SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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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 Rule 14a-12
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TURBOSONIC TECHNOLOGIES, INC.
(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.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
____________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
____________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
____________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
____________________________________________________________________
(5) Total fee paid:
____________________________________________________________________
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
____________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
____________________________________________________________________
(3) Filing Party:
____________________________________________________________________
(4) Date Filed:
____________________________________________________________________
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Copies of all communications to:
Ira I. Roxland, Esq.
Sonnenschein Nath & Rosenthal
1221 Avenue of the Americas
New York, New York 10020
(212) 768-6700
TURBOSONIC TECHNOLOGIES, INC.
550 Parkside Drive, Suite A-14
Waterloo, Ontario
Canada N2L 5V4
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NOTICE OF ANNUAL MEETING
OF
STOCKHOLDERS
To Be Held
On
December 10, 2002
------------------
Dear Stockholders,
On Tuesday, December 10, 2002, TurboSonic Technologies, Inc. will hold its
Annual Meeting of Stockholders at the Waterloo Inn, 475 King Street North,
Waterloo, Ontario, Canada. The meeting will begin at 10:00 a.m., local time.
Only stockholders that own shares of common stock at the close of business on
November 8, 2002 can vote at this meeting or any adjournment or postponement
thereof. The meeting will be held for the following purposes:
o To elect eight directors to serve for the ensuing year,
o To approve the TurboSonic Technologies, Inc. 2003 Stock Plan,
o To ratify the appointment of Ernst & Young LLP as our independent
auditors for fiscal year 2003, and
o To transact such other business as may properly come before the
meeting.
/s/ Patrick J. Forde
Patrick J. Forde
Secretary
Waterloo, Ontario, Canada
November 12, 2002
- --------------------------------------------------------------------------------
Whether or not you plan to attend the meeting, please sign and date the enclosed
proxy and promptly return it in the enclosed, self-addressed envelope. No
additional postage is required if mailed within the United States. Any
stockholder may revoke his or her proxy at any time before this meeting by
giving notice in writing to our Secretary, by granting a proxy bearing a later
date or by voting in person at the meeting.
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TURBOSONIC TECHNOLOGIES, INC.
550 Parkside Drive, Suite A-14
Waterloo, Ontario
Canada N2L 5V4
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PROXY STATEMENT
------------------
QUESTIONS AND ANSWERS
Q: WHO IS SOLICITING MY VOTE?
A: This proxy solicitation is being made and paid for by TurboSonic
Technologies, Inc.
Q: WHEN WAS THE PROXY STATEMENT MAILED TO STOCKHOLDERS?
A: This proxy statement was first mailed to our stockholders on or about
November 12, 2002.
Q: WHAT MATTERS AM I VOTING ON?
A: (1) The election of nominees to serve on our Board of Directors for the
ensuing year;
(2) The approval of the TurboSonic Technologies, Inc. 2003 Stock Plan;
and
(3) The ratification of the appointment of Ernst & Young LLP as our
independent auditors for fiscal year 2003.
Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board recommends a vote FOR each of the nominees, a vote FOR the
approval of the 2003 Stock Plan and a vote FOR the ratification of Ernst &
Young LLP as our independent auditors for fiscal year 2003.
Q: WHO IS ENTITLED TO VOTE?
A: Stockholders as of the close of business on November 8, 2002 (the record
date) are entitled to vote at the meeting.
Q: HOW DO I VOTE?
A: Sign and date each proxy card you receive and return it in the prepaid
envelope. If you return your signed proxy card but do not mark the boxes
showing how you wish to vote, your shares will be voted FOR each of the
nominees and FOR the two proposals.
Q: MAY I REVOKE MY PROXY?
A: You have the right to revoke your proxy at any time before the meeting by:
(1) giving written notice to such effect to our Secretary, Patrick J.
Forde, at the address shown above;
(2) voting in person at the meeting; or
(3) returning a later-dated proxy card.
Q: WHO WILL COUNT THE VOTE?
A: Representatives of our transfer agent, American Stock Transfer & Trust
Company, will count the votes.
Q: IS MY VOTE CONFIDENTIAL?
A: Proxy cards, ballots and voting tabulations that identify individual
stockholders are mailed or returned directly to American Stock Transfer &
Trust Company and handled in a manner that protects your voting privacy.
Your vote will not be disclosed except (1) as needed to permit American
Stock Transfer & Trust Company to tabulate and certify the vote, and (2)
as required by law. Additionally, all comments written on the proxy card
or elsewhere will be forwarded to management. Your identity will be kept
confidential unless you ask that your name be disclosed.
Q: HOW MANY SHARES CAN VOTE?
A. As of November 8, 2002, 10,507,250 shares of common stock were issued and
outstanding. Every holder of common stock is entitled to one vote for each
share held.
Q: WHAT IS A QUORUM?
A: A majority of shares of our common stock outstanding and entitled to vote
on November 8, 2002 constitutes a quorum and must be present at the
meeting, in person or by proxy, for the meeting to be held for the
transaction of business.
Directors will be elected by a plurality of the votes cast at the meeting.
Approval of each other matter must receive more than 50% of the shares
voting on the matter.
If you submit a properly executed proxy card, even if you abstain from
voting, then you will be considered part of the quorum. An abstention has
the same effect as a vote AGAINST a proposal. Broker non-votes are
abstentions by brokers who have proxies that do not have specific voting
instructions from their beneficial owners of the shares they hold. Broker
non-votes will be counted as part of the quorum. However, broker non-votes
will not be counted for purposes of determining whether a proposal has
been approved.
Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All stockholders on November 8, 2002 can attend. If your shares are held
through a broker and you would like to attend, please bring a copy of your
brokerage account statement or an omnibus proxy (which you can get from
your broker), and we will permit you to attend the meeting.
Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: We do not know of any business to be considered at the meeting other than
the proposals described in this proxy statement. If any other business is
presented at the meeting, your signed proxy card gives authority to Edward
F. Spink, our Chairman, and Patrick J. Forde, our Secretary, to vote on
such matters at their discretion.
Q: WHO ARE THE LARGEST PRINICPAL STOCKHOLDERS?
A: As of November 8, 2002, Dr. Donald R. Spink, Sr., and his related
entities, beneficially owned 3,306,432 shares (28.5%) of our common stock
and Hamon Research-Cottrell beneficially owned 950,000 shares (8.2%) of
our common stock. See "Security Ownership."
Q: WHEN ARE STOCKHOLDER PROPOSALS FOR NEXT YEAR'S MEETING DUE?
A: All stockholder proposals to be considered for inclusion in next year's
proxy statement must be submitted in writing to Patrick J. Forde, our
Secretary, at the address shown above, prior to July 15, 2003.
2
ELECTION OF DIRECTORS
There are currently five members of the Board. All such members are nominees for
election this year: Edward F. Spink, Patrick J. Forde, Richard H. Hurd, Dr.
Donald R. Spink, Sr. and Jonathan Lagarenne. In addition, the following three
persons are nominated to become members of the Board, fixing its number of
members at eight: Frederick G. Berlet, Sean J. McNamara and James R. Thompson.
All directors are elected annually, and serve until the next annual meeting of
stockholders or until their respective successors are elected and qualified. If
any director is unable to stand for re-election at this meeting, the Board may
reduce the Board's size or designate a substitute. If a substitute is
designated, proxies voting on the original director candidate will be cast for
the substituted candidate.
Edward F. Spink Director since 1997
Age 48
Edward F. Spink served as our President from August 27, 1997, the date upon
which Turbotak Technologies and Sonic Environmental Systems were combined to
form our company, until June 15, 1999. On that date, the Board elected him our
Chairman and Chief Executive Officer. From 1995 to 1997, he was President and a
director of Turbotak. Mr. Spink served as Vice President-Operations of Turbotak
from 1989 to 1995.
Patrick J. Forde Director since 1997
Age 69
Patrick J. Forde has been our Secretary/Treasurer since August 1997 and became
our President on June 15, 1999. Mr. Forde served as our Vice President-Corporate
Planning from August 1997 to June 1999. From 1986 to 1997, he was a director of
Turbotak. Mr. Forde served as Vice President-Corporate Planning for Turbotak
from 1996 to 1997. He was chairman and chief executive officer of Borg Textile
Corporation, which manufactures and sells deep-pile fabric to garment producers,
from 1982 to 1995. He is president and owner of Glencree Investments, Inc., and
serves on the board of several other private companies.
Richard H. Hurd Director since 1993
Age 65
Richard H. Hurd served as our President from August 1993 to August 1997 and as
our Treasurer from April 1994 to August 1997. Mr. Hurd has been President and
sole owner of RHB Capital Company, Inc., a financial consulting company, since
1987. He is also co-Managing Director of Genuine Article Publishing Group, LLC,
a publisher of children's books. He also acts as a Special Assistant to the
Treasurer of the State of New Jersey.
Dr. Donald R. Spink, Sr. Director since 1997
Age 79
Dr. Donald R. Spink, Sr. served as our Chairman from August 27, 1997 until June
15, 1999. He continues to serve as a director and has agreed to provide us with
technical advice. Prior thereto and from 1976 he was chairman of Turbotak.
Jonathan R. Lagarenne Director since 2001
Age 42
Jonathan R. Lagarenne joined the Board in August 2001. He is presently Chief
Executive Officer of Hamon Corporation, which provides engineering,
manufacturing and contracting of cooling systems, process heat exchanges,
chimneys, air pollution control, and heat recovery equipment for power and
energy-intensive industries. He previously held the positions of Chief Operating
Officer and General Counsel of Hamon from July 1998 to May 2000. He held the
position of Vice President of Research-Cottrell from 1995 to July 1998.
3
Frederick G. Berlet Nominee for Directorship
Age 74
Frederick G. Berlet has served as President of S.W.O. Management Consultants
since 1967. Between 1960 and 1994 he also held several positions with Fleck
Manufacturing Inc., a major auto parts manufacturing company, including its
Deputy Chairman, President and Chief Executive Officer. He is a Certified
Management Accountant (CMA) and has served on numerous boards of directors of
private and public companies. He is currently a director of Timberland Ltd., a
specialty hoist and winch manufacturing company. He is also involved with
several charitable organizations. Since 1997 he has been an advisor to our
Board.
Sean J. McNamara Nominee for Directorship
Age 60
Sean J. McNamara has served as Executive Vice President of financial services
for EDS Canada, an information technology service company, since September 1999.
As an independent consultant within the financial services industry for five
years prior to his EDS appointment, he worked with many companies, including
Davis and Henderson, Discover Financial Services, EDS Systemhouse, ScotiaBank
and TD Bank. He was an expert advisor to the Competition Bureau of Canada on
proposed bank mergers in 1998 and the Canada Trust/TD Bank merger in 1999. From
1991 to 1994, he was Senior VP and Chief General Manager of American Express
Bank of Canada where he arranged for American Express' entry into Interac
Association, an organization linking enterprises that have proprietary networks
so that they may communicate with each other for the purpose of exchanging
electronic financial transactions. He also arranged for American Express' entry
into the Canadian Payments Association. In addition to sitting on various boards
of directors, and being involved with several charitable organizations, he was a
founding director of Interac, VISA Canada, and MasterCard Canada. Since 1997 he
has been an advisor to our Board.
James R. Thompson Nominee for Directorship
Age 52
James R. Thompson is the founder and, since 1992, the Chief Executive Officer of
TAII, now Talo Analytic International, Inc., a consulting company specializing
in business and technical issues related to the forest products, basic steel,
chemical and other heavy industries. In addition to being consulted by the U.S.
Senate Anti-trust Committee concerning mergers in the forest products industry,
he has served as an expert witness in multi-million dollar disputes. Since 2001
he has been an advisor to our Board. He has also been an advisory board member
and the paper industry business issues editor of Solutions Magazine, since 2000.
Mr. Thompson filed for personal bankruptcy in May 2001, as the result of
liabilities incurred while convalescing from a medical condition.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES TO
SERVE AS DIRECTORS.
4
APPROVAL OF THE 2003 STOCK PLAN
Introduction
On October 25, 2002, the Board approved the TurboSonic Technologies, Inc. 2003
Stock Plan, subject to stockholder approval. The 2003 Stock Plan is in addition
to the TurboSonic Technologies, Inc. 2000 Stock Plan, under which awards may
continue to be granted. Stockholders are being asked to approve the 2003 Stock
Plan. This approval is necessary, among other reasons, to allow us to grant
stock options which qualify as "incentive stock options" under the Internal
Revenue Code of 1986 ("Code"). This approval is also necessary to ensure that
performance-based compensation earned by and paid to certain of our executive
officers pursuant to stock options and stock awards granted under the 2003 Stock
Plan ("Awards") will be eligible for an exemption to the limitations on
deductibility of compensation by us for United States federal income tax
purposes under Code Section 162(m). A full copy of the 2003 Stock Plan is
attached as Exhibit A. The material features of the 2003 Stock Plan are
summarized below and such summary is qualified in its entirety by reference to
the complete text of the 2003 Stock Plan.
Purpose
The 2003 Stock Plan is intended to encourage key employees, officers, directors,
and consultants to promote the objectives and success of our company by
providing opportunities to participate in the ownership of our company and our
future growth.
Administration
The 2003 Stock Plan will be administered by a committee of the Board. To the
extent the Board considers it desirable for Awards to qualify for a
performance-based exception under Code Section 162(m) or to the extent required
by Rule 16b-3 under the Securities Exchange Act of 1934, the committee will be
comprised solely of two or more directors who qualify as outside directors for
purposes of Code Section 162(m) and as non-employee directors for purposes of
Rule 16b-3. Subject to the terms of the 2003 Stock Plan, the committee has full
power and discretion:
o to select those persons to whom Awards will be granted;
o to determine the time at which Awards will be granted;
o to determine the exercise price of options;
o to determine whether options will be incentive stock options;
o to determine and extend the time period during which options may be
extended;
o to determine what restrictions will be imposed upon Awards;
o to construe and interpret the 2003 Stock Plan and any award
agreement;
o to make all determinations necessary or advisable for administration
of the 2003 Stock Plan;
o to prescribe, amend, suspend, waive and rescind rules and
regulations for the administration of the 2003 Stock Plan (which may
be different for grantees in different countries);
o to determine the terms and conditions applicable to each Award
(including, but not limited to, vesting schedule);
o to offer to exchange or buy out Awards;
o to amend Award agreements (unless such amendment alters or impairs
the rights of a grantee);
o to cancel Awards and substitute new Awards therefore (with a
grantee's consent);
o to impose additional terms and conditions upon grant, exercise or
retention of Awards;
o to make adjustments in terms and conditions of Awards in response to
unusual or nonrecurring events or in response to changes in
applicable laws;
o to correct any defect or supply any omission;
o to take any acts it deems necessary or advisable to administer the
2003 Stock Plan and, subject to certain exceptions, to amend, alter
or discontinue the 2003 Stock Plan.
5
Eligibility and Participation
The 2003 Stock Plan provides for Awards to employees, officers, directors and
consultants of our company or any parent or subsidiary. Some Awards may be
provided to officers and others who are deemed by us to be "insiders" for
purposes of Section 16 of the Securities Exchange Act of 1934. As of November 8,
2002, we had approximately 31 employees and officers, and management estimates
that up to 100% may be granted Awards under the 2003 Stock Plan. If the nominees
for election named in this proxy statement are elected, eight directors will
qualify for Awards under the 2003 Stock Plan, and management estimates that all
will be granted Awards under the 2003 Stock Plan.
The committee may make Award grants to eligible grantees in its discretion,
subject to the limits on Awards.
Offering of Common Stock
Under the terms of the 2003 Stock Plan, 500,000 shares of our common stock will
be available for delivery in settlement of Awards.
The common stock delivered to settle Awards under the 2003 Stock Plan may be
authorized and unissued shares or treasury shares. If any Award is expired or
terminated or ceases to be exercisable, the shares subject to such Award will
again be available for grant under the 2003 Stock Plan.
As of November 8, 2002, options to purchase a total of 749,500 shares of common
stock had been granted under our 2000 Stock Plan to our employees, directors and
advisers. An additional 500 shares of common stock are available for future
award grants under our 2000 Stock Plan. At October 25, 2002, the last reported
sale price of our common stock on the OTC Bulletin Board was $0.35 per share.
If a dividend, forward or reverse stock split, or other stock or extraordinary
cash distribution affects our common stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
grantees, the committee will make an equitable change or adjustment as it deems
appropriate in the number and kind of securities subject to or to be granted in
connection with Awards (whether or not then outstanding) and the exercise price
or grant price relating to an Award. If a consolidation, sale of substantially
all assets, reorganization, merger, split-up, spin-off or combination involving
us or repurchase or exchange of our shares or other securities or other rights
to purchase shares of our common stock or other securities affects the shares,
the committee will take such action as it deems appropriate out of the
following: substitute options for consideration paid to stockholders, substitute
options for shares in the surviving corporation or other securities deemed
appropriate by the Board, accelerate vesting, or provide cash payment for
Awards. If a recapitalization or reorganization affects our common stock,
grantees will be entitled to receive the securities he or she would have
received upon exercise prior to such recapitalization or reorganization.
Limits on Awards
The 2003 Stock Plan contains several limits on the number and value of shares
that may be issued as Awards. To the extent the committee determines that
compliance with the performance-based exception to tax deductibility limitations
under Code Section 162(m) is desirable, Awards may not be granted to any
individual for an aggregate number of shares of our common stock in any fiscal
year that exceeds 200,000 shares of our common stock (subject to adjustment).
Summary of Awards Under the 2003 Stock Plan
(Including What Rights As A Stockholder, If Any, Are Entailed By An Award)
The 2003 Stock Plan permits the granting of any or all of the following types of
Awards to all grantees: (i) stock options including incentive stock options
("ISOs"); (ii) restricted stock; and (iii) unrestricted shares of common stock.
Generally, Awards under the 2003 Stock Plan are granted for no consideration
other than prior and future services.
6
(i) Stock Options. The committee is authorized to grant stock options,
including ISOs. A stock option allows a grantee to purchase a
specified number of shares at a predetermined price during a fixed
period measured from the date of grant. The purchase price per share
of stock subject to a stock option is determined by the committee.
The purchase price for an incentive stock option cannot be less than
the fair market value of a share on the grant date. The purchase
price for a non-qualified stock option cannot be less than par value
of the shares. The term of each option is fixed by the committee,
except the term of an ISO, which is limited to ten years (five years
for 10% owners of our company). Such Awards are exercisable in whole
or in part at such time or times as determined by the committee.
Options may be exercised by payment of the purchase price in cash
or, at the committee's discretion, stock held by the grantee for
more than six months or from cash proceeds from the sale of stock
received upon exercise.
(ii) Restricted Stock. The committee may award restricted stock
consisting of shares which may not be disposed of by grantees until
certain restrictions established by the committee lapse. The
committee will establish the purchase price for grants of restricted
stock, which may not be less than par value of a share. A grantee
receiving restricted stock will have all of the rights of a
stockholder of our company, including the right to vote the shares
and the right to receive any dividends (such dividends will be
deferred and reinvested in additional restricted shares subject to
the same restrictions and other terms as the related restricted
stock Award), unless the committee otherwise determines. Upon
termination of employment during the restriction period, restricted
stock will be forfeited subject to such exceptions, if any, as are
authorized by the committee.
(iii) Awards of Shares of Common Stock. The committee may grant Awards of
shares, which entitle a grantee to a certain number of shares of
common stock, as a bonus or as additional compensation as determined
by the committee.
Performance Goals. The committee may require satisfaction of pre-established
performance goals, consisting of one or more business criteria and a targeted
performance level with respect to such criteria, as a condition of Awards being
granted or becoming exercisable or payable under the 2003 Stock Plan, or as a
condition to accelerating the timing of such events. The committee has the
discretion to adjust the determinations of the degree of attainment of the
pre-established performance goals.
Payment. The committee may condition the payment of an Award on the withholding
of taxes required to satisfy our minimum federal, state, local and foreign
withholding obligations and may provide that a portion of the stock will be
withheld to satisfy such tax obligations.
Transfer Limitations on Awards. Awards granted under the 2003 Stock Plan
generally may not be pledged or otherwise encumbered and generally are not
transferable except by will or by the laws of descent and distribution.
Non-qualified stock options may also be transferred pursuant to a valid domestic
relations order. Each Award will be exercisable during the grantee's lifetime
only by the grantee or, if permitted under applicable law, by the grantee's
guardian or legal representative.
Amendment To and Termination Of The 2003 Stock Plan
The 2003 Stock Plan may be amended or terminated by the Board without further
stockholder approval, except that stockholder approval is required if any
applicable federal or state law or regulation or rules of any stock exchange on
which our shares are listed or quoted so requires. The Board may also determine,
in its discretion, to submit other amendments or alterations to stockholders for
approval.
In addition, subject to the terms of the 2003 Stock Plan, no amendment or
termination of the 2003 Stock Plan may alter or impair the right of a grantee
under any Award granted under the 2003 Stock Plan.
Unless earlier terminated by the Board, the 2003 Stock Plan will expire on
October 25, 2012.
7
United States Federal Income Tax Consequences
We believe that under present law the following are the United States federal
tax consequences generally arising with respect to Awards granted under the 2003
Stock Plan. This summary is for stockholder informative purposes and is not
intended to provide tax advice to grantees. This summary does not address the
effect of foreign, including Canadian, tax law to the grantee or our company.
The grant of an option will create no tax consequences for the grantee or us.
The grantee will have no taxable income upon exercising an ISO (except that the
alternative minimum tax may apply) and we will receive no deduction at the time.
Upon exercising an option other than an ISO, the grantee must generally
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the freely transferable and non-forfeitable stock
acquired on the date of exercise. In the case of options other than ISOs, we
will be entitled to a deduction for the amount recognized as ordinary income by
the grantee. The treatment to a grantee of a disposition of shares acquired upon
the exercise of an option depends on how long the shares have been held and on
whether such shares are acquired by exercising an ISO or by exercising an option
other than an ISO. Generally, there will be no tax consequences to us in
connection with a disposition of shares acquired pursuant to an option except
that we will be entitled to a deduction (and the grantee will recognize ordinary
taxable income) if shares acquired under an ISO are disposed of before the
applicable ISO holding periods have been satisfied. Different tax rules apply
with respect to grantees who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended, when they sell stock in a transaction deemed
to be a nonexempt purchase under that statute.
With respect to other Awards granted under the 2003 Stock Plan that may be
settled in stock that is either not restricted as to transferability or not
subject to a substantial risk of forfeiture, the grantee must generally
recognize ordinary income equal to the fair market value of shares received less
the amount paid, if any. We will be entitled to a deduction for the same amount.
With respect to Awards involving stock that is restricted as to transferability
and subject to a substantial risk of forfeiture, the grantee must generally
recognize ordinary income equal to the fair market value of the shares received
at the first time the shares become transferable or not subject to a substantial
risk of forfeiture, whichever occurs earlier, less the amount paid, if any. We
will be entitled to a deduction for the same amount. In certain circumstances, a
grantee may elect to be taxed at the time of receipt of shares on the excess of
the fair market value of the shares less the purchase price, if any, rather than
upon the lapse of restrictions on transferability or the substantial risk of
forfeiture.
The foregoing provides only a general description of the application of federal
income tax laws to certain types of Awards under the 2003 Stock Plan. The
summary does not address the effects of foreign (including Canadian), state and
local tax laws. Because of the variety of Awards that may be made under the 2003
Stock Plan and the complexities of the tax laws, grantees are encouraged to
consult a tax advisor as to their individual circumstances.
New Plan Benefits
It is not possible to determine how many discretionary grants, nor what
types, will be made in the future to grantees. It is also not possible to
determine how many discretionary grants will vest rather than be forfeited.
Therefore, it is not possible to determine with certainty the dollar value or
number of shares of our common stock that will be distributed to grantees.
Vote Required
Adoption of the proposal to approve the 2003 Stock Plan requires an
affirmative vote of holders of a majority of the shares present in person or
represented by proxy and entitled to vote at the meeting.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2003 STOCK PLAN.
8
RATIFICATION OF INDEPENDENT AUDITORS
Our Audit Committee has recommended, and the Board has appointed, Ernst & Young
LLP as our independent auditors for the 2003 fiscal year (July 1, 2002 through
June 30, 2003) subject to stockholders' ratification.
Audit services provided by Ernst & Young during fiscal 2002 included an audit of
our financial statements. Ernst & Young reviewed our Annual Report on Form 10-K
filed with the Securities and Exchange Commission and certain other filings that
we made with the SEC and certain other government agencies. Ernst & Young has
unrestricted access to the Audit Committee to discuss audit findings and other
financial matters.
A representative of Ernst & Young LLP is expected to attend the meeting. He or
she will have the opportunity to speak at the meeting if he or she wishes and
will also respond to appropriate questions.
Fees billed by Ernst & Young LLP for fiscal 2002
Audit Fees.......................................... $ 44,765
Financial Information System Design
and Implementation Fees........................... 0
All other fees (1).................................. $ 17,474
------------------
(1) Included in "All other fees" are fees for consultation on accounting
and financial reporting matters and tax services.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLC AS OUR INDEPENDENT AUDITORS FOR FISCAL 2003.
STATEMENT OF CORPORATE GOVERNANCE
Our business is managed under the direction of the Board of Directors. The Board
delegates the conduct of business to our senior management team.
The Board usually meets three to four times a year in regularly scheduled
meetings. It may meet more often if necessary. The Board held three meetings in
fiscal 2002, at which all Directors were present. The Chairman usually
determines the agenda for the meetings. Board members receive the agenda and
supporting information in advance of the meetings. Board members may raise other
matters at the meetings.
The Board considers all major decisions. The Board has established two standing
committees, an Audit Committee and a Compensation Committee. The Audit
Committee, whose duties and responsibilities are described below, and which is
composed of Messrs. Forde, Hurd and Lagarenne, held four meetings in fiscal
2002, at which all members were present. Mr. Forde is not "independent," as such
term is defined in Rule 4200(a)(15) of the NASD's listing standards.
The Compensation Committee is responsible for oversight and administration of
executive compensation. The Compensation Committee, which is composed of Messrs.
Donald Spink and Forde, held one meeting in fiscal 2002.
9
REPORT OF AUDIT COMMITTEE
The Audit Committee operates pursuant to a charter, which reflects standards
enunciated in SEC and Nasdaq Stock Market rules and regulations.
o The Audit Committee is charged with monitoring the preparation of
annual financial reports by TurboSonic's management, including
discussions with management and outside auditors about draft annual
financial statements and significant accounting and reporting
matters;
o The Audit Committee is responsible for matters concerning
TurboSonic's relationship with its outside auditors, including
recommending their appointment or removal; reviewing the scope of
their audit services and related fees, as well as any other services
being provided to TurboSonic; and determining whether the outside
auditors are independent (based in part of the annual letter
provided to TurboSonic pursuant to Independence Standards Board
Standard No. 1); and
o The Audit Committee oversees management's implementation of
effective systems of internal controls, including review of policies
relating to legal and regulatory compliance, ethics and conflicts of
interests.
The Audit Committee has implemented procedures to ensure that during the course
of each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under its charter.
In overseeing the preparation of TurboSonic's financial statements, the Audit
Committee met with both management and outside auditors to review and discuss
all financial statements prior to their issuance and to discuss significant
accounting issues. TurboSonic's management advised the Audit Committee that all
financial statements were prepared in accordance with generally accepted
principles, and the Audit Committee discussed the statements with both
management and outside auditors. The Audit Committee's review included
discussion with the outside auditors of matters required to be discussed
pursuant to Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
With respect to TurboSonic's outside auditors, the Audit Committee, among other
things, discussed with Ernst & Young LLP matters relating to its independence,
including the disclosures made to the Audit Committee as required by the
Independence Standards Board Standard No. 1 (Discussions with Audit Committee).
On the basis of these reviews and discussions, the Audit Committee recommended
to TurboSonic's Board that it approve the inclusion of TurboSonic's audited
financial statements in its Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2002.
September 25, 2002
THE AUDIT COMMITTEE
Patrick J. Forde, Chairman
Richard H. Hurd
Jonathan R. Lagarenne
10
EXECUTIVE COMPENSATION
Summary Compensation
Set forth below is the aggregate compensation paid to Edward F. Spink, our Chief
Executive Officer, during the fiscal years ended June 30, 2002, 2001 and 2000.
No other executive officer received compensation exceeding $100,000 during the
fiscal year ended June 30, 2002.
Long Term Compensation
Annual Compensation Awards
------------------------------------------ -----------------------
Year Other Annual Shares Underlying
Ended Compensation Number of
Name and Principal Position June 30, Salary Bonus (1)(2) Options
--------------------------- --------- -------- ----------- ---------------- -----------------------
Edward F. Spink 2002 $63,752 $ -- $10,671 10,000
CEO 2001 $65,821 $ -- $36,509 10,000
2000 $67,797 $ -- $11,156 50,000
(1) Effective July 1, 2002 Mr. Spink's compensation was revised to $115,400 of
salary, together with a $20,000 bonus to be based upon meeting the
earnings before tax target in our 2003 business plan. The bonus will be
adjusted downward pro-rata based upon the actual earnings before tax to
the plan. Should the plan be exceeded, Mr. Spink will receive 10% of the
earnings before tax so generated.
(2) Effective July 1, 1999, Mr. Spink's compensation was revised to include a
sales commission on Scrubber System sales rather than the previous
discretionary bonus.
Option Grants in Fiscal 2002
Number of Shares
Underlying Options % of Total Options Exercise Expiration
Granted Granted to Employees Price Date
------------------------ ----------------------- ---------- -----------------
Edward F. Spink 10,000 12.5% $ 0.8000 July 30, 2006
Edward F. Spink 10,000 12.5% $ 0.4500 Jun 30, 2007
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Number of Shares Value Options or Warrants at And Warrants
Acquired on Exercise Received Fiscal Year End at Fiscal Year End
-------------------- ------------ --------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Edward F.
Spink 0 $0.00 36,000 34,000 $2,600 $2,400
Compensation of Directors
All directors receive $500 for each board meeting attended. Non-employee
directors receive reimbursement for out-of-pocket expenses for each board
meeting attended. Richard Hurd, a non-employee director of our company, received
$24,000 for the year ended June 30, 2002 for services provided to our company.
During fiscal 2002, we granted our directors options to purchase an aggregate of
100,000 shares of common stock, in recognition of their contributions in the
fiscal years 2002 and 2003.
11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Edward F. Spink is Dr. Donald R. Spink, Sr.'s son.
On October 21, 1998 and January 4, 1999, Mr. Donald Spink and Mr. Patrick Forde,
respectively, lent the Company an aggregate of $130,190. These loans are
repayable two years from the date of the loans, bore interest at 10% per annum
and were, and continue to be collateralized by a lien upon and security interest
in substantially all of the Company's assets. As an inducement to advance these
sums to the Company, Mr. Donald Spink, and Mr. Patrick Forde were granted
warrants to purchase an aggregate of 200,000 shares of the Company's common
stock at an initial exercise price of $0.50 through October 31, 2000, increasing
to $0.75 thereafter through October 31, 2002 and to $1.00 thereafter through
October 31, 2003, respectively. The warrants, whose initial exercise price was
greater than the market price of the Company's common stock on the date such
warrants were granted, expire on the earlier of October 31, 2003 or 30 days
after our common stock has closed at a price per share above $1.50 for 10
consecutive trading days on the OTC Bulletin Board. On July 10, 2000, the loan
and warrant agreements between the Company and Dr. Spink and Mr. Forde were
amended to extend the repayment of the loans to three years from the date of the
loans. The warrants originally issued to them were amended by extending the
various exercise dates by one year and the "...10 consecutive trading days ..."
to 30 days. As an inducement to agree to such amendments, the Company issued
additional warrants to purchase an aggregate of 200,000 shares of its common
stock at an exercise price of $0.5625 per share, being equal to the then market
price of the Company's common stock, to Dr. Spink and Mr. Forde. These warrants,
which have the same terms as the original warrants, are exercisable through
October 20, 2003.
SECURITY OWNERSHIP
The following table sets forth, as of November 8, 2002, the shares of our common
stock owned by each person who, to our knowledge, is the holder of 5% or more of
our common stock, by each of our directors, by each nominee and by all executive
officers and directors as a group.
Name and Address of Beneficial Owner or Identity of Number of Shares Beneficially Approximate
Group Owned (1)(2) Percentage of Class
- ----------------------------------------------------- ---------------------------------- -----------------------
Dr. Donald R. Spink, Sr.* 3,306,432 (3)(6)(7)(8)(10) 28.5%
Edward F. Spink* 483,838 (8)(9)(10) 4.2%
Patrick J. Forde* 889,158 (4)(6)(7)(8)(10) 7.7%
Richard H. Hurd** 131,938 (5)(8)(10) 1.1%
Jonathan R. Lagarenne*** 0 0.0%
Hamon Research-Cottrell, Inc.*** 950,000 8.2%
Frederick G. Berlet* 361,010 (6)(7)(8)(10) 3.1%
Sean J. McNamara* 67,803 (8)(10) 0.6%
James R. Thompson* 1,000 0.0%
All executive officers and directors as a group (9
persons) 5,447,041 (2)-(12) 47.0%
- ----------------------------------------------------------------------------------------------------------------------
- ----------
* c/o TurboSonic Technologies, Inc., 550 Parkside Drive, Suite A-14,
Waterloo, Ontario N2L 5V4, Canada.
** c/o TurboSonic Technologies, Inc., 11 Melanie Lane, Unit 22A, East
Hanover, NJ 07936.
*** c/o Hamon Corporation, 58-72 East Main Street, Somerville, NJ 08876.
12
(1) Unless otherwise indicated, all persons named below have sole voting and
investment power over listed shares.
(2) Includes shares of TurboSonic Canada Inc. which by their terms are
convertible at any time into a like number of shares of our common stock
("TurboSonic Canada Shares").
(3) Includes 2,762,687 TurboSonic Canada Shares owned by Canadian numbered
corporation, over which shares Dr. Spink exercises voting control.
(4) Includes 507,642 TurboSonic Canada Shares owned by the Patrick and Joan
Forde Family Trust.
(5) Includes 1,195 shares owned by Mr. Hurd's spouse, as to which Mr. Hurd
disclaims any beneficial ownership.
(6) Includes warrants for each of Dr. Donald Spink and Mr. Frederick Berlet to
purchase 100,000 shares of our common stock at a current exercise price of
$0.75 through October 21, 2003, and at $1.00 thereafter through October
21, 2004, and for Mr. Patrick Forde to purchase 100,000 shares at a
current price of $0.75 through January 1, 2004 and thereafter at $1.00
through January 1, 2005.
(7) Includes warrants for each of Dr. Donald Spink and Mr. Frederick Berlet to
purchase 100,000 shares of our common stock at a current exercise price of
$0.5625 through October 31, 2003, and for Mr. Patrick Forde to purchase
100,000 shares through January 1, 2004.
(8) Includes 10,000 shares issuable upon exercise of an option expiring in
October 15, 2005 at an exercise price of $0.40, which option was granted
to directors and advisers pursuant to our 2000 Stock Option Plan.
(9) Includes 16,000 shares issuable upon exercise of an option expiring in
October 15, 2006 at an exercise price of $0.40, which option was granted
to employees pursuant to our 2000 Stock Option Plan.
(10) Includes 10,000 shares issuable upon exercise of an option expiring in
October 15,2006 at an exercise price of $0.5625, which option was granted
to directors and advisers pursuant to our 2000 Stock Option Plan.
(11) Includes 48,000 shares issuable upon exercise of an option expiring in
October 15, 2006 at an exercise price of $0.40, which option was granted
to employees pursuant to our 2000 Stock Option Plan.
(12) Includes 93,067 shares owned by the spouse of an executive officer, as to
which the executive officer disclaims any beneficial ownership.
During 2002, we entered into an agreement to form a strategic alliance with
Hamon Research-Cottrell, Inc. ["Hamon"]. As part of the agreement, Hamon
acquired directly from us 500,000 shares of TurboSonic common stock,
representing an approximate 4.7% equity interest at $1.00 U.S. per share.
Certain of TurboSonic's shareholders, including officers and directors, granted
options to Hamon to acquire control of TurboSonic from these shareholders at
prices ranging from $1.80 to $2.50 per share. These options are exercisable only
in the event that Hamon initiates a tender offer for TurboSonic's common stock.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Number of Securities to Weighted average -
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available for
Plan Category warrants and rights warrants and rights future issuance
------------------------- --------------------------- -------------------------- --------------------------
Equity compensation
plans approved by
security holders -- -- --
Equity compensation
plans not approved by
security holders 1,542,250 $0.563 500
--------------------------- -------------------------- --------------------------
Total 1,542,250 $0.563 500
--------------------------- -------------------------- --------------------------
13
We instituted the 2000 stock plan with the express purpose of encouraging our
key employees, as well as other individuals who render services to our company,
by providing opportunities to participate in the ownership of our company. The
2000 stock plan provides for the grant of options as non-qualified options,
awards of capital stock in our company and opportunities to make direct
purchases of capital stock in our company. Collectively, these are referred to
as stock rights.
The 2000 stock plan, adopted on February 9, 2000, is administered by the Board,
which determines to whom such stock rights may be granted, at which times the
stock rights shall be granted and the time or times when each option shall
become exercisable and the duration of the exercise period. The exercise price
per each non-qualified option granted under the 2000 stock plan shall be not
less than the fair market value per share of common stock on the date of such
grant. The stock, subject to stock rights, shall be authorized but unissued
shares of our common stock or shares of common stock reacquired by our company
in any manner. The aggregate number of shares that may be issued, pursuant to
the 2000 stock plan, is 750,000, subject to certain adjustments.
On February 9, 2000, a total of 500,000 options were granted at that date to all
full-time employees at an exercise price of $0.40 and an expiry date of October
15, 2006, provided that 20% of the total number of shares covered by an option
granted to employees under the 2000 stock plan would be exercisable each year on
a cumulative basis over a five year period, and provided that our annual
business plan targets with regard to revenue and net operating income were met
for each preceding fiscal year. However, the Board retained the right at its
sole discretion to allow exercise of all or a portion of the shares granted if
the corporate targets were not met. During the third quarter of fiscal 2001, the
2000 stock plan was amended. The amendment to the 2000 stock plan provided that
the 500,000 options shall be exercisable commencing on October 15, 2004. If the
business targets are met, the options are exercisable at earlier periods. The
amendment to the 2000 stock plan has changed it to a non-variable plan by fixing
the number of options. In July 2000, the Board waived the business plan target
requirement relative to fiscal 2000 for the options so granted to the employees.
These options became exercisable on October 15, 2000.
On February 9, 2000, a total of seven of our directors and advisers were granted
options to purchase 10,000 common shares each at an exercise price of $0.40 and
expire on October 15, 2005. These options were also tied to meeting our business
plan targets. In July 2000, the Board waived the business plan target
requirement relative to fiscal 2000 for the options so granted to the directors
and advisers. These options became exercisable on October 15, 2000.
On July 10, 2000, a total of seven of our directors and advisers were granted
options to purchase 10,000 common shares each at an exercise price of $0.5625.
Subsequent to June 30, 2001, the Board confirmed that the business plan target
requirement was met relative to fiscal 2001 for the options so granted to the
employees, directors and advisers. These options became exercisable immediately.
The employee and the director/adviser options expire on October 15, 2006.
In July and December 2001, a total of eight of our directors and advisers were
granted options to purchase 10,000 common shares each at an exercise price of
$0.80. The options expire five years from the grant date, and vest on July 30,
2006.
In June 2002 eight of our directors and advisers were granted options to
purchase 10,000 common shares each at an exercise price of $0.45. The options
expire five years from the grant date, and vest on June 30, 2005. If certain
business plan targets are met, the options are exercisable on June 30, 2003.
In 1998, as an inducement to advance loans by two directors, and two
stockholders, the lenders were granted detachable warrants to purchase an
aggregate of 400,000 of our common shares on terms that were subsequently
modified as disclosed below.
On July 10, 2000, officers, directors and stockholders agreed to extend the
maturity dates of their respective loans by an additional year. As an inducement
to extend the maturity dates of the loans, we modified the exercise price of the
detachable stock purchase warrants as follows: for three years after the initial
date of the respective loan at a price of $0.50 per share, for a period of two
years following the initial three year period at a price of $0.75 per share and
for an additional period of one year at a price of $1.00. Additionally, warrants
to acquire another 400,000 common shares were granted in aggregate to the
lenders, at a price of $0.5625 per share, commencing on the first day of the
extension of their loan for a period of two years. The expiry of both sets of
warrants is now stated to be the earlier of the specified expiry date or ninety
days after the date that shares of our common stock have closed at a trading
price above $1.50 for 30 consecutive trading days.
14
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and
directors, and persons who own more than 10% of our common stock, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% stockholders are required
by the SEC regulation to furnish our company with copies of all Section 16(a)
forms they file.
Based solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons that no such forms were
required for those persons, we believe that during the fiscal year ended June
30, 2002, all filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with, except that Edward Spink,
Patrick Forde, Dr. Donald Spink, Richard Hurd, David Hobson, Ronald Berube,
Egbert van Everdingen and Robert Allan each failed to file on a timely basis two
Form 4s reflecting one transaction each, Edward Spink failed to file on a timely
basis one Form 4 reflecting two transactions and Jonathan Lagarenne failed to
file on a timely basis a Form 3.
OTHER MATTERS
The Board knows of no other matters to be brought before the meeting. However,
if other matters should come before the meeting, it is the intention of each
person named in the proxy to vote such proxy in accordance with his judgment on
such matters.
15
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EXHIBIT A
TURBOSONIC TECHNOLOGIES, INC.
2003 STOCK PLAN
1. Purpose.
The purpose of the TurboSonic Technologies, Inc. 2003 Stock Plan (the
"Plan") is to encourage key employees of TurboSonic Technologies, Inc.
(the "Company") and of any present or future parent or subsidiary of the
Company (collectively, "Related Corporations"), as well as other
individuals who render services to the Company or a Related Corporation,
to promote the objectives and success of the Company by providing
opportunities to participate in the ownership of the Company and its
future growth through (a) the grant of options which qualify as "incentive
stock options" ("ISOs") under Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code"); (b) the grant of options which do not
qualify as ISOs ("Non-Qualified Options"); (c) awards of capital stock in
the Company ("Awards"); and (d) opportunities to make direct purchases of
capital stock in the Company ("Purchases"). Both ISOs and Non-Qualified
Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make
Purchases are referred to hereafter collectively as "Stock Rights." As
used herein, the terms "parent" and "subsidiary" mean "parent corporation"
and "subsidiary corporation," respectively, as those terms are defined in
Section 424 of the Code.
2. Administration of the Plan.
(a) Board or Committee Administration. The Plan shall be administered by
a Committee (the "Committee") of the Board of Directors of the
Company (the "Board"). The Committee, to the extent the Board
considers it desirable for transactions relating to Stock Rights to
qualify for an exemption under Code Section 162(m) or to the extent
required by Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended ("Exchange Act"), or any successor provision
("Rule 16b-3"), shall be comprised of two or more directors who, to
the extent required by Rule 16b-3 or Code Section 162(m), shall be
"non-employee directors" within the meaning of Rule 16b-3 or
"outside directors" within the meaning of Code Section 162(m) as
applicable. All references in this Plan to the "Committee" shall
mean the Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right by
the Board (if so required by applicable state law), and subject to
the terms of the Plan, the Committee shall have the authority to (in
addition to powers specifically authorized elsewhere in this Plan):
(i) determine to whom (from among the class of employees eligible
under paragraph 3 to receive ISOs) ISOs shall be granted, and
to whom (from among the class of individuals eligible under
paragraph 3 to receive Non-Qualified Options and Awards and to
make Purchases) Non-Qualified Options, Awards and
authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards shall
be granted or Purchases made;
(iii) determine the purchase price of shares subject to each Option
or Purchase, which prices shall not be less than the minimum
price specified in paragraph 6;
(iv) determine whether each Option granted shall be an ISO or a
Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or times when each
Option shall become exercisable and the duration of the
exercise period;
(vi) determine and extend the period during which outstanding
Options may be exercised (subject to paragraph 7);
(vii) determine whether restrictions are to be imposed on shares
subject to Options, Awards and Purchases and the nature of
such restrictions, if any;
(viii) construe and interpret the Plan and make all determinations,
including factual determinations, necessary or advisable for
the administration of the Plan;
(ix) prescribe, amend, suspend, waive and rescind rules and
regulations relating to the Plan, including rules with respect
to the exercisablity and non-forfeitability of Stock Rights
upon the termination of employment or cessation of service as
a Board member, which rules and regulations may be different
for Participants in different countries;
(x) grant Stock Rights to Participants in any number, and to
determine the terms and conditions applicable to each Stock
Right (including the number of shares or the amount of cash or
other property to which a Stock Right will relate, any
exercise price, grant price or purchase price, any limitation
or restriction, any schedule for or performance conditions
relating to the earning of the Stock Right or the lapse of
limitations, forfeiture restrictions, restrictions on
exercisability or transferability, any performance goals
including those relating to the Company and/or Related
Corporations and/or an individual, and/or vesting based on the
passage of time, based in each case on such considerations as
the Committee shall determine);
(xi) offer to exchange or buy out any previously granted Stock
Right for a payment in cash, Common Stock or other Stock
Right;
A-1
(xii) determine the terms and conditions of all Award Agreements
applicable to Participants (which need not be identical) and,
to amend any such Award Agreement at any time, to the extent
permitted by the Plan, provided, however, that a Participant's
consent will be required for any change which alters or
materially impairs the his or her rights as a Participant;
(xiii) cancel, with the consent of the Participant, outstanding
Stock Rights and to grant new Stock Rights in substitution
therefor;
(xiv) impose such additional terms and conditions upon the grant,
exercise or retention of Stock Rights as the Committee may,
before or concurrently with the grant thereof, deem
appropriate, including limiting the percentage of Stock Rights
which may from time to time be exercised by a Participant;
(xv) make adjustments in the terms and conditions of, and the
criteria of, Stock Rights in recognition of unusual or
nonrecurring events (including events described in paragraph
13) affecting the Company or a Related Corporation or the
financial statements of the Company or a Related Corporation,
or, in response to changes in applicable laws, regulations or
accounting principles (provided, however, that in no event
shall such adjustment increase the value of a Stock Right for
a person expected to be a covered person under Code Section
162(m) for whom the Committee desires to have the exemption
under Rule 162(m) apply);
(xvi) correct any defect or supply any omission or reconcile any
inconsistency;
(xvii) construe and interpret the Plan, the rules and regulations,
and Award Agreement or any other instrument entered into or
relating to a Stock Right under the Plan; and
(xviii) take any other action with respect to any matters relating
to the Plan for which it is responsible and to make all other
decisions and determinations as may be required under the
terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
Any action of the Committee with respect to the Plan shall be final,
conclusive and binding on all persons, including the Company, Related
Corporations, any Participant, any person claiming any rights under
the Plan from or through any Participant, and stockholders, except to
the extent the Committee may subsequently modify, or take further
action not consistent with, its prior action. If not specified in the
Plan, the time at which the Committee must or may make any
determination shall be determined by the Committee, and any such
determination may thereafter be modified by the Committee. The
express grant of any specific power to the Committee, and the taking
of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may delegate
to officers or managers of the Company or any Related Corporation the
authority, subject to such terms as the Committee shall determine, to
perform specified functions under the Plan. If the Committee
determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the
regulations promulgated thereunder, to ensure that such Option is not
treated as an ISO. The interpretation and construction by the
Committee of any provisions of the Plan or of any Stock Right granted
under it shall be final unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem advisable. No member of the
Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any
Stock Right granted under it.
(b) Committee Actions. The Committee may select one of its members as
its chairman, and shall hold meetings at such time and places as it
may determine. A majority of the Committee shall constitute a quorum
and acts of a majority of the members of the Committee at a meeting
at which a quorum is present, or acts reduced to or approved in
writing by all the members of the Committee (if consistent with
applicable state law), shall be the valid acts of the Committee.
From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan, in each case,
as the Board deems appropriate to permit transactions pursuant to
the Plan to satisfy such conditions of Rule 16b-3 or Code Section
162(m) as then in effect.
(c) Grant of Stock Rights to Board Members. Subject to the provisions of
the first sentence of paragraph 3 above, if applicable, Stock Rights
may be granted to members of the Board. All grants of Stock Rights
to members of the Board shall in all other respects be made in
accordance with the provisions of this Plan applicable to other
eligible persons. Consistent with the provisions of the first
sentence of Paragraph 2(a) above, members of the Board who either
(i) are eligible to receive grants of Stock Rights pursuant to the
Plan or (ii) have been granted Stock Rights may vote on any matters
affecting the administration of the Plan or the grant of any Stock
Rights pursuant to the Plan, except that no such member shall act
upon the granting to himself or herself of Stock Rights, but any
such member may be counted in determining the existence of a quorum
at any meeting of the Board during which action is taken with
respect to the granting to such member of Stock Rights.
A-2
(d) Exculpation. No member of the Board shall be personally liable for
monetary damages for any action taken or any failure to take any
action in connection with the administration of the Plan or the
granting of Stock Rights under the Plan, provided that this
subparagraph 2(d) shall not apply to (i) any breach of such member's
duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or involving intentional misconduct or a
knowing violation of law, (iii) acts or omissions that would result
in liability under Section 174 of the General Corporation Law of the
State of Delaware, as amended, and/or (iv) any transaction from
which the member derived an improper personal benefit.
(e) Indemnification. Service on the Committee shall constitute service
as a member of the Board. Each member of the Committee shall be
entitled without further act on his or her part to indemnity from
the Company to the fullest extent provided by applicable law and the
Company's Certificate of Incorporation and/or By-laws in connection
with or arising out of any action, suit or proceeding with respect
to the administration of the Plan or the granting of Stock Rights
thereunder in which he or she may be involved by reason of his or
her being or having been a member of the Committee, whether or not
he or she continues to be a member of the Committee at the time of
the action, suit or proceeding.
(f) Compliance with Section 162(m) of the Code.
(i) Section 162(m) Compliance. All Awards granted to persons the
Committee believes likely to be covered employees under Code
Section 162(m) may, to the extent the Board considers it
desirable, comply with the requirements of the
performance-based exception under Code Section 162(m). In
addition, in the event that changes are made to Code Section
162(m) to permit flexibility with respect to the Stock Right
or Stock Rights available under the Plan, the Committee may,
subject to this Section 2(f), make any adjustments to such
Stock Rights as it deems appropriate.
(ii) Annual Individual Limitations. During any fiscal year, no
Participant may be granted Stock Rights with respect to more
than 40% of the shares of Common Stock reserved for issuance
pursuant to Section 4(a), subject to adjustment as provided in
paragraph 13.
(g) Compliance with Rule 16b-3.
(i) Six-Month Holding Period Advice. Unless a Participant could
otherwise dispose of or exercise a derivative security or
dispose of shares of Common Stock delivered under the Plan
without incurring liability under Section 16(b) of the
Exchange Act, the Committee may advise or require a
Participant to comply with the following in order to avoid
incurring liability under Section 16(b): (i) at least six
months must elapse from the date of acquisition of a
derivative security under the Plan to the date of disposition
of the derivative security (other than upon exercise or
conversion) or its underlying equity security, and (ii) shares
of Common Stock granted or awarded under the Plan other than
upon exercise or conversion of a derivative security must be
held for at least six months from the date of grant of a Stock
Right.
(ii) Reformation to Comply with Exchange Act Rules. To the extent
the Committee determines that a grant or other transaction by
a Section 16 Person should comply with applicable provisions
of Rule 16b-3 (except for transactions exempted under
alternative Exchange Act rules), the Committee shall take such
actions as necessary to make such grant or other transaction
so comply, and if any provision of this Plan or any Award
Agreement relating to a given Stock Right does not comply with
the requirements of Rule 16b-3 as then applicable to any such
grant or transaction, such provision will be construed or
deemed amended, if the Committee so determines, to the extent
necessary to conform to the then applicable requirements of
Rule 16b-3.
3. Eligible Employees and Others.
ISOs may be granted only to employees of the Company or any subsidiary
corporation as defined in Section 424(f) of the Code (with the Company
being treated as the employer corporation for purposes of this definition)
("Subsidiary") at the time of the determination. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any
employee, officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation. The Committee may
take into consideration a recipient's individual circumstances in
determining whether to grant a Stock Right. The granting of any Stock
Right to any individual shall neither entitle that individual to, nor
disqualify such individual from, participation in any other grant of Stock
Rights. Any of the prior described individuals in this paragraph 3 are
referred to in this Plan as a "Participant".
4. Stock Rights.
(a) Number of Shares Subject to Rights. The stock subject to Stock
Rights shall be authorized but unissued shares of Common Stock of
the Company, par value $.10 per share (the "Common Stock"), or
shares of Common Stock reacquired by the Company in any manner. The
aggregate number of shares which may be delivered pursuant to the
Plan is 500,000, subject to adjustment as provided in paragraph 13.
If any Stock Right granted under the Plan shall expire or terminate
for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the shares of
Common Stock subject to such Stock Right shall again be available
for grants of Stock Rights under the Plan.
(b) Nature of Awards. In addition to ISOs and Non-Qualified Options, the
Committee may grant or award other Stock Rights, as follows:
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(i) Purchases. Participants may be granted the right to purchase
Common Stock, subject to such restrictions as may be specified
by the Committee ("Restricted Shares"). Such restrictions may
include, but are not limited to, the requirement of continued
employment with the Company or a Related Corporation and
achievement of performance objectives.
(A) Purchase Price. The Committee shall determine the
purchase price of the Restricted Shares (which, except
for treasury shares, shall be at least the par value of
a share of Common Stock for each Restricted Share), the
nature of the restrictions and the performance
objectives, and acceleration of vesting, all of which
shall be set forth in the Award Agreement relating to
each right awarded to purchase Restricted Shares. The
payment of the purchase price of the Restricted Shares
shall be made in cash or check, in full by the
Participant before the delivery of the shares of Common
Stock and in any event no later than 3 business days
after the grant date for such Restricted Shares.
(B) Effect of Forfeiture. If Restricted Shares are
forfeited, and if the Participant was required to pay
for such shares or acquired such Restricted Shares upon
the exercise of an Option, the Participant shall be
deemed to have resold such Restricted Shares to the
Company at a price equal to the lesser of (x) the amount
paid by the Participant for such Restricted Shares, or
(y) the Fair Market Value of a Share on the date of such
forfeiture, multiplied by the number of Restricted
Shares forfeited. The Company shall pay to the
Participant the deemed sale price as soon as is
administratively practical. Such Restricted Shares shall
cease to be outstanding, and shall no longer confer on
the Participant thereof any rights as a stockholder of
the Company, from and after the date of the event
causing the forfeiture, whether or not the Participant
accepts the Company's tender of payment for such
Restricted Shares.
(C) Escrow; Legends. The Committee may provide that the
certificates for any Restricted Shares (x) shall be held
(together with a stock power executed in blank by the
Participant) in escrow by the Secretary of the Company
until such Restricted Shares become non-forfeitable or
are forfeited or (y) shall bear an appropriate legend
referencing the possibility of forfeiture of such
Restricted Shares. If any Restricted Shares become
non-forfeitable, the Company shall cause certificates
for such shares to be delivered without such legend.
(D) Performance Objectives. The performance objectives shall
consist of (x) one or more business criteria and (y) a
target level or levels of performance with respect to
such criteria. The Committee shall have the discretion
to adjust the determinations of the degree of attainment
of the pre-established performance goals.
(ii) Awards. Awards of Common Stock may be made to Participants as
a bonus or as additional compensation, as may be determined by
the Committee.
5. Granting of Stock Rights.
Stock Rights may be granted under the Plan at any time on or after October
25, 2002 and prior to October 25, 2012. The date of grant of a Stock Right
under the Plan will be the date specified by the Committee at the time it
grants the Stock Right; provided, however, that such date shall not be
prior to the date on which the Committee acts to approve the grant.
6. Minimum Option Price; ISO Limitations.
(a) Price for Non-Qualified Options, Awards and Purchases. The exercise
price per share specified in the agreement relating to each
Non-Qualified Option granted, and the purchase price per share of
stock granted in any Award or authorized as a Purchase, under the
Plan shall in no event be less than the minimum legal consideration
required therefor under the laws of any jurisdiction in which the
Company or its successors in interest may be organized.
(b) Price for ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be
less than the fair market value per share of Common Stock on the
date of such grant. In the case of an ISO to be granted to an
employee owning stock (including stock treated as owned under
Section 424(d) of the Code) possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the
Company or any Related Corporation (a "10% Owner"), the price per
share specified in the agreement relating to such ISO shall not be
less than one hundred ten percent (110%) of the fair market value
per share of Common Stock on the date of grant. For purposes of
determining stock ownership under this paragraph, the rules of
Section 424(d) of the Code shall apply.
(c) $100,000 Annual Limitation on ISO Vesting. Each eligible employee
may be granted Options treated as ISOs only to the extent that, in
the aggregate under this Plan and all incentive stock option plans
of the Company and any Related Corporation, ISOs do not become
exercisable for the first time by such employee during any calendar
year with respect to stock having a fair market value (determined at
the time the ISOs were granted) in excess of $100,000. Any Options
granted in excess of such limitation are hereby designated as
Non-Qualified Options.
(d) Determination of Fair Market Value. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly
traded, "fair market value" shall be determined as of the date of
grant or, if the prices or quotes discussed in this sentence are
unavailable for such date, the last business day for which such
prices or quotes are available prior to the date of grant and shall
mean
(i) the average (on that date) of the high and low sale prices of
the Common Stock on the principal national securities exchange
on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange; or
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(ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq Stock Market, if the Common Stock is not
then traded on a national securities exchange; or
(iii) the last reported sale price (on that date, or if no sale of
shares of Common Stock was reported for such date, on the last
preceding date on which such sale occurred) of the Common
Stock on the OTC Bulletin Board (or any replacement thereto) ,
if the Common Stock is not then traded on the Nasdaq Stock
Market; or
(iv) the last reported trading price (on that date, or if no sale
of shares of Common Stock was reported for such date, on the
last preceding date on which such sale occurred) by an
established quotation service for the over-the-counter
securities market, if the Common Stock is not reported on the
OTC Bulletin Board (or any replacement thereto). If the Common
Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall mean the fair value
of the Common Stock as determined in good faith by the
Committee after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale
and offer prices of the Common Stock in private transactions
negotiated at arm's length.
7. Option Duration.
Subject to earlier termination as provided in paragraphs 9 and 10 or in
the agreement relating to such Option, each Option shall expire on the
date specified by the Committee, but not more than (i) ten years from the
date of grant in the case of Options generally and (ii) five years from
the date of grant in the case of ISOs granted to a 10% Owner. Subject to
earlier termination as provided in paragraphs 9 and 10, the term of each
ISO shall be the term set forth in the original instrument granting such
ISO, except with respect to any part of such ISO that is converted into a
Non-Qualified Option pursuant to paragraph 6(c).
8. Exercise of Option.
Subject to the provisions of paragraphs 9 through 12, each Option granted
under the Plan shall be exercisable as follows:
(a) Vesting. The Option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as
the Committee may specify.
(b) Full Vesting of Installments. Once an installment becomes
exercisable, it shall remain exercisable until expiration or
termination of the Option, unless otherwise specified by the
Committee.
(c) Partial Exercise. Each Option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
(d) Acceleration of Vesting. The Committee shall have the right to
accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the
consent of an Participant, accelerate the permitted exercise date of
any installment of any Option granted to any employee as an ISO (and
not previously converted into a Non-Qualified Option pursuant to
paragraph 6(c) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in
paragraph 6(c).
9. ISO: Termination of Employment.
Unless otherwise specified in the agreement relating to such ISO, if an
ISO Participant ceases to be employed by the Company and all Subsidiaries
other than by reason of death or disability or as otherwise specified in
paragraph 10, no further installments of his or her ISOs shall become
exercisable, and his or her ISOs shall terminate on the earlier of (a)
three (3) months after the date of termination of his or her employment,
or (b) their specified expiration dates, except to the extent that such
ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 6(c). For purposes of this
paragraph 9, employment shall be considered as continuing uninterrupted
during any bona fide leave of absence (such as those attributable to
illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period
during which such Participant's right to reemployment is guaranteed by
statute. A bona fide leave of absence with the written approval of the
Committee shall not be considered an interruption of employment under this
paragraph 9, provided that such written approval contractually obligates
the Company or any Subsidiary to continue the employment of the
Participant after the approved period of absence. ISOs granted under the
Plan shall not be affected by any change of employment within or among the
Company and Subsidiaries, so long as the Participant continues to be an
employee of the Company or any Subsidiary. Nothing in the Plan shall be
deemed to give any Participant of any Stock Right the right to be retained
in employment or other service by the Company or any Related Corporation
for any period of time.
10. ISO: Death; Disability; Breach.
(a) Death. If an ISO Participant ceases to be employed by the Company
and all Subsidiaries by reason of his or her death, any ISO owned by
such Participant may be exercised, to the extent otherwise
exercisable on the date of death, by the estate, personal
representative or beneficiary who has acquired the ISO by will or by
the laws of descent and distribution, until the earlier of (i) the
specified expiration date of the ISO or (ii) one (1) year from the
date of the Participant's death.
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(b) Disability. If an ISO Participant ceases to be employed by the
Company and all Subsidiaries by reason of his or her disability,
such Participant shall have the right to exercise any ISO held by
him or her on the date of termination of employment, for the number
of shares for which he or she could have exercised it on that date,
until the earlier of (i) the specified expiration date of the ISO or
(ii) one (1) year from the date of the termination of the
Participant's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined
in Section 22(e)(3) of the Code or any successor statute.
(c) Voluntary Termination; Breach. If an ISO Participant voluntarily
leaves the employ of the Company and all Subsidiaries, or ceases to
be employed by the Company and all Subsidiaries by reason of a
finding by the Committee, after full consideration of the facts
presented on behalf of both the Company and the Participant, that
the ISO Participant has breached his or her employment or service
contract with the Company or any Subsidiary, or has been engaged in
disloyalty to the Company or any Subsidiary, then, in such event,
the ISO shall immediately terminate and the ISO Participant shall
automatically forfeit all shares for which the Company has not yet
delivered share certificates upon refund by the Company of the
exercise price of such Option. Notwithstanding anything herein to
the contrary, the Company may withhold delivery of share
certificates pending the resolution of any inquiry that could lead
to a finding resulting in a forfeiture.
11. Assignability.
No Stock Right shall be assignable or transferable by the Participant
except by will, by the laws of descent and distribution or, in the case of
Non-Qualified Options only, pursuant to a valid domestic relations order.
Except as set forth in the previous sentence, during the lifetime of a
Participant each Stock Right shall be exercisable only by such
Participant.
12. Terms and Conditions of Options.
Options shall be evidenced by instruments (which need not be identical) in
such forms as the Committee may from time to time approve ("Award
Agreement"). Such instruments shall conform to the terms and conditions
set forth in paragraphs 6 through 11 hereof and may contain such other
provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein
with respect to ISOs, or to such other termination and cancellation
provisions as the Committee may determine, including terms requiring
forfeiture, acceleration or pro-rata acceleration of Non-Qualified Options
in the event of a termination of employment with the Company and Related
Corporations, or end of service as a member of the Board. The Committee
may from time to time confer authority and responsibility on one or more
of its own members and/or one or more officers of the Company to execute
and deliver such instruments. The proper officers of the Company are
authorized and directed to take any and all action necessary or advisable
from time to time to carry out the terms of such instruments.
13. Adjustments.
Upon the occurrence of any of the following events, a Participant's rights
with respect to Options granted to such Participant hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided
in the written agreement between the Participant and the Company relating
to such Option:
(a) Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a
stock dividend or extraordinary cash dividend (as determined by the
Committee in its discretion) on its outstanding Common Stock
(including a forward or reverse stock split or repurchase or
exchange) the Committee, in its discretion, may cause any or all of
the following to occur, as the Committee shall determine to be
appropriate in order to prevent dilution or enlargement of benefits
or potential benefits intended to be made available under the Plan:
(i) the number and type of shares of Common Stock deliverable upon
the exercise of Options may be appropriately increased or decreased,
(ii) the number and type of shares of Common Stock with respect to
which Stock Rights may be granted may be appropriately increased or
decreased, and (iii) appropriate adjustments may be made in the
purchase price per share to reflect such subdivision, combination or
stock dividend.
(b) Consolidations or Mergers. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets, consolidation, split-up,
spin-off or combination involving the Company or repurchase or
exchange of shares of Common Stock or other securities of the
Company or other rights to purchase Shares or other securities of
the Company (an "Acquisition"), the Committee or the board of
directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options,
either
(i) make appropriate provision for the continuation of such
Options by substituting on an equitable basis for the shares
then subject to such Options either (A) the consideration
payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition, (B) shares of stock of the
surviving corporation or (C) such other securities as the
Successor Board deems appropriate, the fair market value of
which shall approximate the fair market value of the shares of
Common Stock subject to such Options immediately preceding the
Acquisition; or
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(ii) upon written notice to the Participants, provide that all
Options must be exercised, to the extent then exercisable,
within a specified number of days of the date of such notice,
at the end of which period the Options shall terminate; or
(iii) terminate all Options in exchange for a cash payment equal to
the excess of the fair market value of the shares subject to
such Options (to the extent then exercisable) over the
exercise price thereof.
(c) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph (b) above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, a Participant
upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he or she
would have received if he or she had exercised such Option prior to
such recapitalization or reorganization.
(d) Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs
shall be made only after the Committee, after consulting with
counsel for the Company, determines whether such adjustments would
constitute a "modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a
modification of such ISOs or would cause adverse tax consequences to
the holders, it may refrain from making such adjustments.
(e) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at
such other time and subject to such other conditions as shall be
determined by the Committee.
(f) Issuance of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends paid in cash or in property
other than securities of the Company.
(g) Fractional Shares. No fractional shares shall be issued under the
Plan and the Participant shall receive from the Company cash in lieu
of such fractional shares.
(h) Adjustments. Upon the happening of any of the events described in
subparagraphs (a), (b) or (c) above, the class and aggregate number
of shares set forth in paragraph 4 hereof that are subject to Stock
Rights other than Options which previously have been or subsequently
may be granted under the Plan shall also be appropriately adjusted
to reflect the events described in such subparagraphs. The Committee
or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its
determination shall be conclusive.
14. Means of Exercising Options.
(a) Exercise. An Option (or any part or installment thereof) shall be
exercised by giving written notice to the Company at its principal
office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and
specify the number of shares as to which such Option is being
exercised, accompanied by full payment of the purchase price
therefor either (a) in United States dollars in cash or by check,
(b) at the discretion of the Committee, through delivery of shares
of Common Stock held by the Participant for at least six months
prior to the exercise of the Option having a fair market value equal
as of the date of the exercise to the cash exercise price of the
Option, (c) at the discretion of the Committee and consistent with
applicable law, through the delivery of an assignment to the Company
of a sufficient amount of the proceeds from the sale of the Common
Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which
sale shall be at the Participant's direction at the time of
exercise, or (d) at the discretion of the Committee, by any
combination of (a), (b), and (c) above; provided, however, that the
Committee may exercise its discretion at any time to prohibit any
director or officer subject to reporting requirements under Section
16 of the Exchange Act from making payment of the purchase price of
the Option pursuant to (b), (c) or (d) above. The Committee shall
set forth the payment options in the Award Agreement, and the
Committee may exercise its discretion with relation to any payment
option requiring discretionary Committee approval at the time of
exercise.
(b) Rights as a Shareholder. The holder of an Option shall not have the
rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such
holder for such shares. Except as expressly provided above in
paragraph 13 with respect to changes in capitalization, stock
dividends and extraordinary cash dividends (as determined by the
Committee in its discretion), no adjustment shall be made for
dividends or similar rights for which the record date is before the
date such stock certificate is issued. Restricted Shares, whether
held by a Participant or in escrow by the Secretary of the Company,
shall confer on the Participant all rights of a stockholder of the
Company, except as otherwise provided in the Plan or Award
Agreement. Unless otherwise determined by the Committee at the time
of a grant of Restricted Shares, any cash dividends that become
payable on Restricted Shares shall be deferred and, if the Committee
so determines, reinvested in additional Restricted Shares. Except as
otherwise provided in an Award Agreement, any stock dividends and
deferred cash dividends issued with respect to Restricted Shares
shall be subject to the same restrictions and other terms as apply
to the Restricted Shares with respect to which such dividends are
issued. The Committee may provide for payment of interest on
deferred cash dividends.
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15. Term and Amendment of Plan.
This Plan was adopted by the Board on October 25, 2002, subject to
approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained on or prior to October 25, 2003,
any Stock Rights under the Plan made prior to that date will be rescinded.
The Plan shall expire at the end of the day on October 25, 2012 (except as
to Stock Rights outstanding on that date). Subject to the provisions of
paragraph 5 above, Options may be granted under the Plan prior to the date
of stockholder approval of the Plan. The Board may terminate, alter,
suspend, discontinue or amend the Plan in whole or in part and in any
respect at any time without the approval of the Company's stockholders,
except that, (a) any amendment or alteration shall be subject to the
approval of the Company's stockholders if such stockholder approval is
required by federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the shares of Common Stock
may then be listed or quoted, and (b) the Board may otherwise, in its
discretion, determine to submit other such amendments or alterations to
stockholders for approval. Except as otherwise provided in this paragraph
15, in no event may action of the Board or stockholders alter or
materially impair the rights of a Participant, without such Participant's
consent, under any Stock Right previously granted to such Participant.
16. Application Of Funds.
The proceeds received by the Company from the sale of shares pursuant to
Options granted and Purchases authorized under the Plan shall be used for
general corporate purposes.
17. Notice to Company of Disqualifying Disposition.
By accepting an ISO granted under the Plan, each Participant agrees to
notify the Company in writing immediately after such Participant makes a
disqualifying disposition (as described in Sections 421, 422 and 424 of
the Code and regulations thereunder ("Disqualifying Disposition")) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or
before the later of (a) the date two years following the date the ISO was
granted or (b) the date one year following the date the ISO was exercised.
18. Withholding of Additional Income Taxes.
Upon the exercise of a Non-Qualified Option, the grant of an Award, the
making of a Purchase of Common Stock for less than its fair market value,
the vesting or transfer of Restricted Shares or securities acquired on the
exercise of an Option hereunder, or the making of a distribution or other
payment with respect to such stock or securities, the Company may withhold
taxes equal to (but not more than) the minimum required federal, state,
local and foreign tax withholding requirements in respect of amounts that
constitute compensation includable in gross income. The Committee in its
discretion may condition (i) the exercise of an Option, (ii) the grant of
an Award, (iii) the making of a Purchase of Common Stock for less than its
fair market value, or (iv) the vesting or transferability of Restricted
Shares or securities acquired by exercising an Option, on the
Participant's making satisfactory arrangement for such withholding. Such
arrangement may include payment by the Participant in cash or by check of
the amount of the required withholding taxes or, at the discretion of the
Committee, by the Participant's delivery of previously held shares of
Common Stock or the withholding from the shares of Common Stock otherwise
deliverable upon exercise of Option shares having an aggregate fair market
value equal to the amount of such withholding taxes.
19. Governmental Regulation.
The Company's obligation to sell and deliver shares of the Common Stock
under this Plan is subject to the approval of any governmental authority
required in connection with the authorization, issuance or sale of such
shares. Government regulations may impose reporting or other obligations
on the Company with respect to the Plan. For example, the Company may be
required to send tax information statements to employees and former
employees that exercise ISOs under the Plan, and the Company may be
required to file tax information returns reporting the income received by
Participants of Options in connection with the Plan.
20. Governing Law.
The validity and construction of the Plan and the instruments evidencing
Options shall be governed by the laws of Delaware.
21. Notification Under Code Section 83(b).
If the Participant, in connection with the exercise of any Option, or the
grant of Restricted Shares, makes the election permitted under Section
83(b) of the Code to include in such Participant's gross income in the
year of transfer the amounts specified in Section 83(b) of the Code, then
such Participant shall notify the Company of such election within 10 days
of filing the notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to regulations
issued under Section 83(b) of the Code. The Committee may, in connection
with the grant of a Stock Right or at any time thereafter, prohibit a
Participant from making the election described above.
A-8
TurboSonic Technologies, Inc.
550 Parkside Drive, Suite A-14
Waterloo, Ontario
Canada N2L 5V4
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Edward F. Spink and Patrick J. Forde as Proxies,
each with the power to appoint his substitute, and hereby authorizes each of
them, to represent and vote, as designated on the reverse side hereof, all the
shares of common stock of TurboSonic Technologies, Inc. (the "Company") held of
record by the undersigned on November 8, 2002, at the Annual Meeting of
Stockholders to be held on Tuesday, December 10, 2002, or any adjournment or
postponement thereof.
This Proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this Proxy will be voted FOR
proposals 1, 2 and 3.
(To Be Signed on Reverse Side)
1. Election of Directors:
(INSTRUCTION: To withhold authority to vote for any individual
nominee, strike such nominee's name from the list at right)
FOR all Nominees WITHHOLD AUTHORITY NOMINEES:
To vote for all Edward F. Spink
listed at right nominees listed Patrick J. Forde
(except as marked to Richard H. Hurd
the contrary at right) Dr. Donald R. Spink, Sr.
Jonathan R. Lagarenne
Frederick G. Berlet
Sean J. McNamara
James R. Thompson
[_] [_] [_]
2. To approve the Company's 2003 Stock Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending June 30, 2003.
FOR [_] AGAINST [_] ABSTAIN [_]
4. To transact such other business as may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
-------------------------------------------
Signature
-------------------------------------------
Signature, if held jointly
Date:
--------------------------------------
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by
an authorized person