UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
SCHEDULE 14C
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE
SECURITIES EXCHANGE ACT OF 1934
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EXACTUS, INC.
(Name
of Registrant as Specified in its Charter)
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EXACTUS, INC.
4870 Sadler Road, Suite 300
Glen Allen, VA 23060
INFORMATION STATEMENT
PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
NO VOTE OR ACTION OF THE COMPANY’S SHAREHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION
STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND
US A PROXY
About this Information Statement
This Information
Statement is first being mailed on or about September
14
,
2018
to the holders of record at the clo
se of
business on August 27, 2018 of shares of
common stock, par
value $0.0001 per share (the “Common Stock”) of
Exactus, Inc., a Nevada corporation (“we”,
“us” or the “Company”), providing notice of
shareholder action as permitted by the Securities Exchange Act of
1934 (the “Exchange Act”).
This
Information Statement is being furnished to our shareholders in
connection with action by written consent in lieu of a meeting by
the holders of a majority of the Company’s outstanding voting
power (the “Consenting Shareholders.”)
What action was taken by written consent?
The
Consenting Shareholders consented to (i) the election of members to
the Company’s board of directors (the “Board”),
(ii) the approval of the Company’s 2018 Equity Incentive Plan
(the “Plan”) (iii) the approval of the Company’s
named
executive officer compensation, (iv) the approval of holding a
non-binding advisory vote on the Company’s named executive
officer compensation every three years
, and (v) the adoption
of an amendment to the Company’s Articles of Incorporation,
as amended (the “Amendment”) to authorize the Company
pursuant to Section 78.207 of the Revised Statutes of the State of
Nevada (the “Nevada Revised Statutes”) to increase the
number of shares of authorized common stock of the Company to 700
million shares (the “Increase”). See “Amendment
to the Company’s Articles of Incorporation to Increase the
Authorized Shares” for a more detailed description of the
Amendment.
We are
paying the expenses of furnishing this Information Statement to our
shareholders, including the cost of preparing, assembling and
mailing this Information Statement.
When is the record date?
The
close of business on August 27, 2018 is the record date (the
“Record Date”) for the determination of shareholders
entitled consent and to receive this Information
Statement.
What constitutes the voting power of the Company?
As of the Record Date, the Consenting Shareholders held 23,550,000
shares of Common Stock, or approximately 61.93% of the
outstanding shares of Common Stock of the Company, 21.43% of the
outstanding shares of the Series B-1 Preferred Stock (the
“Series B-1”) of the Company, 5.8% of the outstanding
shares of the Series B-2 Preferred Stock (the “Series
B-2”) of the Company, 100% of the outstanding shares of the
Series C Preferred Stock (the “Series C”) entitled to
vote of the Company, and 72.66 % of the outstanding shares of the
Series D Preferred Stock (the “Series D”) of the
Company entitled to vote, which combined constitutes 51.05% of the
voting power of the Company.
The Nevada Revised
Statutes and our Articles of Incorporation permit our shareholders
to approve by written consent any action required or permitted to
be taken at a shareholders’ meeting, as if the action were
taken at a duly constituted meeting of our shareholders. In late
August 2018, the Board adopted a resolution recommending the
members of the Board, recommending the approval of the
Company’s
named executive officer
compensation, recommending the holding of a non-binding advisory
vote on the Company’s named executive officer compensation
every three years and
recommending adoption of the Amendment
authorizing the Company pursuant to Section 78.207 of the Nevada
Revised Statutes to increase the number of authorized shares of
common stock of the Company. No director of the Company has
informed the Company in writing that the director intends
to oppose any action to be taken by the Company in this
Information Statement.
On September 14,
2018, (the “Approval Date”) the Consenting Shareholders
consented in writing to approve (i) the election of members to the
Company’s board of directors (the “Board”), (ii)
the approval of the Company’s Plan, (iii) the approval of the
Company’s
named executive officer
compensation, (iv) the approval of holding a non-binding advisory
vote on the Company’s named executive officer compensation
every three years
, and (v) the adoption of the
Amendment.
When will the election of directors, the approval of the
Company’s
named executive officer
compensation, the approval of holding a non-binding advisory vote
on the Company’s named executive officer compensation every
three years, and
the increase
in the number of authorized shares of the Company’s
Common Stock become effective?
The
election of directors, the approval of
the Company’s
named executive officer
compensation, and the approval of holding a non-binding advisory
vote on the Company’s named executive officer compensation
every three years
will become
effective 20 days after the mailing of this Information
Statement.
The
Amendment will be filed with the State of Nevada 20 days following
the mailing of this Information Statement and will be effective
upon filing.
DIRECTORS AND EXECUTIVE OFFICERS
CURRENT DIRECTORS
The following table represents the Company’s current
directors and their current position on the Board:
Directors
|
Name
|
|
Age
|
|
Position
|
|
Philip
J. Young
|
|
61
|
|
Chairman
|
|
Timothy
Ryan
|
|
58
|
|
Director
|
Director Information
The Consenting Shareholders approved the
appointment of Philip J. Young and Timothy Ryan to our
Board.
All of the nominees
were previously directors of the Company. Additionally, all of the
nominees have been approved and have agreed to serve until the next
election of directors.
Philip J.
Young
, age 61, was appointed as
our President, Chief Executive Officer, and Chairman of the Board
in March 2016. He was previously appointed as a member of the Board
on February 29, 2016. Mr. Young was a founder of Exactus
BioSolutions and served as its Chairman, Chief Executive Officer
and President beginning in November 2015. From October 2011 through
December 2014, he served as President, Chief Executive Officer and
Director for AmpliPhi Biosciences, a global biopharmaceutical
company, where he completed a transformational restructuring,
collaborations and financings. Mr. Young was elected to the Board
for his prior experience with the Company and for his experience
with serving as a director of public companies.
Timothy Ryan
, age 58, was appointed as our Executive Vice
President in March 2016. He was appointed to our Board on February
29, 2016. Mr. Ryan was a founder and Executive Vice President of
Exactus BioSolutions. He was the Founder, and for the past seven
years, Managing Director, of The Shoreham Group, a Life Sciences
Advisory and Investor Relations firm. Mr. Ryan currently serves on
the board of directors of Merrill Industries. Mr. Ryan was elected
to the Board for his prior experience with the
Company.
Executive Officers
|
Name
|
|
Age
|
|
Position
|
|
Philip
J. Young.
|
|
61
|
|
Chief
Executive Officer and President
|
|
Timothy
Ryan
|
|
58
|
|
Executive
Vice President
|
|
James R. Erickson
|
|
56
|
|
Chief
Business Officer
|
|
Kelley A. Wendt
|
|
44
|
|
Chief
Financial Officer/Treasurer
|
The
following provides certain biographical information with respect to
each executive officer of the Company who is not a
director.
James R. Erickson,
Ph.D.
, age 56, was appointed as
our Chief Business Officer effective December 5, 2016. Prior to
joining Exactus, Dr. Erickson served as a Senior Transaction
Advisor at Ferghana Partners, a healthcare investment bank focusing
on financings, M&A and corporate partnering in the diagnostic
and therapeutic sectors, a position he held from October 2013
to
December 2016.
Previously, Dr. Erickson served as
Chief Executive Officer of BayPoint Biosystems, Inc., a proteomic
company focused on commercializing diagnostics/research
tools-oriented technology from the M.D. Anderson Cancer Center,
from December 2005 to August 2013.
Kelley A.
Wendt
, age 44, was appointed as
our Chief Financial Officer and Treasurer in January 2016. From
December 2011 through September 2014, Ms. Wendt served as the Chief
Financial Officer and consultant for Ampliphi BioSciences
Corporation, a global biopharmaceutical
company.
No Family Relationships
There
are no family relationships between any directors and executive
officers.
Board responsibilities
The
Board oversees, counsels, and directs management in regard to the
long-term interests of the Company and its shareholders. The
Board’s responsibilities include establishing broad corporate
policies and reviewing the overall performance of the
Company.
Board committees and charters
The
Board meets throughout the year and acts by written consent from
time to time as appropriate. Due to the size of the Company and the
involvement of the full Board in day-to-day operations the Board
does not have any committees.
All
of the members of the Board participate in the consideration of
executive officer and director compensation.
Director Independence
Our
Board determined that as a result of being employees of the
Company, Messrs. Young and Ryan are not independent directors
under the Nasdaq Listing Rules’ independence standards for
directors.
Number of meetings of the board for fiscal year 2017
For
the year ended December 31, 2017, the Board had seven meetings.
There were no directors who attended fewer than 75 percent of the
total meetings of the Board for 2017.
Code of Ethics
Our Board has adopted a Code of Ethics that
applies to our Chief Executive Officer and our Chief Financial
Officer as well as to all our other employees. This Code of Ethics
complies with the requirements imposed by the Sarbanes-Oxley Act of
2002, as amended, and the rules and regulations issued thereunder
for codes of ethics applicable to such officers. Our Code of Ethics
is available on our website, located at
http://www.exactusinc.com
.
The Company will provide a copy, without charge, to anyone that
requests one in writing to Exactus, Inc., 4870 Sadler Road,
Suite 300, Glen Allen, VA 23060
Attention: Corporate
Secretary
.
Board diversity
Due
to our limited resources, we have not considered diversity as a
factor in selecting directors.
Board leadership structure
Mr.
Young serves as the Chairman of the Board and actively interfaces
with management, the Board and counsel. Mr. Young is also our
Chief Executive Officer and President. We believe that this Board
leadership structure is the most appropriate for the Company due to
the small size of the Company.
Board risk oversight
The
Company’s risk management function is overseen by the Board.
The Company’s management keeps the Board apprised of material
risks and provides its directors access to all information
necessary for them to understand and evaluate how these risks
interrelate, how they affect us, and how management addresses those
risks. The Board works closely together with the other officers of
the Company once material risks are identified on how to best
address such risks. If the identified risk poses an actual or
potential conflict with management, the Company’s independent
directors may conduct the assessment. Presently, the primary risk
affecting us is the Company’s ability to generate
revenue.
Section 16(a) beneficial ownership reporting
compliance
Section
16(a) of the Exchange Act requires the Company’s directors,
executive officers, and persons who own more than 10% of the
Company’s Common Stock to file initial reports of ownership
and changes in ownership of the Company’s Common Stock and
other equity securities with the Securities and Exchange Commission
(the “SEC”). These individuals are required by the
regulations of the SEC to furnish us with copies of all
Section 16(a) forms they file. Based solely on a review of the
copies of the forms furnished to us, we believe that none of the
Company officers, directors and 10% beneficial owners failed to
comply with Section 16(a) as of the end of fiscal year
2017.
Communication with the Company’s Board
Although the Company does not have a formal policy
regarding communications with the Board, shareholders may
communicate with the Board by writing to us at Exactus,
Inc., 4870 Sadler Road, Suite 300, Glen Allen, VA 23060
Attention: Corporate Secretary
.
Shareholders who would like their submission directed to a member
of the Board may so specify, and the communication will be
forwarded, as appropriate.
Related person transactions
We
currently have a consulting arrangement with Dr. Krassen Dimitrov,
a shareholder of the Company and a former member of the
Company’s Board until his resignation on November 20, 2017.
In February 2016, we entered into a Consulting Agreement with Dr.
Dimitrov pursuant to which we retained KD Innovations Ltd., a
company fully owned by him (“KD Innovations”), for a
fee of $25,000 per month during the term of the arrangement, to
manage the design and production of our lead device, FibriLyzer,
and provide scientific expertise. The Consulting Agreement does not
have a fixed term; however, it may be terminated with immediate
effect at any time upon mutual agreement between us and KD
Innovations, or by either party with 90-days written notice to the
other party.
In
addition, Dr. Dimitrov is President and a 78% owner of Digital
Diagnostics, Inc. (“Digital Diagnostics”), with whom we
have entered into the Licensing Agreement. The Licensing Agreement
provides for Exactus BioSolutions and Digital Diagnostics to
collaborate through the various steps of the product and device
development process, including the development, regulatory approval
and commercialization stages. Exactus BioSolutions is required to
pay Digital Diagnostics, in cash and/or stock, an initial signing
payment, milestone fees triggered by the first regulatory clearance
or approval of each of FibriLyzer and MatriLyzer, and various sales
thresholds, and royalty payments based on the net sales of the
products, calculated on a product-by-product basis.
For
the year ended December 31, 2017 and 2016, the Company accrued
$30,000 and $171,033, respectively, in licensing fees expenses to
Digital Diagnostics. As of December 31, 2017 and 2016, $126,032 and
$171,032, respectively, are shown as accrual under accounts
payable. The Company has also accrued interest at 3% over the
prime rate, per the Licensing Agreement, of $9,802 for the
remaining balance due as of December 31, 2017. The Company
paid $75,000 and $50,000 during the years ended December 31, 2017
and 2016. In the first quarter of 2018, the Company paid the
entire balance due to Digital Diagnostics.
For
the years ended December 31, 2017 and 2016, $300,000 and $251,096,
respectively, was recognized in Research and Development expenses
for consulting provided by Dr. Dimitrov. As of December 31, 2017
and 2016, $275,000 and $101,095, respectively, are shown as accrual
under accounts payable. During the year ended December 31, 2017 and
2016, $125,000 and $150,000, respectively was
paid.
On
July 16, 2018, the Company received Notice from Digital Diagnostics
of their intent to terminate the Licensing Agreement. The Company
disputes the validity of the Notice and maintains that the
Agreement is in full force and effect until January 19, 2019 and
that the Company’s maintains the right to use the license and
intellectual property granted to the Company under the Licensing
Agreement until January 19, 2019. See the section entitled
“Legal Proceedings” for more information.
On
June 28, 2017, the Company issued to two of the Company’s
executive officers a promissory note in the principal amount up to
$100,000, which amount may be drawn upon by the Company as bridge
financing for general working capital purposes. The promissory note
accrues interest at a rate of 8.0% per annum and matures on the
earlier of (i) one (1) year from the date of the promissory note,
and (ii) the closing the sale of the Company’s securities in
a single transaction or a series of related transactions from which
at least $500,000 of gross proceeds are raised. As of June 30,
2018, the Company has drawn $49,900 on the promissory note and
recorded as a note payable. During the three and six months ended
June 30, 2018, the Company accrued $1,130 and $2,077 as interest
expense on the promissory notes. Total interest payable as of June
30, 2018 is $4,044.
The
Company has entered into Series D Subscription Agreements with the
Company’s four executive officers under which the executive
officers have agreed to received Series D in exchange for debt
re-payment at an effective rate of $12,500 per share of Series D.
The Company’s officers have received shares of Series D as
follows: Mr. Young - 11 shares, Mr. Ryan - 11 shares, Mr. Erickson
- 6 shares, Ms. Wendt - 12 shares.
Exec
utive Compensation.
The
following table sets forth certain information about the
compensation paid or accrued to the persons who served as our Chief
Executive Officer and our two highest-paid executive officers
during the last two completed fiscal years whose total compensation
exceeded $100,000 for that year (the “Named Executive
Officers”).
Summary Compensation Table
|
|
Year
|
|
|
Non-Equity Incentive Plan Compensation
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Philip
J. Young
|
2017
|
$
325,000
|
$
--
|
$
--
|
$
--
|
$
325,000
|
Chief
Executive Officer and
President
|
2016
|
$
297,917
|
$
--
|
$
--
|
$
--
|
$
297,917
|
|
|
|
|
|
|
|
|
James
R. Erickson, Ph.D.
|
2017
|
$
125,000
|
$
--
|
$
--
|
$
--
|
$
125,000
|
|
Chief
Business Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy
Ryan
|
2017
|
$
120,000
|
$
--
|
$
--
|
$
--
|
$
120,000
|
|
|
2016
|
$
110,000
|
$
--
|
$
--
|
$
--
|
$
110,000
|
(1)
Pursuant
to our employment agreements with Mr. Young, Mr. Erickson, and Mr.
Ryan, we have agreed to grant stock options to these officers as
described under “Employment Agreements”
below.
Employment Agreements and Change in Control
Arrangements
Employment Agreement with
Philip J. Young.
Effective
December 15, 2015, we entered into an Employment Agreement with Mr.
Young pursuant to which he would serve as our Chief Executive
Officer and President. Under the terms of the Employment Agreement,
Mr. Young will receive a base salary at an initial rate of $390,000
per year. For a limited period until we have raised at least $5
million of capital, he will receive a reduced salary of $325,000
per year. Within 30 days after we raise at least $5 million of
capital, Mr. Young will receive, as a lump sum bonus payable in
cash or stock at our discretion, the amount equal to the difference
between the amount he would have been paid at his initial rate of
$390,000 and the amount he was paid at the reduced salary level. In
addition, Mr. Young will have the opportunity to earn an annual
performance bonus of up to 75% of his base salary based on
performance criteria set by our Board. Also, pursuant to the
Employment Agreement, we agreed to grant stock options to Mr. Young
to purchase shares of our common stock at an exercise price equal
to the fair market value of our common stock on the date of grant
as reasonably determined by our Board in good faith. Pursuant to
the agreement, 50% of the options were to vest on December 31, 2016
and the other 50% will vest ratably over a thirty-six month period
beginning in January 2017. On September 4, 2018, the Company
granted Mr. Young 225,000, options exercisable at $0.089 per share,
vesting in accordance with the terms of his Employment Agreement.
Mr. Young also is entitled to an automobile allowance of $1,500 per
month, disability insurance coverage equal to his base salary, life
insurance with a $2 million death benefit, reimbursement of certain
expenses, health, dental and vision coverage in accordance with our
usual practices and participation in all other benefit plans
maintained by the Company.
Mr.
Young’s Employment Agreement may be terminated by us at any
time for Cause (as defined in his Employment Agreement) and by Mr.
Young upon 14 days’ prior written notice, or upon Mr.
Young’s death or disability. The Employment Agreement also
provides for termination of Mr. Young’s employment by us
without Cause or by Mr. Young for Changed Circumstances (as defined
in his Employment Agreement).
If
Mr. Young’s employment is terminated by us without Cause or
by him for Changed Circumstances, and provided that Mr. Young
releases and waives his claims against the Company as provided in
the Employment Agreement, he is entitled to receive (i) monthly
severance payments and continuation of benefits for a period equal
to the greater of (A) six months or (B) the number of months
between December 15, 2015 and his termination, up to a maximum of
12 months, (ii) accelerated vesting of equity awards as if his
employment had continued during such period and (iii) a pro rata
portion of any eligible bonus compensation. If Mr. Young’s
employment is terminated by us (with or without Cause) or by him
for Changed Circumstances in connection with or following a
“Change in Control” (as defined in his Employment
Agreement), he will be entitled to receive the benefits in the
preceding sentence as if his employment were terminated more than
12 months after December 15, 2015, plus the pro rata portion of any
eligible bonus compensation.
Mr.
Young’s Employment Agreement also contains restrictive
covenants relating to the protection of confidential information,
non-competition and non-solicitation. The non-solicitation and
non-competition covenants apply during the term of his employment
and continue generally for a period of 12 months following the
termination of his employment. Mr. Young will not be entitled to
any severance or change in control benefits under his Employment
Agreement if he breaches any of these covenants.
Employment Agreement with
Timothy Ryan.
Effective
December 15, 2015, we entered into an Employment Agreement with Mr.
Ryan pursuant to which he will serve as our Executive Vice
President. Under the terms of the Employment Agreement, Mr. Ryan
will receive a base salary at an initial rate of $240,000 per year.
For a limited period until we have raised at least $5 million of
capital, he will receive a reduced salary of $120,000 per year.
Within 30 days after we raise at least $5 million of capital, Mr.
Ryan will receive, as a lump sum bonus payable in cash or stock at
our discretion, the amount equal to the difference between the
amount he would have been paid at his initial rate of $240,000 and
the amount he was paid at the reduced salary level. In addition,
Mr. Ryan will have the opportunity to earn an annual performance
bonus of up to 50% of his base salary based on performance criteria
set by our Chief Executive Officer. Also pursuant to the Employment
Agreement, we agreed to grant stock options to Mr. Ryan to purchase
shares of our common stock at an exercise price equal to the fair
market value of our common stock on the date of grant as reasonably
determined by our Board in good faith. Pursuant to the agreement,
50% of the options were to vest on December 31, 2016 and the other
50% will vest ratably over a thirty-six month period beginning in
January 2017. On September 4, 2018, the Company granted Mr. Ryan
225,000 options, exercisable at $0.089 per share, vesting in
accordance with the terms of his Employment Agreement. Mr. Ryan
also is entitled to an automobile allowance of $1,250 per month,
disability insurance coverage equal to his base salary, life
insurance with a $1 million death benefit, reimbursement of certain
expenses, health, dental and vision coverage in accordance with our
usual practices and participation in all other benefit plans
maintained by the Company.
Mr.
Ryan’s Employment Agreement may be terminated by us at any
time for Cause (as defined in his Employment Agreement) and by Mr.
Ryan upon 14 days’ prior written notice, or upon Mr.
Ryan’s death or disability. The Employment Agreement also
provides for termination of Mr. Ryan’s employment by us
without Cause or by Mr. Ryan for Changed Circumstances (as defined
in his Employment Agreement).
If
Mr. Ryan’s employment is terminated by us without Cause or by
him for Changed Circumstances, and provided that Mr. Ryan releases
and waives his claims against the Company as provided in the
Employment Agreement, he is entitled to receive (i) monthly
severance payments and continuation of benefits for a period equal
to the greater of (A) six months or (B) the number of months
between December 15, 2015 and his termination, up to a maximum of
12 months, (ii) accelerated vesting of equity awards as if his
employment had continued during such period and (iii) a pro rata
portion of any eligible bonus compensation. If Mr. Ryan’s
employment is terminated by us (with or without Cause) or by him
for Changed Circumstances in connection with or following a Change
in Control (as defined in his Employment Agreement), he will be
entitled to receive the benefits in the preceding sentence as if
his employment were terminated more than twelve months after
December 15, 2015, plus the pro rata portion of any eligible bonus
compensation.
Mr.
Ryan’s Employment Agreement also contains restrictive
covenants relating to the protection of confidential information,
non-competition and non-solicitation. The non-solicitation and
non-competition covenants apply during the term of his employment
and continue generally for a period of 12 months following the
termination of his employment. Mr. Ryan will not be entitled to any
severance or change in control benefits under his Employment
Agreement if he breaches any of these covenants.
Employment Agreement with James
R. Erickson, Ph.D.
On December
1, 2016, we entered into an Employment Agreement with Dr. Erickson,
dated December 1, 2016, which provides for his service as Chief
Business Officer of the Company. Dr. Erickson’s employment
will continue until it is otherwise terminated by either party
pursuant to its terms and may be terminated by us without Cause
upon three months’ advance written notice, or for Cause, and
by Dr. Erickson without Good Reason or for Good Reason (as those
terms are defined in the Employment Agreement).
Dr.
Erickson will receive an initial limited annual base salary of
$125,000 (the “Limited Salary”) from December 5, 2016
until we have brought in an aggregate of $5 million in financing,
whether through the sale of securities or otherwise, after which he
will receive an annual base salary of $250,000 (the “Base
Salary”). Dr. Erickson is eligible to earn an annual
performance bonus equal to up to 55% of his Limited Salary or Base
Salary, based upon performance criteria set by the Board in its
sole discretion on an annual basis. The Agreement provides for the
grant of stock options for 1,000,000 shares of our common stock,
half of which will vest on December 31, 2017, or immediately upon
the establishment of an equity incentive plan in 2017. The other
half will vest monthly on the first day of each subsequent month,
commencing January 1, 2018, at a rate of 1/36 of the total number
of remaining shares per month. On September 4, 2018, the
Company granted Mr. Erickson 1,000,000 options, exercisable at
$0.089 per share, vesting in accordance with the terms of his
Employment Agreement. Pursuant to the terms of the Employment
Agreement, vesting will be accelerated following a termination or
Change in Control (as defined in the Employment Agreement). Dr.
Erickson will be entitled to participate in all employee benefit
plans for which he is eligible, including health and dental
insurance, life and disability insurance, and all other employee
benefit plans effected for our employees generally pursuant to the
Employment Agreement.
If
we terminate Dr. Erickson’s employment for Cause, as provided
by the Employment Agreement, he will be entitled to receive the
Initial Salary or Base Salary or bonus earned and unpaid through
the date of termination. In the event we terminate Dr.
Erickson’s employment without Cause or Dr. Erickson
terminates his employment for Good Reason, as provided in the
Employment Agreement, Dr. Erickson will be entitled to receive (i)
a payment in the amount of his Base Salary or Limited Salary
(whichever is applicable) for the greater of six months or the
number of full months between December 5, 2016 and date of
termination up to a maximum of 12 months (the “Severance
Period”), (ii) continuation of his benefits (to the extent
authorized by COBRA) on a monthly basis for the Severance Period;
and (iii) accelerated vesting of any stock options subject to
vesting with respect to the number of shares that would have vested
during the Severance Period if Dr. Erickson had remained employed
by us during such time. In the event that we terminate Dr.
Erickson’s employment without Cause, or by the Executive for
Good Reason, within six months following a Change in Control of the
Company, pursuant to the terms of the Employment Agreement, Dr.
Erickson will be entitled to receive (i) payment in the amount of
his Base Salary or Limited Salary (whichever is applicable) for 12
months, (ii) continuation of his benefits for 12 months (to the
extent authorized by and consistent with COBRA), (iii) accelerated
vesting of any stock options subject to vesting with respect to the
number of shares that would have vested during the Severance Period
if Dr. Erickson had remained employed by us during such time, and
(iv) any pro-rated bonus portions which the Board, at its sole
discretion, determines had been earned by Dr. Erickson, which will
be in lieu of any benefits to which Dr. Erickson is otherwise
entitled.
Dr.
Erickson’s Agreement also includes covenants relating to
non-disclosure of confidential information and non-competition,
non-solicitation, non-interference with customers, and non-hiring
of employees for a period of one year following termination of
employment.
Employment Agreement with
Kelley Wendt.
Effective
March 16, 2017, we entered into an Employment Agreement with Kelley
Wendt which provides for her continued services as the Chief
Financial Officer of the Company. The initial term of the
Employment Agreement will end on February 1, 2019 and will
automatically renew for successive one year terms, unless either we
provide to Ms. Wendt, or Ms. Wendt provides to us, written notice
of nonrenewal at least 30 days prior to the expiration of the then
current term. The Employment Agreement may be immediately
terminated by us for Cause (as defined in her Employment Agreement)
or by us or Ms. Wendt upon two months’ advance written
notice.
Ms. Wendt will receive an initial annual gross
base salary of $90,000 (the “Annual Base Salary”) and
is eligible to earn an annual performance bonus equal to up to 60%
of her Annual Base Salary (the “Performance Bonus”)
based upon performance criteria established by the Company from
time to time. She also is eligible to participate in the Plan. Ms.
Wendt will be entitled to receive up to 25 days paid vacation each
year and to participate in all employee health and welfare benefits
plans for which she is eligible. On September 4, 2018, the Company
granted Ms, Wendt 225,000 options, exercisable at $0.089 per share,
of which
178,125 are fully vested with the remainder vesting
monthly in equal increments over a 15 month period beginning on
October 1, 2018, subject to continued service as an officer of the
Company on each applicable vesting date and execution of the
Company’s standard stock option
agreement.
The
Employment Agreement also includes covenants relating to
non-disclosure of confidential information and non-competition,
non-solicitation of customers, and non-solicitation and non-hiring
of employees for a period of one year following termination of
employment.
The Employment Agreement may be
terminated immediately upon the expiration of the Initial Term or
any Renewal Term, as defined in the Employment Agreement, in which
either party gives notice of non-renewal, however, any rights
and/or benefits Ms. Wendt may have under employee benefit plans
and/or programs of the Company shall be determined in accordance
with terms and conditions of such plans and programs then in
effect. The Company has the right to terminate Ms. Wendt at any
time for Cause, as defined in the Employment Agreement which shall
be effective immediately. Ms. Wendt’s employment may also be
terminated without Cause or reason by the Company upon two (2)
months’ written notice. In the event the Employment Agreement
is terminated without Cause, Ms. Wendt shall be entitled to all
compensation earned through the date of termination and the Company
may, at its election, provide Ms. Wendt with her salary in an
amount equivalent to that due over the applicable notice period in
lieu of allowing her to continue to provide services throughout the
required notice period.
Equity Incentive Plan
In
August 2018, the Board adopted the Plan which provides for the
issuance of awards covering 9,500,000 shares of our common
stock. Awards granted under the Plan may be Incentive Stock Option,
Non-Qualified Stock Options, Stock Appreciation Rights, or
Restricted Stock Units which are awarded to all employees,
consultants and directors of the Company. Pursuant to our
Employment Agreements with Mr. Young, Mr. Ryan, and Dr. Erickson we
have agreed to grant stock options to these officers as described
under “Employment Agreements” above, which were granted
on September 4, 2018. See “Adoption of the Company’s
2018 Equity Incentive Plan” for more information regarding
the Plan.
Director Compensation
Our
directors currently do not receive any compensation for their
service as members of our Board.
Legal proceedings
From
time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As
of the filing of this Information Statement, apart from what is
disclosed below, we are not aware of any other pending or
threatened lawsuits in which any of our directors, officers or
affiliates, or any registered or beneficial shareholder, is an
adverse party or has a material interest adverse to our
interest.
The
Company has retained counsel to represent the Company with regard
to the enforceability of the Licensing Agreement with Digital
Diagnostics and related matters arising from the Notice and is in
compliance with the Dispute Resolution and arbitration provisions
of the Agreement. See the section entitled “Related persons
transactions” for more information.
ADOPTION OF THE COMPANY’S 2018 EQUITY INCENTIVE
PLAN
The Board has adopted a resolution adopting the
Plan and the Plan has been approved by the Consenting Shareholders.
A copy of the Plan is attached to this Information Statement
as
Exhibit
B.
Overview and purpose of the shareholder approval
The
Plan, will allow us to incentivize the Company’s key
employees, consultants, officers and directors with long-term
compensation awards, such as stock options, restricted stock, and
restricted stock units. Equity incentives may form an integral part
of the compensation paid to the Company’s employees,
particularly those in positions of key importance, and directors.
The approval of the Plan by the Consenting Shareholders is
important to the Company’s ability to continue to attract,
retain, engage and focus highly motivated and qualified employees,
particularly in the competitive labor market that exists today, and
to attract independent directors.
No appraisal rights
Shareholders
have no rights under the Nevada Revised Statutes or under the
Company’s charter documents to exercise dissenters’
rights of appraisal with respect to the approval of the
Plan.
Description of the Plan
In
the following paragraphs we provide a summary of the terms of the
Plan.
Background
The
Plan is a broad-based equity incentive plan in which all employees,
consultants and directors of the Company and its affiliates and
such other individuals designated by the Board or committee
administering the plan who are reasonably expected to become
employees, consultants and directors are eligible to participate
(collectively the “Eligible Parties”). The purpose of
the Plan is to further the growth and development of the Company by
providing, through ownership of stock of the Company and other
equity-based awards, an incentive to its Eligible Parties who are
in a position to contribute materially to the prosperity of the
Company, to increase such persons’ interests in the
Company’s welfare, by encouraging them to continue their
services to the Company, and by enabling the Company to attract
individuals of outstanding ability to become Eligible Parties of
the Company.
Administration and eligibility
The
Plan is to be administered by the Board, or by a compensation
committee if appointed by the Board to administer the Plan, which
collectively we refer to as the “Administrator.” The
Board may delegate to officers of the Company the power to grant
awards to the extent permitted by the laws of the State of
Nevada.
Awards
granted under the Plan may be Incentive Stock Option
(“ISOs”), Non-Qualified Stock Options, Stock
Appreciation Rights (“SARs”), restricted stock, or
restricted stock units which are awarded to Eligible Parties, who,
in the opinion of the Administrator, have contributed, or are
expected to contribute, materially to the Company’s
success.
The identification of individuals entitled to receive awards, the
terms of the awards, and the number of shares subject to individual
awards, are determined by the Administrator, in its sole
discretion. As of the Record Date, approximately four Eligible
Parties were eligible to participate in the Plan. Pursuant to
our employment agreements with Mr. Young, Mr. Erickson, and Mr.
Ryan, we agreed to grant stock options to these officers as
described under “Employment Agreements” which were
granted on September 4, 2018.
Stock options
The
Administrator may grant either qualified options, which are options
that qualify as ISOs under Section 422(b) of the Internal Revenue
Code, or Non-Qualified Stock Options. A stock option entitles the
recipient to purchase a specified number of shares of common stock
at a fixed price subject to terms and conditions set by the
Administrator, including conditions for exercise that must be
satisfied, which typically will be based solely on continued
provision of services. The purchase price of shares of common stock
covered by a stock option cannot be less than 100% of the fair
market value of the common stock on the last trading day prior to
the date the option is granted. Fair market value of the common
stock is generally equal to the closing price for the common stock
on the trading date before the option is granted.
Stock appreciation rights
An
SAR entitles the holder to receive, as designated by the
Administrator, cash or shares of common stock, having a value equal
to the excess of the fair market value of a specified number of
shares of common stock at the time of exercise over the exercise
price established by the Administrator.
The
exercise price of each SAR granted under the Plan shall be
established by the Administrator or shall be determined by the
method established by the Administrator at the time the SAR is
granted, provided the exercise price shall not be less than 100% of
the fair market value of a share of common stock on the date of the
grant of the SAR, or such higher price as is established by the
Administrator. Shares of common stock delivered pursuant to the
exercise of a SAR shall be subject to such conditions, restrictions
and contingencies as the Administrator may establish in the
applicable SAR agreement or document, if any.
Restricted stock awards
A
restricted stock award gives the recipient a stock award subject to
restriction on sale. The Administrator determines the terms and
conditions of restricted stock awards, including the number of
shares of restricted stock granted, and conditions for vesting that
must be satisfied, which may be based principally or solely on
continued provision of services, and also may include a
performance-based component. Unless otherwise provided in the award
agreement, the holder of a restricted stock award generally will
have the rights of a shareholder from the date of grant of the
award, including the right to vote the shares of common stock and
the right to receive cash dividends and share and property
distributions on the shares.
Restricted stock units
A
restricted stock unit gives the recipient the right to receive a
number of shares of the Company’s common stock on the
applicable vesting or later delivery dates. Delivery of the
underlying restricted stock may be deferred beyond vesting as
determined by the Administrator. The Administrator determines the
terms and conditions of restricted stock units, including the
number of units granted, and conditions for vesting that must be
satisfied, which may be based principally or solely on continued
provision of services, and also may include a performance-based
component. The holder of a restricted stock unit award will not
have voting rights with respect to the award and possess no
incidents of ownership with respect to the underlying common stock
until shares are delivered.
Term, termination and amendment
The Board may terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate 10 years after
the effective date of the Plan. No award may be granted under the
Plan once it is terminated. Termination of the Plan shall not
impair rights or obligations under any award granted while the Plan
is in effect, except with the written consent of the grantee. The
Board at any time, and from time to time, may amend the
Plan;
provided
,
however
,
no amendment shall be effective unless approved by the shareholders
of the Company to the extent shareholder approval is necessary to
satisfy any applicable laws or required by the rules of the
principal national securities exchange or trading market upon which
the Company’s common stock trades.
The
Board at any time, and from time to time, may amend the terms of
any one or more awards; provided, however, that the rights under
the award shall not be impaired by any such amendment, except with
the written consent of the grantee. In addition, any amendment of
the purchase price or exercise price of any outstanding award will
not be effective without shareholder approval.
All
vested or unvested awards are immediately forfeited at the option
of the Board in the event that the recipient performs certain acts
against the interests of the Company including a termination of
employment for cause, violating the Company’s insider trading
guidelines, breach of a duty of confidentiality, competing with the
Company, soliciting Company personnel after employment is
terminated, failure to be available to the Company after
termination of employment if such failure is a condition of any
agreement, failure to assign any invention or technology to the
Company if such assignment is a condition of employment or any
other agreements between the Company and the participant, or other
conduct by the participant that is detrimental to the business or
reputation of the Company or its affiliates as determined by the
Board. Any award in the Plan which is subject to recovery under any
law, government regulation or stock exchange listing requirement,
will be subject to such deductions and clawback as may be required
to be made pursuant to such law, government regulation or stock
exchange listing requirement (or any policy adopted by the
Board).
Adjustments upon changes in capitalization
The
number of shares of common stock covered by each outstanding stock
right, and the number of shares of common stock which have been
authorized for issuance under the Plan as well as the price per
share of common stock (or cash, as applicable) covered by each such
outstanding option or SAR, shall be proportionately adjusted for
any increases or decrease in the number of issued shares of common
stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification, or any other increase or
decrease in the number of issued shares of common stock effected
without receipt of consideration by the Company. Such adjustment
shall be made by the Administrator.
Federal income tax consequences
The
following is a brief summary of the principal U.S. federal income
tax consequences with respect to awards granted under the
Plan.
Restricted stock awards
The
recipient of a restricted stock award does not have taxable income
upon receipt of the award except to the extent that award is vested
or not subject to a substantial risk of forfeiture. When the
restricted stock award is vested, the recipient will recognize
ordinary income in an amount equal to the difference of the fair
market value of the shares on the date of vesting and the amount
paid for such restricted stock award, if any.
Upon
the vesting of a restricted stock award, the Company will be
entitled to a corresponding income tax deduction in the tax year in
which the restricted stock award vested.
The
recipient may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year the shares
are granted an amount equal to the excess of (i) the fair market
value of the shares on the date of issuance, over (ii) the purchase
price, if any, paid for the shares. If the Section 83(b) election
is made, the recipient will not realize any additional taxable
income when the shares become vested.
Stock options
The
recipient does not recognize any taxable income as a result of a
grant of a Non-Qualified Stock Option. Upon exercise of a
Non-Qualified Stock Option, the recipient will recognize ordinary
income in an amount equal to the difference between the fair market
value of the shares on the date of exercise and the exercise price.
When the shares are sold, any difference between the sale price and
the fair market value of the shares on the date of exercise will
generally be treated as long term or short term capital gain or
loss, depending on whether the stock was held for more than one
year. Upon the exercise of a Non-Qualified Stock Option, the
Company will be entitled to a corresponding income tax deduction in
the tax year in which the option was exercised.
Upon
exercise of an ISO, the excess of the fair market value of the
shares of common stock acquired over the option exercise price will
be an item of tax preference to the participant, which may be
subject to an alternative minimum tax for the year of exercise. If
no disposition of the shares is made within two years from the date
of granting of the ISO or within one year after the transfer of the
shares to the participant, the participant does not realize taxable
income as a result of exercising the ISO; the tax basis of the
shares received for capital gain treatment is the option exercise
price; any gain or loss realized on the sale of the shares is
long-term capital gain or loss. If the recipient disposes of the
shares within the two-year or one-year periods referred to above,
the recipient will realize ordinary income at that time in an
amount equal to the excess of the fair market value of the shares
at the time of exercise (or the net proceeds of disposition, if
less) over the option exercise price. For capital gains treatment
on such a disposition, the tax basis of the shares will be their
fair market value at the time of exercise.
Stock appreciation rights
A
recipient does not recognize any taxable income upon the receipt of
an SAR. Upon the exercise of an SAR, the recipient will recognize
ordinary income in an amount equal to cash received or the excess
of the fair market value of the underlying shares of common stock
on the exercise date over the exercise price.
Upon
the exercise of a SAR, the Company will be entitled to a
corresponding income tax deduction in the tax year in which the SAR
was exercised.
Transfer
Except
for ISOs, all awards are transferable subject to compliance with
the securities laws and the Plan. ISOs are only transferable by
will or by the laws of descent and distribution.
Equity compensation plan information
On September 4, 2018, the Company granted a total of 1,675,000
stock options, exercisable at $0.089 per share, to the
Company’s current officers and directors. See
“Employment Agreements and Change in Control
Agreements” for more information regarding the
grants.
New plan benefits
Because
future grants of awards under the Plan are subject to the
discretion of the Board the future awards that may be granted to
participants cannot be determined at this time with the exception
of the awards owed to our officers under their respective
employment agreements. See “Employment Agreements and Change
in Control Arrangements” for more information.
APPROVAL OF THE COMPANY’S NAMED EXECUTIVE OFFICER
COMPENSATION
Overview
On
the Approval Date the Consenting Shareholders approved, on a
non-binding, advisory basis, the compensation of our Named
Executive Officers, commonly referred to as the
“say-on-pay” vote. Although this advisory vote is
nonbinding, our Board will review and consider the voting results
when making future decisions regarding our Named Executive Officer
compensation and related executive compensation
programs.
We encourage shareholders to read the “Executive
Compensation” section in this Information Statement,
including the compensation tables and the related narrative
disclosure, which describes the structure and amounts of the
compensation of our Named Executive Officers. The compensation of
our Named Executive Officers is designed to enable us to attract
and retain talented and experienced executives to lead us
successfully in a competitive environment. The Board believe that
our executive compensation strikes the appropriate balance between
utilizing responsible, measured pay practices and effectively
incentivizing our Named Executive Officers to dedicate themselves
fully to value creation for our
shareholders.
APPROVAL, ON A NON-BINDING ADVISORY BASIS, OF HOLDING A NON-BINDING
ADVISORY VOTE ON THE COMPANY’S NAMED EXECUTIVE OFFICER
COMPENSATION EVERY THREE YEARS
In
addition to the advisory vote on executive compensation described
above, pursuant to Section 14A of the Exchange Act, the Consenting
Shareholders approved, on a non-binding, advisory basis, that the
frequency of future votes to approve the compensation of our Named
Executive Officers be held every three years. This non-binding
“frequency” vote is required to be submitted to our
shareholders at least once every six years.
The
Board determined that holding an advisory vote to approve the
compensation of our Named Executive Officers every three years is
the most appropriate policy at this time, and recommends that
future advisory votes to approve the compensation of our Named
Executive Officers occur every third year. Our executive
compensation program is designed to create long-term value for our
shareholders, and a triennial vote will allow shareholders to
better judge our executive compensation program in relation to our
long-term performance. We also believe that a vote every three
years is an appropriate frequency to provide sufficient time to
thoughtfully consider shareholders’ input and to implement
any appropriate changes to our executive compensation program, in
light of the timing that would be required to implement any
decisions related to such changes.
On
the Approval Date the Consenting Shareholders approved, on a
non-binding, advisory basis, that the frequency of future votes to
approve the compensation of our Named Executive Officers be held
every three years. Although this approval on the frequency of
future advisory votes to approve the compensation of our Named
Executive Officers is nonbinding, the Board will carefully review
and consider the approvals when determining the frequency of future
advisory votes to approve the compensation of our Named Executive
Officers.
AMENDMENT TO THE COMPANY’S ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED SHARES
The
Company will file with the Secretary of State of Nevada the
Amendment in the form attached to this Information Statement as
Exhibit
A
.
Summary of Amendment
Section
78.207 of the Nevada Revised Statutes requires that when a
corporation increases the number of authorized shares available
under the Company’s Articles of Incorporation the corporation
must file an amendment to the Articles of Incorporation. The
Amendment authorize the increase in the Company’s authorized
shares from 250 million shares to 700 million shares and an
increase in the shares of Common Stock from 200 million shares to
650 million shares pursuant to Section 78.209 of the Nevada Revised
Statutes.
For the purposes of
the Amendment and the Increase, a “beneficial owner” is
a shareholder whose shares of our Common Stock are reflected in
such shareholder’s name on the Company’s stock transfer
records or are held by a brokerage firm, bank, trustee or another
agent. Shareholders whose shares of our Common Stock are registered
directly in their name with our transfer agent, Equity Stock
Transfer, are considered the “record holders” with
respect to those shares.
Purpose of the Amendment
The
Company has issued a number of promissory notes (the
“Notes”) which are convertible into shares of Common
Stock pursuant to the terms of the Notes (the “Conversion
Shares”). In order to satisfy the terms of the Notes the
Company is required to reserve a number of shares of its Common
Stock for the Conversion Shares (the “Reserve”). The
Company does not currently have enough authorized shares available
to cover the Reserve and needs approximately 36,800,000 additional
shares for the Reserve.
Effect on Outstanding Shares, Authorized Shares and Proportionate
Holdings of the Company’s Shareholders
As the
result of the Amendment, the number of the Company’s
authorized shares will increase from 250 million to 700 million and
the number of shares of Common Stock will increase from 200 million
to 650 million. The number of shares outstanding will remain the
same.
Appraisal Rights
Under
the Nevada Revised Statutes, the Company’s shareholders are
not entitled to appraisal rights in connection with the adoption of
the Amendment.
EFFECTIVE DATE
The
Effective Date will be the date and time when the Amendment is
filed with the Secretary of State of the State of Nevada pursuant
to Section 78.390(6) of the Nevada Revised Statutes or upon a later
date and time as specified in the Amendment. Pursuant to Rule 14c-2
under the Exchange Act, the Amendment cannot become effective until
at least 20 days following our mailing of this Information
Statement to our shareholders. We anticipate filing the Amendment
as soon as possible after the Effective Date.
SHAREHOLDERS’ RIGHTS
The
elimination of the need for a meeting of our shareholders to
approve the Amendment is allowed under Section 78.320 of the Nevada
Revised Statutes, which provides that any action required or
permitted to be taken at a meeting of the shareholders may be taken
without a meeting if, before or after the action, a written consent
thereto is signed by shareholders holding at least a majority of
the voting power, except that if a different proportion of voting
power is required for such an action at a meeting, then that
proportion of written consents is required. This Information
Statement is being delivered in full satisfaction of any notice
requirements under the Exchange Act. No separate notice is required
pursuant to the Nevada Revised Statutes.
OUTSTANDING VOTING SECURITIES
As of
August 27, 2018, there were 38,025,689 shares of Common Stock
issued and outstanding. On all matters other than election of
directors each shareholder of the Company has one vote for each
share of Common Stock owned by the shareholder. The shares of each
class of our preferred stock vote on an as-converted
basis.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table
sets forth the number of shares of the Company’s Common Stock
beneficially owned as of September 10, 2018 by (i) those persons
known by us to be owners of more than 5% of Common Stock, (ii) each
of our directors, (iii) each of our Named Executive Officers, and
(iv) all current executive officers and directors as a group.
Unless otherwise noted, each
shareholder’s address is 4870 Sadler Road, Suite 300, Glen
Allen, VA 23060, and each shareholder has sole voting power and
investment power with respect to securities shown in the table
below.
Beneficial ownership is determined under the rules of
the SEC and generally includes voting or investment power with
respect to securities. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60
days whether upon the exercise of options, warrants or conversion
of notes. Unless otherwise indicated in the footnotes to this
table, the Company believes that each of the shareholders named in
the table has sole voting and investment power with respect to the
shares of common stock indicated as beneficially owned by them.
This table does not include any unvested stock options except for
those vesting within 60 days.
|
Title of Class
|
|
Beneficial Owner
|
Amount
and Nature of Beneficial Ownership (1)
|
|
|
Common
Stock
|
|
Philip
J. Young
|
8,849,250
(2)
|
23.1
%
|
|
Common
Stock
|
|
Timothy
Ryan
|
8,799,250
(3)
|
22.9
%
|
|
Common
Stock
|
|
James
R. Erickson
|
2,238,889
(4)
|
5.79
%
|
|
|
|
|
|
|
|
|
Directors and
executive officers as a group
(4
individuals)
|
21,883,639
|
52.9
%
|
|
Common
Stock
|
|
MagniSciFund,
LP
123
N Post Oak Lane, Suite 400
Houston,
TX 77024
|
6,000,000
(5)
|
13.6
%
|
|
Common
Stock
|
|
Digital
Diagnostics, PTY
606
Sherwood Road
Sherwood,
QLD, 4075 Australia
|
3,600,000
(6)
|
9.5
%
|
|
Common
Stock
|
|
PoC
Capital LLC
2995
Woodside Avenue, Suite 400-121
Woodside,
CA 94062
|
3,266,667
(7)
|
8.2
%
|
|
Common
Stock
|
|
Sandor
Capital Master Fund
2828
Routh Street, Suite 500
Dallas,
TX 75201-1438
|
2,300,000
(8)
|
5.9
%
|
|
Common
Stock
|
|
Velocity
Health Capital
95
White Bridge Road, Suite 509
Nashville,
TN 37205
|
2,068,000
(9)
|
5.4
%
|
|
(1)
|
Based on 38,025,689
shares of
our common stock outstanding as of the Record
Date.
|
|
(2)
|
Includes (i) 8,500,000 shares of Common Stock, (ii) 168,000 shares
of common stock issuable upon the conversion of shares of Series
B-2, and (iii) 181,250 stock options to purchase Common Stock
exercisable at $0.089 per share. Does not include 2,200,000 shares
of Common Stock issuable upon the conversion of shares of Series D
which are
subject to a 4.99%
ownership limitation contained within the certificate of
designations for the Series D.
|
|
(3)
|
Includes (i) 1,950,000 shares of Common Stock, (ii) 2,950,000
shares of common stock held by Willets Capital over which Mr. Ryan
has sole voting power and investment power, (iii) 2,850,000 shares
of common stock held by Tonset Capital, over which Mr. Ryan has
sole voting power and investment power, (iv) 400,000 shares of
common stock held by NYTX LLC, over which Mr. Ryan has sole voting
power and investment power, (v) 300,000 shares of common stock held
by Brosis LLC, over which Mr. Ryan has sole voting power and
investment power, (vi) 168,000 shares of common stock issuable upon
the conversion of shares of Series B-2, and (vii) 181,250 stock
options to purchase Common Stock exercisable at $0.089 per share.
Does not include 5,400,000 shares of Common Stock issuable upon
conversion of the Series D which are
subject to a 4.99%
ownership limitation contained within the certificate of
designations for the Series D.
|
|
(4)
|
Includes (i) 1,600,000 shares of common stock and (ii) 638,889
stock options to purchase Common Stock exercisable at $0.089 per
share.
Does not include
1,200,000
shares of Common
Stock issuable upon the conversion of shares of Series D which
are
subject to a 4.99%
ownership limitation contained within the certificate of
designations for the Series D.
|
|
(5)
|
Includes 6,000,000 shares of common stock issuable upon the
conversion of shares of Series B-2.
|
|
(6)
|
Includes 3,600,000 shares of common stock held by Digital
Diagnostics, Inc., of which Dr. Dimitrov is President and 78%
owner.
|
|
(7)
|
Includes (i) 1,600,000 shares of Common Stock and (ii) 1,666,667
shares of common stock issuable upon exercise of outstanding
warrants exercisable at $0.60 per share. Does not include 1,733,334
shares of common stock issuable upon the conversion of shares of
Series C which are
subject to a 4.99%
ownership limitation contained within the certificate of
designations for the Series C.
|
|
(8)
|
Includes (i) 1,100,000 shares of Common Stock, (ii) 300,000 shares
of common stock issuable upon the conversion of shares of Series
B-1 and (iii) 900,000 shares of common stock issuable upon the
conversion of shares of Series B-2.
|
|
(9)
|
Includes (i) 1,900,000 shares of Common Stock and (ii) 168,000
shares of common stock issuable upon the conversion of shares of
Series B-2.
|
We have
adopted a procedure approved by the SEC called
“householding.” Under this procedure, shareholders of
record who have the same address and last name will receive only
one copy of this Information Statement, unless one or more of these
shareholders notifies us that they wish to continue receiving
individual copies. This procedure will reduce our printing costs
and postage fees.
If you
are eligible for householding, but you and other shareholders of
record with whom you share an address currently receive multiple
copies of materials from the Company, or if you hold stock in more
than one account, and in either case you wish to receive only a one
copy of materials from the Company for your household, please
contact the Company’s Corporate Secretary at: Exactus, Inc.,
4870 Sadler Road, Suite 300, Glen
Allen, VA 23060
Attention: Corporate Secretary.
If you
participate in householding and wish to receive a separate copy of
these materials, or if you do not wish to continue to participate
in householding and prefer to receive separate copies of these
documents in the future, please contact the Company’s
Corporate Secretary as indicated above. Beneficial owners can
request information about householding from their brokers, banks or
other holders of record.
AVAILABLE INFORMATION
A copy
of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2017 is being mailed with this Information
Statement and we will furnish without charge to each shareholder,
upon request, a copy of the Annual Report on Form 10-K for the year
ended December 31, 2017 as filed with the SEC, including the
financial statements and schedules thereto, but not the exhibits. A
request for a copy of such report should be directed to Exactus,
Inc.,
4870 Sadler Road, Suite 300,
Glen Allen, VA 23060
Attention: Corporate
Secretary.
EXHIBIT A
CERTIFICATE OF AMENDMENT TO
ARTICLES OF INCORPORATION
Exactus, Inc. (the
“Corporation”), a corporation organized and existing
under the Revised Statutes of the State of Nevada (the
“Nevada Revised Statutes”), hereby certifies as
follows:
1.
Pursuant to Sections 78.320, 78.385 and 78.390 of the Nevada
Revised Statutes, the amendment herein set forth has been duly
approved by the holders of a majority of the voting power of the
Corporation.
2.
Paragraphs 3.01 and 3.02 of the Amended and Restated Articles of
Incorporation of the Corporation (the “Articles”) are
hereby stricken and replaced with the following.
3.01
Authorized
Capital Stock.
The total number of shares
of stock this Corporation is authorized to issue shall be seven
hundred million (700,000,000) shares. This stock shall be divided
into two classes to be designated as "Common Stock" and "Preferred
Stock."
3.02
Common
Stock.
The total number of
authorized shares of Common Stock shall be six hundred and fifty
million (650,000,000) shares with par value of $0.0001 per
share.
3. This
Certificate of Amendment to the Articles of Incorporation was duly
adopted and approved by the shareholders of the Corporation on the
__________ of __________ 2018 in accordance with Sections 78.320
and 78.390 of the Nevada Revised Statutes.
IN
WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment to Articles of Incorporation as of the __ day of _______,
2018.
|
|
By:
|
|
|
|
Name:
|
Philip
J. Young
|
|
|
Title:
|
President,
Chief Executive Officer
and
Chairman of the Board
|
EXHIBIT B
EXACTUS, INC.
2018 EQUITY INCENTIVE PLAN
1.
Scope of Plan;
Definitions
.
(a)
This 2018 Equity Incentive Plan (the “Plan”) is
intended to advance the interests of Exactus, Inc. (the
“Company”) and its Related Corporations by enhancing
the ability of the Company to attract and retain qualified
employees, consultants, Officers and directors, by creating
incentives and rewards for their contributions to the success of
the Company and its Related Corporations. This Plan will provide to
(a) Officers and other employees of the Company and its Related
Corporations opportunities to purchase common stock (“Common
Stock”) of the Company pursuant to Options granted hereunder
which qualify as incentive stock options (“ISOs”) under
Section 422(b) of the Internal Revenue Code of 1986 (the
“Code”), (b) directors, Officers, employees and
consultants of the Company and Related Corporations opportunities
to purchase Common Stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs (“Non-Qualified
Options”); (c) directors, Officers, employees and consultants
of the Company and Related Corporations opportunities to receive
shares of Common Stock of the Company which normally are subject to
restrictions on sale (“Restricted Stock”); (d)
directors, Officers, employees and consultants of the Company and
Related Corporations opportunities to receive grants of stock
appreciation rights (“SARs”); and (e) directors,
Officers, employees and consultants of the Company and Related
Corporations opportunities to receive grants of restricted stock
units (“RSUs”). ISOs, Non-Discretionary Options and
Non-Qualified Options are referred to hereafter as
“Options.” Options, Restricted Stock, RSUs and SARs are
sometimes referred to hereafter collectively as “Stock
Rights.” Any of the Options and/or Stock Rights may in the
Board of Directors or Compensation Committee’s discretion be
issued in tandem to one or more other Options and/or Stock Rights
to the extent permitted by law.
(b)
For purposes of the Plan, capitalized words and terms shall have
the following meaning:
“Board”
means the board of directors of the Company.
“Chairman”
means the chairman of the Board.
“Change
of Control” means the occurrence of any of the following
events: (i) the consummation of the sale or disposition by the
Company of all or substantially all of the Company’s assets
in a transaction which requires shareholder approval under
applicable state law; or (ii) the consummation of a merger or
consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (eitherby remaining outstanding or by being
converted into voting securities of the surviving entity or its
parent) at least 50% of the total voting power represented by the
voting securities of the Company or such surviving entity or its
parent outstanding immediately after such merger or
consolidation.
“Code”
shall have the meaning given to it in Section 1(a).
“Common
Stock” shall have the meaning given to it in Section
1(a).
“Company”
shall have the meaning given to it in Section 1(a).
“Compensation
Committee” means the compensation committee of the Board, if
any, which shall consist of two or more members of the Board, each
of whom shall be both an “outside director” within the
meaning of Section 162(m) of the Code and a “non-employee
director” within the meaning of Rule 16b-3. All
references in this Plan to the Compensation Committee shall mean
the Board when (i) there is no Compensation Committee or (ii) the
Board has retained the power to administer this Plan.
“Disability”
means “permanent and total disability” as defined in
Section 22(e)(3) of the Code or successor statute.
“Disqualifying
Disposition” means any disposition (including any sale) of
Common Stock underlying an ISO before the later of (i) two years
after the date of employee was granted the ISO or (ii) one year
after the date the employee acquired Common Stock by exercising the
ISO.
“Exchange
Act” shall mean the Securities Exchange Act of
1934.
“Fair
Market Value” shall be determined as of the last Trading Day
before the date a Stock Right is granted and shall
mean:
(1)
the closing price on the principal market if the Common Stock is
listed on a national securities exchange or any market operated by
the OTC Markets Group, Inc. (or any successor) (any the
“Principal Market”).
(2)
if no closing prices are available from the Principle Market, then
the average bid and asked price for the Company’s shares on
the Principal Market;
(3)
if there are no prices available under clauses (1) or (2), then
Fair Market Value shall be based upon the average closing bid and
asked price as determined following a polling of all dealers making
a market in the Company’s Common Stock; or
(4) if
there is no regularly established trading market for the
Company’s Common Stock or if the Company’s Common Stock
is listed, quoted or reported under clauses (1) or (2) but it
trades sporadically rather than every day, the Fair Market Value
shall be established by the Board or the Compensation Committee
taking into consideration all relevant factors including the most
recent price at which the Company’s Common Stock was
sold.
“ISO”
shall have the meaning given to it in Section 1(a).
“Non-Discretionary
Options” shall have the meaning given to it in Section
1(a).
“Non-Qualified
Options” shall have the meaning given to it in Section
1(a).
“Officers”
means a person who is an executive officer of the Company and is
required to file ownership reports under Section 16(a) of the
Exchange Act.
“Options”
shall have the meaning given to it in Section 1(a).
“Plan”
shall have the meaning given to it in Section 1(a).
“Related
Corporations” shall mean a corporation which is a subsidiary
corporation with respect to the Company within the meaning of
Section 424(f) of the Code.
“Restricted
Stock” shall have the meaning contained in Section
1(a).
“RSU”
shall have the meaning given to it in Section 1(a).
“SAR”
shall have the meaning given to it in Section 1(a).
“Securities
Act” means the Securities Act of 1933.
“Stock
Rights” shall have the meaning given to it in Section
1(a).
“Trading
Day” shall mean a day on which the New York Stock Exchange is
open for business.
This Plan is intended to comply in all respects
with Rule 16b-3 (“Rule 16b-3”) and its successor rules
as promulgated under Section 16(b) of the Exchange Act for
participants who are subject to Section 16 of the Exchange Act. To
the extent any provision of the Plan or action by the Plan
administrators fails to so comply, it shall be deemed null and void
to the extent permitted by law and deemed advisable by the Plan
administrators.
Provided
,
however
,
such exercise of discretion by the Plan administrators shall not
interfere with the contract rights of any grantee. In the event
that any interpretation or construction of the Plan is required, it
shall be interpreted and construed in order to ensure, to the
maximum extent permissible by law, that such grantee does not
violate the short-swing profit provisions of Section 16(b) of the
Exchange Act and that any exemption available under Rule 16b-3 or
other rule is available.
2.
Administration of the
Plan
.
(a)
The Plan may be administered by the entire Board or by the
Compensation Committee. Once appointed, the Compensation Committee
shall continue to serve until otherwise directed by the Board. A
majority of the members of the Compensation Committee shall
constitute a quorum, and all determinations of the Compensation
Committee shall be made by the majority of its members present at a
meeting. Any determination of the Compensation Committee under the
Plan may be made without notice or meeting of the Compensation
Committee by a writing signed by all of the Compensation Committee
members. Subject to ratification of the grant of each Stock Right
by the Board (but only if so required by applicable state law), and
subject to the terms of the Plan, the Compensation Committee shall
have the authority to (i) determine the employees of the Company
and Related Corporations (from among the class of employees
eligible under Section 3 to receive ISOs) to whom ISOs may be
granted, and to determine (from among the class ofindividuals and
entities eligible under Section 3 to receive Non-Qualified Options,
Restricted Stock, RSUs and SARs) to whom Non-Qualified Options,
Restricted Stock, RSUs and SARs may be granted; (ii) determine when
Stock Rights may be granted; (iii) determine the exercise prices of
Stock Rights other than Restricted Stock and RSUs, which shall not
be less than the Fair Market Value; (iv) determine whether each
Option granted shall be an ISO or a Non-Qualified Option; (v)
determine when Stock Rights shall become exercisable, the duration
of the exercise period and when each Stock Right shall vest; (vi)
determine whether restrictions such as repurchase options are to be
imposed on shares subject to or issued in connection with Stock
Rights, and the nature ofsuch restrictions, if any, and (vii)
interpret the Plan and promulgate and rescind rules and regulations
relating to it. The interpretation and construction by the
Compensation Committee of any provisions of the Plan or of any
Stock Right granted under it shall be final, binding and conclusive
unless otherwise determined by the Board. The Compensation
Committee may from time to time adopt such rules and regulations
for carrying out the Plan as it may deem best.
No
members of the Compensation Committee or the Board shall be liable
for any action or determination made in good faith with respect to
the Plan or any Stock Right granted under it. No member of the
Compensation Committee or the Board shall be liable for any act or
omission of any other member of the Compensation Committee or the
Board or for any act or omission on his own part, including but not
limited to the exercise of any power and discretion given to him
under the Plan, except those resulting from his own gross
negligence or willful misconduct.
(b)
The Compensation Committee may select one of its members as its
chairman and shall hold meetings at such time and places as it may
determine. All references in this Plan to the Compensation
Committee shall mean the Board if no Compensation Committee has
been appointed. From time to time the Board may increase the size
of the Compensation Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies however caused or
remove all members of the Compensation Committee and thereafter
directly administer the Plan.
(c)
Stock Rights may be granted to members of the Board, whether such
grants are in their capacity as directors, Officers or consultants.
All grants of Stock Rights to members of the Board shall in all
other respects be made in accordance with the provisions of this
Plan applicable to other eligible persons. Members of the Board who
are either (i) eligible for Stock Rights pursuant to the Plan or
(ii) have been granted Stock Rights may vote on any matters
affecting the administration of the Plan or the grant of any Stock
Rights pursuant to the Plan.
(d) In addition to such other rights of
indemnification as he may have as a member of the Board, and with
respect to administration of the Plan and the granting of Stock
Rights under it, each member of the Board and of the Compensation
Committee shall be entitled without further act on his part to
indemnification from the Company for all expenses (including
advances of litigation expenses, the amount of judgment and the
amount of approved settlements made with a view to the curtailment
of costs of litigation) reasonably incurred by him in connection
with or arising out of any action, suit or proceeding, including
any appeal thereof, with respect to the administration of the Plan
or the granting of Stock Rights under it in which he may be
involved by reason of his being or having been a member of the
Board or the Compensation Committee, whether or not he continues to
be such member of the Board or the Compensation Committee at the
time of the incurring of such expenses;
provided
,
however
,
that such indemnity shall be subject to the limitations contained
in any Indemnification Agreement between the Company and the Board
member or Officer. The foregoing right of indemnification shall
inure to the benefit of the heirs, executors or administrators of
each such member of the Board or the Compensation Committee and
shall be in addition to all other rights to which such member of
the Board or the Compensation Committee would be entitled to as a
matter of law, contract or otherwise.
(e)
The Board may delegate the powers to grant Stock Rights to Officers
to the extent permitted by the laws of the Company’s state of
incorporation.
3.
Eligible Employees and
Others
. ISOs may be
granted to any employee of the Company or any Related Corporation.
Those Officers and directors of the Company who are not employees
may not be granted ISOs under the Plan. Subject to compliance with
Rule 16b-3 and other applicable securities laws, Non-Qualified
Options, Restricted Stock, RSUs and SARs may be granted to any
director (whether or not an employee), Officers, employees or
consultants of the Company or any Related Corporation. The
Compensation Committee may take into consideration a
recipient’s individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, Restricted Stock, RSUs or
a SAR. Granting of any Stock Right to any individual or entity
shall neither entitle that individual or entity to, nor disqualify
him from participation in, any other grant of Stock
Rights.
4.
Common
Stock
. The Common Stock subject
to Stock Rights shall be authorized but unissued shares of Common
Stock, par value $0.0001, or shares of Common Stock reacquired by
the Company in any manner, including purchase, forfeiture or
otherwise. The aggregate number of shares of Common Stock which may
be issued pursuant to the Plan is 9,500,000, less any Stock Rights
previously granted or exercised subject to adjustment as provided
in Section 14. Any such shares may be issued under ISOs,
Non-Qualified Options, Restricted Stock, RSUs or SARs, so long as
the number of shares so issued does not exceed the limitations in
this Section. If any Stock Rights granted under the Plan shall
expire, terminate, forfeit or are cancelled for any reason or shall
cease for any reason to be exercisable in whole or in part without
the delivery of shares of Common Stock, or if the Company shall
reacquire any unvested shares, or if any Stock Rights or shares of
Common Stock are tendered to pay the exercise price of any Stock
Rights then the shares covered by such expiration, termination,
forfeiture, cancelation, reacquisition, or tender to pay the
exercise price will again become available for grants under the
Plan.
5.
Granting of Stock
Rights
.
(a) The date of grant of a Stock Right under the
Plan will be the date specified by the Board or Compensation
Committee at the time it grants the Stock
Right;
provided
,
however
,
that such date shall not be prior to the date on which the Board or
Compensation Committee acts to approve the grant. The Board or
Compensation Committee shall have the right, with the consent of
the optionee, to convert an ISO granted under the Plan to a
Non-Qualified Option pursuant to Section 17.
(b)
The Board or Compensation Committee shall grant Stock Rights to
participants that it, in its sole discretion, selects. Stock Rights
shall be granted on such terms as the Board or Compensation
Committee shall determine except that ISOs shall be granted on
terms that comply with the Code and regulations
thereunder.
(c)
A SAR entitles the holder to receive, as designated by the Board or
Compensation Committee, cash or shares of Common Stock, value equal
to (or otherwise based on) the excess of: (a) the Fair Market Value
of a specified number of shares of Common Stock at the time of
exercise over (b) an exercise price established by the Board or
Compensation Committee. The exercise price of each SAR granted
under this Plan shall be established by the Compensation Committee
or shall be determined by a method established by the Board or
Compensation Committee at the time the SAR is granted, provided the
exercise price shall not be less than 100% of the Fair Market Value
of a share of Common Stock on the date of the grant of the SAR, or
such higher price as is established by the Board or Compensation
Committee. A SAR shall be exercisable in accordance with such terms
and conditions and during such periods as may be established by the
Board or Compensation Committee. Shares of Common Stock delivered
pursuant to the exercise of a SAR shall be subject to such
conditions, restrictions and contingencies as the Board or
Compensation Committee may establish in the applicable SAR
agreement or document, if any. The Board or Compensation Committee,
in its discretion, may impose such conditions, restrictions and
contingencies with respect to shares of Common Stock acquired
pursuant to the exercise of each SARas the Board or Compensation
Committee determines to be desirable. A SAR under the Plan shall be
subject to such terms and conditions, not inconsistent with the
Plan, as the Board or Compensation Committee shall, in its
discretion, prescribe. The terms and conditions of any SAR to any
grantee shall be reflected in such form of agreement as is
determined by the Board or Compensation Committee. A copy of such
document, if any, shall be provided to the grantee, and the Board
or Compensation Committee may condition the granting of the SAR on
the grantee executing such agreement.
(d) An RSU gives the grantee the right to receive
a number of shares of the Company’s Common Stock on
applicable vesting or other dates. Delivery of the RSUs may be
deferred beyond vesting as determined by the Board or Compensation
Committee. RSUs shall be evidenced by an RSU agreement in the form
determined by the Board or Compensation
Committee.
With respect to
an RSU, which becomes non-forfeitable due to the lapse of time, the
Compensation Committee shall prescribe in the RSU agreement the
vesting period. With respect to the granting of the RSU, which
becomes non-forfeitable due to the satisfaction of certain
pre-established performance-based objectives imposed by the Board
or Compensation Committee, the measurement date of whether such
performance-based objectives have been satisfied shall be a date no
earlier than the first anniversary of the date of the RSU. A
recipient who is granted an RSU shall possess no incidents of
ownership with respect to such underlying Common Stock, although
the RSU agreement may provide for payments in lieu of dividends to
such grantee.
(e)
Notwithstanding any provision of this Plan, the Board or
Compensation Committee may impose conditions and restrictions on
any grant of Stock Rights including forfeiture of vested Options,
cancellation of Common Stock acquired in connection with any Stock
Right and forfeiture of profits.
(f)
The Options and SARs shall not be exercisable for a period of more
than 10 years from the date of grant.
6.
Sale of
Shares
. The shares underlying
Stock Rights granted to any Officers, director or a beneficial
owner of 10% or more of the Company’s securities registered
under Section 12 of the Exchange Act shall not be sold, assigned or
transferred by the grantee until at least six months elapse from
the date of the grant thereof.
7.
ISO Minimum Option
Price and Other Limitations
.
(a)
The exercise price per share relating to all Options granted under
the Plan shall not be less than the Fair Market Value per share of
Common Stock on the last trading day prior to the date of such
grant. For purposes of determining the exercise price, the date of
the grant shall be the later of (i) the date of approval by the
Board or Compensation Committee or the Board, or (ii) for ISOs, the
date the recipient becomes an employee of the Company. In the case
of an ISO to be granted to an employee owning Common Stock which
represents more than 10% of the total combined voting power of all
classes of stock of the Company or any Related Corporation, the
price per share shall not be less than 110% of the Fair Market
Value per share of Common Stock on the date of grant and such ISO
shall not be exercisable after the expiration of five years from
the date of grant.
(b)
In no event shall the aggregate Fair Market Value (determined at
the time an ISO is granted) of Common Stock for which ISOs granted
to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the
Company and any Related Corporation) exceed $100,000.
8.
Duration of Stock
Rights
. Subject to earlier
termination as provided in Sections 3, 5, 9, 10 and 11, each Option
and SAR shall expire on the date specified in the original
instrument granting such Stock Right (except with respect to any
part of an ISO that is converted into a Non-Qualified Option
pursuant to Section 17),
provided
,
however
,
that such instrument must comply with Section 422 of the Code with
regard to ISOs and Rule 16b-3 with regard to all Stock Rights
granted pursuant to the Plan to Officers, directors and 10%
shareholders of the Company.
9.
Exercise of Options
and SARs; Vesting of Stock Rights
. Subject to the provisions of Sections 3 and 9
through 13, each Option and SAR granted under the Plan shall be
exercisable as follows:
(a)
The Options and SARs shall either be fully vested and exercisable
from the date of grant or shall vest and become exercisable in such
installments as the Board or Compensation Committee may
specify.
(b)
Once an installment becomes exercisable it shall remain exercisable
until expiration or termination of the Option and SAR, unless
otherwise specified by the Board or Compensation
Committee.
(c)
Each Option and SAR or installment, once it becomes exercisable,
may be exercised at any time or from time to time, in whole or in
part, for up to the total number of shares with respect to which it
is then exercisable.
(d) The Board or Compensation Committee shall have
the right to accelerate the vesting date of any installment of any
Stock Right;
provided
that
the Board or Compensation Committee shall not accelerate the
exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a
Non-Qualified Option pursuant to Section 17) if such acceleration
would violate the annual exercisability limitation contained in
Section 422(d) of the Code as described in Section
7(b).
10.
Termination of
Employment
. Subject to any
greater restrictions or limitations as may be imposed by the Board
or Compensation Committee or by a written agreement, if an optionee
ceases to be employed by the Company and all Related Corporations
other than by reason of death or Disability, no further
installments of his Options shall vest or become exercisable, and
his Options shall terminate as provided for in the grant or on the
day one year after the day of the termination of his employment
(except three months for ISOs), whichever is earlier, but in no
event later than on their specified expiration dates. Employment
shall be considered as continuing uninterrupted during any bona
fide leave of absence (such as those attributable to illness,
military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any
period during which such optionee’s right to re-employment is
guaranteed by statute. A leave of absence with the written approval
of the Board shall not be considered an interruption of employment
under the Plan, provided that such written approval contractually
obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations so
long as the optionee continues to be an employee of the Company or
any Related Corporation.
11.
Death;
Disability
. Unless otherwise
determined by the Board or Compensation Committee or by a written
agreement:
(a)
If the holder of an Option or SAR ceases to be employed by the
Company and all Related Corporations by reason of his death, any
Options or SARs held by the optionee may be exercised to the extent
he could have exercised it on the date of his death, by his estate,
personal representative or beneficiary who has acquired the Options
or SARs by will or by the laws of descent and distribution, at any
time prior to the earlier of: (i) the Options’ or SARs’
specified expiration date or (ii) one year (except three months for
an ISO) from the date of death.
(b)
If the holder of an Option or SAR ceases to be employed by the
Company and all Related Corporations, or a director or Director
Advisor can no longer perform his duties, by reason of his
Disability, any Options or SARs held by the optionee may be
exercised to the extent he could have exercised it on the date of
termination due to Disability until the earlier of (i) the
Options’ or SARs’ specified expiration date or (ii) one
year from the date of the termination.
12.
Assignment, Transfer
or Sale
.
(a)
No ISO granted under this Plan shall be assignable or transferable
by the grantee except by will or by the laws of descent and
distribution, and during the lifetime of the grantee, each ISO
shall be exercisable only by him, his guardian or legal
representative.
(b)
Except for ISOs, all Stock Rights are transferable subject to
compliance with applicable securities laws and Section 6 of this
Plan.
13.
Terms and Conditions
of Stock Rights
. Stock Rights
shall be evidenced by instruments (which need not be identical) in
such forms as the Board or Compensation Committee may from time to
time approve. Such instruments shall conform to the terms and
conditions set forth in Sections 5 through 12 hereofand may contain
such other provisions as the Board or Compensation Committee deems
advisable which are not inconsistent with the Plan. In granting any
Stock Rights, the Board or Compensation Committee may specify that
Stock Rights shall be subject to the restrictions set forth herein
with respect to ISOs, or to such other termination and cancellation
provisions as the Board or Compensation Committee may determine.
The Board or Compensation Committee may from time to time confer
authority and responsibilityon one or more of its own members
and/or one or more Officers of the Company to execute and deliver
such instruments. The proper Officers of the Company are authorized
and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such
instruments.
14.
Adjustments Upon
Certain Events
.
(a) Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock
covered by each outstanding Stock Right, and the number of shares
of Common Stock which have been authorized for issuance under the
Plan but as to which no Stock Rights have yet been granted or which
have been returned to the Plan upon cancellation or expiration of a
Stock Right, as well as the price per share of Common Stock(or
cash, as applicable) covered by each such outstanding Option or
SAR, shall be proportionately adjusted for any increases or
decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend,
combination or reclassification of 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 or the
voluntary cancellation whether by virtue of a cashless exercise of
a derivative security of the Company or otherwise shall not be
deemed to have been “effected without receipt of
consideration.” Such adjustment shall be made by the
Board or Compensation Committee, 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 a Stock Right. No adjustments shall be made
for dividends or other distributions paid in cash or in property
other than securities of the Company.
(b)
In the event of the proposed dissolution or liquidation of the
Company, the Board or Compensation Committee shall notify each
participant as soon as practicable prior to the effective date of
such proposed transaction. To the extent it has not been
previously exercised, a Stock Right will terminate immediately
prior to the consummation of such proposed action.
(c)
In the event of a merger of the Company with or into another
corporation, or a Change of Control, each outstanding Stock Right
shall be assumed (as defined below) or an equivalent option or
right substituted by the successor corporation or a parent or
subsidiary of the successor corporation. In the event that
the successor corporation refuses to assume or substitute for the
Stock Rights, the participants shall fully vest in and have the
right to exercise their Stock Rights as to which it would not
otherwise be vested or exercisable. If a Stock Right becomes
fully vested and exercisable in lieu of assumption or substitution
in the event of a merger or sale of assets, the Board or
Compensation Committee shall notify the participant in writing or
electronically that the Stock Right shall be fully vested and
exercisable for a period of at least 15 days from the date of such
notice, and any Options or SARs shall terminate one minute prior to
the closing of the merger or sale of assets.
For the purposes of this Section 14(c), the Stock
Right shall be considered “assumed” if, following the
merger or Change of Control, the option or right confers the right
to purchase or receive, for each share of Common Stock subject to
the Stock Right immediately prior to the merger or Change of
Control, the consideration (whether stock, cash, or other
securities or property) received in the merger or Change of Control
by holders of Common Stock for each share held on the effective
date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares);
provided
,
however
,
that if such consideration received in the merger or Change of
Control is not solely common stock of the successor corporation or
its parent, the Board or Compensation Committee may, with the
consent of the successor corporation, provide for the consideration
to be received upon the exercise of the Stock Right, for each share
of Common Stock subject to the Stock Right, to be solely common
stock of the successor corporation or its parent equal in Fair
Market Value to the per share consideration received by holders of
Common Stock in the merger or Change of
Control.
(d)
Notwithstanding the foregoing, any adjustments made pursuant to
Section 14(a), (b) or (c) with respect to ISOs shall be made only
after the Board or Compensation Committee, after consulting with
counsel for the Company, determines whether such adjustments would
constitute a “modification” of such ISOs (as that term
is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the
Board or Compensation Committee determines that such adjustments
made with respect to ISOs would constitute a modification of such
ISOs it may refrain from making such adjustments.
(e)
No fractional shares shall be issued under the Plan and the
optionee shall receive from the Company cash in lieu of such
fractional shares.
15.
Means of Exercising
Stock Rights
.
(a)
An Option or SAR (or any part or installment thereof) shall be
exercised by giving written notice to the Company at its principal
office address. Such notice shall identify the Stock Right being
exercised and specify the number of shares as to which such Stock
Right is being exercised, accompanied by full payment of the
exercise price therefor (to the extent it is exercisable in cash)
either (i) in United States dollars by check or wire transfer; or
(ii) at the discretion of the Board or Compensation Committee,
through delivery of shares of Common Stock having a Fair Market
Value equal as of the date of the exercise to the cash exercise
price of the Stock Right; or (iii) at the discretion of the Board
or Compensation Committee, by any combination of (i) and (ii)
above. If the Board or Compensation Committee exercises its
discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (ii) or (iii)
of the preceding sentence, such discretion need not be
exercised in writing at the time of the grant of the Stock Right in
question. The holder of a Stock Right shall not have the rights of
a shareholder with respect to the shares covered by his Stock Right
until the date of issuance of a stock certificate to him for such
shares. Except as expressly provided above in Section 14 with
respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which
the record date is before the date such stock certificate is
issued.
(b)
Each notice of exercise shall, unless the shares of Common Stock
are covered by a then current registration statement under the
Securities Act, contain the holder’s acknowledgment in form
and substance satisfactory to the Company that (i) such shares are
being purchased for investment and not for distribution or resale
(other than a distribution or resale which, in the opinion of
counsel satisfactory to the Company, may be made without violating
the registration provisions of the Securities Act), (ii) the holder
has been advised and understands that (1) the shares have not been
registered under the Securities Act and are “restricted
securities” within the meaning of Rule 144 under the
Securities Act and are subject to restrictions on transfer and (2)
the Company is under no obligation to register the shares under the
Securities Act or to take any action which would make available to
the holder any exemption from such registration, and (iii) such
shares may not be transferred without compliance with all
applicable federal and state securities laws. Notwithstanding the
above, should the Company be advised by counsel that issuance of
shares should be delayed pending registration under federal or
state securities laws or the receipt of an opinion that an
appropriate exemption therefrom is available, the Company may defer
exercise of any Stock Right granted hereunder until either such
event has occurred.
16.
Term, Termination and
Amendment
.
(a)
This Plan was adopted by the Board. This Plan may be approved
by the Company’s shareholders, which approval is required for
ISOs.
(b)
The Board may terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate 10 years from the date the
Board adopts the Plan. No Stock Rights may be granted under
the Plan once the Plan is terminated. Termination of the Plan
shall not impair rights and obligations under any Stock Right
granted while the Plan is in effect, except with the written
consent of the grantee.
(c) The Board at any time, and from time to time,
may amend the Plan.
Provided
,
however
,
except as provided in Section 14 relating to adjustments in Common
Stock, no amendment shall be effective unless approved by the
shareholders of the Company to the extent (i) shareholder approval
is necessary to satisfy the requirements of Section 422 of the Code
or (ii) required by the rules of the principal national securities
exchange or trading market upon which the Company’s Common
Stock trades. Rights under any Stock Rights granted before
amendment of the Plan shall not be impaired by any amendment of the
Plan, except with the written consent of the
grantee.
(d) The Board at any time, and from time to time,
may amend the terms of any one or more Stock
Rights;
provided
,
however
,
that the rights under the Stock Right shall not be impaired by any
such amendment, except with the written consent of the
grantee.
17.
Conversion of ISOs
into Non-Qualified Options; Termination of ISOs
. The Board or Compensation Committee, at the
written request of any optionee, may in its discretion take such
actions as may be necessary to convert such optionee’s ISOs
(or any installments or portions of installments thereof) that have
not been exercised on the date of conversion into Non-Qualified
Options at any time prior to the expiration of such ISOs,
regardless of whether the optionee is an employee of the Company or
a Related Corporation at the time of such conversion.
Provided
,
however
,
the Board or Compensation Committee shall not reprice the Options
or extend the exercise period or reduce the exercise price of the
appropriate installments of such Options without the approval of
the Company’s shareholders. At the time of such conversion,
the Board or Compensation Committee (with the consent of the
optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Board or Compensation
Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such
optionee’s ISOs converted into Non-Qualified Options, and no
such conversion shall occur until and unless the Board or
Compensation Committee takes appropriate action. The Compensation
Committee, with the consent of the optionee, may also terminate any
portion of any ISO that has not been exercised at the time of such
termination.
18.
Application of
Funds
. The proceeds received by
the Company from the sale of shares pursuant to Options or SARS (if
cash settled) granted under the Plan shall be used for general
corporate purposes.
19.
Governmental
Regulations
. The
Company’s obligation to sell and deliver shares of the Common
Stock under this Plan is subject to the approval of any
governmental authority required in connection with the
authorization, issuance or sale of such shares.
20.
Withholding of
Additional Income Taxes
. In
connection with the granting, exercise or vesting of a Stock Right
or the making of a Disqualifying Disposition the Company, in
accordance with Section 3402(a) of the Code, may require the
optionee to pay additional withholding taxes in respect of the
amount that is considered compensation includable in such
person’s gross income.
To
the extent that the Company is required to withhold taxes for
federal income tax purposes as provided above, if any optionee may
elect to satisfy such withholding requirement by (i) paying the
amount of the required withholding tax to the Company; (ii)
delivering to the Company shares of its Common Stock (including
shares of Restricted Stock) previously owned by the optionee; or
(iii) having the Company retain a portion of the shares covered by
an Option exercise. The number of shares to be delivered to or
withheld by the Company times the Fair Market Value of such shares
shall equal the cash required to be withheld.
21.
Notice to Company of
Disqualifying Disposition
. Each
employee who receives an ISO must agree to notify the Company in
writing immediately after the employee makes a Disqualifying
Disposition of any Common Stock acquired pursuant to the exercise
of an ISO. If the employee has died before such stock is sold, the
holding periods requirements of the Disqualifying Disposition do
not apply and no Disqualifying Disposition can occur
thereafter.
22.
Continued
Employment
. The grant of a
Stock Right pursuant to the Plan shall not be construed to imply or
to constitute evidence of any agreement, express or implied, on the
part of the Company or any Related Corporation to retain the
grantee in the employ of the Company or a Related Corporation, as a
member of the Company’s Board or in any other capacity,
whichever the case may be.
23.
Governing Law;
Construction
. The validity and
construction of the Plan and the instruments evidencing Stock
Rights shall be governed by the laws of the Company’s state
of incorporation. In construing this Plan, the singular shall
include the plural and the masculine gender shall include the
feminine and neuter, unless the context otherwise
requires.
24. (a)
Forfeiture of Stock
Rights Granted to Employees or Consultants
. Notwithstanding any other provision of this
Plan, and unless otherwise provided for in a Stock Rights
Agreement, all vested or unvested Stock Rights granted to employees
or consultants shall be immediately forfeited at the discretion of
the Board if any of the following events occur:
(1)
Termination of the relationship with the grantee for cause
including, but not limited to, fraud, theft, dishonesty and
violation of Company policy;
(2)
Purchasing or selling securities of the Company in violation of the
Company’s insider trading guidelines then in
effect;
(3)
Breaching any duty of confidentiality including that required by
the Company’s insider trading guidelines then in
effect;
(4)
Competing with the Company;
(5)
Being unavailable for consultation after leaving the
Company’s employment if such availability is a condition of
any agreement between the Company and the grantee;
(6)
Recruitment of Company personnel after termination of employment,
whether such termination is voluntary or for cause;
(7)
Failure to assign any invention or technology to the Company if
such assignment is a condition of employment or any other
agreements between the Company and the grantee; or
(8)
A finding by the Board that the grantee has acted disloyally and/or
against the interests of the Company.
(b)
Forfeiture of Stock
Rights Granted to Directors
.
Notwithstanding any other provision of this Plan, and unless
otherwise provided for in a Stock Rights Agreement, all vested or
unvested Stock Rights granted to directors shall be immediately
forfeited at the discretion of the Board if any of the following
events occur:
(1)
Purchasing or selling securities of the Company in violation of the
Company’s insider trading guidelines then in
effect;
(2)
Breaching any duty of confidentiality including that required by
the Company’s insider trading guidelines then in
effect;
(3)
Competing with the Company;
(4)
Recruitment of Company personnel after ceasing to be a
director;
or
(5)
A finding by the Board that the grantee has acted disloyally and/or
against the interests of the Company.
The
Company may impose other forfeiture restrictions which are more or
less restrictive and require a return of profits from the sale of
Common Stock as part of said forfeiture provisions if such
forfeiture provisions and/or return of provisions are contained in
a Stock Rights Agreement.
(c)
Profits on the Sale of
Certain Shares; Redemption
.
If any of the events specified in Section 24(a) or (b) of the
Plan occur within one year from the date the grantee last performed
services for the Company in the capacity for which the Stock Rights
were granted (the “Termination Date”) (or such
longer period required by any written agreement), all profits
earned from the sale of the Company’s securities, including
the sale of shares of common stock underlying the Stock Rights,
during the two-year period commencing one year prior to the
Termination Date shall be forfeited and immediately paid by the
grantee to the Company. Further, in such event, the Company
may at its option redeem shares of common stock acquired upon
exercise of the Stock Right by payment of the exercise price to the
grantee. To the extent that another written agreement with
the Company extends the events in Section 24(a) or (b) beyond one
year following the Termination Date, the two-year period shall be
extended by an equal number of days. The Company’s
rights under this Section 24(c) do not lapse one year form the
Termination Date but are contract rights subject to any appropriate
statutory limitation period.