UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
FLEXPOINT SENSOR SYSTEMS, INC.
------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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[Company logo Flexpoint - flexible sensor systems ]
October 12, 2005
To our stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Flexpoint Sensor Systems, Inc. on Tuesday, November 22, 2005, at the Grand
America Hotel, located at 555 South Main, Salt Lake City, Utah, at 10:00 a.m.
local time.
The matters expected to be acted upon at the meeting are described in detail
in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.
We have also enclosed a copy of the annual report on Form 10-KSB for the year
ended December 31, 2004, as amended, which includes audited financial
statements and certain other information.
It is important that you use this opportunity to take part in the affairs of
Flexpoint Sensor Systems, Inc. by voting on the business to come before this
meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN THE ACCOMPANYING PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. Returning the proxy does not deprive you of your right
to attend the meeting and vote your shares in person.
We look forward to seeing you at the meeting.
Inasmuch as we have enclosed with this proxy our annual report, and having
dispensed with the formality of inviting you to the shareholder meeting, I
would like to share some of my thoughts about the past year and the Company's
vision for the future.
During the early part of the year we completed a successful Private Placement
Offering which provided the capital necessary to develop and market the bend
sensor and to provide for the future success of the Company. We have put in
place a new executive team and are moving the Company and its products
forward.
The Company is utilizing the funds to purchase and/or lease new equipment,
qualify the Company and its facilities to QS-9001, increase inventory and add
to and expand personnel in our engineering, manufacturing and sales
departments.
We have added engineering personnel and increased sales activity through the
creation of a network of sales representatives throughout strategic regions of
the country. The Company has initiated the QS-9001 qualification procedure,
(a process which could take up to a year to accomplish). The QS-9001
certification is required before Flexpoint Sensor Systems, Inc. can qualify to
manufacture products for usage in the American automotive industry. To
provide for any required production in the interim period until the company
receives its QS-9001 certification, and to insure the capability of meeting
future supply requirements, Flexpoint Sensor Systems has entered into
contracts with QS-9001 qualified manufactures certified for manufacturing for
the automotive industry.
Flexpoint Sensor Systems, Inc.
106 West 12200 South * Draper, UT 84020
Ph: (801) 568-5111 * Fax: (801) 568-2405 * Toll Free (866) 766-3539
www.flexpoint.com
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With all of this activity, our primary focus remains acquiring contracts with
competent companies both inside and outside of the automotive industry for our
products so we can move the company forward.
THE COMPANY'S MOST IMPORTANT ACCOMPLISHMENT TO DATE is the execution of a
contract with R&D Products on September 28, 2005 for production of their
Medical Bed. The contract calls for completion of sensors, connectors and the
required hardware, software and controls that will be used in the medical bed.
We are also making significant progress with three automotive manufacturers
and, five Tier one suppliers on Flexpoint's sensors. We have recently
completed tests on the operation of the pedestrian sensor which are very
positive and encouraging. These results have been shared with the various
manufacturers and suppliers and are expected to lead to additional cooperative
agreements.
We believe the future is bright and the Company is poised to move forward as
we aggressively seek to capitalize on the opportunities that we have created
and to develop new areas of opportunity.
We appreciate the confidence you have shown in the Company and acknowledge
your important contribution toward the future success of Flexpoint and its
technology. You can keep up on the Company through our periodic press
releases and on our web-site at www.flexpoint.com. If you have any questions
regarding the Company you can contact us at (801) 568-5111. Once again, we
appreciate your confidence in Flexpoint as we move into the future.
Sincerely,
/s/ Clark M. Mower
Clark M. Mower
President and CEO
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______________________________________________________
NOTICE OF FLEXPOINT SENSOR SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 22, 2005
_______________________________________________________
Dear Stockholders:
It is my pleasure to invite you to the Annual Meeting of the Stockholders of
Flexpoint Sensor Systems, Inc., which will be held on Tuesday, November 22,
2005, at 10:00 a.m. local time, at the Grand America Hotel, located at 555
South Main, Salt Lake City, Utah.
The purposes of the meeting will be to:
. Elect three directors to our Board of Directors;
. Approve the 2005 Stock Incentive Plan; and
. Transact such other business as may properly come before the
meeting, or any adjournment or postponement of the meeting.
Only stockholders of record at the close of business on October 11, 2005, are
entitled to vote at the meeting, or any adjournment or postponement of the
meeting. We are mailing proxy solicitation material to our stockholders
commencing on or about October 28, 2005. We must receive your proxy on or
before November 18, 2005, in order for your proxy to be voted at the meeting.
You are invited to attend the meeting. Regardless of whether you expect to
attend the meeting in person, we urge you to read the attached proxy statement
and sign and date the accompanying proxy card and return it in the enclosed
postage-paid envelope. It is important that your shares be represented at the
meeting.
By Order of the Board of Directors,
/s/ John A. Sindt
By: _____________________________________
John A. Sindt, Chairman of the Board
Salt Lake City, Utah
October 12, 2005
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TABLE OF CONTENTS
General Information.........................................................1
Information Regarding the Meeting...........................................1
Proposal No. 1 - Election of Directors......................................4
Proposal No. 2 - 2005 Stock Incentive Plan..................................6
Our Management..............................................................8
Director and Executive Officer Compensation.................................9
Voting Securities and Principal Holders of Them............................10
Independent Public Accountants.............................................11
Stockholder Proposals for 2006 Annual Meeting..............................11
Other Matters..............................................................12
Appendices
Appendix A - 2005 Stock Incentive Plan
Appendix B - Audit Committee Charter
Appendix C - Proxy Card
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GENERAL INFORMATION
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Flexpoint Sensor Systems, Inc. is a development stage company principally
engaged in obtaining financing and seeking manufacturing contracts for the
design and engineering of technology and equipment using our Bend Sensor
technology, which is a flexible potentiometer technology. We emerged from
Chapter 11 bankruptcy on February 24, 2004, and since that time we have leased
a manufacturing facility, purchased necessary equipment to establish a
production line, negotiated contracts, manufactured Bend Sensor technology
devices and have further developed our technologies. Our focus is to acquire
contracts with companies for our products to move our business forward.
We sent you this proxy statement and the enclosed proxy card because our Board
of Directors (the "Board") is soliciting your proxy for use at our annual
meeting of stockholders. All holders of record of our shares of common stock
on October 11, 2005, are entitled to vote at the meeting. At the meeting, you
will be asked to:
. Elect three directors to our Board;
. Approve the 2005 Stock Incentive Plan; and
. Transact such other business as may properly come before the meeting, or
any adjournment or postponement of the meeting.
This proxy statement and the accompanying proxy card were first mailed to our
stockholders on or about October 28, 2005. We are paying all of the costs of
this proxy solicitation. We have included the information required by Rule
14a-3 of the Rules of the Securities and Exchange Commission ("SEC") in this
proxy statement. We have also provided our annual report on Form 10-KSB, as
amended, that includes audited financial statements for our last fiscal year,
which ended December 31, 2004. If you would like copies of any of our filings
with the SEC, other than the filings we are delivering to you in connection
with this proxy statement, you may request copies of the filings by sending
your request in writing to:
Stockholder Relations
Flexpoint Sensor Systems, Inc.
106 West Business Park Drive
Draper, Utah 84020
We will not charge you for any of the copies.
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INFORMATION REGARDING THE MEETING
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What may I vote on? You will be entitled to vote, either in person or by
proxy, on the election of three directors, approval of the 2005 Stock
Incentive Plan and any other business properly brought before the meeting.
How does the Board recommend I vote on the proposals? The Board recommends a
vote FOR each director and a vote FOR the 2005 Stock Incentive Plan.
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Who is entitled to vote? Stockholders as of the close of business on October
11, 2005 (the record date) are entitled to vote at the meeting.
How do I vote? Sign and date the proxy card you receive with this proxy
statement and return it in the postage-paid 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 the proposals. You have the right to revoke your
proxy at any time before the meeting by:
. notifying our Corporate Secretary, B. Fred Atkinson, Jr.; OR
. voting in person; OR
. returning a proxy card with a later date.
Who will count the votes? We have appointed B. Fred Atkinson, Jr. as the
inspector of the election. He will count and tabulate the votes.
Is my vote confidential? Your vote will not be disclosed except:
. as needed to permit the inspector of the election to tabulate and
certify the vote;
. as required by law; or
. in limited circumstances, such as a proxy contest in opposition to the
Board.
Additionally, all comments written on the proxy card or elsewhere will be
forwarded to our management, but your identity will be kept confidential
unless you ask that your name be disclosed.
What shares are included on the proxy card? The shares on your proxy card
represent ALL of your shares, including those shares held in your accounts at
various brokerages. If you do not return your proxy card, your shares will
not be voted.
What does it mean if I get more than one proxy card? If your shares are
registered differently and are in more than one account, you will receive more
than one proxy card. Sign and return all the proxy cards you receive to
ensure that all your shares are voted.
How many shares can vote? As of the record date, 22,974,537 shares of common
stock were outstanding and entitled to vote. Each share of common stock is
entitled to one vote on each matter being considered.
What is a "quorum"? A "quorum" is a majority of the outstanding shares. They
may be present at the meeting or represented by proxy. There must be a quorum
for the meeting to be held and for a proposal to be adopted it must be
approved by more than 50% of the shares voting at a meeting at which there is
a quorum. The three nominees for director receiving the highest number of
affirmative votes will be elected as directors. If you submit a properly
executed proxy card, even if you abstain from voting, then you will be
considered part of the quorum. However, abstentions are not counted in the
tally of votes FOR or AGAINST a proposal. We intend to treat shares referred
to as "broker non-votes" (i.e., shares held by brokers or nominees as to which
the broker or nominee indicates on a proxy that it does not have discretionary
authority to vote) as shares that are presented and entitled to vote for
purposes of
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determining the presence of a quorum; however, we will not consider broker
non-votes as votes cast either for or against a particular matter.
Who can attend the annual meeting? All of our stockholders on October 11,
2005, may attend. Due to limited space in the meeting room, we are limiting
the persons who can attend the meeting to our stockholders, their
representatives, our employees and directors and our representatives.
How will voting on any other business be conducted? Although 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, then your signed proxy card gives authority to John A. Sindt, the
Chairman of the Board, and Clark M. Mower, our President, to vote on those
matters at their discretion.
Who are the largest principal stockholders? As of October 11, 2005, two of
our stockholders owned more than 5% of our capital stock. Those stockholders
are First Equity Holdings Corp., an affiliate, that beneficially owns
5,757,158 shares, or 25.1% of our outstanding common stock, and John A. Sindt,
Chairman of the Board, who beneficially owns 1,394,976 shares, or 6.1% of our
outstanding common stock. John A. Sindt currently serves as Chairman of the
Board and is a nominee for election as a director at the meeting.
How much did this proxy solicitation cost? We did hire third parties to
assist us in the printing and distribution of the proxy materials and the
solicitations of votes. We have retained Georgeson Shareholder to solicit
proxies at a cost of $6,500, plus reasonable out of pocket expenses. We
estimate that our total costs for these actions will be approximately $21,500.
We will also reimburse brokerage houses and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy
and solicitation materials to our stockholders.
How do I revoke my proxy after I give it? A stockholder giving a proxy
pursuant to this solicitation may revoke it at any time prior to its exercise
at the meeting by delivering to our Corporate Secretary a written notice of
revocation, or a duly executed proxy bearing a later date, or by attending the
meeting and voting in person. Attendance at the meeting will not; however,
constitute revocation of your proxy without your further action. Any written
notice revoking your proxy should be sent to our principal executive offices
addressed as follows:
Stockholder Relations
Flexpoint Sensor Systems, Inc.
106 West Business Park Drive
Draper, Utah 84020
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PROPOSAL NO. 1 - ELECTION OF DIRECTORS
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Nominees
You are being asked to elect Messrs. John A. Sindt, Clark M. Mower and Ruland
J. Gill, Jr. to our Board. Our bylaws provide that the directors shall be
divided into three classes. A class of directors shall be elected for a
one-year term, a class of directors for a two-year term and a class of
directors for a three-year term. At each succeeding annual meeting of
stockholders, successors to the class of directors whose term expires at that
meeting shall be elected for a three-year term. Because this meeting of
stockholders will be the first meeting of stockholders since emergence from
bankruptcy and two of the three directors have been appointed to replace
directors who have resigned during the past year, the directors shall be
divided into three classes and all will stand for election. Mr. Mower will be
elected to serve a one-year term, Mr. Sindt will serve a two year term and Mr.
Gill will serve a three-year term. Each will serve for the identified term or
until he is succeeded by another qualified director who has been elected.
Each of these nominees for director is now a member of the Board. Mr. Sindt
became a director in 1999 and Messrs. Mower and Gill joined the Board in
December of 2004. The Board met two (2) times during the year ended December
31, 2004, and has held six (6) regular meetings and two (2) special meetings
during the six month period ended June 30, 2005.
Biographical Information about the Nominees
The following information was provided to us by each of the nominees:
John A. Sindt - Mr. Sindt has served as a director of the company since 1999
and served as President and Chief Executive Officer from 2001 to 2004. He
served as Secretary/Treasurer from January 2005 through July 12, 2005. Mr.
Sindt is also the Chairman of the Board of Sensitron, our subsidiary. He has
been employed since 1965 as a Salt Lake County, Utah Constable and he
currently heads that department. He has also served as President, Corporate
Secretary and Director for the National Constables Association. He has owned
and operated a successful chain of retail jewelry stores in Utah.
Clark M. Mower - Mr. Mower was appointed our President and CEO in January
2005. He was appointed as Director, President and CEO of Sensitron in
February 2005. He formerly served as Senior Vice President - Mergers and
Acquisitions - Merchant Energy Group for El Paso Energy Corporation (NYSE:
EP). From August 2002 to 2004 he was the managing member of Polaris Energy,
LLC, a non-affiliated consulting company to energy related mergers and
acquisition. From August 2002 to July 2004 he was a management committee
member for Saguaro Power Company, a non-affiliated company operating a 100
megawatts power plant in Henderson, Nevada. Prior to that he served as
President and Chief Executive Officer of Bonneville Pacific Corporation (a
public company) for eight years until El Paso Corporation acquired Bonneville
Pacific Corporation in October 1999.
Ruland J. Gill, Jr. - Mr. Gill is Vice President of Government Affairs and
Senior Attorney for Questar Corporation (NYSE: STR), where he has worked since
1973. He was appointed as a Director of Sensitron in February 2005. In
addition to his professional career, Mr. Gill has held several important
positions including President of the Utah Petroleum Association, and Trustee
of the Rocky Mountain Mineral Law Foundation.
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Related Party Transactions with the Nominees
During the past three years, the following transactions were entered into by
Flexpoint Sensor Systems, Inc. and a current nominee for director. These
transactions between Flexpoint Sensor Systems, Inc. and the nominee for
director have been negotiated between related parties without "arms length"
bargaining and, as a result, the terms of these transactions may be different
than transactions negotiated between unrelated persons.
John A. Sindt, Chairman of the Board, agreed to compromise his claims in
bankruptcy by surrendering his right to receive:
. Any options granted to him prior to bankruptcy;
. 5,000,000 common shares for accrued wages through March 2001;
. 800,000 super-voting preferred shares that were authorized to be issued
to him in April 2001; and
. Accrued wages of $300,000 through December 31, 2003.
In February 2004, we emerged from bankruptcy without settling a claim for
compensation by John A. Sindt for services rendered during the period we were
in bankruptcy. At the date we emerged from bankruptcy, we acknowledged that
the claim existed but were unable to determine the range of potential loss
under the claim and did not record a liability at that date. Our Board
determined the amount of the claim on November 24, 2004, and on that date we
settled all amounts due under the claim and in payment of services received
after we emerged from bankruptcy, by issuing 1,200,000 shares of our
restricted common stock to Mr. Sindt. We valued the common stock issued at
$1,776,000, or $1.48 per share, based upon the quoted market value of our
common stock.
Nominee Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors,
executive officers and persons who own more than five percent of a registered
class of our equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
our common stock. Officers, directors and ten-percent or more beneficial
owners of our common stock are required by SEC regulations to furnish
Flexpoint Sensor Systems, Inc. with copies of all Section 16(a) reports they
file and provide written representation that no Form 5 is required. Based
upon a review of these forms furnished to us during the fiscal year ended
December 31, 2004, we believe John A. Sindt filed late one Form 4 for one
transaction.
Proxy Vote
The persons named as proxy holders in the enclosed proxy cards (Messrs. Sindt
and Mower) have advised us that, unless a contrary direction is indicated on a
proxy card, they intend to vote FOR the election of the three nominees. They
have also advised us that if any of the three nominees are not available for
election for any reason, then they will vote FOR the election of such
substitute nominee or nominees, if any, as the Board may propose. Each person
nominated for election has agreed to serve if elected, and the Board has no
reason to believe that any nominee will be unavailable to serve if elected.
The Board of Directors recommends that you vote -FOR- all
of the director nominees.
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PROPOSAL NO. 2 - 2005 STOCK INCENTIVE PLAN
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Features of Plan
On August 25, 2005, our Board adopted the Flexpoint Sensor Systems, Inc. 2005
Stock Incentive Plan (the "Plan") and is presenting the Plan for stockholder
approval. A copy of the Plan is attached as Appendix A. The purposes of the
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to employees,
directors and consultants, and to promote the success of our business.
The Plan became effective upon its adoption by the Board and shall continue in
effect for a term of ten (10) years, unless terminated. The maximum aggregate
number of shares of common stock that may be sold under the Plan is 2,500,000
shares. The term of each option and its exercise price shall be stated in an
option agreement; provided that the term does not exceed ten (10) years from
the date of grant. The plan provides that a grant of a stock option to an
employee shall have an exercise price of no less than 110% of the fair market
value per share on the date of grant. As a condition of the grant, vesting or
exercise of an option granted under the Plan, the participant shall be
required to satisfy any applicable federal, state, local or foreign
withholding tax obligations that may arise in connection with the grant,
vesting or exercise of the option or the issuance of shares.
The Plan shall be administered by our Compensation Committee, described below
in "Our Management," and this committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of any Compensation Committee and appoint
additional members, remove members (with or without cause) and appoint new
members in substitution, fill vacancies and/or remove all members of the
committee. The Compensation Committee may be composed of
employee/director(s), non-employee/director(s) and/or major stockholder(s) of
the company who are not a director.
The Compensation Committee shall have the authority, in its discretion:
. to determine the fair market value of the common stock;
. to select the employees, directors and consultants to whom options may
be granted;
. to determine whether and to what extent options are granted;
. to determine the number of shares of common stock to be covered by each
award granted;
. to approve the form of agreements used under the Plan;
. to determine the terms and conditions of any award granted, which terms
and conditions relate to the exercise or purchase price, the term,
vesting and any restriction or limitation regarding any option, optioned
stock or restricted stock issued upon exercise of an option;
. to determine whether and under what circumstances an option may be
settled in cash instead of common stock;
. to implement an option exchange program on certain terms and conditions;
. to adjust the vesting of an option held by an employee, director or
consultant as a result of a change in the terms or conditions under
which such person is providing services to the company;
. to construe and interpret the terms of the Plan and awards granted under
the Plan, which constructions, interpretations and decisions shall be
final and binding on all Participants; and
. in order to fulfill the purposes of the Plan and without amending the
Plan, to modify grants of options to participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
Non-statutory stock options may be granted to employees, directors and
consultants who have the capacity
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to contribute to the success of the company. Incentive stock options may be
granted only to employees, provided that employees of affiliates shall not be
eligible to receive incentive stock options.
Eligibility for the Plan
The following table provides a breakdown of the awards to be issued under the
Plan:
Number
Grants to be received under the Plan In group Allocated
------------------------------------- -------- ---------
All current executive officers as a group 3 580,000 shares
vesting over 3 years
All current directors who are not 1 0
executive officers
Employees as a group who are not 10 609,000 shares
executive officers vesting over 3 years
Chief Executive Officer, Clark M. Mower 1 300,000 shares
vesting over 3 years
Proxy Vote
The persons named as proxy holders in the enclosed proxy cards (Messrs. Sindt
and Mower) have advised us that, unless a contrary direction is indicated on a
proxy card, they intend to vote -FOR- the Plan.
The Board of Directors recommends that you vote -FOR- the
Flexpoint Sensor Systems, Inc. 2005 Stock Incentive Plan.
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OUR MANAGEMENT
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Directors and Executive Officers
Our directors and executive officers are listed below.
Name Age Position Held Director Since
-------------------- ----- ------------------------------------ --------------
John A. Sindt 61 Chairman of the Board and Principal December 1999
Finance and Accounting Officer
Clark M. Mower 58 President, CEO and Director December 2004
Ruland J. Gill, Jr. 60 Director December 2004
B. Fred Atkinson, Jr. 57 Secretary/Treasurer and Comptroller July 2005
Audit Committee
The audit committee consists of Messrs. Atkinson and Gill, with Mr. Gill
serving as Chairman. The audit committee was not in existence at the time of
the preparation of our audited financials for the year ended December 31,
2004. However, this committee has met three (3) times since its formation in
June 2005. The audit committee adopted a written charter in September 2005
and a copy of this charter is attached as Appendix B.
The audit committee's functions include:
. the direct responsibility for the appointment, compensation and oversight
of the outside auditor;
. the authority and funding to engage independent counsel and other outside
advisors if the audit committee deems it necessary to carry out its
duties;
. the sole duty and responsibility to review and approve all related party
transactions;
. review and discuss the audited financial statements with management;
. discuss with the independent auditors the matters required to be
discussed by SAS 61 Communications with Audit Committees, as may be
modified or supplemented;
. receive the written disclosures and the letter from the independent
accountants required by Independence Standards Board Standard No. 1, as
may be modified or supplemented,
. discuss with the independent accountant the independent accountant's
independence; and
. based on its review and discussions, will recommend to the Board whether
the audited financial statements be included in our Annual Report on Form
10-KSB.
Our Board has determined that Mr. Atkinson is an audit committee financial
expert serving on our audit committee due to his expertise in accounting
matters as well as his understanding of financial statements. However, Mr.
Atkinson is not independent as that term is defined by NASDAQ Marketplace Rule
4200 Definitions (a)(15) because he is an employee.
Mr. Gill is independent based upon NASDAQ Marketplace Rule 4200 Definitions
(a)(15), but our Board has determined that he is not a financial expert.
Compensation Committee
Mr. Ruland Gill is Chairman of our compensation committee and Mr. John
Clayton, a stockholder, serves as a non-director member of our compensation
committee. This committee was formed in May 2005 and has held three meetings
since its formation. This committee was appointed Administrator of the 2005
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Stock Incentive Plan on August 25, 2005. This committee shall perform the
functions outlined under the Plan.
Nominating Committee
We do not have a nominating committee, therefore our full Board participates
in the consideration of director nominees. We believe it is not appropriate
for us to have a nominating committee at this time because we are a
development stage company with limited operations. Our Board will reevaluate
our need for a nominating committee at some future date.
Communications with the Board
Our Board and each director accepts communications from stockholders and any
such communications should be directed to the Board or an individual director
at:
Board of Directors
Flexpoint Sensor Systems, Inc.
106 West Business Park Drive
Draper, Utah 84020
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DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
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Executive Officers
We did not pay cash compensation, bonuses, stock appreciation rights, long
term compensation, stock awards or long-term incentive rights to our executive
officers in 2002 and 2003. John A. Sindt served as our Chief Executive
Officer during 2004 and we issued 1,200,000 common shares, valued at
$1,776,000, to him in 2004 in settlement of claims and as compensation for his
services during 2002, 2003 and 2004.
We have not entered into employment contracts with our executive officers and
their compensation, if any, will be determined at the discretion of our Board.
Compensation of Directors
We do not have any standard arrangement for compensation of our directors for
any services provided as a director, including services for committee
participation or for special assignments. Our Compensation Committee will
from time to time evaluate the need to compensate directors for their services
on our behalf.
On August 25, 2005, the Board authorized the award of 18,350 shares of common
stock, valued at approximately $35,000, to Ruland J. Gill Jr. for his services
as a director in 2005.
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VOTING SECURITIES AND PRINCIPAL HOLDERS OF THEM
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The following tables set forth the beneficial ownership of our outstanding
common stock by:
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. each person or group known by us to own more than 5%;
. each of our executive officers;
. each of our directors; and
. all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and
generally includes voting or investing power with respect to securities. For
purposes of calculating the percentages shown in the chart, each person listed
is also deemed to beneficially own any shares issuable on either the exercise
of vested options or warrants held by that person and that are exercisable
within 60 days after October 11, 2005. Except as indicated by footnote, the
persons named in the table have sole voting and investing power with respect
to all shares of common stock shown as beneficially owned by them. The
inclusion of any shares as beneficially owned does not constitute an admission
of beneficial ownership of those shares. The percentage calculation of
beneficial ownership is based on 22,974,537 shares of common stock outstanding
as of October 11, 2005.
CERTAIN BENEFICIAL OWNERS
------------------------
Name and address of Percentage
beneficial owners Number of shares of class
--------------------------------------- ----------------- -----------
First Equity Holdings Corp. 5,757,158 (1) 25.1%
2157 S. Lincoln Street
Salt Lake City, Utah 84106
(1) Includes 743,000 shares held by an officer of
First Equity Holdings Corp.
MANAGEMENT
----------
Name and address of Percentage
beneficial owners Number of shares of class
--------------------------------------- ----------------- ------------
John A. Sindt 1,394,976 (1) 6.1%
106 West Business Park Drive
Draper, Utah 84020
Clark M. Mower 550,000 2.4%
106 West Business Park Drive
Draper, Utah 84020
Ruland J. Gill, Jr. 216,667 Less than 1%
532 Heritage Drive
Bountiful, UT 84010
Directors and officers 2,161,643 9.4%
as a group
(1) Includes 1,202,266 shares held by Mr. Sindt, 1,143 shares held by his
spouse and Mr. Sindt shares investment power with respect to 191,567
shares.
-10-
15
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INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------------------------------------------
Our independent public accountant for the current year is Hansen Barnett &
Maxwell, Certified Public Accountants and this firm audited our financial
statements for the year ended December 31, 2004 and 2003. We expect a
representative from this firm to be present at the stockholders' meeting on
November 22, 2005, to respond to appropriate questions.
Independent Public Accountant Fees
The following table presents the aggregate fees billed for each of the last
two fiscal years by our independent accountant, Hansen Barnett & Maxwell, in
connection with the audit of our financial statements and other professional
services rendered by that firm.
2004 2003
------------ -----------
Audit fees $ 20,113 $ 66,665
Audit-related fees 0 0
Tax fees 0 0
All other fees 0 0
Audit fees represent the professional services rendered for the audit of our
annual financial statements and the review of our financial statements
included in quarterly reports, along with services normally provided by the
accountant in connection with statutory and regulatory filings or engagements.
Audit-related fees represent professional services rendered for assurance and
related services by the independent accountant that are reasonably related to
the performance of the audit or review of our financial statements that are
not reported under audit fees.
Tax fees represent professional services rendered by the independent
accountant for tax compliance, tax advise, and tax planning. All other fees
represent fees billed for products and services provided by the independent
accountant, other than the services reported for the other categories.
Audit Committee Pre-approval Policies
Our audit committee has the responsibility to establish pre-approval
procedures for all audit and non-audit services provided by the independent
accountant. Before the independent accountant renders audit and non-audit
services our audit committee will pre-approve the engagement.
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STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
-----------------------------------------------------------------------------
The rules of the SEC provide that stockholder proposals may be considered for
inclusion in the proxy material for an annual meeting under certain
circumstances. Our bylaws provide that any stockholder proposals for an
annual meeting must be made in writing and delivered to us or mailed and
received at our principal executive offices not less than 50 days, nor more
than 80 days prior to that meeting. However, if we provide you with less than
60 days notice (or public disclosure) of the meeting, nominations will be
deemed timely if they are received not more than the 10th day following the
date the notice was mailed or the public disclosure was made. Any such
proposals need to be accompanied by specific information regarding:
-11-
16
. a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting;
. the name and address of the stockholder proposing the business;
. the class and number of shares owned by the stockholder; and
. any material interest the stockholder has is such business.
Stockholders proposals for the 2006 annual meeting must be received no later
then October 3, 2006, but no sooner than September 3, 2006, and should be
addressed to:
Stockholder Relations
Flexpoint Sensor Systems, Inc.
106 West Business Park Drive
Draper, Utah 84020
------------------------------------------------------------------------------
OTHER MATTERS
------------------------------------------------------------------------------
The Board does not presently intend to bring any other business before the
meeting and we know of no other matters that are to be brought before the
meeting except as specified in the notice of the meeting. If any additional
business properly comes before the meeting, then your shares will be voted in
accordance with the judgment of the persons voting your proxy.
By Order of the Board of Directors
/s/ John A. Sindt
____________________________________
John A. Sindt, Chairman of the Board
Salt Lake City, Utah
October 12, 2005
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THANK
YOU FOR YOUR PROMPT ATTENTION TO THIS MATTER.
-12-
17
APPENDIX A
FLEXPOINT SENSOR SYSTEMS, INC.
2005 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this 2005 Stock Incentive Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees,
Directors and Consultants and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code and the regulations and interpretations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or its Committee appointed
pursuant to Section 4 of the Plan.
(b) "Affiliate" means a business entity other than a Subsidiary (as
defined below) which, together with the Company, is under common control of a
third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock option and restricted stock purchase plans, including
under applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, other U.S. federal and state laws, the Code, any Stock
Exchange rules or regulations and the applicable laws, rules and regulations
of any other country or jurisdiction where Options are granted under the Plan,
as such laws, rules, regulations and requirements shall be in place from time
to time.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" for termination of a Participant's Continuous Service
Status will exist if the Participant is terminated by the Company for any of
the following reasons: (i) Participant's willful failure substantially to
perform his or her duties and responsibilities to the Company or deliberate
violation of a Company policy; (ii) Participant's commission of any act of
fraud, embezzlement, dishonesty or any other willful misconduct that has
caused or is reasonably expected to result in material injury to the Company;
(iii) unauthorized use or disclosure by Participant of any proprietary
information or trade secrets of the Company or any other party to whom the
Participant owes an obligation of nondisclosure as a result of his or her
relationship with the Company; or (iv) Participant's willful breach of any of
his or her obligations under any written agreement or covenant with the
Company. The determination as to whether a Participant is being terminated
for Cause shall be made in good faith by the Company and shall be final and
binding on the Participant. The foregoing definition does not in any way
limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time as provided in Section 5(d) below, and the
term "Company" will be interpreted to include any Subsidiary, Parent or
Affiliate, as appropriate.
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(f) "Change of Control" means (1) a sale of all or substantially all
of the Company's assets, or (2) any merger, consolidation or other business
combination transaction of the Company with or into another corporation,
entity or person, other than a transaction in which the holders of at least a
majority of the shares of voting capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by such shares
remaining outstanding or by their being converted into shares of voting
capital stock of the surviving entity) a majority of the total voting power
represented by the shares of voting capital stock of the Company (or the
surviving entity) outstanding immediately after such transaction, or (3) the
direct or indirect acquisition (including by way of a tender or exchange
offer) by any person, or persons acting as a group, of beneficial ownership or
a right to acquire beneficial ownership of shares representing a majority of
the voting power of the then outstanding shares of capital stock of the
Company. A Change of Control; however shall not be considered to have
occurred until all conditions precedent to the transaction, including but not
limited to, all required regulatory approvals have been obtained.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means one or more committees or subcommittees of the
Board appointed by the Board to administer the Plan in accordance with Section
4 below.
(i) "Common Stock" means the Common Stock of the Company.
(j) "Company" means Flexpoint Sensor Systems, Inc., a Delaware
corporation.
(k) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent, Subsidiary or Affiliate to render
services and is compensated for such services, and any director of the Company
whether compensated for such services or not.
(l) "Continuous Service Status" means the absence of any
interruption or termination of service as an Employee, Director or Consultant.
Continuous Service Status as an Employee, Director or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the
Company or between the Company, its Parents, Subsidiaries, Affiliates or their
respective successors. A change in status from an Employee to a Consultant or
from a Consultant to an Employee will not constitute an interruption of
Continuous Service Status.
(m) "Corporate Transaction" means a sale of all or substantially all
of the Company's assets, or a merger, consolidation or other capital
reorganization or business combination transaction of the Company with or into
another corporation, entity or person, or the direct or indirect acquisition
(including by way of a tender or exchange offer) by any person, or persons
acting as a group, of beneficial ownership or a right to acquire beneficial
ownership of shares representing a majority of the voting power of the then
outstanding shares of capital stock of the Company.
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(n) "Director" means a member of the Board.
(o) "Employee" means any person employed by the Company or any
Parent, Subsidiary or Affiliate, with the status of employment determined
based upon such factors as are deemed appropriate by the Administrator in its
discretion, subject to any requirements of the Code or the Applicable Laws.
The payment by the Company of a director's fee to a Director shall not be
sufficient to constitute "employment" of such Director by the Company.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(q) "Fair Market Value" means, as of any date, the fair market value
of the Common Stock, as determined by the Administrator in good faith on such
basis as it deems appropriate and applied consistently with respect to
Participants. The Administrator my look to the three week prior average
trading price for the Shares as a guide in determining fair market value but
shall be free to make such increases or decreases in such average as the
Administrator determines necessary in determining fair market value so as to
take into consideration such factors as blockage, spikes in trading price and
other similar factors.
(r) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(s) "Listed Security" means any security of the Company that is
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc.
(t) "Named Executive" means any individual who, on the last day of
the Company's fiscal year, is the chief executive officer of the Company (or
is acting in such capacity) or among the four most highly compensated officers
of the Company (other than the chief executive officer). Such officer status
shall be determined pursuant to the executive compensation disclosure rules
under the Exchange Act.
(u) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(v) "Option" means a stock option granted pursuant to the Plan.
(w) "Option Agreement" means a written document, the form(s) of
which shall be approved from time to time by the Administrator, reflecting the
terms of an Option granted under the Plan and includes any documents attached
to or incorporated into such Option Agreement, including, but not limited to,
a notice of stock option grant and a form of exercise notice.
(x) "Option Exchange Program" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a
lower exercise
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20
price or are amended to decrease the exercise price as a result of a decline
in the Fair Market Value of the Common Stock.
(y) "Optioned Stock" means the Common Stock subject to an Option.
(z) "Optionee" means an Employee, Director or Consultant who
receives an Option.
(aa) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor
provision.
(bb) "Participant" means any holder of one or more Options, or the
Shares issuable or issued upon exercise of such Options, under the Plan.
(cc) "Plan" means this 2005 Stock Incentive Plan.
(dd) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act, as amended from time to time, or any successor provision.
(ee) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(ff) "Stock Exchange" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
(gg) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(hh) "Ten Percent Holder" means a person who owns stock representing
more than ten percent (10%) of the voting power of all classes of stock,
issued and outstanding, of the Company or any Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares that may be sold under the
Plan is Two Million Five Hundred Thousand (2,500,000) Shares of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common Stock. If an
award should expire or become unexercisable for any reason without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program,
the unpurchased Shares that were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock which are retained by the Company upon
exercise of an award in order to satisfy the exercise or purchase price for
such award or any withholding taxes due with respect to such exercise or
purchase shall be treated as not issued and shall continue to be available
under the Plan. Shares issued under the Plan and later repurchased by the
Company pursuant to any repurchase right which the Company may have shall be
available for future grant under the Plan.
4. Administration of the Plan.
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21
(a) General. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board
may authorize one or more officers to make awards under the Plan.
(b) Committee Composition. If a Committee has been appointed
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of any Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
administering the Plan in accordance with the requirements of Rule 16b-3 or
Section 162(m) of the Code, to the extent permitted or required by such
provisions. The Committee shall in all events conform to any requirements of
the Applicable Laws. The Committee may be composed of employee/Director(s),
non-employee/Director(s) and/or major shareholder(s) of the Company who is
(are) not a Director.
(c) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(q) of the Plan, provided that such determination
shall be applied consistently with respect to Participants under the Plan;
(ii) to select the Employees, Directors and Consultants to
whom Options may from time to time be granted;
(iii) to determine whether and to what extent Options are
granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each award granted;
(v) to approve the form(s) of agreement(s) used under the
Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when awards may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, any
pro rata adjustment to vesting as a result of a Participant's transitioning
from full- to part-time service (or vice versa), and any restriction or
limitation regarding any Option, Optioned Stock or restricted stock issued
upon exercise of an Option, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(c) instead of Common Stock;
5
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(viii) to implement an Option Exchange Program on such terms
and conditions as the Administrator in its discretion deems appropriate,
provided that no amendment or adjustment to an Option that would materially
and adversely affect the rights of any Optionee shall be made without the
prior written consent of the Optionee;
(ix) to adjust the vesting of an Option held by an Employee,
Director or Consultant as a result of a change in the terms or conditions
under which such person is providing services to the Company;
(x) to construe and interpret the terms of the Plan and
awards granted under the Plan, which constructions, interpretations and
decisions shall be final and binding on all Participants; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to Participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options may be granted
to Employees, Directors and Consultants who have the capacity to contribute to
the success of the Company. Incentive Stock Options may be granted only to
Employees, provided that Employees of Affiliates shall not be eligible to
receive Incentive Stock Options.
(b) Type of Option. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
(c) ISO $100,000 Limitation. Notwithstanding any designation under
Section 5(b), to the extent that the aggregate Fair Market Value of Shares
with respect to which Options designated as Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year (under
all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonstatutory Stock Options. For purposes
of this Section 5(c), Incentive Stock Options shall be taken into account in
the order in which they were granted, and the Fair Market Value of the Shares
subject to an Incentive Stock Option shall be determined as of the date of the
grant of such Option.
(d) No Employment Rights. The Plan shall not confer upon any
Participant any right with respect to continuation of an employment or
consulting relationship with the Company, nor shall it interfere in any way
with such Participant's right or the Company's right to terminate the
employment or consulting relationship at any time for any reason.
6. Term of Plan. The Plan shall become effective upon its adoption by
the Board of Directors. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided that the term shall be no more than ten (10)
years from the date of grant
6
23
thereof or such shorter term as may be provided in the Option Agreement and
provided further that, in the case of an Incentive Stock Option granted to a
person who at the time of such grant is a Ten Percent Holder, the term of the
Option shall be five years from the date of grant thereof or such shorter term
as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator and set forth in the Option Agreement, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is a
Ten Percent Holder, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 110% of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option to any eligible
person, the per share Exercise Price shall be such price as determined by the
Administrator.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger
or other corporate transaction.
(b) Permissible Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash or its equivalent; (2) check; (3) other Shares
that have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which the Option is exercised; (4) if, as
of the date of exercise of an Option the Company then is permitting employees
to engage in a "same-day sale" cashless brokered exercise program involving
one or more brokers, through such a program that complies with the Applicable
Laws (including without limitation the requirements of Regulation T and other
applicable regulations promulgated by the Federal Reserve Board) and that
ensures prompt delivery to the company of the amount required to pay the
exercise price and any applicable withholding taxes; (5) use of the build-in
equity value of an Option resulting in reducing the number of net Shares that
will be received as a result of the exercise of such Option, or (6) any
combination of the foregoing methods of payment. In making its determination
as to the type of consideration to accept, the Administrator shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company and the Administrator may, in its sole discretion, refuse to accept a
particular form of consideration at the time of any Option exercise.
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24
9. Exercise of Option.
(a) General.
(i) Exercisability. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Administrator, consistent with the term of the Plan and reflected in the
Option Agreement, including vesting requirements and/or performance criteria
with respect to the Company and/or the Optionee.
(ii) Leave of Absence. The Administrator shall have the
discretion to determine whether and to what extent the vesting of Options
shall be tolled during any unpaid leave of absence; provided, however, that in
the absence of such determination, vesting of Options shall be tolled during
any such unpaid leave (unless otherwise required by the Applicable Laws). In
the event of military leave, vesting shall toll during any unpaid portion of
such leave, provided that, upon a Participant's returning from military leave
(under conditions that would entitle him or her to protection upon such return
under the Uniform Services Employment and Reemployment Rights Act), he or she
shall be given vesting credit with respect to Options to the same extent as
would have applied had the Participant continued to provide services to the
Company throughout the leave on the same terms as he or she was providing
services immediately prior to such leave.
(iii) Minimum Exercise Requirements. An Option may not be
exercised for a fraction of a Share. The Administrator may require that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent an Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
(iv) Procedures for and Results of Exercise. An Option shall
be deemed exercised when written notice of such exercise has been given to the
Company in accordance with the terms of the Option by the person entitled to
exercise the Option and the Company has received full payment for the Shares
with respect to which the Option is exercised. Full payment may, as
authorized by the Administrator, consist of any consideration and method of
payment allowable under Section 8(b) of the Plan, provided that the
Administrator may, in its sole discretion, refuse to accept any form of
consideration at the time of any Option exercise.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(v) Rights as Shareholder. Until the issuance of the Shares
(as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 13
of the Plan.
(b) Termination of Employment or Consulting Relationship. Except as
otherwise set forth in this Section 9(b), the Administrator shall establish
and set forth in the applicable Option Agreement the terms and conditions upon
which an Option shall remain
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exercisable, if at all, following termination of an Optionee's Continuous
Service Status, which provisions may be waived or modified by the
Administrator at any time. Unless the Administrator otherwise provides in the
Option Agreement, to the extent that the Optionee is not vested in Optioned
Stock at the date of termination of his or her Continuous Service Status, or
if the Optionee (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Option Agreement or below (as applicable), the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert
to the Plan. In no event may any Option be exercised after the expiration of
the Option term as set forth in the Option Agreement (and subject to Section
7).
The following provisions (1) shall apply to the extent an Option
Agreement does not specify the terms and conditions upon which an Option shall
terminate upon termination of an Optionee's Continuous Service Status, and (2)
establish the minimum post-termination exercise periods that may be set forth
in an Option Agreement:
(i) Termination other than Upon Disability or Death or for
Cause. In the event of termination of Optionee's Continuous Service Status
other than under the circumstances set forth in subsections (ii) through (iv)
below, such Optionee may exercise an Option for 30 days following such
termination to the extent the Optionee was vested in the Optioned Stock as of
the date of such termination. No termination shall be deemed to occur and
this Section 9(b)(i) shall not apply if (i) the Optionee is a Consultant who
becomes an Employee, or (ii) the Optionee is an Employee who becomes a
Consultant.
(ii) Disability of Optionee. In the event of termination of an
Optionee's Continuous Service Status as a result of his or her disability
(including a disability within the meaning of Section 22(e)(3) of the Code),
such Optionee may exercise an Option at any time within twelve months
following such termination to the extent the Optionee was vested in the
Optioned Stock as of the date of such termination.
(iii) Death of Optionee. In the event of the death of an
Optionee during the period of Continuous Service Status since the date of
grant of the Option, or within thirty days following termination of Optionee's
Continuous Service Status, the Option may be exercised by Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance at any time within twelve months following the date of death, but
only to the extent the Optionee was vested in the Optioned Stock as of the
date of death or, if earlier, the date the Optionee's Continuous Service
Status terminated.
(iv) Termination for Cause. In the event of termination of an
Optionee's Continuous Service Status for Cause, any Option (including any
exercisable portion thereof) held by such Optionee shall immediately terminate
in its entirety upon first notification to the Optionee of termination of the
Optionee's Continuous Service Status. If an Optionee's employment or
consulting relationship with the Company is suspended pending an investigation
of whether the Optionee shall be terminated for Cause, all the Optionee's
rights under any Option likewise shall be suspended during the investigation
period and the Optionee shall have no right to exercise any Option.
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26
(c) Buyout Provisions. The Administrator may at any time buy out
for a payment in cash or Shares unexercised Options previously granted under
the Plan based on the then fair market value of such Options and Shares as
determined by the Administrator. The fair market value of such Option in any
such buyout shall be equal to the fair market value of the Shares that may be
purchased by the Option, as determined by the Administrator, less the Option's
strike price for said Shares.
10. Taxes.
(a) As a condition of the grant, vesting or exercise of an Option
granted under the Plan, the Participant (or in the case of the Participant's
death, the person exercising the Option) shall make such arrangements as the
Administrator may require for the satisfaction of any applicable federal,
state, local or foreign withholding tax obligations that may arise in
connection with such grant, vesting or exercise of the Option or the issuance
of Shares. The Company shall not be required to issue any Shares under the
Plan until such obligations are satisfied. If the Administrator allows the
withholding or surrender of Shares to satisfy a Participant's tax withholding
obligations under this Section 10 (whether pursuant to Section 10(c), (d) or
(e), or otherwise), the Administrator shall not allow Shares to be withheld in
an amount that exceeds the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to
satisfy such tax obligations from the next payroll payment otherwise payable
after the date of an exercise of the Option.
(c) This Section 10(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option that number of Shares having a Fair Market Value
determined as of the applicable Tax Date (as defined below) equal to the
amount required to be withheld. For purposes of this Section 10, the Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined under the Applicable Laws
(the "Tax Date").
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise
of an Option by surrendering to the Company Shares that have a Fair Market
Value determined as of the applicable Tax Date equal to the amount required to
be withheld. In the case of shares previously acquired from the Company that
are surrendered under this Section 10(d), such Shares must have been owned by
the Participant for more than six (6) months on the date of surrender (or such
other period of time as is required for the Company to avoid adverse
accounting charges).
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(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 10(c) or (d)
above shall be irrevocable as to the particular Shares as to which the
election is made and shall be subject to the consent or disapproval of the
Administrator. Any election by a Participant under Section 10(d) above must
be made on or prior to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because
no election is filed under Section 83(b) of the Code, the Participant shall
receive the full number of Shares with respect to which the Option is
exercised but such Participant shall be unconditionally obligated to tender
back to the Company the proper number of Shares on the Tax Date.
11. Non-Transferability of Options.
(a) General. Except as set forth in this Section 11, Options may
not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent or distribution. The
designation of a beneficiary by an Optionee will not constitute a transfer.
An Option may be exercised, during the lifetime of the holder of an Option,
only by such holder or a transferee permitted by this Section 11.
(b) Limited Transferability Rights. Notwithstanding anything else
in this Section 11, the Administrator may in its discretion grant Nonstatutory
Stock Options that may be transferred by instrument to an inter vivos or
testamentary trust in which the Options are to be passed to beneficiaries upon
the death of the trustor (settlor) or by gift or pursuant to domestic
relations orders to "Immediate Family Members" (as defined below) of the
Optionee. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law (including adoptive relationships), a trust in which these
persons have more than fifty percent of the beneficial interest, a foundation
in which these persons (or the Optionee) control the management of assets, and
any other entity in which these persons (or the Optionee) own more than fifty
percent of the voting interests.
12. Adjustments Upon Changes in Capitalization, Merger or Certain Other
Transactions.
(a) Changes in Capitalization. Subject to any action required under
Applicable Laws by the shareholders of the Company, the number of Shares of
Common Stock covered by each outstanding Option and the number of Shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options have yet been granted or that have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per Share
of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination, recapitalization or reclassification of the
Common Stock, or any other increase or decrease in the number of issued Shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the
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Administrator, whose determination in that respect shall be final, binding and
conclusive. 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 of Common Stock subject to
an Option.
(b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company, each Option will terminate immediately prior to
the consummation of such action, unless otherwise determined by the
Administrator.
(c) Corporate Transaction. In the event of a Corporate Transaction
(including without limitation a Change of Control), each outstanding Option
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation
(the "Successor Corporation"), unless the Successor Corporation does not agree
to assume the award or to substitute an equivalent option or right, in which
case such Option shall terminate upon the consummation of the transaction.
Notwithstanding the above, in the event of a Change of Control and
irrespective of whether outstanding awards are being assumed, substituted or
terminated in connection with the transaction, the vesting and exercisability
of each outstanding Option shall accelerate such that the Options shall become
vested and exercisable to the extent of 100% of the Shares then unvested, and
any repurchase right of the Company with respect to shares issued upon
exercise of an Option shall lapse as to 100% of the Shares subject to such
repurchase right prior to consummation of the Change of Control, in each case
effective as of immediately prior to consummation of the transaction. To the
extent that an Option is not exercised prior to consummation of a Corporate
Transaction in which the Option is not being assumed or substituted, such
Option shall terminate upon such consummation and the Administrator shall
notify the Optionee or holder of such fact at least five (5) days prior to the
date on which the Option terminates.
(d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the
Administrator, provided that in the case of any Incentive Stock Option, the
grant date shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee, Director or Consultant to whom
an Option is so granted within a reasonable time after the date of such grant.
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14. Amendment and Termination of the Plan.
(a) Authority to Amend or Terminate. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation (other than an adjustment pursuant to Section 12
above) shall be made that would materially and adversely affect the rights of
any Optionee under any outstanding grant, without his or her consent. In
addition, to the extent necessary and desirable to comply with the Applicable
Laws, the Company shall obtain shareholder approval of any Plan amendment in
such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Except as to amendments
which the Administrator has the authority under the Plan to make unilaterally,
no amendment or termination of the Plan shall materially and adversely affect
Options already granted, unless mutually agreed otherwise between the Optionee
and the Administrator, which agreement must be in writing and signed by the
Optionee or holder and the Company.
15. Conditions Upon Issuance of Shares. Notwithstanding any other provision
of the Plan or any agreement entered into by the Company pursuant to the Plan,
the Company shall not be obligated, and shall have no liability for failure,
to issue or deliver any Shares under the Plan unless such issuance or delivery
would comply with the Applicable Laws, with such compliance determined by the
Company in consultation with its legal counsel. As a condition to the
exercise of an Option, the Company may require the person exercising the award
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such
a representation is required by law. Shares issued upon exercise of Options
granted prior to the date on which the Common Stock becomes a Listed Security
shall be subject to a right of first refusal in favor of the Company pursuant
to which the Participant will be required to offer Shares to the Company
before selling or transferring them to any third party on such terms and
subject to such conditions as is reflected in the applicable Option Agreement.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. Agreements. Options shall be evidenced by Option Agreements in such
form(s) as the Administrator shall from time to time approve.
18. Shareholder Approval. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the shareholders of
the Company within twelve (12) months before or after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under the Applicable Laws.
19. Information and Documents to Optionees and Purchasers. Prior to the
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial
statements at least annually to each Optionee and to each individual who
acquired Shares pursuant to the Plan, during the period such Optionee or
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purchaser has one or more Options outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide
such information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
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APPENDIX B
FLEXPOINT SENSOR SYSTEMS, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
There shall be a committee appointed by the board of directors of Flexpoint
Sensor Systems, Inc., hereafter (The "Company") to be known as the Audit
Committee.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the board of directors in
fulfilling their responsibility to the shareholders, potential shareholders,
and investment community relating to corporate accounting, reporting practices
of the Company and the quality and integrity of the financial reports of the
Company. In so doing, it is the responsibility of the Audit Committee to
maintain free and open means of communication between the directors, the
independent auditors and Company management.
COMPOSITION
The Audit Committee may be composed of as few as two members. At least one of
the members of the Audit Committee must be a director who is independent of
the management of the Company and free of any relationship that, in the
opinion of the board of directors, would interfere with their exercise of
independent judgment as a committee member and the other member(s) may not be
independent.
All members of the Audit Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the Audit
Committee shall have accounting or related financial management expertise.
The members of the Audit Committee shall be appointed by the Board and shall
serve until their successors shall be duly qualified and appointed. Unless a
chair is appointed by the full Board, the members of the Audit Committee may
designate a chair by majority vote of the full Audit Committee membership.
MEETINGS
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. As part of its responsibility to foster
open communication, the Audit Committee or its members are expected to meet
for discussions with Company management frequently, and will have at least two
formal meetings with Company management in the presence of the independent
auditors or may meet in separate executive sessions to discuss any matters
that the Audit Committee believes should be discussed privately.
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AUDIT COMMITTEE AUTHORITY
The Board of Directors shall grant to the audit committee:
. the direct responsibility for the appointment, compensation and
oversight of the outside auditor
. the authority and funding to engage independent counsel and other
outside advisors if the Audit Committee deems it necessary to carry out
its duties
. the sole duty and responsibility to review and approve all related party
transactions.
RESPONSIBILITIES
In carrying out its responsibilities, the Audit Committee's policies and
procedures will remain flexible, in order to best react to changing conditions
and to ensure that the corporate accounting and reporting practices of the
Company are in accordance with all requirements and are of the highest
quality.
In carrying out these responsibilities, the Audit Committee shall:
1. Develop an effective audit committee charter approved by the Board of
Directors. Update this charter at least annually or as business
development may dictate.
2. Influence the overall Company "tone" for quality financial reporting,
sound business risk controls, and ethical behavior.
3. The Audit Committee must determine whether the relationship between the
existing independent auditors and the Company complies with the
requirements of the listing standards, rules and regulations. Maintain
an active dialog with the independent auditors to identify and disclose
any relationship or services that may impact the objectivity and
independence of the auditors.
4. Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof,
review the results of such audit, including any comments or
recommendations of the independent auditors.
5. Provide sufficient opportunity for the independent auditors to meet with
the members of the Audit Committee without members of management
present. Among the items to be discussed in these meetings are the
independent auditor's evaluation of the Company's financial and
accounting personnel, and the cooperation that the independent auditors
received during the course of the audit.
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6. Ensure that the independent auditors review interim financial statements
and conduct a quality discussion with the independent auditors before
the Company files its quarterly report.
7. The Audit Committee on a regular basis shall also monitor the integrity
and quality of internal financial and operating information used by
management in its decision making process.
8. Consider and review with the independent auditors:
(a) Any significant findings in the independent auditors SAS 71 interim
financial statement review prior to the Company's filing of its
periodic report.
(b) The adequacy of the Company's internal controls, including
computerized information system controls and security.
(c) Any significant findings and recommendations of the independent
auditors together with management's responses thereto.
2. Discuss with the party responsible for investor relations what is being
said or asked about the Company, as it may further assist the Audit
Committee in asking probing questions to management.
3. Establish pre-approval procedures for all audit and non-audit services.
4. Establish appropriate procedures for the receipt, retention and
treatment of complaints regarding accounting, internal accounting
controls or auditing matters and the confidential, anonymous submission
by employees regarding questionable accounting matters.
5. Review the management representation letter issued to the independent
auditor.
6. Emphasize the adequacy of internal controls to identify any payments,
transactions, or procedures that might be deemed illegal or otherwise
improper.
7. Monitor the integrity and quality of annual and interim financial
reporting to shareholders in coordination with management and the
independent auditors. Determine that the independent auditors are
satisfied with the disclosure and content of the financial statements to
be presented to the shareholders. Review changes in accounting
principles and concur as to their appropriateness.
8. Monitor compliance with the Company code of ethics and regulatory
requirements, and review and assess conflicts of interest and
related-party transactions.
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9. Evaluate and make recommendations regarding management initiatives
affecting the financing of the Company and related matters.
10. Review and approve any required stock exchange certifications, if any.
11. Review and approve any required proxy or information statement
disclosure.
12. Assess independent auditor performance.
13. Assess Audit Committee members' performance.
14. Provide a report of the audit committee's findings that result from its
financial reporting oversight responsibilities including representation
that the Audit Committee has:
(a) discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication
with Audit Committees, as amended.
(b) received and reviewed the written disclosures and the letter from
the independent auditors required by Independence Discussions with
Audit Committees, as amended, by the Independence Standards Board.
(c) discussed with the auditors the auditors' independence.
15. Conduct an annual quality discussion with the independent auditors
wherein the independent auditors discuss their judgment about the
quality, not just the acceptability, of the Company's accounting
principles as applied in its financial reporting.
/s/ John A. Sindt
Date: 28 Sept. 2005 _____________________________________
John A. Sindt, Chairman
/s/ Clark M. Mower
Date: 28 Sept. 2005 _____________________________________
Clark M. Mower, Director
/s/ Ruland J. Gill, Jr.
Date: 28 Sept. 2005 _____________________________________
Ruland J. Gill, Jr., Director
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APPENDIX C
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P R O X Y
FLEXPOINT SENSOR SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Clark M. Mower and John A. Sindt, and either of them,
as proxies, to vote all shares of Common Stock of Flexpoint Sensor Systems,
Inc. (the "Company") held of record by the undersigned as of October 11, 2005
(the record date) with respect to this solicitation, at the Company's 2005
Annual Meeting of Stockholders to be held at the Grand America Hotel located
at 550 South Main Street, Salt Lake City, Utah on Tuesday, November 22, 2005,
at 10:00 a.m. Mountain Time and all adjournments thereof, upon the following
matters.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
DIRECTOR NOMINEES IN PROPOSAL 1
AND A VOTE "FOR" THE 2005 STOCK INCENTIVE PLAN IN PROPOSAL 2.
IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE
SEE REVERSE SIDE
------------------------------------------------------------------------------
36
[X] Please mark votes as in
this example in dark ink only.
----------------------------------------------------------------------------
| THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE |
| DIRECTOR NOMINEES IN PROPOSAL 1 AND "FOR" THE 2005 STOCK INCENTIVE |
| PLAN IN PROPOSAL 2. |
|----------------------------------------------------------------------------|
| |
| Proposal 1: The election of Clark Mower, Ruland Gill and John Sindt as |
| directors of the Company. (Check one of the following blanks): |
| |
| WITHHOLD |
| FOR AUTHORITY |
| [ ] [ ] |
| |
| (FOR all of the above mentioned nominees (except do not vote |
| for the nominee(s) whose name(s) appear(s) in the following space |
| |
| ________________________________________________________________ |
| |
| Proposal 2: The adoption of the 2005 Stock Incentive Plan |
| |
| FOR AGAINST ABSTAIN |
| [ ] [ ] [ ] |
| |
----------------------------------------------------------------------------
Please sign below, date and return promptly:
Date: _____________________________, 2005
______________________________________________
Signature
______________________________________________
Additional signatures if jointly held (if
applicable). If signing as Attorney,
Administrator, Executor, Guardian, or Trustee,
please add your title as such.