Part
III
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ITEM
10.
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DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
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Board
of Directors, Executive Officers and Key Employees
The
Board of Directors (the “Board of Directors”) currently consists of eight members. The term of each Director expires
at our next annual meeting or until his or her successor is appointed. Our executive officers are elected by, and serve at the
discretion of the Board of Directors. There are no family relationships between any directors or executive officers.
The
ages of the directors and executive officers are shown as of September 30, 2018.
Name
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Position
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James A. Hayward
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Chief Executive Officer, President and Chairman
of the Board of Directors
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John Bitzer, III
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Director
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Robert B. Catell
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Director
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Joseph D. Ceccoli
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Director
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Charles S. Ryan
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Director
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Sanford R. Simon
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Director
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Yacov A. Shamash
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Director
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Elizabeth M. Schmalz Ferguson
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Director
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Beth Jantzen
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Chief Financial Officer
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Judith Murrah
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Chief Information Officer
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Set
forth below is biographical information with respect to the aforementioned individuals.
James
A. Hayward, Ph.D.
, Sc.D.
65
Dr. James A. Hayward has been our Chief Executive Officer since March 17, 2006 and our President and the Chairman of the Board
of Directors since June 12, 2007. He was previously our acting Chief Executive Officer since October 5, 2005. He also served as
Acting Chief Financial Officer from August 20, 2013 through October 13, 2013. Dr. Hayward received his Ph.D. in Molecular Biology
from the State University of New York at Stony Brook in 1983 and an honorary Doctor of Science from the same institution in 2000.
His experience with public companies began with the co-founding of one of England’s first biotechnology companies—Biocompatibles.
Following this, Dr. Hayward was Head of Product Development for the Estee Lauder companies for five years. In 1990 he founded
The Collaborative Group, a provider of products and services to the biotechnology, pharmaceutical and consumer-product industries
based in Stony Brook, where he served as Chairman, President and Chief Executive Officer for 14 years. During this period, The
Collaborative Group created several businesses, including The Collaborative BioAlliance, a contract developer and manufacturer
of human gene products that was sold to Dow Chemical in 2002, and Collaborative Labs, a service provider and manufacturer of ingredients
for skincare and dermatology that was sold to Engelhard (now BASF) in 2004. Dr. Hayward also serves on the board of directors
for the Regents Council, Softheon Corporation and NeoMatrix Formulations, Inc.
Dr.
Hayward’s experience and senior leadership positions in companies in the biotechnology, pharmaceutical and
consumer-product industries, and specifically his qualifications and skills in the areas of general operations, financial
operations and administration, as well as his role as the Company’s Chief Executive Officer and President led the Board
of Directors to conclude that Dr. Hayward should serve as a director of the Company.
Yacov
Shamash
68
Dr.
Yacov A. Shamash has been a member of the Board of Directors since March 17, 2006. Dr. Shamash is Vice President of Economic Development
at the State University of New York at Stony Brook, a position he has held since 2000. From 1992 to 2015, he was the Dean of Engineering
and Applied Sciences, and from 1995 to 2004, Dr. Shamash was also the Dean of the Harriman School for Management and Policy at
the University. He was founder of the New York State Center for Excellence in Wireless and Information Technology at the University.
Dr. Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated
Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State
University from 1985 until 1992. Dr. Shamash also serves on the board of directors of public companies Comtech Telecommunications
Corp. and Keytronic Corp. Dr. Shamash holds a Ph.D. degree in Electrical Engineering from Imperial College of Science and Technology
in London, England.
Dr.
Shamash daily encounters leaders of businesses large and small, regional and global in their reach and, as a member of our Board
of Directors, has played an integral role in our business development by providing the highest-level introductions to customers,
channels to market and to the media. Dr. Shamash also brings to our Board of Directors his valuable experience gained from serving
as a director at other private and public companies. The Board of Directors believes that Dr. Shamash’s technical experience
and other abilities make him a valuable member of the Board of Directors.
Sanford
R. Simon
76
Dr.
Sanford R. Simon has been a member of the Board of Directors since March 17, 2006. Dr. Simon has been a Professor of Biochemistry,
Cell Biology and Pathology at Stony Brook since 1997. He joined the faculty at Stony Brook as an Assistant Professor in 1969 and
was promoted to Associate Professor with tenure in 1975. Dr. Simon was a member of the board of directors of The Collaborative
Group from 1995 to 2004. From 1967 to 1969, Dr. Simon was a Guest Investigator at Rockefeller University. Dr. Simon received a
B.A. in Zoology and Chemistry from Columbia University in 1963, a Ph.D. in Biochemistry from Rockefeller University in 1967, and
studied as a postdoctoral fellow with Nobel Prize winner Max Perutz in Cambridge, England. He maintains an active research laboratory
studying aspects of cell invasion in cancer and inflammation and novel strategies of drug delivery; he also teaches undergraduate,
graduate, medical and dental students.
Dr.
Simon is an expert at the use of large biomolecules in commercial media, and we have made use of his expertise in formulating
DNA into commercial carriers for specific customers. As a member of our Board of Directors, Dr. Simon has advised us on patents,
provided technical advice, and introduced us to corporate partners and customers. The Board of Directors believes that Dr. Simon’s
advice makes him a valuable member of the Board of Directors.
John
Bitzer, III
57
John
Bitzer, III, joined the Board of Directors on August 10, 2011. Mr. Bitzer is President and Chief Executive Officer of ABARTA,
a private, third and fourth generation family holding-company with operations in the soft drink, energy, and frozen food industries.
In 1985, Mr. Bitzer began his career in sales for the Cleveland Coca-Cola Bottling Company. He has been Publisher of Atlantic
City Magazine in Atlantic City, N.J. In 1994, he founded the ABARTA Media Group and held the position of Group Publisher. In 1997,
he was named President and Chief Operating Officer of ABARTA and has been President and Chief Executive Officer since 1999. Mr.
Bitzer has a bachelor’s degree from the University of Southern California and a Masters of Business Administration (“MBA”)
from the University of Michigan. Mr. Bitzer’s experience as an executive officer and director of several private companies
and organizations led the Board of Directors to conclude that he should serve as a director of the Company. In connection with
the investment in the Company by Delabarta, Inc. (“Delabarta”), a wholly owned subsidiary of ABARTA, during July 2011,
we agreed to use best efforts to nominate its designee, Mr. Bitzer, to the Board of Directors and elect Mr. Bitzer as a director
within 30 days of the closing and to nominate and include Mr. Bitzer on the slate of nominees for the Board of Directors for election
by stockholders at the annual meetings of stockholders for so long as Delabarta owns at least 2% of the outstanding shares of
common stock of the Company.
Charles
Ryan
54
Dr.
Charles S. Ryan joined the Board of Directors on August 10, 2011. Since February 2018, he has been the Chief Executive Officer
of Neurotrope Bioscience, Inc. (“Neurotrope”), a public, clinical-stage biopharmaceutical company. In addition, Dr.
Ryan became a member of Neurotrope’s Board of Directors effective December 14, 2017. From October 2016 until February 14,
2018, he was Chief Executive Officer of Orthobond, Inc. From March 2015 until October 2016, Dr. Ryan was Vice President and General
Counsel for Cold Spring Harbor Laboratory, a preeminent international research institution. Prior to that, Dr. Ryan was the Senior
Vice President, and Chief Intellectual Property Counsel at Forest Laboratories, where he was employed from 2003 to 2014. Dr. Ryan
has over 20 years’ experience in managing all aspects of intellectual property litigation, conducting due diligence investigations
and prosecuting patent and trademark applications in the pharmaceutical and biotechnology industries. Dr. Ryan earned a doctorate
in oral biology and pathology from SUNY Stony Brook and a law degree from Western New England College School of Law. Dr. Ryan
also serves on the board of directors of public company Biorestorative Therapies, Inc. Dr. Ryan is an experienced executive and
the Board of Directors believes his extensive background in pharmaceuticals and biotechnology, as well as legal and public policy,
is an asset to the Board of Directors.
Joseph
D. Ceccoli
55
Joseph
D. Ceccoli was appointed to the Board of Directors on December 3, 2014. Since 2010, Mr. Ceccoli has been the Founder, President
and CEO of Biocogent, LLC (“Biocogent”), a bioscience company located at the Stony Brook Long Island High Technology
Incubator. Biocogent is focused on the invention, development and commercialization of skin-active molecules and treatment products
used in regulated (over-the-counter / med-care), personal care and consumer products. Prior to starting Biocogent, Mr. Ceccoli
was Global Director of Operations for BASF Corporation, a global Fortune 100 company and the world’s largest global chemical
company, where he was responsible for the integration, operations and growth of domestic and overseas business units from 2007
to 2008. Prior to BASF, Mr. Ceccoli was a General Manager for Engelhard Corporation, a U.S.-based Fortune 500 company and chief
operating officer of Long Island-based The Collaborative Group from 2004 to 2007. Mr. Ceccoli holds a Bachelor of Science (“B.S.”)
degree in Biotechnology from Rochester Institute of Technology and advanced professional training in various pharmaceutical sciences,
emulsion chemistry, engineering and management disciplines. He is a member of numerous professional organizations such as the
American Chemical Society and the Society of Cosmetic Chemists. Mr. Ceccoli’s experience across the bioscience and chemical
markets, including in global and U.S.-based operations and management, enriches our Board of Directors. Mr. Ceccoli’s experience
as an executive officer and director of several bioscience and chemical companies and organizations led the Board of Directors
to conclude that he should serve as a director of the Company.
Robert
Catell
81
Robert
B. Catell was appointed to the Board of Directors on October 7, 2016. Since 2006, Mr. Catell has been serving as Chairman of the
Advanced Energy Research and Technology Center (AERTC) at Stony Brook University and since 2009 he has been servicing as the Chairman
of the New York State Smart Grid Consortium. He served on the Board of New York State Energy Research & Developmental Authority.
Among other accomplishments, Mr. Catell was formerly Chairman and CEO of KeySpan Corporation and KeySpan Delivery (formerly Brooklyn
Union Gas), and Chairman of National Grid, U.S. and Deputy Chairman of National Grid plc, upon National Grid’s acquisition
of KeySpan. He also serves on the board of several business and not-for-profit organizations, including public company BioRestorative
Therapies, Inc. He has been Chairman of Applied DNA Sciences’ Strategic Advisory Board since its inception in February 2016.
Mr.
Catell holds both a Master’s and Bachelor’s degree in Mechanical Engineering from City College of New York and is
a registered Professional Engineer. He has attended Columbia University’s Executive Development Program, and the Advanced
Management Program at the Harvard Business School. Mr. Catell’s extensive executive-level management experience, including
as a director at other private and public companies and within regulated and technical industries, qualifies him to serve as one
of our directors.
Elizabeth
Schmalz Ferguson
67
Ms.
Elizabeth M. Schmalz Ferguson has been a member of the Board of Directors since June 2017. She has served as President of American
Flavors & Fragrances, a fragrance company, since 2007. Ms. Ferguson also serves as President of her own consulting firm, Betsy
Schmalz Ferguson & Associates. She served as Senior Vice President of Corporate Product Development at Estée Lauder.
Ms. Ferguson’s responsibilities included overseeing product development for some of the company’s most prominent brands.
Subsequently, she was Executive Vice President of Product Development at Bath and Body Works and Victoria’s Secret for The
Limited. Ms. Ferguson started her senior management career at Revlon with responsibility for new product development for companies
including Borghese, Ultima II and Prestige fragrances. She has been Director of Applied DNA Sciences, Inc. since June 1, 2017.
She is an active member of Cosmetic Executive Women. She earned a bachelor’s degree in psychology from Georgian Court University.
Ms. Ferguson;s track record of accomplishments as a strategist and products leader within the cosmetics and personal care industries
led the Board of Directors to conlude she should serve as a director of the Company.
Beth
Jantzen
42
Beth
Jantzen was appointed as our Chief Financial Officer, effective February 15, 2015. Ms. Jantzen has held the position of Controller
since May 2013. Prior to joining the Company, Ms. Jantzen was a senior manager at Marcum LLP, our independent registered accounting
firm since June 23, 2014, from January 2000, where she managed multiple engagements and specialized in SEC policies, practices
and procedures, including Sarbanes-Oxley compliance. Ms. Jantzen holds a B.S. in Accounting from the State University of New York
at Binghamton and is also a Certified Public Accountant (CPA).
Judith
Murrah
59
Ms.
Judith Murrah has been our Chief Information Officer since June 1, 2013. Ms. Murrah is responsible for information
technology strategy and implementation. Ms. Murrah was previously the Senior Director of Information Technology at
Motorola Solutions, which had acquired her former firm, Symbol Technologies. Her role at Motorola Solutions included
overseeing global IT program management office, financial and supplier operations and quality assurance. At Symbol,
Ms. Murrah held leadership positions in product line management, global account sales, corporate and marketing communications
and IT. Ms. Murrah holds an MBA from Harvard Business School, and a B.S. in Industrial Engineering from the University
of Rhode Island. She is an author on twelve U.S. patents. Ms. Murrah is co-founder and President of non-profit ConnectToTech,
a recognized leader in engaging students in science, technology, engineering and math disciplines. Ms. Murrah was named
to 2005 and 2006 Top 50 Women of Long Island and received the inaugural 2001 Diamond Award for Long Island Women Leaders in Technology.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our officers and directors and persons who beneficially own more than 10% of any class of our
equity securities registered pursuant to Section 12 of the Exchange Act to file reports of securities ownership and changes in
such ownership with the SEC. Officers, directors and greater than 10% beneficial owners (“10% stockholders”) also
are required by SEC rules to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of the copies
of such forms furnished to us during or with respect to the fiscal year ended September 30, 2016, as the case may be, and upon
written representations from these reporting persons, we believe that none of our officers, directors or 10% stockholders failed
to file on a timely basis, as disclosed in the forms described above, reports required by Section 16(a) during fiscal 2018, except
as follows: Dr. Hayward filed one late Form 4 on August 31, 2018 for the acquisition and disposition of stock options on July
10, 2018, and one late Form 4 for the issuance of a secured convertible note, Dr. Shamash, Messrs. Bitzer and Catell, and Mses.
Ferguson and Murrah each made one late filing on October 10, 2018, each for the issuance of a secured convertible note on August
31, 2018, and Mr. William W. Montgomery filed one late Form 4 on January 8, 2019 for two acquisitions of common stock.
Governance
of the Company
Code
of Ethics
Our
Board of Directors adopted a “code of ethics” as defined by regulations promulgated under the Securities Act and the
Exchange Act (our “
Code of Business Conduct and Ethics
”) that applies to all of our employees, officers and
directors, including our chief executive officer, our chief financial officer and those officers and employees responsible for
financial reporting. The Code of Business Conduct and Ethics is designed to codify the ethical standards that we believe are reasonably
designed to deter wrong-doing and promote honest and ethical conduct.
We
have established procedures to ensure that suspected violations of the Code of Business Conduct and Ethics may be reported
anonymously. A current copy of our Code of Business Conduct and Ethics is available on our website at
www.adnas.com/adnas_home/investors/
.
A copy may also be obtained, free of charge, from us upon a request directed to Applied DNA Sciences, Inc., 50 Health Sciences
Drive, Stony Brook, New York 11790, c/o Investor Relations. We intend to disclose any amendments to or waivers of a provision
of the Code of Business Conduct and Ethics granted to directors and officers by posting such information on our website available
at
www.adnas.com
and/or in our public filings with the SEC.
Board
Committees
The
Board of Directors maintains three committees, the audit committee, compensation committee and the nominating committee.
Audit
Committee
Messrs.
Bitzer (Chairperson), Ryan and Shamash served during the fiscal year ended September 30, 2018, and currently continue to serve,
on the audit committee. The Board of Directors has determined that each member of the audit committee is independent within the
meaning of the director independence standards of the Company and NASDAQ as well as the heightened director independence standards
of the SEC for audit committee members, including Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the
“
Exchange Act
”). The Board of Directors has also determined that each of the members of the audit committee
is financially sophisticated and is able to read and understand consolidated financial statements and that Mr. Bitzer is an “audit
committee financial expert” as defined in the Exchange Act.
The
composition and responsibilities of the audit committee and the attributes of its members, as reflected in the charter, are intended
to be in accordance with applicable requirements for corporate audit committees. The audit committee charter will be reviewed,
and amended if necessary, on an annual basis.
The
audit committee assists the Board of Directors in fulfilling its oversight responsibility relating to our financial statements
and the disclosure and financial reporting process, our system of internal controls, our internal audit function, the qualifications,
independence and performance of our independent registered public accounting firm, compliance with our code of ethics and legal
and regulatory requirements. The audit committee has the sole authority to appoint, retain, terminate, compensate and oversee
the work of the independent registered public accounting firm, as well as to pre-approve all audit and non-audit services to be
provided by the independent registered public accounting firm.
Compensation
Committee
Messrs.
Bitzer, Ceccoli, and Shamash (Chairperson) served on the compensation committee during the fiscal year ended September 30, 2018.
The compensation committee reviews and approves salaries and bonuses for all officers, administers options outstanding under our
stock incentive plan, provides advice and recommendations to the Board of Directors regarding directors’ compensation and
carries out the responsibilities required by SEC rules. The compensation committee believes that its processes and oversight should
be directed toward attracting, retaining and motivating employees and non-employee directors to promote and advance our interests
and strategic goals. As requested by the compensation committee, the Chief Executive Officer will provide information and may
participate in discussions regarding compensation for other executive officers. The compensation committee does not utilize outside
compensation consultants but considers other general industry information and trends if available.
Nominating
Committee
Messrs.
Shamash (Chairperson), Bitzer and Simon served during the fiscal year ended September 30, 2018, and currently continue to serve,
on the nominating committee. The Board of Directors has determined that each member of the nominating committee is independent
within the meaning of the director independence standards of the Company, NASDAQ and the SEC.
The
nominating committee is responsible for, among other things: reviewing Board of Directors composition, procedures and committees,
and making recommendations on these matters to the Board of Directors; and reviewing, soliciting and making recommendations to
the Board of Directors and stockholders with respect to candidates for election to the Board of Directors.
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ITEM 11.
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EXECUTIVE COMPENSATION
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Compensation
Overview
Our
compensation approach is necessarily tied to our stage of development as a company. We have historically been principally devoted
to developing DNA embedded biotechnology security solutions, but have more recently also supplied DNA for use in in vitro medical
diagnostics, preclinical biotechnology and preclinical drug and biologic development and manufacturing markets. We also have undertaken
preliminary steps towards the development of drugs and biologics. We have necessarily limited the establishment of extensive administrative
and operating infrastructure, and a formal executive compensation policy has not been established. We have a compensation committee
of the Board of Directors that is responsible for all compensation matters of our directors and executive officers. The compensation
of all our named executive officers is approved by our compensation committee, which in turn reviewed the recommendation of our
Chief Executive Officer (except with respect to his own compensation). As discussed below, the recommendation of our Chief Executive
Officer is largely discretionary, based on his subjective assessment of the particular executive. As we continue to grow, we expect
that the specific direction, emphasis and components of our executive compensation program will continue to evolve. The compensation
committee has overall responsibility for approving and evaluating our executive officers’ compensation plans, policies and
programs. Our compensation program is designed to employ best practices in executive compensation and consider all relevant regulatory
guidance regarding sound incentive compensation policies. The remainder of this section provides a general summary of our compensation
policies and procedures.
Our
Executive Compensation Philosophy and Objectives
General
The
fundamental purpose of our executive compensation program is to assist us in achieving our financial and operating performance
objectives. Specifically, we attempt to tailor an executive’s compensation to (1) retain and motivate the executive, (2)
reward him or her upon the achievement of Company-wide, and individual performance, and (3) align the executive’s interest
with the creation of long-term stockholder value, without encouraging excessive risk taking. To that end, and within the context
of the stage of our Company, we have compensated our named executive officers through a mix of base salary, equity-based incentives,
and cash bonuses.
Our
business model is based on our ability to establish long-term relationships with clients and to maintain our strong mission, client
focus, entrepreneurial spirit and team orientation. We have sought to create an executive compensation package that balances short-term
versus long-term components when considering cash bonuses and employee equity awards, in ways we believe are most appropriate
to motivate senior management and reward them for achieving the following goals:
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•
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Develop
a culture that embodies a commitment for our business, creative contribution and a drive
to achieve established goals and performance objectives;
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Provide
leadership to the organization in such a way as to maximize the results of our business
operations;
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Lead
us by demonstrating forward thinking in the operation, development and expansion of our
business;
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Effectively
manage organizational resources to derive the greatest value possible from each dollar
invested; and
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•
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Take
strategic advantage of the market opportunity to expand and grow our business and revenues.
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We
believe that having a compensation program designed to align executive officers to meet our business objectives and to reinforce
excellent performance and accountability is the cornerstone to successfully implement and achieve our strategic plan. In determining
the compensation of our executive officers, we are guided by the following key principles:
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•
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Competition
.
Compensation should reflect the competitive marketplace, so we can retain, attract and
motivate talented executives.
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•
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Accountability
for Business Performance
. Compensation should be tied to financial performance, so
that executives are held accountable through their compensation for contributions to
the performance of our Company as a whole as well as their performance of the business
unit for which they are responsible.
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•
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Accountability
for Individual Performance
. Compensation should be tied to the individual’s
performance to encourage and reflect individual contributions to our Company’s
performance. We consider individual performance as well as performance of the business
and responsibility areas that an individual oversees, and weigh these factors as appropriate
in assessing a particular individual’s performance.
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•
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Alignment
with Stockholder Interests
. Compensation should be tied to our financial performance
through equity awards to align executives’ interests with those of our stockholders.
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Our
executive compensation structure not only aims to be competitive in our industry, but also to be fair relative to compensation
paid to other professionals within our organization, relative to our short-term and long-term performance and relative to the
value we deliver to our stockholders. We seek to maintain a performance-oriented culture and a compensation approach that rewards
our executive officers when we achieve our goals and objectives, while putting at risk an appropriate portion of their compensation
against the possibility that our goals and objectives may not be achieved.
The
Chief Executive Officer is the only named executive officer with an employment agreement. In addition, there are no change in
control, severance or noncompetition agreements with any other named executive officer, nor are we otherwise obligated to pay
any named executive officers any amounts if there is a change in control of the Company or if such executive’s employment
with us terminates, except for the Chief Executive Officer, as described below in the section entitled “—Potential
Payments upon Termination of Employment or a Change of Control.”
Determination
of Executive Compensation Awards
The
compensation committee establishes and monitors the basic philosophy governing the compensation of the Chief Executive Officer.
On an annual basis, the compensation committee reviews the compensation of the Chief Executive Officer including incentive compensation
plans and equity-based plans. Compensation decisions for all other of our executive officers are approved by our compensation
committee, which in turn reviewed the recommendation of our Chief Executive Officer. We have traditionally placed significant
emphasis on the recommendation of our Chief Executive Officer with respect to the determination of executive compensation (other
than his own), in particular with respect to the determination of base salary, cash incentive and equity incentive awards, and
typically followed such recommendations as presented by our Chief Executive Officer. However, the compensation committee in reviewing
such recommendations is free to make decisions that are contrary to the Chief Executive Officer’s recommendations. As we
continue to grow, we intend to make the transition to have our compensation committee be solely responsible for administering
our executive compensation program, although we expect to continue to rely, in part, upon the advice and recommendations of our
Chief Executive Officer (other than with respect to his own compensation), particularly with respect to those executive officers
that report directly to him. The compensation committee’s composition and oversight of our executive compensation program
is described in more detail above in the section entitled “—Compensation Committee.”
For
purposes of determining our executive officer compensation in the fiscal year ended September 30, 2018 and in prior fiscal years,
we considered the following factors: our understanding of the amount of compensation generally paid by similarly situated companies
to their executives with similar roles and responsibilities; the roles and responsibilities of our executives; the individual
experience and skills of, and expected contributions from, our executives; the amounts of compensation being paid to our other
executives; our executives’ historical compensation at our Company; an assessment of the professional effectiveness and
capabilities of the executive officer; and the performance of the executive officer against the corporate and other scorecards
used to determine incentive compensation. While we have not used any formula or formal benchmarking to determine compensation
based on these factors, we have placed the most emphasis in determining compensation on our understanding of the amount of compensation
generally paid by similarly situated companies to their executives with similar roles and responsibilities and the subjective
assessment of the professional effectiveness and capabilities of the executive officer. Our understanding of the amount of compensation
generally paid by similarly situated companies was based on our compensation committee’s and our Chief Executive Officer’s
own business judgment and collective experience in such matters.
Base
Salary
Our
compensation committee sets the Chief Executive Officer’s base salary annually in accordance with the terms of his employment
agreement (provided that unless otherwise consented to by the Chief Executive Officer, any change by the compensation committee
may increase, but not decrease, the Chief Executive Officer’s annual rate of base salary). Dr. Hayward’s annual base
salary was voluntarily reduced by $100,000 in fiscal 2016. Subject to the Company obtaining certain financial targets, Dr. Hayward
will receive certain bonuses. During 2017, Mr. Hayward’s annual base salary was voluntarily reduced by an additional $50,000.
For more information, see “—Changes to Compensation of Executive Officers ” and “Employment Agreement
with Dr. James A. Hayward.” The base salary for each of the other named executive officers is reviewed annually by the Chief
Executive Officer and any adjustments recommended by him are subject to the review and approval by the compensation committee.
Adjustments to base salary are based upon a review of a variety of factors, including the following:
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•
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individual
and Company performance, measured against quantitative and qualitative goals, such as
our growth, revenue, profitability and other matters;
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•
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duties
and responsibilities as well as the executive’s experience; and
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•
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the
types and amount of each element of compensation to be paid to the named executive officer.
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The
current base salaries for our named executive officers eligible to receive an annual incentive bonus is as follows:
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Dr. James A. Hayward
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$250,000
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Beth M. Jantzen
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$240,000
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Judith Murrah
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$240,000
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Cash
Bonuses
The
Chief Executive Officer is paid cash bonuses in accordance with the terms of his employment agreement as well as based on the
discretion of the compensation committee. We pay discretionary cash bonuses to our other named executive officers, which are recommended
by the Chief Executive Officer, although the final determination of such bonuses are made by the compensation committee. The cash
bonuses, if any, which are determined after the end of each fiscal year and may be paid annually, are intended to recognize and
reward those named executive officers who have contributed meaningfully to our performance for the prior year. Both personal and
the Company’s performance are factors that the compensation committee and Chief Executive Officer typically consider in
deciding whether to award a cash bonus to a named executive officer and the amount of such bonus. No cash bonuses were paid to
executive officers for the fiscal year ended September 30, 2018 due to the performance of the Company.
Long-term
Stock-Based Compensation
Our
long-term compensation program has historically consisted solely of stock options. Option grants made to executive officers are
designed to provide them with incentive to execute their responsibilities in such a way as to generate long-term benefit to us
and our stockholders. Through possession of stock options, our executives participate in the long-term results of their efforts,
whether by appreciation of our Company’s value or the impact of business setbacks, either Company-specific or industry-based.
Additionally, stock options provide a means of ensuring the retention of our executive officers, in that they are in most cases
subject to vesting over an extended period of time.
Stock
options provide executives with a significant and long-term interest in our success. By only rewarding the creation of stockholder
value, we believe stock options provide our executive officers with an effective risk and reward profile. Although it is our current
practice to use stock options as our sole form of long-term incentive compensation, the compensation committee reviews this practice
on an annual basis in light of our overall business strategy, existing market-competitive best practices and other factors.
Stock
options are granted periodically and are subject to vesting based on the executive’s continued employment. Historically
we have granted our executive officers a combination of incentive stock options that vest over a period of time or stock options
that are immediately exercisable.
Stock
options are granted to our executive officers in amounts determined by the compensation committee in its discretion. Stock grants
have not been formula-based, but instead have historically been granted taking into account a mixture of the following qualitative
factors: the executive’s level of responsibility; the competitive market for the executive’s position; the executive’s
potential contribution to our growth; and the subjective assessment of the professional effectiveness and capabilities of these
executives.
During
the fiscal year ended September 30, 2018, Dr. Hayward, Ms. Jantzen, and Ms. Murrah, were granted 250,000, 100,000 and 150,000
options, respectively. These options vested immediately as cash bonuses were not paid to executives during the prior fiscal year.
Subsequent to September 30, 2018 certain options of the executive officers were canceled and replaced with new options with a
term of an additional five years. The combined term of these options is a total of 10 years for consistency with our current compensation
practices, in which employee stock options are generally granted with a term of ten years.
Benefits
We
provide the following benefits to our executive officers on the same basis as the benefits provided to all employees:
|
•
|
health
and dental insurance;
|
|
•
|
short-and
long-term disability; and
|
|
•
|
401(k)
Plan (currently there is no employer matching)
|
These
benefits are generally consistent with those offered by other companies and specifically with those companies with which we compete
for employees.
Changes
to Compensation of Executive Officers
Effective
March 15, 2018, the compensation committee approved a bonus of $121,125 that would be payable to Dr. Hayward if and when the Company
reaches $3,000,000 in revenues for two consecutive quarters or $12,000,000 in revenues for a fiscal year, provided that Dr. Hayward
is still employed by the Company on such date (the “Revenue Bonus”). Effective May 2, 2018, the compensation committee
increased the amount of the Revenue Bonus to $403,623. Effective December 27, 2018, the compensation committee approved a bonus
opportunity of $150,000 for the calendar year ended December 31,2019, that would be payable to Dr. Hayward under the same terms
as described above.
Summary
Compensation Table
The
following table sets forth the compensation of our principal executive officer, our principal financial officer and our other
executive officers for the fiscal years ended September 30, 2018 and 2017. We refer to these executive officers as our “named
executive officers.”
|
|
Year
|
|
|
Salary
($) (c)
|
|
|
Bonus
($) (d)
|
|
|
Stock
Awards
($) (e)
|
|
|
Option
Awards
($) (f) (1)
|
|
|
All Other
Compensation
($) (i)
|
|
|
Total
($) (j)
|
|
James A.
Hayward
|
|
|
2018
|
|
|
|
250,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
165,000
|
|
|
|
18,000
|
|
|
|
433,000
|
|
Chairman,
President and CEO
|
|
|
2017
|
|
|
|
281,730
|
|
|
|
—
|
|
|
|
—
|
|
|
|
245,790
|
|
|
|
18,000
|
|
|
|
545,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beth M. Jantzen
|
|
|
2018
|
|
|
|
221,538
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66,000
|
|
|
|
—
|
|
|
|
287,538
|
|
CFO
|
|
|
2017
|
|
|
|
246,346
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98,316
|
|
|
|
—
|
|
|
|
344,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judith Murrah
|
|
|
2018
|
|
|
|
240,000
|
|
|
|
—
|
|
|
|
|
|
|
|
99,000
|
|
|
|
—
|
|
|
|
339,000
|
|
CIO
|
|
|
2017
|
|
|
|
246,346
|
|
|
|
—
|
|
|
|
|
|
|
|
98,316
|
|
|
|
—
|
|
|
|
344,662
|
|
|
(1)
|
The
amounts in column (f) represent the grant date fair value calculated in accordance with
ASC 718 based on the Black Scholes value of the options on the grant date. Information
concerning these amounts and the assumptions used to calculate these amounts are set
forth in our Form 10-K for the fiscal year ended September 30, 2018 filed with the SEC
on December 18, 2018 under the caption “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations —Equity Based Compensation.”
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table shows information concerning outstanding equity awards as of September 30, 2018 held by the named executive officers.
|
|
Option
Awards
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
James A. Hayward
|
|
|
166,667
|
(1)
|
|
|
—
|
|
|
|
3.60
|
|
|
6/30/2020
|
|
|
|
|
666,667
|
(2)
|
|
|
—
|
|
|
|
3.51
|
|
|
7/11/2021
|
|
|
|
|
833,334
|
(10)
|
|
|
—
|
|
|
|
5.82
|
|
|
10/17/2018
|
|
|
|
|
175,000
|
|
|
|
—
|
|
|
|
2.86
|
|
|
12/21/2024
|
|
|
|
|
25,000
|
|
|
|
25,000
|
(3)
|
|
|
2.99
|
|
|
12/21/2025
|
|
|
|
|
150,000
|
(4)
|
|
|
—
|
|
|
|
2.05
|
|
|
12/20/2026
|
|
|
|
|
250,000
|
|
|
|
—
|
|
|
|
1.19
|
|
|
08/29/2028
|
|
Beth M. Jantzen
|
|
|
4,167
|
(5)
(7)
|
|
|
—
|
|
|
|
5.31
|
|
|
10/14/2018
|
|
|
|
|
4,167
|
(5)
(7)
|
|
|
—
|
|
|
|
6.96
|
|
|
11/28/2018
|
|
|
|
|
4,167
|
(5)
(8)
|
|
|
—
|
|
|
|
8.16
|
|
|
12/09/2018
|
|
|
|
|
40,000
|
(5)
|
|
|
—
|
|
|
|
2.86
|
|
|
12/21/2024
|
|
|
|
|
22,500
|
(6)
|
|
|
7,500
|
|
|
|
3.45
|
|
|
2/14/2025
|
|
|
|
|
25,000
|
|
|
|
25,000
|
(3)
|
|
|
2.99
|
|
|
12/21/2025
|
|
|
|
|
60,000
|
(4)
|
|
|
—
|
|
|
|
2.05
|
|
|
12/20/2026
|
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
1.19
|
|
|
08/29/2028
|
|
Judith Murrah
|
|
|
33,334
|
(9)
|
|
|
—
|
|
|
|
7.02
|
|
|
12/01/2018
|
|
|
|
|
75,000
|
|
|
|
—
|
|
|
|
2.86
|
|
|
12/21/2024
|
|
|
|
|
4,167
|
(8)
|
|
|
—
|
|
|
|
8.16
|
|
|
12/09/2018
|
|
|
|
|
25,000
|
|
|
|
25,000
|
(3)
|
|
|
2.99
|
|
|
12/21/2025
|
|
|
|
|
60,000
|
(4)
|
|
|
—
|
|
|
|
2.05
|
|
|
12/20/2026
|
|
|
|
|
150,000
|
|
|
|
—
|
|
|
|
1.19
|
|
|
08/29/2028
|
|
|
(1)
|
On
June 30, 2015, these options were canceled and replaced with new options with a term
of an additional five years. The combined term of these options is a total of 10 years
for consistency with our current compensation practices, in which employee stock options
are generally granted for a term of 10 years. The options were not in the money at the
time of such extension.
|
|
(2)
|
On
July 11, 2018, these options were canceled and replaced with new options with a term
of an additional three years. The combined term of these options is a total of 10 years
for consistency with our current compensation practices, in which employee stock options
are generally granted for a term of 10 years. The options were not in the money at the
time of such extension.
|
|
(3)
|
25%
of these options will vest and become exercisable each anniversary for the next four
years, commencing on December 21, 2016, one year from the date of grant.
|
|
(4)
|
On
December 20, 2016, we granted an aggregate of 498,500 options (excluding options issued
to the Board of Directors and consultants) to purchase our common stock at an exercise
price of $2.05 per share for ten years to employees, with immediate vesting. As part
of this grant, Dr. Hayward, Ms. Jantzen, and Ms. Murrah, were granted 150,000, 60,000
and 60,000 options, respectively.
|
|
(5)
|
These
options were granted to Ms. Jantzen for her service as Controller prior to her appointment
as the Chief Financial Officer.
|
|
(6)
|
We
granted 30,000 options to purchase our common stock at an exercise price of $3.45 per
share for ten years to Ms. Jantzen, effective February 15, 2015, with vesting at 25%
each anniversary for the next four years commencing one year from the date of grant.
|
|
(7)
|
On
October 31, 2018 and November 28, 2018, these options were canceled and replaced with
new options with terms of an additional five years. The combined terms of these options
are a total of 10 years for consistency with our current compensation practices, in which
employee stock options are generally granted for a term of 10 years. The options were
not in the money at the time of such extension.
|
|
(8)
|
On
December 9, 2018, these options were canceld and replaced with new options with a term
of an additional five years. The combined terms of these options are a total of 10 years
for consistency with our current compensation practices, in which employee stock options
are generally granted for a term of 10 years. The options were not in the money at the
time of such extension.
|
|
(9)
|
On
December 1, 2018, these options were canceled and replaced with new options with a term
of an additional five years. The combined term of these options is a total of 10 years
for consistency with our current compensation practices, in which employee stock options
are generally granted for a term of 10 years. The options were not in the money at the
time of such extension.
|
|
(10)
|
On
October 17, 2023 these options were canceled and replaced with new options with terms of an additional five years. The combined
terms of these options are a total of 10 years for consistency with our current compensation practices, in which employee stock
options are generally granted for a term of 10 years. These options were not in the money at the time of such extension.
|
Option
Exercises and Stock Vested
During
the fiscal year ended September 30, 2018, none of our named executive officers exercised options or acquired shares upon vesting
of stock awards.
Pension
Benefits
None
of our named executive officers participates in or has account balances in qualified or non-qualified defined benefit plans sponsored
by us.
Nonqualified
Defined Contribution Plans
None
of our named executive officers participates in or has account balances in non-qualified defined contribution plans maintained
by us.
Deferred
Compensation
None
of our named executive officers participates in or has account balances in deferred compensation plans or arrangements.
Employment
Agreement with Dr. James A. Hayward
The
following is a discussion of our employment agreement with Dr. Hayward as of September 30, 2018 and, where indicated, compensation
actions prior to such date.
On
July 28, 2017, an employment agreement was entered into with the Company’s Chief Executive Officer (“CEO”),
effective July 1, 2017. The employment agreement provides that Dr. Hayward will be the Company’s CEO and will continue to
serve on the Company’s Board of Directors. The initial term was from July 1, 2017 through June 30, 2018, with automatic
one-year renewal periods. As of June 30, 2018, the employment agreement renewed for an additional year. Under the new employment
agreement, the CEO will be eligible for a special cash incentive bonus of up to $800,000, $300,000 of which is payable if and
when annual revenue reaches $8 million and $100,000 of which would be payable for each $2 million of annual revenue in excess
of $8 million, provided the CEO is still employed by the Company on such date(s). Pursuant to the employment agreement, the CEO’s
annual salary is $400,000. Due to previous voluntary reductions of the CEO’s annual salary, Dr. Hayward’s base salary
for the 2018 fiscal year was $250,000.
The
Board of Directors, acting in its discretion, may grant annual bonuses to the CEO. The CEO will be entitled to certain benefits
and perquisites and will be eligible to participate in retirement, welfare and incentive plans available to the Company’s
other employees.
The
agreement with the CEO also provides that if he is terminated before the end of the initial or a renewal term by the Company without
cause or if the CEO terminates his employment for good reason, then, in addition to earned and unpaid salary, bonus and benefits,
and subject to the delivery of a general release and continuing compliance with restrictive covenants, the CEO will be entitled
to receive a pro rata portion of the greater of either (X) the annual bonus he would have received if employment had continued
through the end of the year of termination or (Y) the prior year’s bonus; salary continuation payments for two years following
termination equal to the greater of (i) three times base salary or (ii) two times base salary plus bonus; Company-paid COBRA continuation
coverage for 18 months post-termination; continuing life insurance benefits (if any) for two years; and extended exercisability
of outstanding vested options (for three years from termination date or, if earlier, the expiration of the fixed option term).
If termination of employment as described above occurs within six months before or two years after a change in control of the
Company, then, in addition to the above payments and benefits, all of the CEO’s outstanding options and other equity incentive
awards will become fully vested and the CEO will receive a lump sum payment of the amounts that would otherwise be paid as salary
continuation. In general, a change in control will include a 30% or more change in ownership of the Company.
Upon
termination due to death or disability, the CEO will generally be entitled to receive the same payments and benefits he would
have received if his employment had been terminated by the Company without cause (as described in the preceding paragraph), other
than salary continuation payments.
Effective
March 15, 2018, the compensation committee, approved a bonus of $121,125 that would be payable to the CEO when the Company reaches
$3,000,000 in revenues for two consecutive quarters or $12,000,000 in revenues for a fiscal year, provided that the CEO is still
employed by the Company on such date (the “Revenue Bonus”). Effective May 2, 2018, the compensation committee of the
Company’s Board of Directors, increased the amount of the Revenue Bonus to $403,623. Effective December 27, 2018, the compensation
committee approved a bonus opportunity of $150,000 for the calendar year ended December 31, 2019, that would be payable to Dr.
Hayward under the same terms as described above.
Potential
Payments upon Termination of Employment or a Change of Control
There
is a change-in-control provision included in Dr. Hayward’s employment agreement, and we are obligated to pay severance or
other enhanced benefits to him upon termination of his employment. For additional information, see “Employment Agreement
with Dr. James A. Hayward” above.
If
Dr. Hayward’s employment was terminated on September 30, 2018 by us without “cause” or by Dr. Hayward for “good
reason” (in either case, other than in connection with a change in control), he would have been entitled to a base salary
component of $750,000 (three times his annual base salary) paid in equal installments over 2 years, extended exercisability of
his outstanding vested options - (for three years from termination date or, if earlier, the expiration of the fixed option term)
and Company-paid COBRA continuation coverage for 18 months post-termination.
In
context of a “change in control” of the Company had it occurred on September 30, 2018, and within six months before
or two years after such change in control and Dr. Hayward’s employment was terminated by us without “cause”
or by Dr. Hayward for “good reason”, he would have been entitled to an estimated lump sum payment of $750,000 (three
times his annual base salary) and other benefits set forth in the preceding paragraph. In addition to the above payments and benefits,
all of Dr. Hayward’s outstanding options and other equity incentive awards would have become fully vested.
If
a “change in control” of the Company occurred on September 30, 2018 and Dr. Hayward’s employment was not terminated,
then all of Dr. Hayward’s outstanding options and other equity incentive awards would have become fully vested.
Director
Compensation: Fiscal 2018
During
the fiscal year ended September 30, 2018, we did not provide any cash compensation to our non-employee directors for their service
on our Board of Directors. On December 14, 2015, the Board of Directors approved the recommendation from the compensation committee
that each of the non-employee directors shall annually receive, for as long as they are a member of the Board of Directors, a
10-year stock option, fully vested after one year, to purchase a number of shares of common stock having a fair value of $75,000
as determined using the Black Scholes value, or as determined by the compensation committee. Additionally, the Board of Directors
approved the recommendation from the compensation committee that stock options to purchase shares of our common stock having an
aggregate fair value of $50,000 using the Black Scholes value be granted to certain non-employee directors.
|
|
Fees
Earned
or
Paid in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($) (1)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($) (1)(9)
|
|
Sanford
R. Simon (6)
|
|
|
—
|
|
|
|
—
|
|
|
|
80,404
|
|
|
|
—
|
|
|
|
80,404
|
|
Yacov A. Shamash
(2)(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
94,704
|
|
|
|
—
|
|
|
|
94,704
|
|
John Bitzer, III
(4)
|
|
|
—
|
|
|
|
—
|
|
|
|
81,304
|
|
|
|
—
|
|
|
|
81,304
|
|
Joseph D. Ceccoli(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
87,500
|
|
|
|
—
|
|
|
|
87,500
|
|
Charles S. Ryan
(4)
|
|
|
—
|
|
|
|
—
|
|
|
|
81,304
|
|
|
|
—
|
|
|
|
81,304
|
|
Robert C. Catell(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
87,500
|
|
|
|
—
|
|
|
|
87,500
|
|
Elizabeth M. Schmalz
Ferguson(2)(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
131,250
|
|
|
|
—
|
|
|
|
131,250
|
|
|
(1)
|
A
10-year option to purchase 63,919 shares of our common stock was granted by the Board
of Directors to each of the non-employee directors on March 15, 2018 at an exercise price
of $1.57 per share, with one year vesting.
|
|
(2)
|
A
10-year option to purchase an additional 10,653 shares of our common stock at an exercise
price of $1.57 per share was granted to each for Mr. Catell, Mr. Ceccoli, Ms. Schmalz
Ferguson and Mr. Shamash on March 15, 2018, with one year vesting.
|
|
(3)
|
A
10-year option to purchase 37,286 shares of our common stock was granted by the Board
of Directors to Ms. Schmalz Ferguson on March 15, 2018 at an exercise price of $1.57
per share, with one year vesting.
|
|
(4)
|
A
10-year option to purchase 6,304 shares of our common stock was granted by the Board
of Directors to each of Mr. Bitzer, and Mr. Ryan on March 15, 2018 at an exercise price
of $1.57 per share, with immediate vesting.
|
|
(5)
|
A
10-year option to purchase 7,204 shares of our common stock was granted by the Board
of Directors to Mr. Shamash, on March 15, 2018 at an exercise price of $1.57 per share,
with immediate vesting.
|
|
(6)
|
A
10-year option to purchase 5,404 shares or our common stock was granted by the Board
of Directors to Mr. Simon on March 15, 2018 at an exercise price of $1.57 per share,
with immediate vesting.
|
|
(7)
|
The
amounts represent the grant date fair value calculated in accordance with ASC 718 based
on the Black Scholes value of the options on the grant date. Information concerning these
amounts and the assumptions used to calculate these amounts are set forth in our Form
10-K for the fiscal year ended September 30, 2018 filed with the SEC on December 18,
2018 under the caption “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations —Equity Based Compensation.” As of September
30, 2018, Mr. Simon, Mr. Shamash, Mr. Bitzer, Mr. Ceccoli, Mr. Catell, Ms. Schmalz Ferguson
and Mr. Ryan had total outstanding option awards (including warrants) of 242,362, 298,170,
313,204, 187,924, 152,830, 111,858 and 236,281 shares of our common stock, respectively.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The
following table provides information as of September 30, 2018 with respect to shares of our common stock that may be issued under
our existing equity compensation plans.
Plan
Category
|
|
Number
of
Securities to be
Issued upon
Exercise of
Outstanding
Options,
Warrants
and Rights
|
|
|
Weighted
Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
|
|
|
Number of
Securities
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected in the
first
Column)
|
|
Equity
compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
Incentive Plan
|
|
|
6,183,214
|
|
|
$
|
3.13
|
|
|
|
1,353,466
|
|
Equity
compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
TOTAL
|
|
|
6,183,214
|
|
|
$
|
3.13
|
|
|
|
1,353,466
|
|
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth certain information regarding the shares of our common stock beneficially owned as of January 24, 2019,
(i) by each person who is known to us to beneficially own 5% or more of the outstanding common stock, (ii) by each of the executive
officers named in the table under “Executive Compensation” and by each of our directors and (iii) by all executive
officers and directors as a group.
Unless
otherwise indicated below, each person or entity has an address in care of our principal executive offices at 50 Health Sciences
Drive, Stony Brook, New York 11790
Name
and Address of Beneficial Owner
|
|
Title
of Class
|
|
Number
of
Shares Owned
(1)(2)
|
|
|
Percentage
of Class
(3)
|
|
|
|
|
|
|
|
|
|
|
Executive
Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Hayward
|
|
Common
Stock
|
|
|
4,732,562
|
(4)
|
|
|
12.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Yacov A. Shamash
|
|
Common Stock
|
|
|
312,375
|
(5)(17)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
John Bitzer, III
|
|
Common Stock
|
|
|
1,525,926
|
(6)(7)
|
|
|
4.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Robert C. Catell
|
|
Common Stock
|
|
|
181,240
|
(11)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Joseph D. Ceccoli
|
|
Common Stock
|
|
|
210,652
|
(8)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Beth M. Jantzen
|
|
Common Stock
|
|
|
275,342
|
(12)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Judith Murrah
|
|
Common Stock
|
|
|
375,661
|
(13)
|
|
|
1.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles S. Ryan
|
|
Common Stock
|
|
|
250,486
|
(6)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Sanford R. Simon
|
|
Common Stock
|
|
|
245,203
|
(9)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Elizabeth Schmalz Ferguson
|
|
Common Stock
|
|
|
123,222
|
(14)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
All directors
and officers as a group (10 persons)
|
|
Common
Stock
|
|
|
8,232,669
|
(10)
|
|
|
20.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
5% Stockholder:
|
|
|
|
|
|
|
|
|
|
|
William W. Montgomery
|
|
Common Stock
|
|
|
5
,230,900
|
(15)
|
|
|
14.69
|
%
|
|
*
|
indicates
less than one percent
|
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to the shares shown. Except as indicated by footnote
and subject to community property laws where applicable, to our knowledge, the stockholders
named in the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days upon the exercise
of options, warrants or convertible securities (in any case, the “Currently Exercisable
Options”).
|
|
(2)
|
Does
not include the remaining unvested shares subject to options granted on December 21,
2015 pursuant to the 2005 Incentive Stock Plan, which vest 25% of the underlying shares
ratably on each anniversary date thereafter until fully vested on the fourth anniversary
date of grant, including 12,500 for each of Dr. Hayward, Ms. Jantzen and Ms. Murrah.
Does not include the remaining 10,000 unvested shares subject to options granted on May
1, 2017 to Mr. Catell.
|
|
(3)
|
Based
upon 35,612,057 shares of common stock outstanding as of January 24, 2019. Each beneficial
owner’s percentage ownership is determined by assuming that the Currently Exercisable
Options that are beneficially held by such person (but not those held by any other person)
have been exercised and converted.
|
|
(4)
|
Includes
2,671,262 shares underlying currently exercisable options and warrants.
|
|
(5)
|
Includes
298,170 shares underlying currently exercisable options and warrants.
|
|
(6)
|
Includes
236,281 shares underlying currently exercisable options for Messrs. Bitzer and Ryan.
|
|
(7)
|
Includes
1,185,855 shares of common stock and 76,923 currently exercisable warrants to purchase
our common stock owned by Delabarta, a wholly-owned subsidiary of ABARTA. Mr. Bitzer
is President and a member of the board of directors of each of Delabarta and ABARTA.
Mr. Bitzer disclaims beneficial ownership of the shares held by Delabarta except to the
extent of his pecuniary interest therein.
|
|
(8)
|
Includes
187,924 shares underlying currently exercisable options.
|
|
(9)
|
Includes
242,362 shares underlying currently exercisable options.
|
|
(10)
|
Includes
4,846,393 shares underlying currently exercisable options and warrants.
|
|
(11)
|
Includes 152,830
shares underlying currently exercisable options.
|
|
(12)
|
Includes
272,501 shares underlying currently exercisable options.
|
|
(13)
|
Includes
360,001 shares underlying currently exercisable options.
|
|
(14)
|
Includes
111,858 shares underlying currently exercisable options.
|
|
(15)
|
This information is based on a Form
4 filed with the SEC on January 24, 2019 by William W. Montgomery. William W. Montgomery reported sole voting and sole
dispositive power of 5
,230,900
shares of common stock. The address of William W.
Montgomery is 34211 Seavey Loop Road, Eugene, Oregon 97405.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Delabarta
/ John Bitzer, III
John
Bitzer, III, one of our directors, is President and Chief Executive Officer of ABARTA, a private, third- and fourth-generation
family holding-company, which owns Delabarta. On June 23, 2014, Delabarta purchased 7,275 shares of our common stock at a purchase
price of $6.87 per share for gross proceeds of $50,000 in a private placement transaction. Delabarta also received 7,275 warrants
to purchase shares of our common stock as part of this private placement transaction. In connection with the investment in the
Company by Delabarta during July 2011, we agreed to use best efforts to nominate its designee, Mr. John Bitzer, III to the Board
and elect Mr. Bitzer as a director within 30 days of the closing and to nominate and include Mr. Bitzer on the slate of nominees
for the Board of Directors for election by stockholders at the annual meetings of stockholders for so long as Delabarta owns at
least 2% of the outstanding shares of common stock.
On
June 28, 2017, our officers and directors purchased approximately $545,000 of our common stock as part of a private placement
in the dollar amounts listed below:
Name
|
|
Amount
($)
|
|
James A. Hayward, Chief
Executive Officer, President and Chairman of the Board
|
|
|
250,000
|
|
Yacov A. Shamash, Director
|
|
|
25,000
|
|
Delabarta, Director Affiliate
|
|
|
100,000
|
|
Robert B. Catell, Director
|
|
|
50,000
|
|
Joseph D. Ceccoli, Director
|
|
|
40,000
|
|
Beth M. Jantzen, Chief Financial Officer
|
|
|
5,000
|
|
Judith Murrah, Chief Information Officer
|
|
|
25,000
|
|
Charles S. Ryan, Director
|
|
|
25,000
|
|
Sanford R. Simon, Director
|
|
|
5,000
|
|
Elizabeth Schmalz Ferguson, Director
|
|
|
20,000
|
|
On
August 31, 2018, we entered into a securities purchase agreement with certain investors, including Delabarta and William Montgomery,
who subsequently became a 5% or greater stockholder, and certain of our officers and directors, pursuant to which we issued and
sold an aggregate of $1.65 million in principal amount of secured convertible notes (the “Notes”) bearing interest
at a rate of 6% per annum to persons in the amounts listed below. As of September 30, 2018, no principal and interest was due
to be paid As of January 24, 2019, $1,650,000 remains outstanding.
Name
|
|
Amount
($)
|
|
James A. Hayward Chief Executive
Officer, President and Chairman of the Board
|
|
|
1,000,000
|
|
Yacov A. Shamash, Director
|
|
|
25,000
|
|
Delabarta, Director Affiliate
|
|
|
100,000
|
|
Robert B. Catell, Director
|
|
|
25,000
|
|
William Montgomery, 5% or greater stockholder
|
|
|
200,000
|
|
Judith Murrah, Chief Information Officer
|
|
|
25,000
|
|
Elizabeth Schmalz Ferguson, Director
|
|
|
10,000
|
|
On
November 29, 2018, we entered into a securities purchase agreement (“Purchase Agreement”), pursuant to which we issued
and sold an aggregate of $550,000 in principal amount of additional Notes. Dr. Hayward, our chairman, president and chief executive
officer, purchased $500,000 in principal amount of the Notes. As of January 24, 2019, $550,000 remains outstanding.
The
Notes are convertible, in whole or in part, at any time, at the option of the purchasers, into shares of our common stock, in
an amount determined by dividing the principal amount of each Note, together with any and all accrued and unpaid interest, by
the conversion price of $2.50. We have the right to require the purchasers to convert all or any part of their Notes into shares
of our common stock at a conversion price of $2.50 if the price of our common stock remains at a closing price of $3.50 or more
for a period of twenty consecutive trading days.
Upon
any Change in Control (as defined in the Notes), the purchasers have the right to require us to redeem the Notes, in whole or
in part, at a redemption price equal to such Notes’ outstanding principal balance plus accrued interest.
The
Notes contain certain events of default that are customarily included in financing of this nature. If an event of default occurs,
the purchasers may require us to redeem the Notes, in whole or in part, at a redemption price equal to such notes’ outstanding
principal balance plus accrued interest.
The
Notes bear interest at the rate of 6% per annum, payable semi-annually in cash or in kind, at our option, and are due and payable
in full on August 30, 2021. Until the principal and accrued but unpaid interest under the Notes is paid in full, or converted
into shares of common stock pursuant to their terms, our obligations under the Notes will be secured by a lien on substantially
all assets of the Company and the assets of APDN (B.V.I.) Inc., our wholly-owned subsidiary (“APDN BVI”), in favor
of CSC Corporation, as collateral agent for the purchasers pursuant to security agreements dated as of the date of the Purchase
Agreement.
We
also entered into a registration rights agreement, dated as of the date of the Purchase Agreement, with the purchasers, pursuant
to which the Company has agreed to prepare and file a registration statement with the SEC to register under the Securities Act
of 1933, as amended, resales from time to time of the common stock issued or issuable upon conversion or redemption of the Notes.
We are required to file a registration statement within 60 days of receiving a demand registration request from holders of a majority
of the outstanding principal balance of the Notes, and to cause the registration statement to be declared effective within 45
days (or 90 days if the registration statement is reviewed by the SEC).
Director
Independence
The
Board of Directors has determined that currently and at all times during the fiscal year ended September 30, 2018, each of our
directors other than Dr. Hayward—consisting of John Bitzer, III, Robert B. Catell, Joseph D. Ceccoli, Charles S. Ryan, Yacov
A. Shamash, Sanford R. Simon, and Elizabeth M. Schmalz Ferguson —are and were “independent” as defined by the
listing standards of The NASDAQ Stock Market LLC (“Nasdaq”), constituting a majority of independent directors on our
Board of Directors as required by the rules of Nasdaq. The Board of Directors considers in its evaluation of independence whether
any director has a relationship with us that would interfere with the exercise of independent judgment in carrying out his or
her responsibilities of a director.
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Audit
and Other Fees
The
following table sets forth fees billed to us by our current independent auditors during the fiscal years ended September 30, 2018
and 2017 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial
statements, (ii) services by our auditor that are reasonably related to the performance of the audit or review of our financial
statements and that are not reported as Audit Fees, (iii) services rendered in connection with tax compliance, tax advice and
tax planning, and (iv) all other fees for services rendered.
|
|
Marcum LLP
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year
ended
September 30,
2018
|
|
|
Fiscal
year
ended
September 30,
2017
|
|
(i)
|
|
Audit Fees
|
|
$
|
192,955
|
|
|
$
|
169,157
|
|
(ii)
|
|
Audit Related Fees
|
|
|
-
|
|
|
|
-
|
|
(iii)
|
|
Tax Fees
|
|
|
29,244
|
|
|
|
12,713
|
|
(iv)
|
|
All Other Fees
|
|
|
-
|
|
|
|
-
|
|
Total Fees
|
|
|
|
$
|
222,199
|
|
|
$
|
181,870
|
|
Audit
Fees
— Consists of fees billed for professional services rendered for the audit of our consolidated financial statements,
review of the interim consolidated financial statements included in quarterly reports, and services that are normally provided
by our independent auditors in connection with statutory and regulatory filings or engagements, including registration statements.
Audit
Related Fees
— Consists of fees billed for assurance and related services that are reasonably related to the performance
of the audit or review of our consolidated financial statements and are not reported under “Audit Fees,” such as accounting
consultation and audits in connection with acquisitions.
Tax
Fees
— Consists of fees billed for professional services for tax compliance, tax advice and tax planning.
All
Other Fees
— Consists of fees for products and services other than the services reported above.
The
Board of Directors has considered whether the provision of non-audit services is compatible with maintaining the principal accountant’s
independence and has determined that independence has been maintained.