,
to serve until the next annual meeting of stockholders or until their
successors are elected and qualified ("Proposal 1");
2. To ratify the appointment of Wolf & Company, P.C. as independent auditors
of Ovation for the fiscal year ending December 31, 2005 ("Proposal 2");
3. To approve an increase of 1,500,000 shares in the number of shares of
common stock that may be issued or delivered under our 1999 Stock Option
Plan ("Proposal 3"); and
4. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof. The board of directors is not
aware of any other business to come before the annual meeting.
These proposals are more fully described in the proxy statement that
accompanies this notice. Please read the proxy statement carefully when
determining how to vote on these proposals.
The election of directors under Proposal 1 requires a plurality of the
votes of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Approvals of Proposal 2 and
Proposal 3 require the affirmative vote of the majority of the shares present in
person or represented by proxy and entitled to vote at the annual meeting. This
proxy statement is being mailed to holders of Ovation's common stock.
The board of directors has fixed the close of business on October 3, 2005
as the record date for the determination of stockholders entitled to notice of
and to vote at the annual meeting and at any adjournment or postponement
thereof.
Ovation's board of directors recommends that you vote "FOR" Proposal 1,
Proposal 2 and Proposal 3.
A proxy card accompanies this notice of annual meeting and the proxy
statement. Whether or not you expect to attend the annual meeting, please
complete, sign and date the enclosed proxy card and return it promptly. If you
plan to attend the annual meeting and wish to vote your shares personally, you
may do so at any time before the proxy is voted.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors
/s/ William Zebuhr
------------------------------
William Zebuhr
Chairman of the Board
Nashua, New Hampshire
September 30, 2005
TABLE OF CONTENTS
Page
EXPLANATORY NOTE.............................................................1
INFORMATION ABOUT THE MEETING................................................1
Voting at the Meeting..................................................1
Revocation of Proxies..................................................2
Solicitation of Proxies................................................2
Record Date, Quorum and Required Vote..................................2
PROPOSAL 1: ELECTION OF DIRECTORS............................................3
General................................................................3
The Nominees...........................................................3
Corporate Governance Matters...........................................5
Contacting the Board of Directors......................................5
Compensation of Directors..............................................5
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS..............6
Fees Paid to Independent Auditors......................................6
PROPOSAL 3: INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE
ISSUED OR DELIVERED UNDER OVATION'S 1999 STOCK OPTION PLAN.............7
General Description of the Plan........................................7
Certain Federal Tax Consequences.......................................9
Historical Plan Benefits..............................................10
FORWARD-LOOKING STATEMENTS..................................................12
MANAGEMENT..................................................................13
EXECUTIVE COMPENSATION......................................................14
Summary Compensation Table............................................14
Option Grants in 2004.................................................14
Option Exercises and Holdings.........................................14
Employment Contracts and Termination of Employment and
Change-In-Control Agreements....................................15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................18
OTHER BUSINESS..............................................................23
STOCKHOLDER PROPOSALS.......................................................23
REPORTS.....................................................................23
WHO CAN HELP ANSWER YOUR QUESTIONS?.........................................23
APPENDIX A: OVATION PRODUCTS CORPORATION 1999 STOCK OPTION PLAN............A-1
OVATION PRODUCTS CORPORATION
395 EAST DUNSTABLE ROAD
NASHUA, NEW HAMPSHIRE 03062
------------------------------------------
PROXY STATEMENT
For the 2005 Annual Meeting of Stockholders
To Be Held on Friday, October 28, 2005
------------------------------------------
EXPLANATORY NOTE
On September 30, 2005, Ovation Products Corporation held a special meeting
of its stockholders in which, among other things, Ovation's stockholders
approved a conversion of all of our series of preferred stock into common stock,
a three-for-one stock split of our common stock and an increase in the
authorized shares of our common stock. The approval of the proposals at the
special meeting materially affected the capital structure of Ovation, as more
fully described in the definitive proxy statement for the special meeting, as
amended, which was filed with the Securities and Exchange Commission on
September 13, 2005. The information presented in this proxy statement for
Ovation's annual meeting of stockholders gives effect to the changes in the
capital structure and rights of stockholders resulting from the approval of
actions at the September 30, 2005 special meeting. All share numbers in this
proxy statement give effect to the conversion of the preferred stock, the
exchange of certain outstanding warrants and the reverse stock split.
When used in this proxy statement, the terms "Company," "Ovation," "we,"
"our," "ours" and "us" refer to Ovation Products Corporation, unless otherwise
specified or the context requires otherwise.
INFORMATION ABOUT THE MEETING
This proxy statement is being furnished to all holders of common stock of
Ovation Products Corporation in connection with the solicitation by its board of
directors of proxies to be used at the annual meeting of stockholders to be held
on October 28, 2005 at 10:00 a.m., Eastern time, at Ovation's corporate offices,
located at 395 East Dunstable Road, Nashua, New Hampshire, and at any
adjournments thereof. This proxy statement is first being mailed to stockholders
on or about September 30, 2005.
Voting at the Meeting
Regardless of the number of shares of common stock owned, it is important
that stockholders be represented by proxy or present in person at the annual
meeting. A proxy card is enclosed. Stockholders are requested to vote by
completing the proxy card and returning it signed and dated in the enclosed
postage-paid envelope. Stockholders are urged to indicate their vote in the
spaces provided on the proxy card. Proxies solicited by the board of directors
of Ovation will be voted in accordance with directions given in the proxy card.
Ovation is seeking the re-election of William Zebuhr, Robert MacDonald,
William Lockwood, Dr. Louis Padulo, Laurie Lewandowski, Nathan Fetting, Yiannis
Monovoukas and Kevin Kreisler by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors. In addition, Ovation is seeking the ratification of the
independent auditor's appointment for the year 2005 and the approval of an
increase in the number of shares of common stock that may be issued or delivered
under our 1999 Stock Option Plan by the affirmative vote of the majority of the
shares present in person or represented by proxy and entitled to vote at the
annual meeting. Where no instructions are indicated, proxies will be voted FOR
the proposals.
The board of directors knows of no additional matters that will be
presented for consideration at the annual meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, which may properly come before the annual meeting or any adjournments
thereof.
1
Revocation of Proxies
A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Secretary of Ovation, by delivering to
Ovation a duly executed proxy bearing a later date, or by attending the annual
meeting, filing a notice of revocation with the Secretary and voting in person.
However, if you are a stockholder whose shares are not registered in your name,
you will need additional documentation from the record holder of your shares to
vote personally at the meeting.
Solicitation of Proxies
The cost of solicitation of proxies in the form enclosed will be borne by
Ovation. Proxies also may be solicited personally or by telephone, or by
directors, officers, and regular employees of Ovation, without additional cost
to us. We have not engaged a proxy solicitor. We also will request persons,
firms and corporations holding shares in their names, or in the name of their
nominees, which are beneficially owned by others, to send proxy material to and
obtain proxies from such beneficial owners, and will reimburse such holders for
their reasonable expenses in doing so.
Record Date, Quorum and Required Vote
The securities that may be voted at the annual meeting consist of shares
of common stock, with each share entitling its owner to one vote on all matters
to be voted on at the meeting.
The close of business on October 3, 2005 has been established by the board
of directors as the record date for the determination of stockholders entitled
to notice of, and to vote at, the annual meeting and any adjournments thereof.
As of September 30, 2005, there were 9,798,579 shares of common stock
outstanding.
The presence, in person or by proxy, of at least a majority of the total
number of shares of common stock entitled to vote is necessary to constitute a
quorum at the annual meeting. The re-election of directors under Proposal 1
requires a plurality of the votes of the shares present in person or represented
by proxy at the meeting and entitled to vote on the election of directors.
Approvals of Proposal 2 and Proposal 3 require the affirmative vote of the
majority of the shares present in person or represented by proxy and entitled to
vote at the annual meeting. We will treat shares of common stock represented by
proxies that reflect abstentions as shares that are present and entitled to vote
for the purpose of determining the presence of a quorum at the annual meeting
and for the purpose of determining the outcome of any question submitted to the
stockholders for a vote.
2
PROPOSAL 1: ELECTION OF DIRECTORS
General
Our Board of Directors currently consists of nine members. Directors are
elected at the annual meeting of the stockholders by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Each director serves until the next annual
meeting of stockholders or until his successor is elected and qualified.
Our Board of Directors presents for action at the annual meeting the
re-election of the following eight directors who are currently serving as
members of our board of directors to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. If any nominee
is unable or declines to serve, the proxy solicited herewith may be voted for
the election of another person in his or her stead at the discretion of the
proxies. The Board of Directors knows of no reason to anticipate that this will
occur.
The Nominees
Set forth below is information with respect to the nominees for election:
Name Age Position
------------------ --- --------------------------------------------
William Zebuhr 62 Chairman, Director
Robert MacDonald 60 Chief Executive Officer and Director
William Lockwood 57 President, Chief Operating Officer, Director
Dr. Louis Padulo 68 Director
Laurie Lewandowski 53 Director
Nathan Fetting 43 Director
Yiannis Monovoukas 44 Director
Kevin Kreisler 32 Director
William Zebuhr
Mr. Zebuhr, the founder of our Company, became Ovation's Chairman in June
2005. Mr. Zebuhr has been a director since 1996 and previously served as
Chairman from 1996 to December 2001. From 1996 until May 2005, Mr. Zebuhr also
served as Ovation's Chief Executive Officer. From 1992 to 1995, he was
co-founder and President of Dynaproducts, a company that developed the first
motorized dental flosser. The technology was licensed to a major consumer
products company in 1998. From 1985 to 1991 he was the founder, chief
fund-raiser, and CEO of American Thermal Corporation. At American Thermal he
invented and guided the development of the Pressure Transfer Module (PTM), a
revolutionary advance in hot water heater technology which enabled the
development of unpressurized low-cost water heaters. Mr. Zebuhr received a B.S.
and an M.S. in Mechanical Engineering in 1966 from Cornell University. He holds
22 United States patents.
Robert MacDonald
Mr. MacDonald became Ovation's Chief Executive Officer in June 2005. Mr.
MacDonald has been a director since 1996 and was Chairman from January 2002 to
May 2005. Since 1997, Mr. MacDonald has been President, Chief Executive Officer
and Chairman of the board of directors of BiosGroup, Inc., a consulting and
software development company founded by Ernst & Young and Dr. Stuart Kauffman
(of the Santa Fe Institute) specializing in the application of complexity theory
for Fortune 500 clients. Mr. MacDonald also is a member of the board of
directors of Commodicast and Genpathway which were founded by BiosGroup and is a
member and the chairman of the board of directors of Nutech Solutions which
acquired the consulting and software development assets of BiosGroup in 2003.
Mr. MacDonald received a B.S. in Engineering Physics in 1966 and a M.S. in
Electrical Engineering in 1967 from Cornell University, and a M.B.A. from
Harvard Business School in 1973.
3
William Lockwood
Mr. Lockwood has been our President, Chief Operating Officer and a
director since April 2000. He had been involved with Ovation on a part-time
basis between 1996 and 1999, after which point he became a full-time employee of
the Company. From 1996 to 2000, he was a Principal of Plexus Research, a leading
engineering consulting firm engaged in projects for the electric power industry,
where he specialized in business development strategies and valuations for
emerging technologies. Mr. Lockwood received a B.A. from Michigan State
University in 1970, an M.B.A. from Michigan State in 1971, and passed the New
Hampshire CPA examination in 1992.
Dr. Louis Padulo
Dr. Padulo has been a director since June 1998 and Vice Chairman since May
2004. Since 1997, Dr. Padulo has served as a consultant to several organizations
and is President Emeritus of a highly successful business incubator, the
University City Science Center in Philadelphia. Prior to that, he was a
professor at Stanford before becoming Dean of Engineering at Boston University,
President of the University of Alabama in Huntsville, and CEO of the University
City Science Center in Philadelphia. Dr. Padulo received a B.S. in Electrical
Engineering from Fairleigh Dickinson University, a M.S. in Electrical
Engineering from Stanford University and a Ph.D. from Georgia Institute of
Technology.
Laurie Lewandowski
Ms. Lewandowski has been a director since January 2001. Since 1981, Ms.
Lewandowski has held various positions at S.J. Electro Systems, Inc., our
strategic partner, and has served as its Chief Executive Officer since 1985.
Nathan Fetting
Mr. Fetting has been a director since January 2001. Since 1989, Mr.
Fetting has served as the Chief Financial Officer of S.J. Electro Systems, Inc.
Mr. Fetting has received a B.S. in Accounting from the University of North
Dakota.
Yiannis Monovoukas
Dr. Monovoukas has been a director since October 2002. Dr. Monovoukas is
currently President and CEO of TEI Biosciences, Inc., a tissue engineering and
regenerative medicine company, which he joined in April 2001. From 1996 to 2001,
he was the President, Chief Executive Officer and Chairman of Thermo Fibergen, a
publicly traded subsidiary of the Thermo Electron Corporation. Thermo Fibergen,
now Kadant Composites, is a world leader in cellulose-based controlled-release
carriers for the delivery of agricultural chemicals and in fiber-based
engineered composite materials. Dr. Monovoukas holds an MBA from Harvard
Business School, a B.S. degree from Columbia University, and a Masters and Ph.D.
degrees from Stanford University, all in chemical engineering. His Ph.D. thesis
work focused on the nucleation, growth and optical properties of colloidal
crystals made from nanoparticles of high surface charge density.
Kevin Kreisler
Mr. Kreisler has been a director since August 2005. He is the Chairman of
the Board and Chief Executive Officer of GreenShift Corporation (OTC Bulletin
Board: "GSHF"), a business development company whose mission is to develop and
support companies and technologies that facilitate the efficient use of natural
resources and catalyze transformation environmental change. Mr. Kreisler has
over fifteen years of diversified business experience specifically including the
operation of publicly-traded companies. He also serves as Chairman of the Boards
of Veridium Corporation (OTC Bulletin Board: VRDM) and INSEQ Corporation (OTC
Bulletin Board: INSQ). From 2002 until February 2005 Mr. Kreisler served as the
Chief Executive Officer of Veridium Corporation, an environmental services
business. Mr. Kreisler was Veridium's President from 2000 to 2002, and a Vice
President from 1998 to 2000. Mr. Kreisler is a graduate of Rutgers University
College of Engineering (B.S., Civil and Environmental Engineering, 1994),
Rutgers University Graduate School of Management (M.B.A., 1995), and Rutgers
University School of Law (J.D., 1997). Mr. Kreisler is admitted to practice law
in New Jersey and the United States District Court for the District of New
Jersey.
4
Corporate Governance Matters
Ovation's Board of Directors has not yet designated any committee of the
Board. The entire Board of Directors acts as Ovation's Audit Committee as
specified in section 3(a)(58)(B) of the Exchange Act of 1934, as amended.
The Board of Directors believes that, as long as the Company's securities
are not publicly traded and are held by a relatively small number of
shareholders, it is appropriate for Ovation not to have a nominating committee
and to entrust the nomination process in the hands of the entire Board of
Directors. The Board of Directors has not adopted a charter to regulate the
nomination process. Not all the members of the Board of Directors are
independent as defined under the NASD Marketplace Rules.
Under agreements dated August 6, 2005, pursuant to which, among other
things, GreenShift Corporation committed to purchase an aggregate of 600,000
shares of our common stock, Ovation agreed that GreenShift Corporation shall be
permitted to designate a nominee for election to Ovation's Board of Directors.
GreenShift Corporation has designated Mr. Kevin Kreisler as such nominee.
Generally, in considering potential new directors, the Board of Directors
will review individuals from various disciplines and backgrounds, and consider
the following qualifications: broad experience in business, finance or
administration; familiarity with national business matters; familiarity with
Ovation's industry; and prominence and reputation. The Board will consider
nominees recommended by security holders, provided such nominees are qualified
as described above. Security holders can mail any such recommendations at least
45 days prior to the Company's annual meeting date, including the criteria
outlined above, to the Chief Executive Officer, Ovation Products Corporation,
395 East Dunstable Road, Nashua, New Hampshire, 03062.
During the year ended December 31, 2004, there were 5 meetings of the
Board of Directors and 2 unanimous consents in lieu of meetings of the Board of
Directors. All directors, other than Mr. Beverly Shaw, attended at least 75% of
the aggregate number of meetings of the Board. Ovation requests, but does not
require, each member of the Board of Directors to attend each annual stockholder
meeting. Seven of the members of our Board of Directors attended last year's
annual meeting.
Contacting the Board of Directors
Stockholders who wish to communicate with the Board may do so by mailing
any such communications to the Chief Operating Officer, Ovation Products
Corporation, 395 East Dunstable Road, Nashua, New Hampshire, 03062. All
communications are distributed to the Board of Directors.
Compensation of Directors
There are currently no standard or other arrangements pursuant to which
non-employee directors of Ovation are compensated for their services and during
2004, no payments were made to members of our Board of Directors for their
services as directors.
The Board of Directors unanimously recommends a vote "FOR" the
re-election of the eight directors named above.
5
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has elected the firm of Wolf & Company, P.C. as
Ovation's independent auditors for the year ending December 31, 2005. Wolf &
Company, P.C. have served as our independent auditors since 2004. Ratification
of such appointment requires the affirmative vote of the majority of the shares
present in person or represented by proxy and entitled to vote at the annual
meeting.
Representatives of Wolf & Company, P.C. are expected to attend the annual
meeting, at which time they will have the opportunity to make a statement if
they desire to do so and to respond to appropriate questions.
Fees Paid to Independent Auditors
During fiscal year 2004, Ovation engaged Wolf & Company, P.C. for
professional services rendered as follows:
Audit Fees
Audit Fees in the amount of $60,000 were billed for professional services
rendered for the audit of the Company's annual financial statements for the year
ended December 31, 2004; and Audit Fees in the amount of $53,000 were billed for
professional services rendered for the audit of the Company's annual financial
statements for the year ended December 31, 2003.
Audit-Related Fees
Audit-Related Fees in the amount of $6,000 were billed for professional
services rendered in connection with a private placement memorandum.
All Other Fees
The Company did not engage Wolf & Company, P.C. to provide professional
services other than those described above during the year ended December 31,
2004.
The Board of Directors has considered the services rendered by Wolf &
Company, P.C. other than the audit of the Company's financial statements and has
determined that the provision of these services is compatible with maintaining
the independence of Wolf & Company, P.C.
The Board of Directors unanimously recommends a vote "FOR" the
ratification of the appointment of the independent auditors.
6
PROPOSAL 3: INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE ISSUED
OR DELIVERED UNDER OVATION'S 1999 STOCK OPTION PLAN
Ovation is seeking the affirmative vote of a majority of the holders of
its common stock to approve an amendment to Ovation's 1999 Stock Option Plan to
increase the number of shares of common stock that may be issued or delivered
under our 1999 Stock Option Plan by 1,500,000 shares.
Approval of this proposal requires the affirmative vote of the majority of
the shares present in person or represented by proxy and entitled to vote at the
annual meeting.
Ovation's 1999 Stock Option Plan (the "Plan"), included as Appendix A to
this proxy statement, currently provides that the aggregate number of shares of
common stock which may be issued or delivered under the Plan is 1,350,000
shares, subject to adjustment and substitution in the event of a stock split,
stock dividend, or other similar change in our common stock or capital
structure. We propose to increase this number by an additional 1,500,000 shares
such that the aggregate number of shares of common stock that may be issued or
delivered under the Plan shall be 2,850,000 shares.
As of September 30, 2005, the Board of Directors has granted options to
purchase 1,312,452 shares of common stock under the Plan, all of which are still
outstanding, at a weighted-average exercise price of $1.71 per share. The number
of shares of common stock that remain available for future issuances under the
Plan as of September 30, 2005 is 37,548. Ovation does not have any equity
compensation plans not subject to security holders' approval.
An increase in the number of shares of common stock that may be issued or
delivered under the Plan is required in order to allow Ovation to grant
additional awards under the Plan. The Board of Directors believes that the grant
of awards under the Plan will encourage eligible directors, employees and
consultants of Ovation to increase their efforts to make Ovation more
successful, will provide additional inducement for such individuals to remain
with Ovation and will provide a means through which we may attract able persons
to join Ovation.
The board of directors unanimously recommends that you vote "FOR" the
increase in the number of shares of common stock that may be issued or
delivered under Ovation's 1999 Stock Option Plan.
A general description of the principal terms of the Plan is set forth
below. This description is qualified in its entirety by the terms of the Plan, a
copy of which is included as Appendix A to this proxy statement. Capitalized
terms used in the following description shall have the meaning ascribed to such
terms in the Plan.
General Description of the Plan
Purpose. The purpose of the Plan is to encourage eligible Directors,
employees and consultants of Ovation to increase their efforts to make Ovation
more successful, to provide additional inducement for such individuals to remain
with Ovation, to reward such individuals by providing the opportunity to acquire
the common stock of Ovation on favorable terms and to provide a means through
which we may attract able persons to join Ovation.
Shares Reserved for Issuance under the Plan and Possible Awards. A total
of 1,350,000 shares of common stock are currently reserved for issuance under
the Plan, subject to adjustment and substitution in the event of a stock split,
stock dividend, or other similar change in our common stock or capital
structure. Subject to stockholder approval, the number of shares of common stock
that may be issued or delivered under the Plan will be increased by 1,500,000
shares such that the aggregate number of shares of common stock that may be
issued or delivered under the Plan will be 2,850,000 shares.
The Board of Directors has the authority to grant "incentive stock
options" pursuant to Section 422 of the Code, "nonstatutory stock options," or
both types of stock options (but not in tandem). The Board also has the
authority to grant stock appreciation rights in addition to nonstatutory stock
options, alternative stock appreciation rights in conjunction with nonstatutory
stock options or incentive stock options, or stock appreciation rights without
related stock options. The stock options and stock appreciation rights that may
granted under the Plan are sometimes collectively referred to below as "awards."
The aggregate fair market value of all shares issuable upon exercise of all
incentive stock options which become exercisable by a Key Employee (as defined
below) for the first time during any calendar year may not exceed $100,000.
7
Administration. The Plan is administered by the Board of Directors. The
Board may appoint a Stock Option Committee comprised of two or more members to
act on behalf of the Board in administering the Plan. As of the date hereof, no
such committee was appointed by the Board.
Eligibility. Ovation's directors, consultants and employees ("Key
Employees") who share the primary responsibility for the management, growth or
protection of the business of Ovation are eligible to receive stock options
and/or stock appreciation rights under the Plan. Only employees of Ovation (that
are considered Key Employees) are eligible to receive incentive stock options.
The Board of Directors has full and final authority to grant awards under the
Plan and, in its discretion, to determine the individuals to whom awards shall
be granted and the number of shares to be covered by each award. In determining
the eligibility of any individual, as well as in determining the number of
shares covered by each award, the Board shall consider the position and the
responsibilities of the individual being considered, the nature and value to
Ovation of his or her services, his or her present and/or potential contribution
to the success of Ovation and such other factors as the Board may deem relevant.
The Plan allows grants to directors, consultants and employees of any
subsidiary of Ovation in which Ovation owns at least 50% of the total combined
voting power of all classes of stock. Ovation currently does not have any such
subsidiary.
Terms and Conditions of Awards. Each stock option granted under the Plan
shall be confirmed by a stock option agreement. Stock appreciation rights which
are granted without a related stock option shall be confirmed by a stock
appreciation rights agreement.
No stock option or stock appreciation right shall be exercisable during
the first six months of its term (except if the optionee dies during such
six-month period). The term of any nonstatutory stock option granted under the
Plan may not be for more than ten years and six months from the date of grant.
The term of any incentive stock option or alternative stock appreciation rights
granted in conjunction with an incentive stock option, may not be for more than
ten years from the date of grant (or five years if granted to any Key Employee
who owns stock representing more than 10% of the combined voting power of
Ovation or any parent or subsidiary of Ovation). Alternative stock appreciation
rights granted in conjunction with an incentive stock option may not be
exercised until the then fair market value of the common stock exceeds the
option price. The Board may provide for additional restrictions on the exercise
of awards.
The purchase price at which each stock option may be exercised shall be
determined by the Board, except that (i) in the case of incentive stock options
granted to any Key Employee who owns stock representing more than 10% of the
combined voting power of Ovation or any parent or subsidiary of Ovation, the
exercise price may not be less than 110% of the fair market value per share of
the common stock on the date of grant; (ii) in the case of incentive stock
options, the exercise price may not be less than 100% of the fair market value
of the common stock on the date of grant; and (iii) in the case of nonstatutory
stock options, the exercise price may not be less than the grater of the par
value of the common stock or 50% of the fair market value per share of the
common stock on the date of grant. If stock appreciation rights are granted
without a related stock option, the Board shall determine the base price per
share for such rights which shall not be less than the greater of the par value
of the common stock or 50% of the fair market value per share of the common
stock on the date of grant. The exercise or purchase price is generally payable
in cash or in shares of common stock.
Termination of Service. An award may not be exercised after the
termination date of such award as set forth in the award agreement. In addition,
in the event that the employment of a Key Employee is voluntarily terminated
with the consent of Ovation or a Key Employee retires under any retirement plan
of Ovation, any then outstanding incentive stock option held by such Key
Employee may be exercised only within three months after the date of
termination. If a Key Employee becomes disabled and his or her employment is
voluntarily terminated with the consent of Ovation, any outstanding incentive
stock option held by such Key Employee may be exercised only within one year
after the date of termination. Nonstatutory stock options and stock appreciation
rights granted without a related stock option, which are held by participants
whose employment or services terminate voluntarily and with the consent of
Ovation or who retire under any retirement plan of Ovation, are exercisable only
within one year after the date of termination. Awards may be so exercised
following the termination of service or employment only to the extent that they
are exercisable on the date of termination. Following the death of a director or
Key Employee, any awards held by such director or Key Employee shall be
exercisable in full (whether or not so exercisable on the date of death, but
subject to restrictions related to incentive stock options) and may be exercised
within one year after the date of death. Upon termination of services or
employment for any reason other than as set forth above, the rights of the
terminated participant shall terminate at the time of such termination. Where an
award agreement permits a participant to exercise an award following termination
of service, the award shall terminate to the extent not exercised on the last
day of the specified period or the last day of the original term of the award,
whichever comes first.
8
Transferability of Awards. Under the Plan, awards are transferable only by
will or by the laws of decent and distribution. During the lifetimes of a
participant, only he or she may exercise his or her awards.
Adjustment and Substitution. The Plan provides for adjustments of the
number of shares underlying the awards and their exercise price if a dividend or
other distribution is declared upon the common stock payable in shares of common
stock. In addition, the Plan provides for the substitution of the number and
kind of shares underlying the awards under the Plan in the event that the
outstanding shares of common stock shall be changed into or exchangeable for a
different number or kind of shares of stock or other securities of Ovation or
another corporation, whether through reorganization, reclassification,
recapitalization, stock split-up, combination of shares, merger or
consolidation. If any adjustment to the number of shares subject to the Plan
requires the approval of stockholders then no such adjustment shall be made
without the approval of the stockholders. In addition, the Board may elect not
to make or to revise an adjustment or substitution in certain cases where such
adjustment or substitution shall affect the status of an incentive stock option.
Amendment and Termination. The Board may at any time amend, revoke or
terminate the Plan. No award may be granted under the Plan subsequent to August
26, 2009. The Board may not revoke or terminate any outstanding award and must
obtain stockholders approval for (i) an increase in the total number of shares
which may be issued or delivered under the plan, (ii) changes in the class of
eligible directors or employee, or (iii) extend the periods during which awards
may be granted. No amendment or termination shall, without the written consent
of the holder of an award, adversely affect the rights of such holder with
respect to his or her award. To the extent necessary to comply with applicable
provisions of federal securities laws, state corporate and securities laws, the
Code and the rules of any applicable stock exchange or national market system,
we will obtain stockholder approval of any amendment to the Plan in such a
manner and to such a degree as required.
Certain Federal Tax Consequences
The following summary of the federal income tax consequences of Plan
transactions is based upon federal income tax laws in effect on the date of this
proxy statement. This summary does not purport to be complete, and does not
discuss non-U.S., state or local tax consequences or guidance that may be issued
by the Treasury Department under Section 409A of the Code.
Nonstatutory Stock Options. The grant of a nonstatutory stock option under
the Plan will not result in any federal income tax consequences to the
participant or to Ovation. Upon exercise of a nonstatutory stock option, the
participant is subject to income taxes at the rate applicable to ordinary
compensation income on the difference between the option exercise price and the
fair market value of the shares on the date of exercise. This income is subject
to withholding for federal income and employment tax purposes. Ovation is
entitled to an income tax deduction in the amount of the income recognized by
the participant, subject to possible limitations imposed by Section 162(m) of
the Code and so long as Ovation withholds the appropriate taxes with respect to
such income (if required) and the participant's total compensation is deemed
reasonable in amount. Any gain or loss on the participant's subsequent
disposition of the shares of common stock will receive long or short-term
capital gain or loss treatment, depending on whether the shares are held for
more than one year following exercise. Ovation does not receive a tax deduction
for any such gain.
In the event a nonstatutory stock option is amended, such option may be
considered deferred compensation and subject to the rules of new Section 409A of
the Code, which provide rules regarding the timing of payment of deferred
compensation. A nonstatutory stock option granted with an exercise price less
than the fair market value of the Ovation's stock on the date of grant will be
considered deferred compensation and subject to the rules of new Section 409A of
the Code. An option subject to Section 409A of the Code which fails to comply
with the rules of Section 409A, can result in an additional 20% tax obligation,
plus penalties and interest. Currently how the additional tax and penalties and
interest will be applied is unclear.
9
Incentive Stock Options. The grant of an incentive stock option under the
Plan will not result in any federal income tax consequences to the participant
or to Ovation. A participant recognizes no federal taxable income upon
exercising an incentive stock option (subject to the alternative minimum tax
rules discussed below), and Ovation receives no deduction at the time of
exercise. In the event of a disposition of stock acquired upon exercise of an
incentive stock option, the tax consequences depend upon how long the
participant has held the shares of common stock. If the participant does not
dispose of the shares within two years after the incentive stock option was
granted, nor within one year after the incentive stock option was exercised, the
participant will recognize a long-term capital gain (or loss) equal to the
difference between the sale price of the shares and the exercise price. Ovation
is not entitled to any deduction under these circumstances.
If the participant fails to satisfy either of the foregoing holding
periods, he or she must recognize ordinary income in the year of the disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is the lesser of (i) the difference between the amount realized
on the disposition and the exercise price or (ii) the difference between the
fair market value of the stock on the exercise date and the exercise price. Any
gain in excess of the amount taxed as ordinary income will be treated as a long
or short-term capital gain, depending on whether the stock was held for more
than one year. Ovation, in the year of the disqualifying disposition, is
entitled to a deduction equal to the amount of ordinary income recognized by the
participant, subject to possible limitations imposed by Section 162(m) of the
Code and so long as the participant's total compensation is deemed reasonable in
amount.
The "spread" under an incentive stock option -- i.e., the difference
between the fair market value of the shares at exercise and the exercise price
- -- is classified as an item of adjustment in the year of exercise for purposes
of the alternative minimum tax. If a participant's alternative minimum tax
liability exceeds such participant's regular income tax liability, the
participant will owe the larger amount of taxes. In order to avoid the
application of alternative minimum tax with respect to incentive stock options,
the participant must sell the shares within the same calendar year in which the
incentive stock options are exercised. However, such a sale of shares within the
same year of exercise will constitute a disqualifying disposition, as described
above.
In the event an incentive stock option is amended, such option may be
considered deferred compensation and subject to the rules of new Section 409A of
the Code, which provide rules regarding the timing of payment of deferred
compensation. An option subject to Section 409A of the Code which fails to
comply with the rules of Section 409A, can result in an additional 20% tax
obligation, plus penalties and interest. Currently how the additional tax and
penalties and interest will be applied is unclear. In addition, the amendment of
an incentive stock option may convert the option from an incentive stock option
to a nonstatutory stock option.
Stock Appreciation Rights. Recipients of stock appreciation rights
("SARs") generally should not recognize income until the SAR is exercised
(assuming there is no ceiling on the value of the right). Upon exercise, the
participant will normally recognize taxable ordinary income for federal income
tax purposes equal to the amount of cash and fair market value the shares, if
any, received upon such exercise. Participants who are employees will be subject
to withholding for federal income and employment tax purposes with respect to
income recognized upon exercise of an SAR. Participants will recognize gain upon
the disposition of any shares received on exercise of an SAR equal to the excess
of (i) the amount realized on such disposition over (ii) the ordinary income
recognized with respect to such shares under the principles set forth above.
That gain will be taxable as long or short-term capital gain depending on
whether the shares were held for more than one year.
Ovation will be entitled to a tax deduction to the extent and in the year
that ordinary income is recognized by the participant, subject to possible
limitations imposed by Section 162(m) of the Code and so long as Ovation
withholds the appropriate taxes with respect to such income (if required) and
the participant's total compensation is deemed reasonable in amount.
To the extent that an SAR is settled in cash, such SAR will be considered
deferred compensation and subject to the rules of new Section 409A of the Code,
which provide rules regarding the timing of payment of deferred compensation. An
SAR subject to Section 409A of the Code which fails to comply with the rules of
Section 409A, can result in an additional 20% tax obligation, plus penalties and
interest. Currently how the additional tax and penalties and interest will be
applied is unclear.
Historical Plan Benefits
The number of options or other awards that an individual may receive under
the Plan is in the discretion of the Board of Directors and therefore cannot be
determined in advance. The common stock of Ovation is not publicly traded and
therefore, the market value of the common stock underlying the option granted
under the Plan is determined in good faith by the Board. The following table
sets forth the total number of shares of Ovation's common stock subject to
options granted under the Plan to the listed persons and groups through
September 30, 2005 and the average per share exercise price of the options:
10
Weighted Average per
Number of Share Exercise
Name and Position Options Granted Price of Options
----------------------------- --------------- --------------------
All current executive 635,700 $1.87
officers as a group(1)
All current directors
who are not executive
officers as a group 42,000 $1.13
William Zebuhr(1) 92,700 $1.67
Robert MacDonald 366,000 $1.67
William Lockwood 75,000 $1.67
Dr. Louis Padulo 24,000 $0.73
Laurie Lewandowski -- --
Nathan Fetting -- --
Yiannis Monovoukas 12,000 $1.67
Kevin Kreisler -- --
All employees, including
all current officers who
are not executive
officers, as a group 110,364 $0.74
------------------
(1) Includes options to purchase 13,200 shares of common stock held by Ms.
Christina McKinley, the wife of Mr. William Zebuhr, our Chairmen of the Board
and a director.
11
FORWARD-LOOKING STATEMENTS
Any statements in this proxy statement and the documents incorporated by
reference in and attached to this proxy statement about our expectations,
beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and are forward-looking statements. These statements are often,
but not always, made through the use of words or phrases such as "believe,"
"will likely result," "expect," "will continue," "anticipate," "estimate,"
"intend," "plan," "projection," "would" and "outlook." Accordingly, these
statements involve estimates, assumptions and uncertainties which could cause
actual results to differ materially from those expressed in them. Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout this proxy statement. Such statements may include,
but not be limited to:
o predictions as to whether we attain product sales,
o our ability to continue as a going concern,
o our ability to achieve profitability,
o our ability to manufacture our product on a commercial scale,
o our ability to protect our proprietary rights, and
o the existence of a liquid market for our securities.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying the forward looking statements. Statements in this proxy
statement describe factors, among others, that could contribute to or cause such
differences. You should not place undue reliance on any such forward-looking
statements. Further, any forward-looking statement speaks only as of the date on
which it is made, and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events.
12
MANAGEMENT
The following table lists our directors and executive officers as of
September 30, 2005:
Name Age Position
------------------ --- --------------------------------------------
William Zebuhr 62 Chairman, Director
Robert MacDonald 60 Chief Executive Officer and Director
William Lockwood 57 President, Chief Operating Officer, Director
Fred Becker 60 Vice-President of Engineering
Dr. Louis Padulo 68 Director
Beverly Shaw 71 Director
Laurie Lewandowski 53 Director
Nathan Fetting 43 Director
Yiannis Monovoukas 44 Director
Kevin Kreisler 32 Director
Biographical information follows for the Director and Executive Officer
whose information is not already described under "Proposal 1: Election of
Directors" above.
Beverly Shaw
Mr. Shaw has been a director since 1998. Since 1995, Mr. Shaw has been a
materials science and project management consultant. The author of numerous
technical papers and the holder of eight patents, Mr. Shaw retired from Raytheon
in 1995 where he managed a central materials center providing development and
problem solving services to other divisions. Previously, he was a Vice President
at the following companies: BTU Engineering Inc., Asoma Chemicals Inc., and
International Materials Inc. Mr. Shaw has received a B.Sc. in Metallurgy and a
Licentiate of the Institution of Metallurgists from London University in 1956.
Mr. Shaw also attended Harbridge House for Engineering Management and Advanced
Management in 1974.
Fred Becker
Mr. Becker, our Vice-President of Engineering, joined Ovation in May 2001.
From 1998 to 2001, Mr. Becker was President of the Thermo Technologies division
of Thermo Electron Corporation. In that position, he was responsible for
defining and implementing strategic technology and commercialization business
plans for the company, as well as managing the overall business activities.
Specific areas of opportunity focused on creating new products in the commercial
and residential appliance markets. Mr. Becker received a B.S.M.E. degree from
the University of Pittsburgh, a M.S.M.E. from the Massachusetts Institute of
Technology, and a M.B.A. from Northeastern University. He has authored or
co-authored over 60 technical publications and holds 13 United States patents in
various areas.
13
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued during the last three years to our Chief Executive
Officer, the three most highly compensated executive officers other than our
Chief Executive Officer who were serving as executive officers at the end of the
last completed fiscal year, or our Named Executive Officers:
Annual Compensation Long-Term Compensation
------------------------------- ---------------------------------------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Awards ($) Options (#) Compensation
- ------------------------------- ---- -------- ----- ------------ ---------- ----------- ------------
William Zebuhr................. 2004 $120,000 -- -- -- -- $ --
Chief Executive Officer(1) 2003 $120,000 -- -- -- 34,500 $ --
2002 $120,000 -- -- -- 45,000 $ --
William Lockwood............... 2004 $120,000 -- -- -- -- $ --
President and Chief Operating 2003 $120,000 -- -- -- 15,000 $ --
Officer 2002 $120,000 -- -- -- 60,000 $ --
Fred Becker.................... 2004 $130,000 -- -- -- -- $ --
Vice President of Engineering 2003 $130,000 -- -- -- 15,000 $ 5,592(2)
2002 $130,000 -- -- -- 12,000 $ --
- ------------
(1) Mr. Zebuhr served as Chief Executive Officer until May 2005.
(2) Represents finder's fee paid to Mr. Becker in August 2003.
Option Grants in 2004
There were no option or stock appreciation rights grants to our Chief
Executive Officer and our other Named Executive Officers in 2004.
Option Exercises and Holdings
The following table sets forth information concerning option exercises and
the value of unexercised options held by our Chief Executive Officer and our
other Named Executive Officers named in the summary compensation table as of
December 31, 2004:
Number of Securities
Underlying Unexercised
Options Held at Value of Unexercised
December 31, 2004 In-The-Money
--------------------------- Options Held at
Name Exercised (#) Realized ($) Exercisable Unexercisable December 31, 2004(1)
- -------------------- ------------- ------------ ----------- ------------- --------------------
William Zebuhr(1)... 0 0 32,625 46,875 $132,500
William Lockwood.... 0 0 36,750 38,250 125,000
Fred Becker......... 0 0 66,000 36,000 170,000
(1) Mr. Zebuhr served as Chief Executive Officer until May 2005.
14
Employment Contracts and Termination of Employment and Change-In-Control
Agreements
We have no employment contracts in place with William Zebuhr, William
Lockwood or Fred Becker, although we depend on their continued service for our
success.
We entered into an employment contract with Robert MacDonald on June 1,
2005 pursuant to which he will act as the Company's Chief Executive Officer. Mr.
MacDonald had previously served as Chairman of Ovation's Board of Directors from
January 2002 through May 2005.
Under the terms of the Employment Agreement:
o Mr. MacDonald will receive a base salary of $150,000 per year;
o Mr. MacDonald will be eligible to receive a discretionary incentive
or other cash bonus, which shall be awarded by Ovation's Board of
Directors. Following Ovation achieving profitability, Mr. MacDonald
will be eligible to receive a cash bonus targeted at not less than
30% of his base salary;
o Mr. MacDonald will be eligible to receive stock options in under
Ovation's 1999 Stock Option Plan. The Employment Agreement provides
that the following awards will be issued to Mr. MacDonald:
o Options to purchase 300,000 of Ovation's common stock at an
exercise price of $1.67 per share to be granted on the
effective date of the Employment Agreement. These options will
vest 25% immediately and the balance vesting monthly over a
period of 48 months;
o Options to purchase 60,000 shares of Ovation's common stock at
an exercise price determined at time of grant by the Board of
Directors to be fair market value and to be granted upon
Ovation raising $3 million of equity or debt capital or
corporate partner funding after the date of the Employment
Agreement. These options will vest 50% immediately and the
balance monthly over 24 months;
o Options to purchase 90,000 shares of common stock at an
exercise price determined at time of grant by the Board of
Directors to be fair market value and to be granted upon
Ovation raising $5 million of cumulative equity or debt
capital or corporate partner funding after the date of the
Employment Agreement. These options will vest 50% immediately
and the balance monthly over 24 months; and
o Options to purchase 150,000 shares of Ovation common stock at
an exercise price determined at time of grant by the Board of
Directors to be fair market value and to be granted upon the
earlier of (a) Ovation raising $10 million of cumulative
equity or debt capital or corporate partner funding after the
date of the Employment Agreement, or (b) the Company achieving
annual profitability over a period consisting of four
consecutive financial quarters. These options will vest 50%
immediately and the balance monthly over 24 months.
In the event of an initial public offering or a change in control,
or the sale of all or substantially all of Ovation's assets, all
stock options awarded to Mr. MacDonald will vest immediately. The
options granted to Mr. MacDonald may be exercised until the earlier
of 5 years following the termination of Mr. MacDonald's employment
or 10 years after grant.
The Employment Agreement provides that if Ovation terminates Mr.
MacDonald's employment without Cause (as defined in the Employment Agreement) or
Mr. MacDonald terminates his employment for Good Reason (as defined in the
Employment Agreement):
o Mr. MacDonald shall receive a lump sum amount equal to one
month's salary for each full year of employment; and
o All unvested stock options or stock awards which have not yet
vested or being issued but were scheduled to vest or be issued
within three months after the date of termination, shall vest
or be issued, respectively, immediately upon such termination.
15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our outstanding
capital stock as of September 30, 2005 by (1) each person known to us to be the
beneficial owner of more than five percent of our common stock, (2) each of our
directors or executive officers and (3) all directors and executive officers as
a group.
The number of shares beneficially owned by each entity, person, director
or executive officer is determined under the rules of the SEC and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has the sole or shared voting power or investment power and also
any shares that the individual shall have the right to acquire as of November
29, 2005, 60 days after September 30, 2005, through the exercise of any stock
option, warrant or other right. Unless otherwise indicated, each person has sole
investment and voting power, or shares such powers with his or her spouse, with
respect to the shares set forth in the following table.
Amount and
Nature of
Name and Address Beneficial Percent of
of Beneficial Owner Ownership Class
- ------------------------------------------------- ---------- ----------
5% Stockholders:
WMS Enterprises (1) ............................. 1,351,195 12.3%
S.J. Electro Systems, Inc. (2) .................. 1,243,692 11.3%
Nicholas Negroponte (3) ......................... 742,415 7.0%
Abby Rockefeller ................................ 642,325 6.6%
Wistar Morris (4) ............................... 662,274 6.3%
Anthony Low-Beer (5) ............................ 543,000 5.3%
Directors and Executive Officers:
William Zebuhr (6) .............................. 807,600 7.6%
Dr. Louis Padulo (7) ............................ 251,804 2.5%
William Lockwood (8) ............................ 180,000 1.8%
Robert MacDonald (9) ............................ 218,138 2.2%
Frederick Becker (10) ........................... 91,500 1.0%
Beverly Shaw (11) ............................... 21,000 *
Laurie Lewandowski (12) ......................... 1,243,692 11.3%
Nathan Fetting (12) ............................. 1,243,692 11.3%
Yiannis Monovoukas (13) ......................... 39,000 *
Kevin Kreisler (14) ............................. 375,000 3.8%
Directors and Officers as a group (10 persons) .. 3,227,734 24.8%
- ------------
* Less than 1%
(1) The number of shares beneficially owned consists of 1,208,892 shares of
our common stock issuable upon exercise of warrants and options to
purchase shares of our common stock (which options and warrants are
exercisable within 60 days of September 30, 2005). Wilfred M. Sherman
possesses voting rights and control over shares issued to Wilfred M.
Sherman, WMS Enterprises, and WMS Family Trust.
(2) The number of shares beneficially owned includes warrants to purchase
36,000 shares of our common stock.
(3) The number of shares beneficially owned includes 288,455 shares of our
common stock which are directly beneficially owned by an investment fund
managed by Mr. Negroponte.
(4) The number of shares beneficially owned includes shares of our common
stock issuable upon exercise of options and warrants to purchase an
aggregate of 37,500 shares of our common stock (which options and warrants
are exercisable within 60 days of September 30, 2005), 153,258 shares of
common stock issued to a family-owned investment fund managed by Mr.
Morris, and 108,258 shares which are beneficially owned by Mr. Morris'
wife.
16
(5) The number of shares beneficially owned includes 300,000 shares of common
stock directly beneficially owned by an investment fund controlled by Mr.
Low-Beer.
(6) The number of shares beneficially owned includes: shares of our common
stock issuable upon the exercise of options to purchase 53,250 shares of
our common stock (which options are exercisable within 60 days of
September 30, 2005) and upon the exercise of options to purchase 3,150
shares of our common stock (which options are exercisable within 60 days
of September 30, 2005), and 42,150 shares of common stock, both which are
directly beneficially owned by Mr. Zebuhr's wife.
(7) The number of shares beneficially owned includes shares of our common
stock issuable upon exercise of options and warrants to purchase an
aggregate of 21,000 shares of our common stock (which options and warrants
are exercisable within 60 days of September 30, 2005), and 79,252 shares
of common stock which are directly beneficially owned by Dr. Padulo's
wife.
(8) The number of shares beneficially owned includes shares of our common
stock issuable upon the exercise of options to purchase 54,000 shares of
our common stock (which options are exercisable within 60 days of
September 30, 2005).
(9) The number of shares beneficially owned consists of shares of our common
stock issuable upon the exercise of options to purchase 149,438 shares of
our common stock (which options are exercisable within 60 days of
September 30, 2005).
(10) The number of shares beneficially owned consists of shares of our common
stock issuable upon the exercise of options to purchase 91,500 shares of
our common stock (which options are exercisable within 60 days of
September 30, 2005).
(11) The number of shares beneficially owned includes shares of our common
stock issuable upon the exercise of options to purchase 3,000 shares of
our common stock (which options are exercisable within 60 days of
September 30, 2005).
(12) Ms. Lewandowski and Mr. Fetting may be deemed to beneficially own the
shares directly beneficially owned by S.J. Electro Systems, Inc. due to
their positions as officers of S.J. Electro Systems, Inc.
(13) The number of shares beneficially owned consists of shares of our common
stock issuable upon the exercise of options to purchase 9,000 shares of
our common stock (which options are exercisable within 60 days of
September 30, 2005).
(14) GreenShift Corporation is contractually committed to purchase an
additional 450,000 shares of common stock over the next three months,
which purchase will be issued in conjunction with warrants to purchase
900,000 shares of common stock. GreenShift has elected to convert the
warrants to purchase the common stock into 675,000 shares of common stock.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lease Agreements
In November 2004, the Company and William Zebuhr, our founder and
Chairman, entered into a lease, which remains in effect until November 2006, for
the lease of the 3,000 square feet of combined laboratory, research and
development, prototype manufacturing and office space which comprises our main
facility. Pursuant to the terms of the lease, we pay Mr. Zebuhr $2,500 per
month. We also rent 1,950 square feet of manufacturing space in Nashua, New
Hampshire, which was rented from a third party commencing in November 2003 for a
monthly rate of $700, and is rented on a month-to-month basis. The Company
believes that the lease terms are as favorable to the Company as would be
available from an unaffiliated party.
WMS Enterprises
In August 1997, we entered into a series of agreements with WMS including
a Debenture Purchase Agreement, a License Agreement, and a Distribution
Agreement. The Debenture Purchase Agreement provided for the purchase of
$180,000 aggregate principal amount of convertible debentures (the "WMS
Convertible Debentures"), which was funded $40,000 at closing and monthly
amounts of $20,000 in the following seven months. The WMS Convertible Debentures
were convertible, at WMS' option, into shares of our common stock at a
conversion price of $0.83 per share, subject to adjustments. Any outstanding WMS
Convertible Debentures would automatically be converted into shares of common
stock at the conversion price upon the consummation of a public offering raising
at least $2,000,000 in proceeds. WMS also was granted the right of first offer
to purchase, pro rata, a portion of any new securities that we may propose to
issue and sell. WMS' pro rata share of new securities is calculated as WMS'
total owned or issuable stock holdings as a percentage of the Company's total
outstanding equity securities. This right expired 30 days after execution of the
agreement. The WMS Convertible Debentures carried an interest rate of prime plus
one percent (1%) (6.25% at December 31, 2004) per annum, payable quarterly.
Amounts outstanding on the WMS Convertible Debentures at December 31, 2003 and
2004 were $60,000 and $0, respectively.
In September 2000, we reached an agreement with WMS to convert all
outstanding accrued interest on the WMS Convertible Debentures into a demand
note (the "WMS Demand Note") which carried an interest rate of prime plus one
percent (1%) (6.25% at December 31, 2004) payable monthly with an additional 5%
due upon default of monthly payments. In conjunction with this agreement, we
issued certain warrants to purchase shares of our common stock. In addition, all
future interest accruing on the WMS Convertible Debentures and the WMS Demand
Note would be satisfied monthly by the issuance of a promissory note for the
interest due, plus a warrant to purchase the same dollar amount of common stock
at the lower of the then market price or $2.50. We also issued additional WMS
Demand Notes on these same terms for amounts due to WMS for interest and an
initial installment provided in 2001 and 2002 totaling $60,000 and $20,020,
respectively. In 2003, WMS advanced us $160,000 in additional WMS Demand Notes
and converted the $60,000 WMS Convertible Debenture that came due in 2003 into a
WMS Demand Note.
In conjunction with the issuance of the WMS Demand Notes, the Company
issued WMS common stock purchase warrants with a fair value of $193,263 which
were recorded as a discount on the WMS Demand Notes.
Interest expense on the WMS Convertible Debentures and WMS Demand Notes
for the six months ended June 30, 2005, was $18,542.
In June 2004, we renegotiated our outstanding 1997 Debenture Purchase
Distribution and License Agreements with WMS, consolidating the two into an
Amended and Restated Debt Agreement (the "Debt Agreement") and a Restated
License Agreement (the "Revised License"). Pursuant to the Debt Agreement, the
outstanding WMS Convertible Debentures and WMS Demand Notes were consolidated
into a single note and all warrants previously issued to WMS and all contractual
rights to purchase shares of our common stock that WMS previously enjoyed
(related to the WMS Convertible Debentures) were replaced by two new warrants.
Additionally, and as part of the new Debt Agreement, WMS purchased $100,000 in
shares of our Series C Preferred Stock. The Debt Agreement contains multiple
covenants, including a negative covenant restricting our ability to enter into
any transaction selling or transferring more than fifty percent (50%) of our
common stock, unless all debt owed to WMS is repaid at the closing. In event of
default, the debt balances outstanding shall become due and payable immediately.
The Debt Agreement provides WMS with a right of first offer to purchase a pro
rata portion of securities we may offer in the future, subject to certain
exceptions (including an initial public offering). The amounts due under the
Debt Agreement carry an interest rate of prime plus 1% (6.25% at December 31,
2004) and are due January 2, 2005 with six possible six month extensions, each
at our option. Each extension would require us to issue WMS a warrant to
purchase 150,000 shares of common stock at $1.67 per share. At December 31,
2004, we issued WMS additional warrants to purchase 150,000 shares of common
stock for the first possible loan extension, extending the maturity date to July
2005, as well as warrants to purchase 45,000 shares of common stock for a prior
loan extension past December 31, 2003. In conjunction with the Debt Agreement,
the warrants previously issued to WMS totaling 289,458 shares exercisable at
$1.67 per share and the rights to purchase shares under the WMS Convertible
Debentures were exchanged for two warrants to purchase an aggregate of 216,000
and 512,892 shares of our common stock exercisable at $0.83 and $1.67 per share,
respectively. The warrants each have a term of ten years. Because the warrants
were issued in conjunction with the debt consolidation and extension, the
relative fair value of the warrants, $322,106, was recorded as additional paid
in capital and a debt discount on the Note Payable. The total discount is being
amortized to interest expense over the term of the Debt Agreement. For the six
months ended June 30, 2005, there was no non-cash interest expense related to
the amortization of these discounts.
18
In March 2005, Ovation exercised its second of five six-month extensions
on the WMS Note Payable, extending the maturity date to January 2006. In
exchange for the extension, Ovation issued to WMS a warrant to purchase 150,000
shares of common stock at $1.67 per share with a term of ten years. The fair
value of the warrant was recorded as non-cash interest expense at March 31, 2005
in the amount of $196,892.
In September 2005, Ovation exercised its third of five six-month
extensions on the WMS Note Payable, extending the maturity date to July 2006. In
exchange for the extension, Ovation issued to WMS a warrant to purchase 150,000
shares of common stock at $1.67 per share with a term of ten years. The fair
value of the warrant was recorded as non-cash interest expense at September 30,
2005 in the amount of $196,202.
Amounts outstanding on the Demand Notes at December 31, 2004 and June 30,
2005 were $478,535. The Note Payable has been classified as a current liability
as it is due to mature within a year.
The Revised License grants WMS a license to manufacture, use, market,
distribute and/or sell a counter-top version of our Clean Water Appliance. It
also grants WMS the right to sublicense the sale, distribution and manufacture
counter-top distillers that incorporate our distillation technology, subject
only to the Company's review and approval, which shall not be unreasonably
withheld. The Revised License provides exclusivity in the United States, Canada,
and Mexico so long as WMS pays the Company certain minimum royalties. In
addition, WMS agrees to pay royalties to the Company on product sales, subject
to minimum royalty payments. Sales by sublicensees will render the same royalty
payments as though the sales were made directly by WMS. In order to maintain the
exclusivity of the Revised License, WMS must pay the Company minimum royalties
equal to $50,000 for the first year of production and distribution, and amounts
increasing $25,000 per year for each subsequent year up to a maximum of $200,000
per year. Should these royalties not be paid within 45 days of the end of each
annual period, Ovation will have the option to convert the license to a
non-exclusive status. Additionally, WMS will pay the Company royalties as a
percentage of total product sales, payable quarterly and based on total payments
made to WMS by its customers. The royalty percentages are tiered based on sales
volume; WMS will pay Ovation 6%, 5%, and 4% for the first $20 million, the next
$50 million, and sales over $70 million, respectively, in sales per year. The
quarterly royalty payments are due within 45 days of quarter-end, subject to
termination of the License by Ovation if WMS fails to make a payment more than
two times in one year. After an initial five-year term starting from date of
first commercial shipment, the Revised License will be automatically renewed
annually thereafter, and may be terminated upon six months written notice by the
Company if WMS fails to attain certain sales targets or royalty levels, or by
WMS if the Revised License is rendered non-exclusive. Prior to December 31,
2005, WMS may terminate the Revised License on 30 days' prior written notice and
upon such termination, the Company will issue WMS a five-year warrant to
purchase 90,000 shares of the Company's common stock at an exercise price of
$1.67 per share. Should the Company provide licensing to any other third party
during the term of the Revised License, it will be deemed to have provided WMS a
like license, except that WMS would not be obligated to pay any engineering or
reimbursement costs that the original license may contemplate.
The Distribution Agreement provided for the supply of product by the
Company at least as favorable as the best discount rate offered by the Company
to any of its customers. The Distribution Agreement shall run for an initial
five-year term commencing on the date of first product manufacture. Thereafter,
the Distribution Agreement shall be renewable for three successive five-year
periods unless terminated at the sole discretion of WMS prior to the end of the
then-current period.
19
S.J. Electro Systems, Inc.
Laurie Lewandowski, who is Chief Executive Officer of S.J. Electro
Systems, Inc., and Nathan Fetting who is Chief Financial Officer of S.J. Electro
Systems, Inc., are directors of Ovation and are nominated for re-election under
Proposal 1.
In conjunction with the issuance of 480,000 shares of Series A Preferred
Stock for proceeds of $1,800,000 on December 29, 2000, payable in twelve
consecutive monthly installments of $150,000, the Company entered a Strategic
Alliance Agreement (the "Agreement") with S.J. Electro Systems, Inc. ("SJE"), an
international distributor of septic system appliances, to develop, market, sell
and distribute the Company's distillation technology. Ovation will be
responsible for the design, development, and testing of the distillation
technology to be included in a septic device, and SJE will be responsible for
the external testing, development and sale of a standard control panel for the
resulting septic device, as well as marketing, sales and distribution of the
septic device itself. The two companies will form a task force to manage the
project and track project expenditures and revenues. At the end of each calendar
year, the task force will finalize an annual business plan of the alliance for
the following year, which includes targeted geographic markets, product
development activities, sales objectives, expense budget, planned financial
statements, pricing policies, planned distribution, and critical issues and
strategies. At the end of each fiscal year, the task force also will finalize a
three-year plan, which includes each item specified in the annual business plan.
After the signing of the Agreement and until the end of the quarter which is
immediately prior to the first quarter in which the alliance realizes a net
profit, the companies will receive reimbursement for all expenditures properly
incurred by either party to perform its responsibilities relating to the
alliance and which is approved by the task force, including, but not limited to,
the detailed itemization of proper expenditures set forth in the Agreement.
Reimbursements are distributed as a proportion of the project revenues equal to
the total project expenditures incurred by a party divided by the total project
expenditures incurred by both parties. Due to prolonged cash constraints and
consequent delays in production, this process has not yet been executed. For
each fiscal quarter that project revenues result in a profit, the companies will
share the profit 50% each. As part of the Agreement, the Company granted an
exclusive license to SJE in its intellectual property for use in certain septic
appliances. Under the Agreement, SJE will be responsible for developing and
maintaining market channels for products incorporating Ovation's distillation
technology. As part of the agreement, the Company granted SJE with exclusive
distribution rights in the United States, Canada, and Mexico. The exclusivity
term shall commence on the date that both parties agree in writing that sales of
commercial quantities of product are initially made, and terminates on the later
of the 7th anniversary of the commencement date or the date that SJE received a
total of $50 million in profit-sharing. In no event shall the termination date
exceed the 10th anniversary of the commencement date. The Agreement shall
terminate upon the earlier of the exclusivity termination within the
distribution rights terms or the termination of the distribution rights term.
Contemporaneous with the Agreement, the Company signed a License Agreement with
SJE, which provided for payment of royalties to the Company equal to 5% of all
products sold by SJE.
In conjunction with the Agreement with SJE, the Company agreed to pay WMS,
in exchange for WMS waiving its exclusive worldwide marketing rights, 4% of any
cash or other consideration received from SJE up to a total payment of $450,000.
At the option of WMS, this payment may be made in cash, common stock or notes
payable and warrants to purchase common stock. If the payment method selected by
WMS includes warrants, the number of warrants issued will be calculated by
dividing the amount due by the then current market value of the Company's common
stock. WMS elected the receipt of long term notes with accompanying warrants to
purchase the Company's common stock at $1.67 per share. The warrants expire on
the later of January 2, 2003 or three years from date of issuance. At December
31, 2003, these warrants totaled 48,012 shares at $1.67 per share, and have been
recorded at fair value using the Black-Scholes option-pricing model assumptions.
The resulting compensation expense of $25,864 was recorded to additional paid in
capital in 2002 and 2001.
The agreement appended a forecast that estimated growing to 37,500 units
in 2008 with unit selling costs of $3,200 to $2,750 and unit manufacturing costs
starting at $1,864 and dropping to $574. As of the date of this filing the
Company has not sold any units due to lack of funding to finish development, and
also due to the Clean Water Appliance going through design iterations to
increase reliability, increase output and reduce cost.
On June 1, 2005, the Company secured a loan in the amount of $60,000 with
SJE to fund ongoing operational expenses (the "SJE Loan"). Under the terms of
the SJE Loan, Ovation has agreed to repay the principal amount of the loan on or
before June 1, 2006. Interest will accrue and compound monthly at the Prime Rate
plus 1% (the "Interest Rate") and will be payable to SJE on a monthly basis. The
SJE Loan is subject to customary terms and conditions, including acceleration
and penalty interest of 7% above the Interest Rate in the event of certain
defaults or events of nonpayment. In conjunction with the loan, SJE received a
warrant to purchase up to 36,000 shares of Ovation's common stock at $1.67 per
share. The warrant has a term of ten years. Because the warrant was issued in
conjunction with the debt, the relative fair value of the warrants, $26,243, was
recorded as additional paid-in capital and a debt discount on the SJE Loan. The
total discount is being amortized to interest expense over the term of the loan.
For the three month period ended June 30, 2005, non-cash interest expense
related to the amortization of this discount was $2,186. In August 2005, SJE
converted the SJE Loan into equity and received 36,000 shares of common stock
and warrants to purchase 72,000 shares of common stock.
20
Alexandros Partners LLC
On April 1, 2002, the Company entered a consulting agreement with
Alexandros Partners LLC ("Alexandros"). Alexandros was retained to provide
services as advisors to the Company with respect to proposed capital financing
as well as other financial management services, and the agreement was to
continue until completion of a financing, but no later than April 1, 2003. Upon
the initial closing of a financing, the Company is required to pay Alexandros
$50,000 in cash, and issue Alexandros a warrant to purchase 60,000 shares of the
Company's common stock. The warrant will have a five-year life at an exercise
price equal to the price per share of the securities issued at the initial
closing of the financing. Under the consulting agreement, the Company issued
Alexandros a warrant to purchase 60,000 shares of the Company's common stock,
which resulted in a charge of $60,184 to general and administrative expenses in
July 2002. In lieu of the $50,000 cash payment, the Company issued Alexandros
30,000 shares of its Series B-1 Preferred Stock.
On July 7, 2004, and after the expiration of the initial agreement, the
Company entered into a second consulting agreement with Alexandros. The term of
the agreement will expire upon the earlier of completion of a financing or July
7, 2005. Upon execution of the agreement, the Company paid Alexandros $22,000,
and upon closing of either (1) a financing in an amount of at least $1 million,
or (2) the execution of a transaction (defined as "any merger, consolidation,
reorganization or other business combination pursuant to which the business of
the Company is combined with that of another party"), the Company will pay it's
option of either (a) $50,000 in cash, or (b) shares of the Company's or its
successor's common stock calculated as $50,000 divided by the purchase price per
share of common stock issued in the financing. In addition, within 30 days of
the financing, the Company will issue a warrant for 150,000 shares of common
stock. The warrant will provide for full ratchet anti-dilution and will be
exercisable at any time for a period of seven years at an exercise price equal
to the purchase price per share of common stock issued in the financing. The
number of shares under the warrant will be adjusted to reflect certain instances
of stock splits, recapitalizations, or dividends that may occur during the term
of the warrant. The warrant will become fully exercisable upon any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, or
upon the closing or completion of any transaction. The Company will be obligated
to provide the compensation outlined above for a financing or a transaction, as
defined, but not for both and only for the first to occur.
On July 7, 2005, and after the expiration of the second consulting
agreement, the Company entered into a third consulting agreement with
Alexandros. The term of the agreement will expire upon the earlier of completion
of a financing or July 7, 2006. Upon execution of the agreement, the Company
paid Alexandros $25,000. Upon closing of one or more financings after August 1,
2005 raising an aggregate amount of at least $500,000, the Company, at
Alexandros' option, will either (a) pay $50,000 in cash, or (b) issue a number
of shares of common stock equal to the quotient of $50,000 divided by the
purchase price per share of common stock issued in the financing. In addition,
within 30 days of the financing, the Company will issue a warrant for 150,000
shares of common stock. For any investor introduced to the Company by
Alexandros, Alexandros will receive (a) a cash payment equal to 5% of the gross
proceeds to the Company from the investor and (b) a number of warrants equal to
5% of the number of shares of the Company's capital stock purchased by the
investor. The warrant will be exercisable at any time for a period of ten years
at an exercise price equal to the purchase price per share of common stock
issued in the financing. The number of shares under the warrant will be adjusted
to reflect certain instances of stock splits, recapitalizations, or dividends
that may occur during the term of the warrant. The Company will be obligated to
provide the compensation outlined above for a financing or a transaction, as
defined, but not for both and only for the first to occur.
GreenShift Corporation
Kevin Kreisler, who is the Chairman of the Board and Chief Executive
Officer of GreenShift Corporation, is a director of Ovation and is nominated for
re-election under Proposal 1.
On August 8, 2005, Ovation entered into a letter agreement with INSEQ
Corporation, an affiliate corporation of GreenShift Corporation (OTC Bulletin
Board: "GSHF"). GreenShift Corporation agreed on August 6, 2005, to purchase
600,000 shares of our common stock over a four month period beginning on August
30, 2005, for an aggregate purchase price of $1 million. In connection with the
shares of common stock, GreenShift Corporation received warrants to purchase
1,200,000 shares of common stock at a price of $2.00 per share.
21
The letter agreement provides, among other things, that in the event that
we desire to contract with outside contractors to manufacture our Clean Water
Appliances, our proprietary compact stand-alone distiller units, or certain
components of our Clear Water Appliances, we will be required to engage INSEQ to
manufacture the units or components if the terms of its proposal are at least as
commercially favorable to us as any competing proposal we receive. The letter
agreement further provides that INSEQ will provide us with certain prototype
manufacturing services at cost. The right of first refusal granted to INSEQ will
terminate on December 31, 2007.
On August 9, 2005, we entered into a license agreement with GreenShift
Industrial Design Corporation ("GreenShift Industrial"), a wholly-owned
subsidiary of GreenShift Corporation. GreenShift Industrial focuses on the
engineering and marketing of environmentally sensitive innovations and processes
that enhance manufacturing efficiencies, improve resource utilization and
minimize waste.
Under the license agreement, we agreed to grant GreenShift Industrial
certain exclusive and non-exclusive licenses to use our new patented and
patent-pending implementations of a vapor compression water distillate process
and our Clean Water Appliance (the "Technology") for certain applications of
GreenShift Industrial identified in the agreement.
Pursuant to the license agreement, GreenShift Industrial may develop,
invent, make or have made, use, promote, distribute, sell and sublicense the
Technology and any development or improvements thereto for the applications
detailed in the agreement. The right to sublicense the Technology is limited to
sublicenses to "portfolios companies" and affiliates of GreenShift Corporation
and only for so long as they remain portfolio companies and affiliates. The term
"portfolio companies" is defined in the license agreement to include GreenShift
Corporation and any company in which GreenShift Industrial or GreenShift
Corporation owns more than 15% of the outstanding equity interests. In addition,
we have retained the right to directly sell products and/or provide services to
third parties for the applications of GreenShift Industrial that are subject to
the exclusive license, and we may enter into certain license or distribution
agreements with third parties in connection with these applications, provided
that in both cases, we will pay GreenShift Industrial royalty fees.
In consideration of the licenses granted, GreenShift Industrial agreed to
pay Ovation a royalty fee equal to 1% of service revenues or product sale
revenues, or 20% of license revenue deriving from the use or license by
GreenShift Industrial of the Technology and any development of and improvements
to the Technology. The license agreement further provides for an additional
license fee if GreenShift Industrial manufactures related equipment at its own
expense. We also have a right of first refusal to engineer units based on the
licenses for GreenShift Industrial. GreenShift Industrial is obligated to remit
royalty fees under the agreement when cash flow permits but no less frequently
than annually.
Under the license agreement, title and ownership of the Technology is
retained by Ovation. GreenShift Industrial has agreed to protect and maintain
the confidentiality of the information related to the Technology for the term of
the agreement and five years thereafter.
The license agreement has a five year term unless terminated earlier
pursuant to its terms, including at any time at the sole discretion of
GreenShift Industrial. Ovation may terminate the license with respect to each
application of GreenShift Industrial set forth in the agreement, upon at least
90 days prior notice, if during 2008 or any year thereafter GreenShift fails to
generate more than $100,000 in revenue from such application deriving from the
use of the Technology.
22
OTHER BUSINESS
No other matters are to be presented for action at the annual meeting
other than as set forth in this proxy statement. If other matters should
properly come before the annual meeting, however, the persons named in the
accompanying proxy will vote all proxies in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder wishes to present at the 2006 Annual
Meeting of Stockholders and to have included in Ovation's proxy materials
pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended, must
be received in writing by the Secretary of Ovation Products Corporation on or
prior to July 3, 2006. Any other proposal must be received in writing by the
Secretary of Ovation Product Corporation at least 45 days prior to Ovation's
annual meeting date.
REPORTS
The Company will furnish without charge to each person whose proxy is
being solicited, upon the written request of any such person, a copy of the
Company's Registration Statement on Form 10-SB, as amended, as filed with the
SEC, including the financial statements included therein. Requests for copies of
such Registration Statement should be addressed to Ovation Products Corporation
at:
395 East Dunstable Road
Nashua, New Hampshire 03062
Attn: Robert MacDonald
The Registration Statement on Form 10-SB, as amended, is not part of the
Company's proxy soliciting materials.
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have any questions concerning the proposals or if you would like
additional copies of the proxy statement, please call us at (603) 891-3224.
By Order of the Board of Directors
/s/ William Zebuhr
-----------------------------------------
William Zebuhr
Chairman of the Board
NASHUA, NEW HAMPSHIRE
SEPTEMBER 30, 2005
23
APPENDIX A: OVATION PRODUCTS CORPORATION 1999 STOCK OPTION PLAN
OVATION PRODUCTS CORPORATION
1999 STOCK OPTION PLAN
The purposes of the 1999 Stock Option Plan (the "Plan") are to encourage
eligible Directors, employees, and consultants of Ovation Products Corporation
(the "Company") and any subsidiary in which the Company owns, directly or
indirectly, at least fifty percent (50%) of the total combined voting power of
all classes of stock ("Subsidiary"), including officers who are employees, to
increase their efforts to make the Company and each Subsidiary more successful,
to provide an additional inducement for such individuals to remain with the
Company or a Subsidiary, to reward such individuals by providing the opportunity
to acquire the common stock, no par value, of the Company (the "Common Stock")
on favorable terms and to provide a means through which the Company may attract
able persons to enter the employ of the Company or its Subsidiaries.
SECTION 1
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(the "Board"). The Board may appoint a Stock Option Committee comprised of two
or more members to act on behalf of the Board in administering the Plan. A Stock
Option Committee may be delegated any or all of the authority of the Board in
the administration of the Plan. Members of any such Stock Option Committee shall
be eligible to receive stock options only if so authorized by the Board.
The Board or such Committee as it may appoint (hereinafter referred to as
the "Board") shall interpret the Plan and prescribe such rules, regulations and
procedures in connection with the Plan as it shall deem to be necessary or
advisable for the administration of the Plan consistent with the purposes of the
Plan. The Board shall keep records of actions taken at its meetings.
SECTION 2
ELIGIBILITY
The Directors of the Company or any Subsidiary, consultants to the Company
or any Subsidiary, and those employees ("Key Employees") of the Company or any
Subsidiary who share the primary responsibility for the management, growth or
protection of the business of the Company or any Subsidiary shall be eligible to
receive stock options and/or stock appreciation rights as described herein. Only
Key Employees shall be eligible to receive incentive stock options as described
herein.
Subject to the provisions of the Plan, the Board shall have full and final
authority to grant stock options and/or stock appreciation rights as described
herein and, in its discretion, to determine the individuals to whom stock
options and/or stock appreciation rights shall be granted and the number of
shares to be covered by each stock option and/or stock appreciation right. In
determining the eligibility of any individual, as well as in determining the
number of shares covered by each stock option and/or stock appreciation right,
the Board shall consider the position and the responsibilities of the individual
being considered, the nature and value to the Company or a Subsidiary of his or
her services, his or her present and/or potential contribution to the success of
the Company or a Subsidiary and such other factors as they may deem relevant.
A-1
SECTION 3
SHARES AVAILABLE FOR STOCK OPTIONS
AND STOCK APPRECIATION RIGHTS
The aggregate number of shares of the Common Stock which may be issued or
delivered under the Plan is 250,000 shares, as constituted at the time of
adoption of the Plan by the Board, subject to adjustment and substitution as set
forth in Section 6. The shares may be either authorized but unissued shares or
treasury shares or partly each, as shall be determined by the Board.
If any stock option or stock appreciation right granted under the Plan is
canceled in full, the shares subject to such stock option or stock appreciation
right shall again be available for the purposes of the Plan except that, to the
extent that an alternative stock appreciation right granted in conjunction with
a stock option is exercised, the number of shares thereby made available for
purposes of the Plan shall be reduced by the number of shares, if any, delivered
in exchange for the surrender of the related unexercised option.
SECTION 4
GRANT OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Board shall have the authority, in its discretion, to grant "incentive
stock options" pursuant to Section 422 of the Internal Revenue Code of 1986, as
the same may from time to time be amended (the "Code"), or to grant
"nonstatutory stock options" (stock options which do not qualify under Section
422 of the Code), or to grant both types of stock options (but not in tandem).
The Board also shall have the authority, in its discretion, to grant stock
appreciation rights in addition to nonstatutory stock options with the effect
provided in Section 5(D), to grant alternative stock appreciation rights in
conjunction with nonstatutory stock options or incentive stock options with the
effect provided in Section 5(E), or to grant stock appreciation rights without
related stock options with the effect provided in Section 5(F).
The aggregate fair market value, determined as of the date of grant and as
set forth in Section 5(J), of all shares issuable upon exercise of all incentive
stock options which become exercisable by a Key Employee for the first time
during any calendar year under all plans of the corporation employing such Key
Employee, any parent or subsidiary corporations of such corporation and any
predecessor corporation of any such corporation, shall not exceed $100,000.
SECTION 5
TERMS AND CONDITIONS OF STOCK OPTIONS
AND/OR STOCK APPRECIATION RIGHTS
Stock options and stock appreciation rights granted under the Plan shall
be subject to the following terms and conditions:
(a) The purchase price at which each stock option may be exercised (the
"option price") shall be such price (either greater than, the same as, or less
than the fair market value per share of the Common Stock on the date of grant)
as the Board, in its absolute discretion, shall determine but (i) in the case of
incentive stock options granted to a Key Employee who together with the members
of his immediate family owns, or may be deemed to own, beneficially, more than
10% of the outstanding voting securities of the Company (as the terms "immediate
family" and "beneficial ownership" are defined under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (such a Key Employee being hereinafter
referred to as a "Principal Shareholder"), shall not be less than one hundred
and ten percent (110%) of the fair market value per share of the shares of
Common Stock covered by the stock option on the date of grant, (ii) in the case
of incentive stock options, shall not be less than one hundred percent (100%) of
the fair market value per share of the shares of Common Stock covered by the
stock option on the date of grant, and (iii) in the case of nonstatutory stock
options, shall not be less than the greater of the par value of the Common Stock
or fifty percent (50%) of the fair market value per share of the shares of
Common Stock covered by the stock option on the date of grant. If stock
appreciation rights are granted without a related stock option, the Board, in
its absolute discretion, shall determine the base price per share for such stock
appreciation rights (the "base price") which shall not be less than the greater
of the par value of the Common Stock or fifty percent (50%) of the fair market
value per share of the Common Stock on the date of grant. In exercising its
discretion, the Board shall take into account the fair market value of the
Common Stock, the book value of the Common Stock, the nature and value to the
Company of the Director's or Key Employee's service and such other factors as
the Board may deem relevant. For purposes of this Section 5(A), fair market
value shall be determined as set forth in Section 5(J).
A-2
(b) The option price is to be paid in full in cash upon the exercise of a
stock option; provided, however, that in lieu of cash an individual may, if
authorized by the Board at the time of grant, exercise a stock option by
tendering to the Company shares of Common Stock owned by the individual and
having a fair market value on the date of exercise, determined as set forth in
Section 5(J), equal to the option price. The provisions of this Section 5(B)
shall not preclude the payment of the option price of a stock option by any
other legally permissible method specifically approved by the Board. No shares
shall be issued or delivered upon exercise of a stock option until payment of
the option price in full has been made. When payment of the option price in full
has been made, the optionee shall be considered for all purposes to be the owner
of the shares with respect to which payment has been made.
(c) No stock option or stock appreciation right shall be exercisable
during the first six months of its term (except that this limitation shall not
apply if the optionee dies or becomes a Disabled Optionee, as defined in Section
5(H), and is voluntarily terminated with the consent of the Company or a
Subsidiary during such six-month period). No nonstatutory stock option shall be
exercisable after the expiration of ten years and six months from the date of
grant. No incentive stock option (or alternative stock appreciation rights
granted in conjunction with an incentive stock option) shall be exercisable
after the expiration of ten years from the date of grant or, in the case of an
incentive stock option (or alternative stock appreciation rights granted in
conjunction with an incentive stock option) granted to a Principal Shareholder,
five years from the date of grant. No alternative stock appreciation rights
granted in conjunction with an incentive stock option shall be exercisable until
the then fair market value of the Common Stock, determined as set forth in
Section 5(J), exceeds the option price. Except as provided in this Section 5(C)
and in Section 5(H), stock options or stock appreciation rights may be exercised
at such times, in such amounts and subject to such restrictions as shall be
determined by the Board.
(d) If stock appreciation rights are granted in addition to a nonstatutory
stock option, such stock appreciation rights shall entitle the optionee upon
exercise of the related stock option, or any portion thereof, to receive from
the Company (in addition to the shares to be received upon exercise of the
related stock option) that number of shares of the Common Stock having an
aggregate fair market value on the date of exercise of the related stock option
equal to the excess of the fair market value of one share of the Common Stock on
such date of exercise over the option price per share of such related stock
option times the number of shares covered by the related stock option, or
portion thereof, which is exercised. No fractional shares shall be issued but
instead, except as provided below, cash shall be paid in lieu of any fractional
shares. The Board shall have the authority, in its discretion, to determine that
the obligation of the Company shall be paid in cash, or part in cash and part in
shares except that the Board shall not pay to any Director or Key Employee
subject to the provisions of Section 16(b) of the Exchange Act any portion of
the Company's obligation in cash (including cash in lieu of a fractional share)
unless such related stock option is exercised during the period beginning on the
third and ending on the twelfth business day following the date of release for
publication of the Company's quarterly or annual summary statements of income.
For purposes of this Section 5(D), fair market value shall be determined as set
forth in Section 5(J).
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(e) If alternative stock appreciation rights are granted in conjunction
with a nonstatutory or incentive stock option, such stock appreciation rights
shall be exercisable only to the extent that the related stock option is
exercisable. Such alternative stock appreciation rights shall entitle the
optionee to surrender unexercised the related stock option, or any portion
thereof, and to receive from the Company in exchange therefor that number of
shares of the Common Stock having an aggregate fair market value on the date of
exercise of the alternative stock appreciation rights equal to the excess of the
fair market value of one share of the Common Stock on such date of exercise over
the option price per share times the number of shares covered by the stock
option, or portion thereof, which is surrendered. No fractional shares shall be
issued but instead, except as provided below, cash shall be paid in lieu of any
fractional shares. The Board shall have the authority, in its discretion, to
determine that the obligation of the Company shall be paid in cash, or part in
cash and part in shares except that the Board shall not pay to any Director or
Key Employee subject to the provisions of Section 16(b) of the Exchange Act any
portion of the Company's obligation in cash (including cash in lieu of a
fractional share) unless such alternative stock appreciation rights are
exercised during the period beginning on the third and ending on the twelfth
business day following the date of release for publication of the Company's
quarterly or annual summary statements of income. For the purposes of this
Section 5(E), fair market value shall be determined as set forth in Section
5(J).
(f) If stock appreciation rights are granted without a related stock
option, such stock appreciation rights shall entitle the Director or Key
Employee to receive from the Company that number of shares of the Common Stock
having an aggregate fair market value on the date of exercise of the stock
appreciation rights equal to the excess of the fair market value of one share of
the Common Stock on such date of exercise over the base price per share of such
stock appreciation rights times the number of shares covered by the stock
appreciation rights. No fractional shares shall be issued but instead, except as
provided below, cash shall be paid in lieu of any fractional shares. The Board
shall have the authority, in its discretion, to determine that the obligation of
the Company shall be paid in cash, or part in cash and part in shares except
that the Board shall not pay to any Director or Key Employee subject to Section
16(b) of the Exchange Act any portion of the Company's obligation in cash
(including cash in lieu of a fractional share) unless such stock appreciation
rights are exercised during the period beginning on the third and ending on the
twelfth business day following the date of release for publication of the
Company's quarterly or annual summary statements of income. For the purposes of
this Section 5(F), fair market value shall be determined as set forth in Section
5(J).
(g) No stock option or stock appreciation right shall be transferable by a
Director or Key Employee other than by will, or if a Director or Key Employee
dies intestate, by the laws of descent and distribution of the state of domicile
of the Director or Key Employee at the time of death, and each stock option or
stock appreciation right shall be exercisable during the lifetime of a Director
or Key Employee only by the Director or Key Employee.
(h) Except as otherwise provided in the following sentence, if the
employment of a Key Employee is voluntarily terminated with the consent of the
Company or a Subsidiary or a Key Employee retires under any retirement plan of
the Company or a Subsidiary, any then outstanding incentive stock option held by
such Key Employee shall be exercisable (to the extent exercisable on the date of
termination of employment) by such Key Employee at any time prior to the stock
option expiration date or within three months after the date of termination of
employment, whichever is the shorter period. If the employment of a Key Employee
who is disabled within the meaning of Section 422(C)(6) of the Code ("Disabled
Optionee") is voluntarily terminated with the consent of the Company or a
Subsidiary, any outstanding incentive stock option held by such Disabled
Optionee shall be exercisable by such Disabled Optionee (to the extent
exercisable) on the date of termination of employment) at any time prior to the
stock option expiration date or within one year after the date of termination of
employment, whichever is the shorter period. Whether termination of employment
is a voluntary termination with consent and whether a Key Employee is disabled
within the meaning of Section 422(c)(6) of the Code shall be determined in each
case by the Board and any such determination by the Board shall be final and
binding.
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If the employment of a Key Employee, or the service of a Director, is
voluntarily terminated with the consent of the Company or a Subsidiary, or such
Key Employee retires under any retirement plan of the Company or a Subsidiary,
any then outstanding nonstatutory stock option held by such Key Employee or
Director shall be exercisable (to the extent exercisable on the date of
termination of employment) by such Key Employee or Director at any time prior to
the stock option expiration date or within one year after the date of
termination of employment, whichever is the shorter period.
If the employment of a Key Employee, or the service of a Director, holding
stock appreciation rights granted without a related stock option is voluntarily
terminated with the consent of the Company or a Subsidiary, or such Key Employee
retires under any retirement plan of the Company or a Subsidiary, any such then
outstanding stock appreciation rights held by such Key Employee or Director
shall be exercisable (to the extent exercisable on the date of termination of
employment) by such Key Employee or Director at any time prior to the expiration
date of the stock appreciation rights or within one year after the date of
termination of employment, whichever is the shorter period.
Following the death of a Director or Key Employee, any outstanding stock
option or stock appreciation rights granted without a related stock option held
by such Director or Key Employee at the time of death shall be exercisable in
full (whether or not so exercisable on the date of the death of the Director or
Key Employee, but subject to such other restrictions on the exercise of
incentive stock options as are set forth in Section 5(C) by the person or
persons entitled to do so under the will of the Director or Key Employee, or, if
the Director or Key Employee shall fail to make testamentary disposition of such
stock option or stock appreciation rights or shall die intestate, by the legal
representative of the Director or Key Employee, in either case at any time prior
to the expiration date of such stock option or stock appreciation rights or
within one year after the date of death, whichever is the shorter period.
If the employment of a Key Employee or the service of a Director who is an
optionee or holds stock appreciation rights granted without a related stock
option terminates for any reason other than as set forth in this Section 5(H),
the rights of such Director or Key Employee under any then outstanding stock
option or stock appreciation rights granted without a related stock option shall
terminate at the time of such termination of employment.
(i) Each stock option shall be confirmed by a stock option agreement which
shall be executed by the Chairman of the Board or the President on behalf of the
Company and by the person to whom such stock option is granted. Stock
appreciation rights which are granted without a related stock option shall be
confirmed by a stock appreciation rights agreement which shall be executed by
the Chairman of the Board or the President on behalf of the Company and by the
person to whom such stock appreciation rights are granted.
(j) So long as the Common Stock is not listed on a national or regional
securities exchange or quoted in the inter-dealer quotation system maintained by
the National Association of Securities Dealers, Inc., the Board shall in good
faith determine the fair market value of the Common Stock on or as of the date
on which fair market value is to be determined. At such time as the Common Stock
shall be listed on a national or regional securities exchange or quoted in the
inter-dealer quotation system maintained by the National Association of
Securities Dealers, Inc., the Board shall adopt such rules for determining fair
market value of the Common Stock, which shall employ such generally accepted
criteria of value and make reference to such generally available and reliable
publications as the Board in its discretion may determine to be appropriate.
A-5
Subject to the foregoing provisions of this Section 5 and the other
provisions of the Plan, any stock option or stock appreciation rights granted
under the Plan shall be subject to such other terms and conditions as the Board
shall deem advisable on the date of grant.
SECTION 6
ADJUSTMENT AND SUBSTITUTION OF SHARES
If a dividend or other distribution shall be declared upon the Common
Stock payable in shares of the Common Stock, the number of shares of the Common
Stock then subject to any outstanding stock option or stock appreciation rights
granted without a related stock option and the number of shares which may be
issued or delivered under the Plan but are not then subject to an outstanding
stock option or stock appreciation rights granted without a related stock option
shall be adjusted by adding thereto the number of shares which would have been
distributable thereon if such shares had been outstanding on the date fixed for
determining the shareholders entitled to receive such stock dividend or
distribution.
If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Company or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock subject to any then outstanding stock option or stock
appreciation rights granted without a related stock option and for each share of
the Common Stock which may be issued or delivered under the Plan but are not
then subject to an outstanding stock option or stock appreciation rights granted
without a related stock option, the number and kind of shares of stock or other
securities into which each outstanding share of the Common Stock shall be so
changed or for which each such share shall be exchangeable.
In case of any adjustment or substitution as provided for in this Section
6, (i) the aggregate option price for all shares subject to each then
outstanding stock option prior to such adjustment or substitution shall be the
aggregate option price for all shares of stock or other securities (including
any fraction) to which such shares shall have been adjusted or which shall have
been substituted for such shares and (ii) the aggregate base price for all
shares subject to outstanding stock appreciation rights granted without a
related stock option shall be the base price for all shares of stock or other
securities (including any fraction) to which such shares shall have been
adjusted or which shall have been substituted for such shares. Any new option
price or base price per share shall be carried to at least 3 decimal places with
the last decimal place rounded upwards to the nearest whole number.
No adjustment or substitution provided for in this Section 6 shall require
the Company to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
All references in this Plan to shares shall, where the context so
requires, be deemed to be references to such shares as adjusted pursuant to this
Section 6. If any such adjustment to the number of shares subject to the grant
of stock options requires the approval of stockholders in order to enable the
Company to issue incentive stock options then no such adjustment shall be made
without the approval of the stockholders. Notwithstanding the foregoing, in the
case of incentive stock options, if the effect of any adjustment or substitution
is to cause the stock option to fail to continue to qualify as an incentive
stock option or to cause a modification, extension or renewal of such stock
option within the meaning of Section 424(h) of the Code, the Board of Directors
may elect not to make such adjustment or substitution but rather shall use
reasonable efforts to effect such other adjustment of each then outstanding
stock option as the Board of Directors in its sole discretion shall deem
equitable and which will not result in any disqualification, modification,
extension or renewal (within the meaning of Section 424(h) of the Code) of such
stock option.
A-6
SECTION 7
EFFECT OF THE PLAN ON THE RIGHTS OF DIRECTORS OR EMPLOYEES
Neither the adoption of the Plan nor any action of the Board pursuant to
the Plan shall be deemed to give any Director or employee any right to be
granted a stock option and/or stock appreciation rights under the Plan and
nothing in the Plan, in any stock option or in any stock appreciation rights
granted under the Plan, or in any stock option agreement or any stock
appreciation rights agreement shall confer any right to any Director or employee
to continue as a Director of the Company or any Subsidiary or to continue in the
employ of the Company or any Subsidiary or interfere in any way with the rights
of the Company or any Subsidiary to terminate the employment of any employee at
any time.
SECTION 8
AMENDMENT
The right to alter and amend the Plan at any time and from time to time
and the right to revoke or terminate the Plan are hereby specifically reserved
to the Board; provided always that no such revocation or termination shall
terminate any outstanding stock option and/or stock appreciation rights
theretofore granted under the Plan; and provided further that no such alteration
or amendment of the Plan shall, without prior shareholder approval, (i) increase
the total number of shares which may be issued or delivered under the Plan, (ii)
make any changes in the class of eligible Directors or employees or (iii) extend
the periods set forth in the Plan during which stock options and/or stock
appreciation rights may be granted. No alteration, amendment, revocation or
termination of the Plan shall, without the written consent of the holder of a
stock option and/or stock appreciation rights theretofore granted under the
Plan, adversely affect the rights of such holder with respect to such stock
option or stock appreciation rights.
SECTION 9
EFFECTIVE DATE AND DURATION OF PLAN
The date of adoption of the Plan with respect to incentive stock options
shall be October 1, 2001 provided that the Plan is ratified and approved by the
affirmative vote of the holders of at least a majority of the outstanding shares
of voting stock of the Company at a meeting of such holders duly called,
convened and held on or prior to September 30, 2002. The date of Adoption of
Plan for nonstatutory stock options shall be August 27, 1999. No stock option or
stock appreciation rights granted under the Plan may be exercised until after
such ratification and approval. No stock option or stock appreciation rights may
be granted under the Plan subsequent to August 26, 2009.
A-7
OVATION PRODUCTS CORPORATION, INC.
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF OVATION
PRODUCTS CORPORATION, INC., FOR USE ONLY AT THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 28, 2005 AND ANY ADJOURNMENT THEREOF.
THE UNDERSIGNED HEREBY ACKNOWLEDGES PRIOR RECEIPT OF THE NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS (THE "MEETING") AND THE PROXY STATEMENT DESCRIBING THE
MATTERS SET FORTH BELOW, AND INDICATING THE DATE, TIME AND PLACE OF THE MEETING,
AND HEREBY APPOINTS THE BOARD OF DIRECTORS OF OVATION PRODUCTS CORPORATION (THE
"COMPANY"), OR ANY OF THEM, AS PROXY, EACH WITH FULL POWER OF SUBSTITUTION TO
REPRESENT THE UNDERSIGNED AT THE MEETING, AND AT ANY ADJOURNMENT OR ADJOURNMENTS
THEREOF, AND THEREAT TO ACT WITH RESPECT TO ALL VOTES THAT THE UNDERSIGNED WOULD
BE ENTITLED TO CAST, IF THEN PERSONALLY PRESENT ON THE MATTERS REFERRED TO ON
THE REVERSE SIDE IN THE MANNER SPECIFIED.
THIS PROXY, IF EXECUTED, WILL BE VOTED AS DIRECTED, BUT, IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS
LISTED. PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE AND RETURN IT IN THE
ENCLOSED ENVELOPE. THIS PROXY MUST BE RECEIVED BY THE COMPANY NO LATER THAN
OCTOBER 26, 2005.
THIS PROXY IS REVOCABLE AND THE UNDERSIGNED MAY REVOKE IT AT ANY TIME
PRIOR TO THE MEETING BY GIVING WRITTEN NOTICE OF SUCH REVOCATION TO THE
SECRETARY OF THE COMPANY. SHOULD THE UNDERSIGNED BE PRESENT AND WANT TO VOTE IN
PERSON AT THE MEETING, OR ANY ADJOURNMENT THEREOF, THE UNDERSIGNED MAY REVOKE
THIS PROXY BY GIVING WRITTEN NOTICE OF SUCH REVOCATION TO THE SECRETARY OF THE
COMPANY ON A FORM PROVIDED AT THE MEETING.
(Continued and to be signed on the reverse side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF PROPOSAL 1, PROPOSAL 2
AND PROPOSAL 3
FOR AGAINST ABSTAIN
1. Approval to re-elect William Zebuhr, Robert
MacDonald, William Lockwood, Dr. Louis Padulo,
Laurie Lewandowski, Nathan Fetting, Yiannis
Monovoukas and Kevin Kreisler to serve as
directors until the next annual meeting of
stockholders or until their successors are
elected and qualified. |_| |_| |_|
FOR AGAINST ABSTAIN
2. Approval to ratify the appointment of Wolf &
Company, P.C. as independent auditors of the
Company for the fiscal year ending December 31,
2005. |_| |_| |_|
FOR AGAINST ABSTAIN
3. Approval of an increase of 1,500,000 shares in
the number of shares of common stock that may
be issued or delivered under the Company's 1999
Stock Option Plan. |_| |_| |_|
To vote, in its discretion, upon any other matters that may properly come
before the Meeting or any adjournment thereof. The board of directors is not
aware of any other matters that will come before the Meeting.
NAME (EXACTLY AS IT APPEARS ON YOUR STOCK CERTIFICATE):
DATE:______________
SIGNATURE(S)__________________________
SIGNATURE(S)__________________________
MAILING ADDRESS ______________________
______________________________________
______________________________________
PHONE:___________________
EMAIL ADDRESS:_____________________
PLEASE DATE THIS PROXY AND SIGN YOUR NAME EXACTLY AS YOUR NAME APPEARS
ABOVE. JOINT ACCOUNTS NEED ONLY ONE SIGNATURE, BUT ALL STOCKHOLDERS SHOULD SIGN
IF POSSIBLE. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE,
GUARDIAN OR SIMILAR POSITION, PLEASE ADD YOUR FULL TITLE AS SUCH TO YOUR
SIGNATURE. IF A CORPORATION, PLEASE SIGN THE FULL CORPORATE NAME BY PRESIDENT OR
AN AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON. PLEASE RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
POSTAGE-PAID ENVELOPE.