UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
POWER EFFICIENCY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 22-3337365 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
2200 Northern Boulevard, Suite 102, Greenvale, | 11548 | |
NY 11548 | ||
(Address of principal executive offices) | (Zip Code) |
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant’s telephone number, including area code (516) 580-6105
Securities to be registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001
Common Stock, par value $0.001 per share
(Title of class)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | þ |
(Do not check if a smaller reporting company) |
Power Efficiency Corporation
Table of Contents
Form 10
Item 1. | Business. | 3 |
Item 1A. | Risk Factors. | 6 |
Item 2. | Financial Information. | 14 |
Item 3. | Properties. | 15 |
Item 4. | Security Ownership of Certain Beneficial Owners and Management. | 16 |
Item 5. | Directors and Executive Officers. | 17 |
Item 6. | Executive Compensation. | 18 |
Item 7. | Certain Relationships and Related Transactions, and Director Independence. | 20 |
Item 8. | Legal Proceedings. | 21 |
Item 9. | Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters. | 21 |
Item 10. | Recent Sales of Unregistered Securities. | 24 |
Item 11. | Description of Registrant’s Securities to be Registered. | 25 |
Item 12. | Indemnification of Directors and Officers. | 27 |
Item 13. | Financial Statements and Supplementary Data. | 27 |
Item 14. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. | 27 |
Item 15. | Financial Statements and Exhibits. | 28 |
FORWARD-LOOKING STATEMENTS
This Registration Statement on Form 10 includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management Discussion and Analysis.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions. The Company’s future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
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Overview
Over the past decade, the United States has observed a significant increase in the use of alternative energy sources, such as solar and wind, in electricity generation. The greater use of renewable energy imposes varied loads on the grid, which causes fluctuations in voltage, current, and frequency and, in turn, leads to degraded power quality and can result in large-scale blackouts. Power Efficiency Corporation (“PEC”) will provide comprehensive one-stop solutions to the grid stability problems and take advantage of the large and actively growing market opportunity for energy storage, which is projected to reach $50 billion by 2020. PEC will offer solutions to grid operators, utilities, and Commercial and Industrial (“C&I”) customers. Our focus will be on renewable Distributed Energy Resources (“DER”) and Battery Energy Storage Systems (“BESS”) for grid balancing services to the Independent System Operators (“ISOs”); load shifting for utilities; energy management, through storage for C&I customers; and microgrids for energy security. Our primary objective will be to build, own, and operate distributed energy resources and BESS to develop a portfolio of income producing projects.
History
PEC (together with its subsidiaries, sometimes referred to as “we,” “us,” or the “Company”) was incorporated in Delaware on October 19, 1994. PEC operated several businesses but terminated its last operations in 2012. Since mid-2012, the Company has had virtually no operations other than disposing of some assets and has generated no revenue or income. The Company ceased filing reports with the Securities and Exchange Commission in April 2012.
From inception through 1997, PEC was a development stage entity that was engaged in the design, development, marketing, and sale of proprietary solid state electrical components designed to reduce energy consumption in alternating current induction motors. Alternating current induction motors are commonly found in C&I facilities throughout the world.
In the late 1990s, PEC commenced the sale of its initial product, which was based on analog technology and reduced energy consumption in alternating current induction motors in certain applications. This product had been known by several names, including the Power Commander® and Power Genius. In 2005, the Company began development of a digital product that would overcome many of the commercial limitations of the analog product. In 2008, limited models of the first-generation of the digital product were launched. In mid-2009, the Company launched a line of products that generated up to 300 horsepower and had certification from Underwriters Laboratories (“UL”) and/or Canadian Standards Association (“CSA”), as well as its second-generation digital circuitry. The Company chose to call its products Motor Efficiency Controllers (“MEC”).
Prior to 2012, PEC developed patented and patent-pending technologies for effectively controlling the energy usage of an electric motor. PEC was granted two United States Patents, the first in 1998 and the second in 2010. Between 2007 and 2011, PEC undertook extensive study and computer modeling of motors and their energy use, and developed digital technologies for its controllers. PEC collectively branded those patented and patent-pending technologies as E-SAVE Technology® and obtained a registered trademark on that name. These assets were sold off by the Company in 2012.
On April 17, 2012, PEC filed a Form 15 to terminate its registration under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) and suspend its duty to file reports under Section 13 and 15(d) of the Exchange Act. From that date until the present, PEC has been a shell company, meaning that it has no or nominal business operations and either no or nominal assets, or assets consisting of a small amount of cash and cash equivalents and nominal other assets. PEC’s Common Stock has continued to trade on the OTC Pink Sheets.
In July 2015, certain members of new management acquired a controlling stake in the Company and commenced its plan to restart the Company’s operations. The change of control and management occurred on July 17, 2015, resulting in new management and a new Board of Directors. Mr. Gary Weiss, our Chief Executive Officer (“CEO”), and Mr. R. Scott Caputo, our Chief Operating Officer (“COO”), acquired control (through entities controlled by them) through the purchase of securities of the Company owned by the Estate of Philip Meisel in a privately negotiated transaction. The Company then commenced operations in the business of the promotion, acquisition, and development of BESS and related services and businesses. New management has embarked on entering into the new businesses related to energy management, DER, BESS, and related industries. We may develop and own these projects, participate as a large or small stakeholder or partial owner in these projects, or enter into joint ventures with various financial or operating partners.
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PEC is voluntarily filing this Registration Statement in order to make information concerning itself more readily available to the public. PEC believes that being a reporting company under the Exchange Act could provide a prospective business partner or customer with additional information concerning PEC, possibly making PEC more attractive to do business with. As a result of filing this Registration Statement, the Company becomes obligated to file with the SEC certain interim and periodic reports, including an annual report containing audited financial statements. The Company anticipates that it will continue to file such reports, notwithstanding the fact that, in the future, it may not otherwise be required to file such reports based on the criteria set forth under Section 12(g) of the Exchange Act.
Upcoming Projects and Plan of Operation
PEC will develop grid tied projects using BESS in the ISOs to sell balancing services in the wholesale market and to provide load shifting to Electric Distribution Utilities through bilateral agreements. We will focus on the following markets as defined by ISO/RTO regions: NYISO (New York), PJM (Northeast and Midwest U.S.), CAISO (California), ERCOT (Texas), and HECO (Hawaii).
PEC will also focus on large C&I customers for “behind the meter” applications. These systems will be used to manage the customer’s energy consumption to minimize load during the system peak of the grid in order to reduce the customer’s annual energy bills. These systems will also arbitrage energy in order to earn revenue through participation in energy markets. The battery systems initially employed will be based on Li-Ion technologies, but the Company will be “technology agnostic,” using the most cost-effective technology available.
PEC will address the solar intermittency problem not only at the grid level, but will also develop its own solar/storage projects and partner with solar developers to provide the integrated storage component. Storage is a growing requirement for the development of solar systems directly at the solar facility. It is already a requirement in areas of high renewable penetration such as Hawaii and Puerto Rico.
PEC will become a market participant by registering as an ISO member in its target markets. This will allow us to receive payments directly from the ISOs. PEC will outsource the software required to manage its battery systems in the various use cases. We will also outsource the control interface between its grid tied batteries and ISOs through one of several third party Scheduling Service Providers.
Hillsborough I Battery Energy Storage
PEC has signed a lease to develop a 2 MW BESS on Sunnymeade Road in Hillsborough, New Jersey. We are in discussions with the Town of Hillsborough, New Jersey to gain approval for site development. The proposed project is currently approved to provide wattage into the electric utility market through PJM. After gaining all necessary approvals, the project is expected to be developed and completed in the first quarter of 2017. We estimate that our costs for developing the site, lease payments for the initial year, purchases of equipment, and installation will be approximately $1,200,000.
Harrison, New Jersey Project
PEC also has submitted a 20 MW BESS project for approval by PJM which will be located in Harrison, New Jersey. We are in discussions with the Town of Harrison, New Jersey to gain approval for site development. The proposed project is currently approved to provide power and energy into the electric utility market through PJM. After gaining all necessary approvals, the project is expected to be developed and completed in the first or second quarter of 2017. We estimate that our costs for developing the site, lease payments for the initial year, purchases of equipment, and installation will be approximately between $12,000,000 and $14,000,000.
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Consolidated Edison Brooklyn Queens Demand Management Program
On July 30, 2016, the Company was selected through a bid auction process to supply up to 12 kilowatts of demand energy savings through the Consolidated Edison Brooklyn Queens Demand Energy Management Program (the “BQDM Program”). Under this Program, Consolidated Edison Company of New York, Inc. (“Con Edison”) is offering incentives for energy management. Con Edison provides electric, gas, and steam service to New York City and Westchester County and is regulated by the New York Public Service Commission (“NYPSC”). The Company will be required to provide electric usage savings during certain hours for 2017 and 2018 in specified neighborhoods in Brooklyn and Queens, New York. As publicly announced by Con Edison, it has obtained permission from the NYPSC for approval to attain 52 MW of non-traditional demand reduction via customer-side solutions and utility-side solutions by summer 2018. The goal of the BQDM Program is to reduce energy load and help defer the construction of electric utility infrastructure for at least seven (7) years.
Under this program, we intend to enter into agreements with commercial and residential building owners, management companies, hospitals, nursing homes, and other large scale electric utility users, as well as service providers such as HVAC systems, to develop and install generator systems or other energy demand management systems and equipment on buildings and facilities which can be utilized to remove the buildings and facilities from the grid at required times, while maintaining power within such building or facility. We will be required to incur the expense of purchasing and installing such generator systems or develop other systems in order to meet our requirements. As a bid auction selectee, we will be required to enter into a contract for services with Con Edison. We will also be required to provide a standby letter of credit in the amount of approximately $800,000 under the terms of the award, and guarantee levels of performance. If we are unable to satisfy the terms of the contract, or provide a standby letter of credit on terms satisfactory to Consolidated Edison, we may be terminated from participation in the Program. It is anticipated that demand response will be necessary for the BQDM Program through summer 2018. Demand response resources must be in operation for approximately four (4) to 60 hours each summer in order to maintain the BQDM Program networks' coincident peak demand below an acceptable level. In the event that no required duration is specified, the required duration of demand reduction shall be the 12 hour period centered around the BQDM Program networks' coincident peak demand (i.e., from noon to midnight). In the event that we cannot satisfy the levels of performance (90% of the kilowatts of demand reduction), we will be subject to liquidated damages of at the rate of $10 per day per kilowatt of Energy Savings Underperformance, subject to a maximum limitation per Applicant/Customer equal to (x) $150 per kilowatt of Energy Savings Underperformance per year or (y) thirty percent (30%) of the total incentive to be paid to the Applicant/Customer, whichever is less.
The Battery Energy Storage Market
Over the past decade, the United States has observed a significant increase in the use of alternative energy sources, such as solar and wind, in electricity generation. These sources of energy have a high degree of intermittency, which causes fluctuations in voltage, current, and frequency and, in turn, leads to degraded power quality. BESS are used to balance the grid second by second to compensate for these fluctuations. Explosive growth is expected for the deployment of batteries on the electric grid. Bloomberg New Energy Finance forecasts that the energy storage market may be valued at $250 billion or more by 2040. It expects 28 GW of devices to be deployed by 2028 which is about the size of the small scale photo-voltaic industry now. According to industry sources, currently less than 1 GW of batteries are operating on the grid around the world.
Battery energy storage is being used in a variety of beneficial ways. Use of these systems:
► | Avoids costly transmission and distribution projects (both new and upgrades), particularly in environmentally sensitive and urban areas; |
► | Enables peak demand management; |
► | Provides clean peak electricity; |
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► | Supports the integration of renewable energy through the management of the intermittency of solar and wind; |
► | Delivers energy when and where it is needed; and |
► | Provides rapid, cost-effective grid balancing services. |
Battery systems can be used across the grid, ranging from in-home residential use of batteries sized at a few kilowatts to colocation of tens of megawatts at power plants and substations.
Initially, we expect our focus in the use of BESS to be targeted to four (4) areas: load shifting, non-wires solutions, demand management, and microgrids.
In areas of very high penetration, solar generation problems occur when power plants are under-loaded during the day, making them unstable and at risk of systems failure (i.e., blackouts), but they are then fully loaded at night. This phenomenon is described as the so-called “duck curve.” As a solution to this problem, BESS are used to store some of the energy produced by the solar farms during the day and release it at night, allowing the generation plants to run on a more optimum schedule over the course of the entire day. This use case for battery storage is called load shifting, and these projects are typically initiated by the utility through a Request for Proposal (“RFP”) process. The utility typically provides long-term contracted revenue for the solution provider to operate the BESS for 10 years.
Battery systems are used for transmission and distribution (“T&D”) capital deferral by reducing the peak load that is putting stress on a particular T&D location, typically a substation. These are referred to as “non-wired” solutions, and New York utilities are the leaders in this novel approach. This is also managed by the utility through an RFP process and results in long-term contracted revenue.
Demand and capacity charges can make up over 20% of a commercial or industrial site’s electric bill. These charges can be greatly reduced through the use of batteries that are managed to supply energy during these critical periods rather than the site using electric power from the grid.
Energy security has become more of a concern since natural disasters such as Hurricane Sandy have rendered whole communities without power for weeks at a time. Microgrids are the main technology being deployed to enhance power security. With microgrids, a community can take electricity from the grid in normal times, but also become a self-sufficient off-grid “island” during an emergency. Battery systems are an essential part of the design and implementation of microgrids.
WE HAVE A LIMITED HISTORY OF OPERATIONS IN OUR CURRENT LINES OF BUSINESS, MAKING AN EVALUATION OF US EXTREMELY DIFFICULT. AT THIS STAGE, EVEN WITH OUR GOOD FAITH EFFORTS, THERE IS NOTHING ON WHICH TO BASE AN ASSUMPTION THAT WE WILL BECOME PROFITABLE OR GENERATE ANY SIGNIFICANT AMOUNT OF REVENUES.
We have only recently commenced implementing our business plan, and have no revenue or income on which you can evaluate our business, financial condition, and operating results. We have not yet recognized revenues from our operations, and we have been focused on start-up activities and business plan development. There is nothing at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably. Our future operating results will depend on many factors, including our ability to raise adequate working capital, demand for our products, the level of our competition, and our ability to attract and maintain key management and employees. If we cannot achieve operating profitability, we may not be able to meet our working capital requirements, which will have a material adverse effect on our operating results and financial condition.
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THE LOSS OR UNAVILABILITY TO US OF OUR MANAGEMENT TEAM’S SERVICES WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS, OPERATIONS, AND PROSPECTS IN THAT WE MAY NOT BE ABLE TO OBTAIN NEW MANAGEMENT UNDER THE SAME FINANCIAL ARRANGEMENTS.
Our business plan is significantly dependent upon the abilities and continued participation of Mr. Gary Weiss, Mr. R. Scott Caputo, and Mr. Mark Goldberg. It would be difficult to replace Mr. Weiss, Mr. Caputo, or Mr. Goldberg at our early stage of development. The loss or unavailability to us of Mr. Weiss, Mr. Caputo, or Mr. Goldberg’s services would have an adverse effect on our business, operations, and prospects. In the event that we are unable to locate or employ personnel to replace Mr. Weiss, Mr. Caputo, or Mr. Goldberg, we would likely be required to cease pursuing our business opportunity.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY THE GLOBAL ECONOMIC DOWNTURN, THE CONTINUING UNCERTAINTIES IN THE FINANCIAL MARKETS, AND OUR CUSTOMERS’, OR OUR SUPPLIERS’ ABILITY TO ACCESS THE CAPITAL MARKETS.
Global financial markets are continuing to experience disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. Given these uncertainties, there is no assurance that there will not be further deterioration in the global economy, the global financial markets, and consumer confidence. We are unable to predict the likely duration and severity of the current global economic downturn or disruptions in the financial markets. If economic conditions deteriorate further, our business and results of operations could be materially and adversely affected.
WE ARE SUBJECT TO COMMODITY PRICE RISK.
Our financial results will be affected by the prices of commodities such as electricity and oil and gas. The prevailing market price for electricity has historically, and may continue to, fluctuate substantially over relatively short periods of time, potentially adversely impacting our results of operations, financial condition, and cash flows. Changes in market prices for electricity may result from many factors that are outside of our control, including the following:
· | weather conditions; |
· | seasonality; |
· | demand for energy commodities and general economic conditions; |
· | disruption of electricity transmission or transportation infrastructure or other constraints or inefficiencies; |
· | reduction or unavailability of generating capacity, including temporary outages, mothballing, or retirements; |
· | the level of prices and availability of competing energy sources, including the impact of changes in environmental regulations impacting suppliers; |
· | the creditworthiness or bankruptcy or other financial distress of market participants; |
· | changes in market liquidity; |
· | natural disasters, wars, embargoes, acts of terrorism, and other catastrophic events; |
· | federal, state, foreign, and other governmental regulation and legislation; and |
· | demand side management, conservation, alternative, or renewable energy sources. |
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Additionally, significant changes in the pricing methods in the wholesale markets in which we operate could affect our commodity prices. Regulatory policies concerning how markets are structured, how compensation is provided for services, and the different kinds of services that can or must be offered, may change and could have significant impacts on our costs of doing business.
OUR FINANCIAL RESULTS MAY BE ADVERSELY IMPACTED BY WEATHER CONDITIONS.
Weather conditions directly influence the demand for and availability of electricity utilized in PEC’s business and affect the prices of energy commodities. Generally, for most utility systems, demand for electricity peaks in the summer. Typically, when summers are cooler, demand for energy is lower than expected, resulting in less electricity consumption than forecasted. When demand is below anticipated levels due to weather patterns, PEC may be forced to sell excess supply at prices below our acquisition cost, which could result in reduced margins or even losses.
Conversely, when summers are warmer, consumption may outpace the volume of electricity against which PEC has hedged, and PEC may be unable to meet increased demand with storage or swing supply. In these circumstances, PEC may experience reduced margins or even losses if it is required to purchase additional supply at higher prices. PEC’s failure to accurately anticipate demand due to fluctuations in weather or to effectively manage its supply in response to a fluctuating commodity price environment could negatively impact our financial results.
THE RETAIL ENERGY BUSINESS IS SUBJECT TO A HIGH LEVEL OF FEDERAL, STATE, AND LOCAL REGULATION.
PEC operates adjacent to the highly regulated electricity industry. State, Federal, and local rules and regulations affecting the retail energy business are subject to change, which may adversely impact our business model. PEC’s costs of doing business may fluctuate based on these regulatory changes.
In certain restructured energy markets, state legislatures, governmental agencies, and/or other interested parties have made proposals to fully or partially re-regulate these markets, which could interfere with PEC’s ability to do business.
In addition, the Federal Energy Regulatory Commission (“FERC”) regulates the sale of wholesale electricity by requiring PEC and other companies who sell into the wholesale market to obtain market-based rate authority. If that authority were revoked, our financial results could be materially adversely affected.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE AND HAVE EVOLVING TECHNICAL REQUIREMENTS.
The markets for our products are highly competitive. Competitors may reduce average sales prices faster than we are able to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average sales prices. Our business plan also contemplates entering into bid programs, such as the BQDM Program with Consolidated Edison, and we will be bidding against or submitting quotes for services against other market participants. Therefore, we may not be able to control pricing and rates or return.
OUR OPERATING RESULTS ARE SUBSTANTIALLY DEPENDENT ON THE DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS.
Our future success may depend on our ability to develop new and lower cost solutions for existing and new markets. We must introduce new products in a timely and cost-effective manner, and we must secure production orders for those products. The development of new products is a highly complex process. The successful development and introduction of these products depends on a number of factors, including the following:
· | achievement of technology breakthroughs required to make commercially viable devices; |
· | acceptance of our new product designs; |
· | acceptance of new technology in certain markets; |
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· | the availability of qualified research and development personnel; |
· | our timely completion of product designs and development; |
· | our ability to expand sales and influence key customers to adopt our products; and |
· | our ability to develop repeatable processes to manufacture new products in sufficient quantities and at low enough costs. |
OUR FINANCIAL RESULTS FLUCTUATE ON A SEASONAL AND QUARTERLY BASIS.
Our overall operating results are expected to fluctuate substantially on a seasonal basis depending on: (1) the concentration of our product mix; (2) the impact of weather conditions on commodity pricing and demand; (3) variability in market prices for electricity; and (4) changes in the cost of delivery of such commodities through energy delivery networks. These factors can have material short-term impacts on monthly and quarterly operating results, which may be misleading when considered outside of the context of our annual operating cycle.
CATASTROPHIC EVENTS MAY DISRUPT OUR BUSINESS.
A disruption or failure of our systems or operations in the event of a natural disaster or man-made catastrophic event could cause delays in continuing production or performing other critical functions of our business, especially in the case of a single site for our operations and assembly. A catastrophic event that results in the destruction or disruption to our supply chain or any of our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our operating results could be adversely affected.
PEC IS SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS THAT IMPOSE EXTENSIVE AND INCREASINGLY STRINGENT REQUIREMENTS ON OUR OPERATIONS.
PEC is subject to numerous and significant federal, state, and local laws, including statutes, regulations, guidelines, policies, directives, and other requirements governing or relating to, among other things: protection of wildlife, including threatened and endangered species; air emissions; discharges into water; water use; the storage, handling, use, transportation, and distribution of dangerous goods and hazardous, residual, and other regulated materials, such as chemicals; the prevention of releases of hazardous materials into the environment; the prevention, presence, and remediation of hazardous materials in soil and groundwater, both on and offsite; land use and zoning matters; and workers’ health and safety matters. Environmental laws and regulations have generally become more stringent over time. Significant costs may be incurred for capital expenditures under environmental programs to keep the assets compliant with such environmental laws and regulations, which could have a material adverse impact on PEC’s business.
TECHNOLOGICAL IMPROVEMENTS AND CHANGING CONSUMER PREFERENCES COULD REDUCE DEMAND AND ALTER CONSUMPTION PATTERNS.
Technological improvements in energy efficiency could potentially reduce the overall demand for electricity. Additionally, increased competitiveness of alternative energy sources or consumer preferences that alter fuel choices could potentially reduce the demand for electricity. A prolonged decrease in demand for electricity in the retail energy markets would adversely affect our financial results.
LITIGATION COULD ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION.
We may become involved in patent or trademark infringement litigation. Defending against potential litigation would likely require significant attention and resources and, regardless of the outcome, result in significant legal expenses, which could adversely affect our results unless covered by insurance or recovered from third parties. If our defenses were ultimately unsuccessful, or if we were unable to achieve a favorable resolution, we could be liable for damage awards that could materially adversely affect our results of operations and financial condition.
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OUR BUSINESS MAY BE IMPAIRED BY CLAIMS THAT WE, OR OUR BUSINESS PARTNERS, INFRINGE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Vigorous protection and pursuit of intellectual property rights characterize our industry. These traits have resulted in significant and often protracted and expensive litigation. Litigation to determine the validity of patents or claims by third parties of infringement of patents or other intellectual property rights could result in significant legal expense and divert the efforts of our management, even if the litigation results in a determination favorable to us. In the event of an adverse result in such litigation, we could be required to:
· | pay substantial damages; |
· | indemnify our business partners; |
· | stop the manufacture, use, and sale of products found to be infringing; |
· | incur asset impairment charges; |
· | discontinue the use of processes found to be infringing; |
· | expend significant resources to develop non-infringing products and processes; and/or |
· | obtain a license to use third party technology. |
There can be no assurance that third parties will not attempt to assert infringement claims against us with respect to our products. We may also promise certain of our business partners that we will indemnify them in the event they are sued by our competitors for infringement claims directed to the products we supply. Under these indemnification obligations, we could be responsible for future payments to resolve infringement claims against them. From time to time we may receive correspondence asserting that our products or processes are or may be infringing patents or other intellectual property rights of others. If we believe the assertions may have merit or in other appropriate circumstances, we will take appropriate steps to seek to obtain a license or to avoid the infringement. However, we cannot predict whether a license will be available; that we would find the terms of any license offered acceptable; or that we would be able to develop an alternative solution. Failure to obtain a necessary license or develop an alternative solution could cause us to incur substantial liabilities and costs and to suspend the manufacture of affected products.
We also rely on trade secrets and other non-patented proprietary information relating to our product development and manufacturing activities. We try to protect this information through appropriate efforts to maintain its secrecy, including requiring employees and third parties to sign confidentiality agreements. We cannot be sure that these efforts will be successful or that the confidentiality agreements will not be breached. We also cannot be sure that we would have adequate remedies for any breach of such agreements or other misappropriation of our trade secrets, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.
IN ORDER TO COMPETE, WE MUST ATTRACT, MOTIVATE, AND RETAIN KEY EMPLOYEES, AND OUR FAILURE TO DO SO COULD HARM OUR RESULTS OF OPERATIONS.
In order to compete, we must attract, motivate, and retain executives and other key employees, including those in managerial, technical, sales, marketing, and support positions. Hiring and retaining qualified executives, engineers, technical staff, and sales personnel is critical to our business, and competition for experienced employees in our industry can be intense. To help attract, motivate, and retain key employees, we may use stock-based compensation awards such as non-qualified stock options and restricted stock. If the value of such stock awards does not appreciate, as measured by the performance of the price of our Common Stock, or if our share-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain, and motivate employees could be weakened, which could harm our business and results of operations.
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We Do Not Have A Bank OR OTHER Line Of Credit OR FINANCING.
At the present time, we do not have a bank or other line of credit, or any confirmed source of funding. We need substantial sums to fully implement our business plans. Any particular BESS may require substantial sums, and the larger the BESS, the higher the cost of purchasing equipment, leasing property on which to place the BESS, and installing such system. Additionally, we will require third party financing or capital in order to purchase equipment for use under the BQDM Program. At the present time, we anticipate that our projects will be financed through individual project finance models. We cannot assure you that we will be able to obtain such financing, or any alternative financing. We will require a level of funding to provide capital for general corporate purposes in addition to any project financing. As a start-up business, we expect that we will incur high costs of finance until we achieve a level of revenue and/or income. The terms of any financing may also restrict our use of proceeds to certain matters and uses. Further, we may be required to issue substantial amounts of equity with various terms, which could dilute holders of Common Stock and other securities outstanding prior to any such financing,.
Our Business Depends Upon The Maintenance Of Our Proprietary Technology, And We Rely, In Part, On Contractual Provisions To Protect Our Trade Secrets And Proprietary Knowledge.
PEC will depend upon internally developed trade secrets. We have and will continue to enter into confidentiality agreements with key employees, customers, potential customers, and vendors and limits access to and distribution of trade secrets and other proprietary information. However, these measures may not be adequate to prevent misappropriation of our technology. Additionally, our competitors may independently develop technologies substantially equivalent or superior to our technology. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States. We also are subject to the risk of adverse claims and litigation alleging infringement of intellectual property rights of others.
Confidentiality agreements to which we are party may be breached, and we may not have adequate remedies for any breach. Our trade secrets may also become known without breach of such agreements or may be independently developed by competitors. Our inability to maintain the proprietary nature of our technology and processes could allow our competitors to limit or eliminate any competitive advantages we may have.
We Are Dependent On Third-Party Suppliers.
Although we believe most of the key components required for the production of our products are currently available in sufficient production quantities from multiple sources, they may not remain so readily available. It is possible that other components required in the future may necessitate custom fabrication in accordance with specifications developed or to be developed by us. Also, in the event that we, or our contract manufacturer, as applicable, are unable to develop or acquire components in a timely fashion, our ability to achieve production yields, revenues, and net income can be expected to be adversely affected.
We Are Developing And Commercializing New Energy Saving Technologies And Products Which Will Involve Uncertainty And Risks Related To Product Development And Market Acceptance.
Our success is dependent, to a large degree, upon our ability to fully develop and commercialize our technology and gain industry acceptance of our products based upon our technology and its perceived competitive advantages. Accordingly, our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered in connection with the establishment of a new business in a highly competitive industry, characterized by frequent new product introductions. We anticipate that we will incur substantial expenses in connection with the development and testing of our proposed products and expect these expenses to result in continuing and significant losses until such time, if ever, that we are able to achieve adequate levels of sales or license revenues.
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Most Of Our Current And Potential Competitors Have Greater Name Recognition, Financial, Technical, And Marketing Resources, And More Extensive Customer Bases And Industry Relationships Than We Do, All Of Which Could Be Leveraged To Gain Market Share To Our Detriment, Particularly In An Environment Of Rapid Technological Change.
We compete against a number of companies in the electric demand and energy savings market, many of which have longer operating histories, established markets, and far greater financial, advertising, research and development, manufacturing, marketing, personnel, and other resources than we currently have or may reasonably expect to have in the foreseeable future. This competition may have an adverse effect on our ability to expand our operations or operate profitably. The motor control industry is also highly competitive and characterized by rapid technological change. Our future performance will depend in large part upon our ability to become and remain competitive and to develop, manufacture, and market acceptable products or services in these markets. Competitive pressures may necessitate price reductions, which can adversely affect revenues and profits. If we are not competitive in our ongoing research and development efforts, our products may become obsolete, or be priced above competitive levels. Although management believes, based upon their performance and price, that our products and services are attractive to customers, we cannot guarantee that competitors will not introduce comparable or technologically superior products, which are priced more favorably than our products.
We Do Not Have “Key Man” Life Insurance.
PEC presently does not have any key man life insurance policies. As soon as practicable following the commencement of profitable operations or adequate levels of capital (which may never occur), we intend to purchase key man life insurance for our management team. Upon purchase of such insurance, we intend to pay the premiums and be the sole beneficiary. The lack of such insurance may have a material adverse effect upon our business.
Delaware Law Limits The Liability Of Our Directors.
Pursuant to our Certificate of Incorporation, PEC’s Directors are not liable to the Company or our stockholders for monetary damages for breach of fiduciary duty, except for liability in connection with a breach of the duty of loyalty, for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law for dividend payments or stock repurchases illegal under Delaware law, or any transaction in which a Director has derived an improper personal benefit.
WE WILL REQUIRE FINANCING TO ACHIEVE OUR CURRENT BUSINESS STRATEGY AND OUR INABILITY TO OBTAIN SUCH FINANCING COULD PROHIBIT US FROM EXECUTING OUR BUSINESS PLAN AND CAUSE US TO SLOW DOWN OUR EXPANSION OF OPERATIONS.
We will need to raise additional funds through public or private debt or sale of equity to achieve our current business strategy. Such financing may not be available when needed. Even if such financing is available, it may be on terms that are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. Our capital requirements to implement our business strategy will be significant. Moreover, in addition to monies needed to continue operations over the next 12 months, we anticipate requiring additional funds in order to significantly expand our operations and the installation and development of projects as set forth in our plan of operation. No assurance can be given that such funds will be available or, if available, will be on commercially reasonable terms satisfactory to us. There can be no assurance that we will be able to obtain financing if and when it is needed on terms we deem acceptable.
If we are unable to obtain financing on reasonable terms, we could be forced to delay or scale back our plans for expansion. In addition, such inability to obtain financing on reasonable terms could have a material adverse effect on our business, operating results, or financial condition.
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OUR AUDITOR HAS EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Based on our financial history during the last two (2) calendar years, our auditor has expressed substantial doubt as to our ability to continue as a going concern. All prior operations ceased in 2012. For the year ended December 31, 2015, we incurred a net loss of $251,136 and for the quarter ended March 31, 2016 we incurred a loss of $52,700. We expect to continue to incur losses for the foreseeable future. If we cannot obtain sufficient funding, we may have to delay or revise the implementation of our business strategy.
THERE IS NO ASSURANCE OF A PUBLIC MARKET FOR OUR COMMON STOCK, OR THAT THE COMMON STOCK WILL EVER TRADE ON A RECOGNIZED EXCHANGE. THEREFORE, YOU MAY BE UNABLE TO LIQUIDATE YOUR INVESTMENT IN OUR STOCK.
There is no established public trading market for our Common Stock. Our shares are not and have not been listed or quoted on any exchange during the prior three (3) years. Prices for our Common Stock are available in the OTC Pink Sheets. We believe that current trading in our Common Stock is not based upon adequate information about us and does not provide a reliable market on which to base to value of our Company or your Common Stock. There can be no assurances that a market maker will agree to file the necessary documents with FINRA, which operates the OTC Electronic Bulletin Board, nor can there be any assurance that such an application for quotation will be approved or that we will qualify for listing in an established exchange such as NASDAQ, or that a regular trading market will develop or that if developed, will be sustained. In the absence of a trading market, an investor may be unable to liquidate his, her, or its investment.
OUR COMMON STOCK IS CONSIDERED A PENNY STOCK, WHICH IS SUBJECT TO RESTRICTIONS ON MARKETABILITY, SO YOU MAY NOT BE ABLE TO SELL YOUR SHARES.
Our Common Stock is subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a continued reduction in the trading activity of our Common Stock, which in all likelihood would make it difficult for our shareholders to sell their securities.
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our Common Stock and may affect your ability to resell our Common Stock.
Certain members of management or promoters associated with the Company Have Been Subject to Regulatory Actions.
Under Rule 506 of the Securities and Exchange Commission’s rules and regulations, issuers of securities may be prohibited from utilizing Regulation D to raise capital or may be required to provide disclosure of certain events in connection with the use of Regulation D if an Officer, Director, or promoter associated with the issuer qualifies as a “bad actor” under the Rule.
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In 2005, Mr. R Scott Caputo, our COO and President and a member of the Board, declined to participate in NASD (the predecessor to FINRA, which is the self-regulatory agency charged with oversight of broker-dealer firms and their personnel) proceedings brought against him. Mr. Caputo entered into a letter of Acceptance, Waiver and Consent whereby he agreed to a permanent bar from associating with any FINRA member broker-dealer firm. At the time of the action brought by NASD, Mr. Caputo was a registered person with a registered broker-dealer firm. Further, in March 2009, Mr. Caputo was sentenced to probation after pleading guilty on June 3, 2008 to a one-count information (a felony) charging him with filing a false tax return for tax year 1999 under 26 U.S.C. § 7206(1).
Item 2. Financial Information.
Disclaimer Regarding Forward-Looking Statements
You should read the following discussion in conjunction with our financial statements and the related notes and other financial information included in this Registration Statement. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Registration Statement, particularly in the Section titled Risk Factors.
Although the forward-looking statements in this Registration Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
We have not generated any revenue since 2012. We are not engaged in any businesses in which the Company was formerly engaged in, and our plan of operation does not contemplate engaging in any such businesses.
Plan of Operation
The Company was formed under the laws of Delaware in July 1994. Until 2012, the Company was in the business of designing, developing, marketing, and selling proprietary solid state electrical devices designed to reduce energy consumption in alternating current induction motors. In the spring of 2012, the then-management of the Company began winding down substantive operations and ceased all activities and sold or abandoned any remaining assets and operations by the end of 2012.
In July 2015, current members of management acquired a majority of the voting stock of the Company and commenced its plan to restart the Company’s operations. The change of control and management occurred on July 17, 2015, resulting in new management and a new Board of Directors. The Company commenced operations in the business of the promotion, acquisition, and development of BESS and related services and businesses.
Since July 2015, management has been focused on developing its business plan, commencing development of BESS projects, and developing relationships within the industry. The Company’s business plan is to originate, develop, and own energy storage systems in North America. The Company may utilize different ownership structures for its projects; in certain cases owning the projects and obtaining financing, and in other cases developing joint ventures as majority or minority developers, or establishing projects to different levels of development before selling the projects.
At December 31, 2015, the Company had a working capital deficiency of $153,128. As of December 31, 2015, the Company had net operating losses (“NOLs”) of approximately $40,000,000 limited to approximately $1,200,000 under the provisions of Section 382 of the Internal Revenue Code. At December 31, 2015, the Company had cash in the amount of $115,384. At March 31, 2016, the Company had a working capital deficiency of $199,295. At March 31, 2016, the Company had cash of $71,253. At July 31, 2016, we had $33,419 of cash.
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We have begun very limited operations, and we require substantial outside capital to implement our business model. We believe that we will need additional funding to satisfy our cash requirements for the next twelve (12) months. Completion of our plan of operation is subject to attaining adequate financing. We cannot assure investors that additional financing will be available. In the absence of additional financing, we may be unable to proceed with our plan of operation.
The Company has incurred costs in the amount of $50,538 related to two (2) BESS projects. The costs incurred were for due diligence fees, including consultants, an application fee, and zoning application fees to the utility and local governments for approval to accept one of the projects.
The Company successfully bid on and won the opportunity, in a July 2016 auction conducted by Con Edison, to provide 4000 kilowatts of demand energy savings in 2017, and another 8000 kilowatts in 2018. The terms of the BQMD Program (discussed above) will provide guaranteed revenue in 2017, based on the fulfillment of providing the grid relief prescribed in the Program. The Company will receive a payment per kilowatt equal to the accepted price of our auction bid.
The Company does not foresee generating any revenues from any of its BESS or other of these projects in 2016. The terms of the BQMD Program will provide significant guaranteed revenues in 2017, based on the fulfillment of providing the grid relief prescribed in the Program. We have not entered into a formal contract with Con Edison to date, and are working to fulfill the bid requirements which include obtaining a standby letter of credit. It we are unable to satisfy the terms of the contract, or provide a standby letter of credit on terms satisfactory to Con Edison, we may be terminated from participation in the Program.
We also expect to generate revenue from the Hillsborough I and Harrison BESS projects in 2017. We anticipate enrolling both sites in the PJM electric utility market, supplying power and energy to stabilize the grid for the purposes of frequency regulation. We anticipate that revenue will be a function of the market clearing price of a financial hedge obtained from a third party.
The revenue in 2017 will contribute to the operation and expansion of our business, but we will require additional capital to identify, develop, and possibly acquire other projects and operating assets.
Over the next twelve (12) months we will be actively pursuing the raise of capital for corporate operations as well as for the implementation and deployment of our BESS and Demand Management Projects. We foresee the need for and use of capital to provide for sufficient operation of the Company. We will also need to raise capital, at the corporate or project level, to meet the requirements necessary to pre-develop, build, and operate the BESS and to fulfill the buildout requirements, including the installation of large generators and/or batteries on various site locations in Brooklyn and Queens, for the BQMD Program. We anticipate that our operational, general, and administrative expenses for the next twelve (12) months, assuming we undertake substantially all of our contemplated projects, will approximate between $6 million and $14 million. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. The exact allocation, purposes, and timing of any monies raised in subsequent private financings may vary significantly depending upon the exact amount of funds used and our progress with the execution of our business plan. We anticipate that depending on market conditions and our plan of operation, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
We currently utilize office space (approximately 200 square feet) at the offices of Valeo Partners LLC, an entity controlled by Mr. Gary Weiss, our CEO and a Director, for office space. The office is located at 2200 Northern Boulevard, Suite 102, Greenvale, New York 11548. We occupy the premises on a month to month basis and we have not paid any sums to Mr. Weiss or his related entity for use of the office. We may determine, if we continue to utilize the space, to pay a nominal amount for such usage. We expect to obtain third party office space in the near future upon obtaining financing.
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In connection with a proposed battery storage project in October 2015, the Company, through its wholly owned subsidiary Hillsborough Battery I LLC (a New Jersey limited liability company), entered into a real property lease (guaranteed by the Company) for a 0.5 acre parcel of land to be used as the location for a converted battery storage conversion system. The lease is contingent upon receipt of utility and municipal approvals and commencement of operations of the battery storage system. The utility approval was received in February 2016 and the Company is awaiting approval from the local municipality for zoning and other local approvals. The initial lease is five (5) years with an option to extend for an additional five (5) years. The monthly rent for the initial term is $3,000 to be increased by an additional $2,500 if a second battery unit is installed on the premises. A $50,000 deposit is required upon commencement of the commercial operation date.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of the date of this Registration Statement, certain information with respect to our equity securities owned of record or beneficially by (i) each Officer and Director; (ii) each person who owns beneficially more than 10% of each class of our outstanding equity securities; and (iii) all Directors and Executive Officers as a group. As of August 9, 2016, we had 92,302,666 shares issued and outstanding.
Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class (5) | |||||||
Common Stock(1) | Gary Weiss | 118,845,000 | 56 | % | ||||||
Common Stock(2) | R. Scott Caputo | 47,065,000 | 37 | % | ||||||
Common Stock | Mark Goldberg | 11,884,500 | 13 | % | ||||||
Common Stock(3) | Stephen Funk | 30,000,000 | 25 | % | ||||||
Common Stock(4) | Rajan Chudgar | 18,750,000 | 19 | % | ||||||
Common Stock | Becker & Poliakoff LLP | 11,884,500 | 13 | % |
* less than 1%.
(1) Includes all securities owned by Valeo Partners LC, an entity controlled by Mr. Weiss. Mr. Weiss has voting control and the power to dispose of all securities owned by Valeo Partners LLC. Consists of 56,250 shares of Series D Preferred Stock, each of which is convertible into 100 shares of common stock; 112.5 shares of Series E Preferred Stock, each of which is convertible into 1,000,000 shares of Common Stock and 720,000 shares of Common Stock. Table assume conversion of all shares into Common Stock. Includes Common Stock issuable upon conversion of 5 shares of Series E Preferred stock which Valeo Partners has agreed to sell to Alta Investments.
(2) Includes all securities owned by GDD Ventures LLC an entity controlled by Mr. Caputo and the Anthony C. Caputo Revocable Trust and Steven A. Caputo Trust. Consists of 56,250 shares of Series D Preferred Stock, each of which is convertible into 100 shares of common stock; 48.22 shares of Series E Preferred Stock, each convertible into 1,000,000 shares of Common Stock and 720,000 shares of Common Stock. Table assume conversion of all shares into Common Stock. Further includes certain shares of Series E Preferred Stock owned by GDD Ventures or the Trust have been pledged to secure loans made to GDD Ventures by the Trust or Mark Goldberg, our Chief Financial Officer. Includes Common Stock issuable upon conversion of 5 shares of Series E Preferred stock which Mr. Caputo has agreed to sell to Alta Investments
(3) Includes all securities held by Alta Investments LLC, an entity controlled by Mr. Stephen Funk. Mr. Funk has voting control and the power to dispose of all securities owned by Alta Investments LLC. Represents 30 shares of Series E Preferred Stock which are convertible into 30,000,000 shares of Common Stock. Does not include 15,000,000 shares to be issued by the Company to Alta Investments for consulting services, which shares have been approved for issuance by the Board of Directors but have not been issued as of August 9, 2016. Also does not include an additional 5 shares of Series E Preferred Stock (each convertible into 1,000,000 shares of Common Stock) currently owned by Valeo Partners LLC and the Trust which each of Valeo Partners LLC and the Trust have agreed to sell to Alta Investments but which sale has not been completed as of August 9, 2016.
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(4) Includes all securities held by. Mr. Chudgar and members of his immediate family. Mr. Chudgar has voting and disposal control with respect to such shares. Represents 17.5 shares of Series E Preferred Stock which are convertible into 17,500,000 shares of Common Stock. Excludes 1 share of Series E Preferred Stock which is convertible into 1,000,000 shares of Common Stock which have been pledged by R. Scott Caputo to secure a loan made by Rajan Chudgar to Mr. Caputo.
(5) Assumes no conversion of any convertible securities owned by any other person or entity.
GDD Ventures, Valeo Partners LLC, and the Anthony C. Caputo Revocable Trust (the “Trust”) are parties to a voting agreement whereby each of the parties agreed that as long as any of them own at least 10% of the shares originally purchased by GDD Ventures and Valeo Partners LLC in July, 2015, each of the parties thereto shall vote all such securities, at all annual or special meetings of stockholders of the Company, or execute written consents as the case may be, as follows:
(A) in favor of one nominee of each of the parties, to serve on the Board of Directors of the Company and in favor of any additional nominees as the Parties may mutually agree in advance.
(B) against any person nominated by any other stockholder of the Company in the event either Party opposes such other nominee;
(C) in favor of any reverse or forward stock split of the Company’s Common Stock as may be approved by the Board of Directors; and
(D) in favor of any amendments, changes or modifications, including, without limitation, proposals for redemption and redemptions, in whole or in part, to the Series D Preferred Stock or Series E Preferred Stock as may be approved by the Board of Directors.
The Company is not aware of any person who owns of record, or is known to own beneficially, 10% or more of the outstanding securities of any class of the securities of the Company, other than as set forth above. Other than as stated herein, the Company is not aware of any person who controls the Company as specified in Section 2(a)(1) of the 1940 Act. We have Common Stock and Series B, Series C-1, Series D, and Series E Preferred Stock issued and outstanding. We do not have an investment adviser.
There are no current arrangements of which the Company is aware which will result in a change in control.
Item 5. Directors and Executive Officers.
Mr. Gary Weiss, Mr. R. Scott Caputo, and Mr. Mark Goldberg, who currently serve as our CEO, COO, and Chief Financial Officer (“CFO”), respectfully, joined the Company in July 2015. Prior to July 2015, none of these persons were Officers, Directors, or control persons of the Company. In July 2015, Mr. Weiss and Mr. Caputo, through entities controlled by them, acquired a majority of the voting stock of the Company (includes shares issuable upon conversion of Series B, Series D and Series E Preferred Stock which vote with the Common Stock on all matters) and commenced its plan to restart the operations. The change of control and management occurred on July 17, 2015, resulting in new management and a new Board of Directors.
The following table sets forth the names, ages, and biographical information of each of our current Directors and Executive Officers, and the positions held by each person, and the date such person became a Director or Executive Officer. Family relationships among any of the Directors and Officers are described below.
Name | Age | Position | ||
Gary Weiss | 54 | Chief Executive Officer and Director | ||
R. Scott Caputo | 52 | President, Chief Operating Officer and Director | ||
Mark Goldberg | 56 | Chief Financial Officer and Principal Accounting Officer | ||
Rajan Chudgar | 32 | Director |
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Gary Weiss, 54, has been the CEO and Director of PEC since July 2015. Mr. Weiss is the co-founder and CEO of Valeo Partners LLC, a consulting and investment firm engaged in starting, advising, and financing early- and growth-stage companies. When necessary, Mr. Weiss takes a hands-on role in the management of the companies in which Valeo Partners LLC invests and consults. Through his role in Valeo Partners LLC, Mr. Weiss is also a founder and co-Managing Member of Farmington Concepts LLC, a software company, and COO of Energy Innovative Products, an energy efficiency service and manufacturing company. He currently sits on the boards of Pharos Systems International, a leading developer of print management software and solutions, and Tribco LLC, an owner and publisher of community newspapers. Mr. Weiss has a Bachelor of Science in Economics from the Wharton School of Business at the University of Pennsylvania and an MBA from New York University.
R. Scott Caputo, 52 has been our President and COO and a member of our Board of Directors since July 2015. Mr. Caputo also serves as a Director and President of Energy Innovative Products, Inc. Since April 2013, Mr. Caputo has owned and operated GDD Ventures LLC, a private investment and consulting company. Mr. Caputo was a registered representative in the securities industry for approximately 20 years and left the securities business in 2005. Mr. Caputo received his Bachelor of Arts in Political Science from Rutgers University in 1986.
Mark Goldberg, 56, has been our CFO and Principal Accounting Officer. Mr. Goldberg is a partner in the accounting firm of Raphael Sanders Goldberg Nikpour Cohen & Sullivan CPA's PLLC, located in Woodbury, New York, which firm provides accounting services to the Company. Mr. Goldberg founded the firm approximately 9 years ago. Mr. Goldberg has served as CFO since July 2015. Mr. Goldberg also is a private investor and serves as a board member or member of management of several unaffiliated privately held companies. He received his Bachelor of Arts in Political Science from the State University of New York at Binghamton in 1981 and his MBA in Accounting from Hofstra University in 1983.
Rajan Chudgar, 32, has been an independent Director since March 2016. Mr. Chudgar is President of Viridity Energy Inc. Mr. Chudgar brings extensive experience in the wholesale (operations and markets), Transmission and Distribution Providers (“TDSP”), demand response, and retail energy space, having developed and implemented successful strategies and projects for numerous clients covering all aspects of electrical systems. He has spent more than 20 years in the electricity market and utility business with a focus on distributed energy solutions, renewables generation, energy storage, market strategy, and demand response solutions. He has spent extensive time working with end use customers, retail providers, wholesale providers, T&D, and regulatory bodies (PUCT, FERC, ERCOT, PJM, NYISO). He received a Bachelor of Arts in Chemical Engineering from the University of Louisville in 1995 and a Masters in Chemical Engineering from the University of Louisville in 1996.
Family Relationships
There are no family relationships among any of our Officers or Directors.
Item 6. Executive Compensation.
Mr. Gary Weiss, Mr. R. Scott Caputo, and Mr. Mark Goldberg, who currently serve as our CEO, COO, and CFO, respectfully, joined the company in July 2015. Prior to July 2015, none of these persons were Officers, Directors, or control persons of the Company.
Joseph Mandia served as the sole Officer and Director of the Company from January 2014 to July 2015. During the period from 2012 until the change of management and control completed in July 2015, the Company had a consulting arrangement with Northcoast Management, which was engaged to provide management services to the Company, including provision of the services of its owner (Mr. Mandia) to serve as President of the Company during this time period. During the period from late 2012 to July 2015, the Company was either winding down its operations or had ceased substantially all business activities other than maintaining its corporate existence. During 2015 and 2014 respectively, the Company made payments of $18,774 and $1,500 respectively to Northcoast Management.
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All of our executives’ compensation is set forth in the Summary Compensation Table below for the years 2014 and 2015, other than Mr. Mandia, whose compensation is discussed above.
Other than as stated, all compensation is deferred until financing is obtained.
Summary Compensation Table
Named Executive | Year | Salary (1) | Stock Awards | Total | ||||||||||
Gary Weiss | 2014 | 0 | 0 | 0 | ||||||||||
2015 | $ | 20,235 | 0 | $ | 20,325 | |||||||||
R Scott Caputo | 2014 | 0 | 0 | 0 | ||||||||||
2015 | $ | 35,593 | 0 | $ | 35,593 | |||||||||
Mark Goldberg | 2014 | 0 | 0 | 0 | ||||||||||
2015 | 0 | $ | 11,885 | $ | 11,885 |
(1) Includes amounts paid as consulting fees.
Other than as stated, no other compensation has been paid during the prior two (2) fiscal years to any of the Company’s executive officers which is comprised of the three named persons.
The Company has agreed to the terms of an employment agreement, to commence when sufficient funds are obtained, with its CEO, Mr. Weiss, who also serves as a Director of the Company. The Company will pay him a base salary of $150,000 per year. He will be entitled to a signing bonus of $10,000 per month commencing as of June 1, 2016 up to an aggregate of $60,000. At the time he is employed on a full time basis as an employee, Mr. Weiss will continue to serve as CEO and President. The term of employment will be three (3) years from the commencement date. Mr. Weiss (through an entity controlled by him) received compensation in the amount of $20,235 during the year ended December 31, 2015.
The Company has also agreed to the terms of an employment agreement, to commence when sufficient funds are obtained, with its President and COO, Mr. Caputo, who also serves as a Director of the Company. The Company will pay him a base salary of $150,000 per year. He will be entitled to a signing bonus of $10,000 per month commencing as of June 1, 2016 up to an aggregate of $60,000. At the time he is employed on a full time basis as an employee, Mr. Caputo will continue to serve as COO. The term of employment will be three (3) years from the commencement date. For the fiscal year ended December 31, 2015, Mr. Caputo (through an entity controlled by him) received compensation in the amount of $38,593 during the year ended December 31, 2015.
Effective December 1, 2015, the Company approved the issuance of 11,884,500 shares of Common Stock to the Company’s CFO, Mr. Goldberg, for past services and future services and other consideration. The CFO is a partner in the firm which will render accounting services to the Company.
The Company has entered into a consulting and employment agreement with Mr. Jeffrey Lines. Mr. Lines is currently a consultant to the Company and has been serving as a consultant since July 2015. Under the terms of his arrangement with the Company, he will continue to serve as a consultant until the Company has sufficient capital or revenue to employ him on a full time basis. Mr. Lines received total compensation of consulting fees of $14,580 during the year ended December 31, 2015. Mr. Lines has also received 10,000,000 restricted shares of Common Stock under the 2016 Plan (see below). As a consultant, Mr. Lines is not required to devote his full business time and efforts to the Company’s business. Assuming that Mr. Lines is employed on a full time basis, he will be entitled to participate on the same terms as other employees in the Company’s health and other benefit plans. Additionally, the Company will pay him a base salary of $150,000 per year. He will be entitled to a signing bonus of $10,000 per month commencing as of June 1, 2016 up to an aggregate of $60,000. At the time he is employed on a full time basis an employee, Mr. Lines will serve as Vice President – Business Development. The term of employment will be one (1) year from the date the employment agreement becomes effective.
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Director Compensation
We do not currently have an established policy to provide compensation to members of our Board of Directors for their services in that capacity. The Board has authorized Mr. Chudgar, our sole independent Director, to receive 1,000,000 shares of restricted Common Stock under our 2016 Plan (as discussed below) for joining the Board of Directors. The shares were authorized by the Board of Directors in July 2016. Mr. Chudgar joined the Board of Directors in 2016. No persons received any compensation during 2014 or 2015 with respect to serving on the Board of Directors.
Outstanding Equity Awards at Fiscal Year-End
On July 20, 2016, the Board of Directors approved the 2016 Equity Incentive Plan and as of August 9, 2016, received requisite approval from shareholders entitled to vote for the adoption of the 2016 Plan and the reservation of 75,000,000 shares in connection with the issuance of awards under the 2016 Plan.
There are no options outstanding under the 2016 Plan. We have issued a total of 11,000,000 shares pursuant to restricted stock awards and restricted stock units under the 2016 Plan, all of which were issued in 2016.
Transfer Agent and Registrar
We have appointed Continental Stock Transfer and Trust company as the transfer agent and registrar for our Common Stock. We internally act as registrar and transfer agent for the classes of Preferred Stock that are outstanding.
Dividend Policy
Since inception, we have not paid any dividends on our Common Stock. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors which our Board of Directors may deem relevant. Additionally, the holders of our various classes of Preferred Stock are entitled to receive dividends, if any, prior to payment of any dividends on our Common Stock.
Item 7. Certain Relationships and Related Transactions, and Director Independence.
We currently have employment arrangements with Mr. Weiss and Mr. Caputo. Mr. Goldberg, our CFO, provides his services through the Company’s retention of his accounting firm. His services are provided on an hourly basis.
In October 2015, the Company lent the sum of $10,000 to GDD Ventures, LLC which is owned by the COO and a Director of the Company. The note bears interest at a rate of 3% per annum. The note is due October 28, 2016. The balance of the note and the accrued interest at December 31, 2015 was approximately $10,000. On February 9, 2016, the Company made a second loan to GDD Ventures, LLC in the amount of $10,000, which is due October 28, 2016 and bears interest at 5% per annum.
After the change of management and control completed in July 2015, the Company remitted consulting fees aggregating $66,118 that were paid to Valeo Partners LLC which is owned by Mr. Weiss, the CEO and a Director of the Company and to GDD Ventures, LLC which is owned by Mr. Caputo, the COO, President, and a Director of the Company. These fees were paid in connection with their duties as CEO and COO, respectively. Valeo Partners LLC and GDD Ventures, LLC collectively are the majority shareholders of the Company. Additionally, the Company paid consulting fees of $15,000 (included in deferred project costs) to Energy Innovative Products which is owned by the principals of the majority shareholders of the Company.
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Effective December 1, 2015, the Company approved the issuance of 11,884,500 shares of Common Stock to the Company’s CFO for past services and future services and other consideration. The CFO is a partner in the firm which will render accounting services to the Company.
In May 2016, our Board of Directors approved the issuance of 1,000,000 shares of Common Stock to one of our outside lawyers in consideration for legal services related to zoning and related local approvals for our Hillsborough, NJ BESS system. The lawyer is the brother of our COO and President.
We are not a party to or involved in any legal proceedings.
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
Record Holders of Common Stock
As of August 9, 2016, there were 190 holders of record of our Common Stock. As of August 9, 2016, we have 92,302,666 shares issued and outstanding.
Market Information
Our Common Stock is quoted on the OTC Pink “Current Information” tier of the marketplace maintained by OTC Markets Group, Inc. under the symbol “PEFF.” Our Common Stock trades on a limited or sporadic basis and should not be deemed to constitute an established public trading market. There is no assurance that there will be liquidity in the Common Stock. We do not believe that the trading on the OTC Pink market represents, as of the date of this filing, a reliable determination or reflection of the value of our Common Stock.
The following table sets forth the high and low transaction prices for each quarter within the fiscal years ended December 31, 2015 and December 31, 2014 and the quarter ended March 31, 2016. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.
Fiscal Year Ended | Transaction Prices | |||||||||
December 31, | Period | High | Low | |||||||
2014 | First Quarter | $ | 0.0068 | $ | 0.0016 | |||||
Second Quarter | $ | 0.005 | $ | 0.0015 | ||||||
Third Quarter | $ | 0.002 | $ | 0.0014 | ||||||
Fourth Quarter | $ | 0.002 | $ | 0.001 | ||||||
2015 | First Quarter | $ | 0.01 | $ 0.001 | ||||||
Second Quarter | $ | 0.0012 | $ | 0.0009 | ||||||
Third Quarter | $ | 0.001 | $ | 0.0008 | ||||||
Fourth Quarter | $ | 0.0024 | $ | 0.0006 |
For the quarter ended March 31, 2016, the high bid was $0.0024 and low bid was $0.0006. As of August 9, 2016, the last date for which quotes were available, the low and high bid prices of our Common Stock were $0.0055 and $0.009, respectively.
We do not believe that the quotes reflect an accurate or reliable trading market for our Common Stock. Quotes and stock prices were obtained from the OTC Pink sheets marketplace. Trading is sporadic and limited and during the periods cited no financial or other information was available to the public regarding the Company and its operations.
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The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Securities and Exchange Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require delivery to the customers, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
The Company’s classes of Preferred Stock do not trade on any exchange or interdealer or other markets.
Securities Eligible for Resale
None of our shares of Common Stock are currently eligible for sale under Rule 144. Under Rule 144, we will be required to be reporting for a full year in order for stockholders to avail themselves of Rule 144. Future sales of large numbers of shares into a limited trading market or the concerns that those sales may occur could cause the trading price of our Common Stock to decrease or to be lower than it might otherwise be. If an active, stable, and sustained trading market does not develop, the market price for our shares will decline and such declines are likely to be permanent. As of August 9, 2016, we had 92,302,666 shares of Common Stock issued and outstanding.
Options and Other Stock Based Securities
In July 2016, the Board of Directors approved the 2016 Omnibus Equity Incentive Plan. As of August 9, 2016, stockholders holding a majority of the shares of Common Stock and issued and outstanding Preferred Stock entitled to vote had approved the 2016 Plan and the reservation of 75,000,000 shares issuable as awards under the 2016 Plan.
Under the 2016 Plan, options, stock appreciation rights (“SARs”), restricted stock awards, restricted stock unit awards, other share-based awards, and performance awards may be granted to eligible participants. Subject to the reservation of authority by our Board of Directors to administer the 2016 Plan and act as the committee thereunder, the 2016 Plan will be administered by a Compensation Committee (the “Committee”), which will have the authority to determine the terms and conditions of awards, and to interpret and administer the 2016 Plan. As of August 9, 2016, there were outstanding (i) no options to purchase shares under the 2016 Plan, and (ii) a total of 11,000,000 shares granted pursuant to restricted stock awards and restricted stock units under the 2016 Plan.
Shares Available. The maximum number of shares of our Common Stock that are available for awards under the 2016 Plan (subject to the adjustment provisions described under “Adjustments upon Changes in Capitalization” below), is 75,000,000 shares. If any shares of Common Stock subject to an award under the 2016 Plan, or an award under the 2016 Employee Plan, are forfeited, expire, or are settled for cash (in whole or in part), the shares subject to the award may be used again for awards under the 2016 Plan to the extent of the forfeiture, expiration, or cash settlement.
Eligibility. Options, SARs, restricted stock awards, restricted stock unit awards, other share-based awards, and performance awards may be granted under the 2016 Plan. Options may be either “incentive stock options,” as defined in Section 422 of the Internal Revenue Code, or nonstatutory stock options. Awards may be granted under the 2016 Plan to any employee, non-employee member of our Board of Directors, consultant, or advisor who is a natural person and provides services to us or a subsidiary, except for incentive stock options which may be granted only to employees.
Administration. Subject to the reservation of authority by our Board of Directors to administer the 2016 Plan and act as the committee thereunder, the 2016 Plan will be administered by the Committee. The Committee will have the authority to determine the terms and conditions of awards, and to interpret and administer the 2016 Plan. The Board of Directors has not yet established the Committee.
Stock Options. The Committee may grant either nonstatutory stock options or incentive stock options. A stock option entitles the recipient to purchase a specified number of shares of our Common Stock at a fixed price subject to terms and conditions set by the Committee. 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 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 Principal Exchange on the date the option is granted (or if there was no closing price on that date, on the last preceding date on which a closing price was reported). Options are subject to terms and conditions set by the Committee. Options granted under the 2016 Plan expire no later than 10 years from the date of grant.
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Stock Appreciation Rights. The Committee is authorized to grant SARs in conjunction with a stock option or other award granted under the 2016 Plan, and to grant SARs separately. The grant price of a SAR may not be less than 100% of the fair market value of a share of our Common Stock on the date the SAR is granted. The term of an SAR may be no more than 10 years from the date of grant. SARs are subject to terms and conditions set by the Committee. Upon exercise of an SAR, the participant will have the right to receive the excess of the fair market value of the shares covered by the SAR on the date of exercise over the grant price.
Restricted Stock Awards. Restricted stock awards may be issued either alone or in addition to other awards granted under the 2016 Plan, and are also available as a form of payment of performance awards and other earned cash-based incentive compensation. The Committee determines the terms and conditions of restricted stock awards, including the number of shares of Common 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 will have the rights of a stockholder from the date of grant of the award, including the right to vote the shares of Common Stock and the right to receive distributions on the shares. Except as otherwise provided in the award agreement, any shares or other property (other than cash) distributed with respect to the award will be subject to the same restrictions as the award.
Restricted Stock Unit Awards. Awards of restricted stock units having a value equal to an identical number of shares of Common Stock may be granted either alone or in addition to other awards granted under the 2016 Plan, and are also available as a form of payment of performance awards granted under the 2016 Plan and other earned cash-based incentive compensation. The Committee determines the terms and conditions of restricted stock units, including 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. Except as otherwise provided in the award agreement, any shares or other property (other than cash) distributed with respect to the award will be subject to the same restrictions as the award.
Other Share-Based Awards. The 2016 Plan also provides for the award of shares of our Common Stock and other awards that are valued by reference to our Common Stock or other property (“Other Share-Based Awards”). Other Share-Based Awards may be paid in cash, shares of our Common Stock or other property, or a combination thereof, as determined by the Committee. The Committee determines the terms and conditions of Other Share-Based Awards, including any conditions for vesting that must be satisfied.
Performance Awards. Performance awards provide participants with the opportunity to receive shares of our Common Stock, cash, or other property based on performance and other vesting conditions. Performance awards may be granted from time to time as determined at the discretion of the Committee. Subject to the share limit and maximum dollar value set forth above under “Limits on Awards to Participants,” the Committee has the discretion to determine (i) the number of shares of Common Stock under, or the dollar value of, a performance award and (ii) the conditions that must be satisfied for grant or for vesting, which typically will be based principally or solely on achievement of performance goals.
No Repricing. The 2016 Plan prohibits option and SAR repricings (other than to reflect stock splits, spin-offs, or other corporate events described under “Adjustments upon Changes in Capitalization” below, or in connection with a change in control of the Company) unless stockholder approval is obtained.
Nontransferability of Awards. No award under the 2016 Plan, and no shares subject to awards that have not been issued or as to which any applicable restriction, performance, or deferral period has not lapsed, is transferable other than by will or the laws of descent and distribution, and an award may be exercised during the participant’s lifetime only by the participant or the participant’s estate, guardian or legal representative, except that the Committee may provide in an award agreement that a participant may transfer an award without consideration to certain family members, family trusts, or other family-owned entities, or for charitable donations under such terms and conditions determined by the Committee.
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Amendment and Termination. The 2016 Plan may be amended or terminated by our Board of Directors except that stockholder approval is required for any amendment to the 2016 Plan which increases the number of shares of Common Stock available for awards under the 2016 Plan, expands the types of awards available under the 2016 Plan, materially expands the class of persons eligible to participate in the 2016 Plan, permits the grant of options or SARs with an exercise or grant price of less than 100% of fair market value on the date of grant, amends the provisions of the 2016 Plan prohibiting the repricing of options and SARs as described above, increases the limits on shares subject to awards, or otherwise materially increases the benefits to participants under the 2016 Plan. The 2016 Plan will expire on the tenth anniversary of the Effective Date, except with respect to awards then outstanding, and no further awards may be granted thereafter.
Prior Option Grants and Plan
In 2000, the Company adopted the 2000 Stock Option and Restricted Stock Plan (the "2000 Plan"). On July 16, 2009, the 2000 Plan was amended and restated. The 2000 Plan, as restated and amended, provided for the granting of options to purchase up to 25,000,000 shares of Common Stock. The 2000 Plan has expired.
As of December 31, 2015, the Company had outstanding options to purchase 4,000,000 shares of Common Stock with exercise prices of between $0.05 and $0.55 per share. As of December 31, 2014, the Company had outstanding options to purchase 9,442,500 shares of Common Stock with exercise prices of between $0.05 and $0.65 per share. The Company did not issue any options to acquire any of its securities in years 2013, 2014, or 2015.
Dividend Policy
We have not paid any dividends on our Common Stock and do not expect to do so in the foreseeable future. We intend to apply our earnings, if any, in expanding our operations and related activities. The payment of cash dividends in the future will be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements, our financial condition, and other factors deemed relevant by the Board of Directors.
Our Class B, C-1, and D Preferred Stock accrue dividends at the rate of 8% per annum based upon the stated value of such classes. At March 31, 2016, we had accrued dividends of $4,387,700 in the aggregate with respect to such classes of Preferred Stock. Dividends, subject to our ability to declare and pay them under Delaware law, may be paid in shares of Common Stock or in cash at the time of declaration by the Board of Directors.
Item 10. Recent Sales of Unregistered Securities.
The Company has not sold any of its securities in any private placement offering or public offering during the past three (3) fiscal years. No private placements or other offerings of securities have occurred during the fiscal year 2016 to date.
In December 2015, the Company issued an aggregate of 23,769,000 shares of Common Stock to its law firm (a member of the law firm serves as our Corporate Secretary) and our CFO to retain their assistance in conducting due diligence on the Company, negotiating with tax authorities related to past tax claims, assisting management with developing its business plan, negotiating with potential sources of capital, initiating its first battery energy storage project, undertaking compliance with public company regulations, and other professional services.
In July, 2016, we agreed to issue 1,000,000 shares of restricted Common Stock to Mr. Chudgar in consideration for him agreeing to serve on our Board of Directors.
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In May 2016, our Board of Directors approved the issuance of 1,000,000 shares of Common Stock to one of our outside lawyers in consideration for legal services related to zoning and related local approvals for our Hillsborough, NJ BESS system. The lawyer is the brother of our COO and President.
In July 2016, the Board approved entering into a consulting agreement with a third party to provide general consulting services to the Company in consideration for 15,000,000 shares of restricted Common Stock.
The Board of Directors approved the issuance of 10,000,000 shares of restricted Common Stock under the 2016 Plan to Mr. Lines, who serves as a consultant to the Company.
Item 11. Description of Registrant’s Securities to be Registered.
Our Common Stock is the only class of stock being registered in this Registration Statement.
Our authorized capital stock consists of 350,000,000 shares of Common Stock, par value $0.001 and 10,000,000 shares of Preferred Stock. On July 23, 2016, our Board of Directors approved an amendment to our Certificate of Incorporation to increase the number of authorized shares of Common Stock to 700,000,000 shares. As of August 9, 2016, we had received written consents from holders of our Common Stock and classes of Preferred Stock entitled to vote approving the increase. We anticipate filing an Amendment to our Certificate of Incorporation on or before August 25, 2016 reflecting the increase to 700,000,000 shares.
As of August 9, 2016, there were 92,302,666 shares of Common Stock issued and outstanding. With respect to the Preferred Stock, we have designated: 140,000 shares as Series B Convertible Preferred Stock, of which 133,000 shares are issued and outstanding; 175,000 shares as Series C-1 Convertible Preferred Stock, of which 34,625 shares are issued and outstanding; 375,000 shares of Series D Convertible Preferred Stock, of which 304,377 are issued and outstanding; and 1,000 shares of Series E Preferred Stock, of which 305 are issued and outstanding.
Common Stock. Each shareholder of our Common Stock is entitled to a pro rata share of cash distributions made to shareholders, including dividend payments. The holders of our Common Stock are entitled to one (1) vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of our Directors or any other matter. Therefore, the holders of more than 50% of the Common Stock cannot solely determine the election of our Directors, or any other matters. The holders of our Common Stock are entitled to receive dividends when and if declared by our Board of Directors from funds legally available therefore. Cash dividends are at the sole discretion of our Board of Directors. In the event of our liquidation, dissolution, or winding up, the holders of Common Stock are entitled to pro rata share in all assets remaining available for distribution to them after payment of our liabilities and after provision has been made for each class of stock, if any, having any preference in relation to our Common Stock. Holders of shares of our Common Stock have no conversion, preemptive, or other subscription rights, and there are no redemption provisions applicable to our Common Stock.
Preferred Stock. We are authorized to issue 10,000,000 shares of Preferred Stock with a par value of $0.001 per share. The rights, privileges, and preferences of our Preferred Stock can be set by our Board of Directors without further shareholder approval as set forth in our Certificate of Incorporation filed with the Secretary of State of Delaware. These shares were carefully designed to protect shareholders of record that have provided services or investment capital and also to delay, defer, discourage, or prevent a change in control. With respect to the Preferred Stock, we have designated: 140,000 shares as Series B Convertible Preferred Stock, of which 133,000 shares are issued and outstanding; 175,000 shares as Series C-1 Convertible Preferred Stock, of which 34,625 shares are issued and outstanding; 375,000 shares of Series D Convertible Preferred Stock, of which 304,377 are issued and outstanding; and 1,000 shares of Series E Preferred Stock, of which 305 are issued and outstanding. A summary of the terms and conditions of each class are set forth below.
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Series B Preferred Stock. Each share of Series B Preferred Stock is initially convertible into 100 shares of the Company’s Common Stock, subject to adjustment under certain circumstances. The Series B Preferred Stock is convertible at the option of the holder at any time. The Series B Preferred Stock is also subject to mandatory conversion in the event the average closing price of the Company’s Common Stock for any ten (10) day period equals or exceeds $1.00 per share, such conversion to be effective on the trading day immediately following such ten (10) day period. The Series B Preferred Stock has a dividend equal to 8% of the aggregate original stated value of the Series B Preferred Stock, payable annually in cash or stock, at the discretion of the Company’s Board of Directors. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series B Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of Preferred Stock, an amount per share of Series B Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series B Stock for each share of Series B Stock held by them.
Series C-1 Preferred Stock. Each share of Series C-1 Preferred Stock is convertible into 100 shares of the Company’s Common Stock, subject to adjustment under certain circumstances. The Series C-1 Preferred Stock is convertible at the option of the holder at any time. The Series C-1 Preferred Stock is also subject to mandatory conversion in the event the average closing price of the Company’s Common Stock for any ten (10) day period equals or exceeds $1.00 per share, such conversion to be effective on the trading day immediately following such ten (10) day period. The Series C-1 Preferred Stock has a dividend equal to 8% of the aggregate stated value of the Series C-1 Preferred Stock, payable annually in cash or stock, at the discretion of the Company’s Board of Directors. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series C-1 Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of Preferred Stock, an amount per share of Series C-1 Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series C-1 Stock for each share of Series C-1 Stock held by them.
Series D Preferred Stock. The Series D Preferred Stock has an annual dividend equal to 8% of the aggregate $5,220,000 stated value of the Preferred Stock, payable annually in cash or stock, at the discretion of the Company’s Board of Directors. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series D Preferred Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of Preferred Stock, an amount per share of Series D Preferred Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series D Preferred Stock for each share of Series D Preferred Stock held by them. The conversion price for the Series D Preferred Stock is $0.16 per share, and the Series D Preferred Stock is subject to mandatory conversion of 100 common shares per one (1) Series D preferred share, in the event the average closing price of the Company’s Common Stock for any ten (10) day period equals or exceeds $0.50 per share and the average daily trading volume is at least 50,000 shares of Common Stock per day during such ten (10) day period, such conversion to be effective on the trading day immediately following such ten (10) day period. Series D Preferred Stock shall vote with the shares of Common Stock on an as converted basis from time to time, and not as a separate class, at any duly called annual or special meeting of stockholders of the Company. The holders of our Series D Preferred Stock have no pre-emptive rights, and the Company cannot amend the Series D Preferred Stock’s Certificate of Designation without first obtaining the approval of 75% of the holders of the outstanding Series D Preferred Stock.
Series E Preferred Stock. The Series E Preferred Stock carries no dividends. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series E Preferred Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of Preferred Stock, an amount per share of Series E Preferred Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like with respect to such shares), pari passu with the Company’s Series B, C-1, and D Preferred Stock. Each share of Series E Preferred Stock is convertible into 1,000,000 shares of Common Stock, and votes together with the Common Stock on an as converted basis. At such time as the Company has authorized shares of Common Stock in sufficient number to allow for the conversion of the Series E Preferred Stock, it shall automatically convert into shares of Common Stock.
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Item 12. Indemnification of Directors and Officers.
Our Certificate of Incorporation provides that the personal liability of our Directors shall be limited to the fullest extent permitted by the provisions of Section 102(b)(7) of the General Corporation Law of the State of Delaware, or the “DGCL.” Section 102(b)(7) of the DGCL generally provides that no Director shall be liable personally to us or our stockholders for monetary damages for breach of fiduciary duty as a Director, provided that our Certificate of Incorporation does not eliminate the liability of a Director for (i) any breach of the Director's duty of loyalty to us or our stockholders; (ii) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) acts or omissions in respect of certain unlawful dividend payments or stock redemptions or repurchases; or (iv) any transaction from which such Director derives improper personal benefit. The effect of this provision is to eliminate our rights and the rights of our stockholders through stockholders' derivative suits on our behalf, to recover monetary damages against a Director for breach of her or his fiduciary duty of care as a Director including breaches resulting from negligent or grossly negligent behavior except in the situations described in clauses (i) through (iv) above. The limitations summarized above, however, do not affect our or our stockholders' ability to seek non-monetary remedies, such as an injunction or rescission, against a Director for breach of her or his fiduciary duty.
In addition, our Certificate of Incorporation and bylaws provide that we shall, to the fullest extent permitted by Section 145 of the DGCL, indemnify all Directors and Officers who we may indemnify pursuant to Section 145 of the DGCL. Section 145 of the DGCL permits a company to indemnify an Officer or Director who was or is a party or is threatened to be made a party to any proceeding because of his or her position, if the Officer or Director acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of such company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. We have entered into indemnification agreements with our Directors and Officers consistent with indemnification to the fullest extent permitted under the DGCL.
We expect to obtain a Directors' and Officers' liability insurance policy covering certain liabilities that may be incurred by our Directors and Officers in connection with the performance of their duties. The entire premium for such insurance will be paid by us.
Regarding indemnification for liabilities arising under the Securities Act with respect to our Directors and Officers, and persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Item 13. Financial Statements and Supplementary Data.
The financial statements and supplementary data listed in Item 15, below, are included with this Registration Statement.
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
We do not have any disagreements with our accountant or auditor and have not had any such disagreements during the prior two (2) fiscal years.
Liebman Goldberg & Hymowitz LLP audited our financial statements, including our balance sheet as of December 31, 2015 and 2014 and our related statements of operations, changes in stockholders’ equity, and statements of cash flows for the year then ended. The audit report on our financial statements for the period stated above includes an adverse opinion expressing uncertainty as to our ability to continue as a going concern.
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Item 15. Financial Statements and Exhibits.
FINANCIAL STATEMENTS
Report of Independent Public Accounting Firm | F-1 |
Consolidated Balance Sheets at December 31, 2015 and 2014 | F-2 |
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014 | F-3 |
Consolidated Statement of Stockholders' Equity (Deficit) for the years ended December 31, 2015 and 2014 | F-4 |
Consolidated Statement of Cash Flows for the years ended December 31, 2015 and 2014 | F-5 |
Notes to Consolidated Financial Statements for the years ended December 31, 2015 and 2014 | F-6 |
Consolidated Balance Sheets at March 31, 2016 | F-21 |
Consolidated Statements of Operations for the three months ended March 31, 2016 | F-22 |
Consolidated Statement of Stockholders' Equity (Deficit) for the three months ended March 31, 2016 | F-23 |
Consolidated Statement of Cash Flows for the three months ended March 31, 2016 | F-24 |
Notes to Consolidated Financial Statements for the three months ended March 31, 2016 | F-25 |
EXHIBITS
The following documents are filed as exhibits hereto immediately following the “Financial Statements” section:
3.1 | Certificate of Incorporation as amended. |
3.2. | Amended and Restated By-Laws of Power Efficiency Corporation. |
10.1. | 2016 Omnibus Equity Incentive Plan. |
21. | Subsidiaries of Registrant. |
23.1 | Consent of Liebman Goldberg & Hymowitz LLP |
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Power Efficiency Corporation | ||
Dated: August 11, 2016 | /s/ Gary Weiss | |
By: Gary Weiss | ||
Chief Executive Officer | ||
/s/ Mark Goldberg | ||
By: Mark Goldberg | ||
Chief Financial Officer/Principal Accounting Officer |
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TABLE OF CONTENTS
LIEBMAN GOLDBERG & HYMOWITZ LLP
Certified Public Accountants
595 Stewart Avenue, Suite 420
Garden City, New York 11530
Tel (516) 228-6600
Fax(516) 228-6664
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Power Efficiency Corporation
We have audited the accompanying consolidated balance sheets of Power Efficiency Corporation and Subsidiary as of December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2015. Power Efficiency Corporation and Subsidiary’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Power Efficiency Corporation and Subsidiary as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a working capital deficiency and has suffered recurring losses from operations. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plan regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Liebman Goldberg & Hymowitz, LLP |
Liebman Goldberg & Hymowitz, LLP |
Garden City, New York |
August 11, 2016 |
F-1 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
CONSOLIDATED BALANCE SHEETS |
December 31, | 2015 | 2014 | ||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 115,384 | $ | 309,047 | ||||
Note receivable - Related party | 10,000 | - | ||||||
Prepaid expenses | 7,500 | - | ||||||
Current portion of deferred tax asset | 408 | - | ||||||
Accrued interest receivable | 69 | - | ||||||
Total Current Assets | 133,361 | 309,047 | ||||||
Other Assets | ||||||||
Deferred project costs | 50,538 | - | ||||||
Deferred tax asset | 5,479 | - | ||||||
Total Other Assets | 56,017 | - | ||||||
Total Assets | $ | 189,378 | $ | 309,047 | ||||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) | ||||||||
Current Liabilities | ||||||||
Accrued expenses | $ | 286,489 | $ | 213,906 | ||||
Long Term Liabilities | ||||||||
Accrued dividends payable | 4,129,600 | 3,097,200 | ||||||
Total Liabilities | 4,416,089 | 3,311,106 | ||||||
Commitments and Contingencies | ||||||||
Stockholders' (Deficit) | ||||||||
Preferred Stock, $0.001 par value, 10,000,000 shares authorized: issued and outstanding in 2015 and 2014 - Series B 133,000 shares, Series C-1 34,625 shares, Series D 304,377 shares and Series E 305 shares, liquidation preference of $17,384,600 in aggregate | 472 | 472 | ||||||
Common Stock, $0.001 par value, 350,000,000 shares authorized: 91,302,666 and 67,533,666 shares issued and outstanding in 2015 and 2014, respectively | 91,303 | 67,534 | ||||||
Additional Paid-in Capital | 51,390,036 | 51,354,921 | ||||||
Accumulated (Deficit) | (55,708,522 | ) | (54,424,986 | ) | ||||
Total Stockholders' (Deficit) | (4,226,711 | ) | (3,002,059 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) | $ | 189,378 | $ | 309,047 |
See notes to the consolidated financial statements.
F-2 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF OPERATIONS |
For the Years Ended December 31, | 2015 | 2014 | ||||||
Revenues | $ | - | $ | - | ||||
General and Administrative Expenses | ||||||||
Organization costs | 24,525 | - | ||||||
Stock based compensation | 35,115 | 44,501 | ||||||
Consulting fees - Related party | 66,118 | - | ||||||
Administrative consulting fees | 18,774 | 1,500 | ||||||
Office expense | 3,284 | 1,433 | ||||||
Stock transfer agent expense | 12,514 | - | ||||||
Legal & professional fees | 89,864 | 15,000 | ||||||
Storage rental fees | 1,447 | 650 | ||||||
Business travel expenses | 4,351 | - | ||||||
Bank service fees | 726 | 192 | ||||||
Franchise fees | 400 | 750 | ||||||
Total General and Administrative Expenses | 257,118 | 64,026 | ||||||
(Loss) from Operations | (257,118 | ) | (64,026 | ) | ||||
Other Income | 95 | 25 | ||||||
Net (Loss) Before Income Taxes | (257,023 | ) | (64,001 | ) | ||||
Income tax benefit | 5,887 | - | ||||||
Net (Loss) | $ | (251,136 | ) | $ | (64,001 | ) | ||
Dividends accrued on Preferred Stock | 1,032,400 | 1,032,400 | ||||||
Net (Loss) attributable to common shareholders | $ | (1,283,536 | ) | $ | (1,096,401 | ) | ||
Basic and Fully Diluted (Loss) per Common Share | $ | (0.00302 | ) | $ | (0.00255 | ) | ||
Weighted average common shares outstanding basic and fully diluted | 425,714,616 | 429,270,116 |
See notes to the consolidated financial statements.
F-3 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) |
YEARS ENDED DECEMBER 31, 2015 AND 2014 |
Additional | Total | |||||||||||||||||||||||||||
Common Stock | Preferred Stock | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Deficit) | (Deficit) | ||||||||||||||||||||||
Balance - January 1, 2014 | 67,533,666 | $ | 67,534 | 472,307 | $ | 472 | $ | 51,310,420 | $ | (53,328,585 | ) | $ | (1,950,159 | ) | ||||||||||||||
2014 Net (Loss) | (64,001 | ) | (64,001 | ) | ||||||||||||||||||||||||
Preferred Stock Dividends Accrued - 2014 | (1,032,400 | ) | (1,032,400 | ) | ||||||||||||||||||||||||
Stock Based Compensation | 44,501 | 44,501 | ||||||||||||||||||||||||||
Balance - December 31, 2014 | 67,533,666 | 67,534 | 472,307 | 472 | 51,354,921 | (54,424,986 | ) | (3,002,059 | ) | |||||||||||||||||||
2015 Net (Loss) | (251,136 | ) | (251,136 | ) | ||||||||||||||||||||||||
Preferred Stock Dividends Accrued - 2015 | (1,032,400 | ) | (1,032,400 | ) | ||||||||||||||||||||||||
Stock Based Compensation | 35,115 | 35,115 | ||||||||||||||||||||||||||
Common Stock issued | 23,769,000 | 23,769 | 23,769 | |||||||||||||||||||||||||
Balance December 31, 2015 | 91,302,666 | $ | 91,303 | 472,307 | $ | 472 | $ | 51,390,036 | $ | (55,708,522 | ) | $ | (4,226,711 | ) |
See notes to the consolidated financial statements.
F-4 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
For the Years Ended December 31, | 2015 | 2014 | ||||||
Operating Activities: | ||||||||
Net (loss) | $ | (251,136 | ) | $ | (64,001 | ) | ||
Adjustments to reconcile net (loss) to net cash (used in) provided by operating activities: | ||||||||
Stock based compensation | 35,115 | 44,501 | ||||||
Common Stock issued in connection with services rendered | 23,769 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Collection of patent proceeds | - | 190,000 | ||||||
Deferred tax asset | (5,887 | ) | - | |||||
Prepaid expenses | (7,500 | ) | - | |||||
Accrued interest receivable | (68 | ) | - | |||||
Deferred project costs | (50,538 | ) | - | |||||
Accrued expenses | 72,582 | 9,750 | ||||||
Net cash (used in) provided by operating activities | (183,663 | ) | 180,250 | |||||
Investing Activities: | ||||||||
Note Receivable - Related party | (10,000 | ) | - | |||||
Net cash (used in) investing activities | (10,000 | ) | - | |||||
(Decrease) Increase in cash and cash equivalents | (193,663 | ) | 180,250 | |||||
Cash and cash equivalents at beginning of year | 309,047 | 128,797 | ||||||
Cash and cash equivalents at end of year | $ | 115,384 | $ | 309,047 | ||||
Supplemental disclosures | ||||||||
Cash paid during the year for interest | $ | - | $ | - | ||||
Cash paid during the year for income taxes | $ | - | $ | - |
See notes to the consolidated financial statements.
F-5 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 1 – NATURE OF BUSINESS
Power Efficiency Corporation ("Power Efficiency" and/or the "Company"), a Delaware Corporation was formed in July, 1994. Until 2012, the Company was in the business of designing, developing, marketing and selling proprietary solid state electrical devices designed to reduce energy consumption in alternating current induction motors. During such period of operations, the Company had one principal and proprietary product called the three phase Motor Efficiency Controller, which was intended to be used in industrial and commercial applications, such as rock crushers, granulators, and escalators. Additionally, during the period up to early 2012, the Company had developed a digital single phase controller in preparation for working with Original Equipment Manufacturers to incorporate the technology into their equipment.
In the spring of 2012 the then management of the Company began winding down substantive operations and ceased all activities and sold or abandoned any remaining assets and operations by the end of 2012.
The Company was a publicly reporting company filing periodic reports with the Securities and Exchange Commission. On April 17, 2012, the Company filed with the SEC to cease being a reporting company. At the time of the filing in April 2012, the Company had less than 200 shareholders of record and had 67,533,666 shares of Common Stock issued and outstanding, and little if any assets.
Until current management gained control of the Company in July, 2015, the Company had no operations, did not incur any material liabilities and issued no additional securities.
In July, 2015, current members of management acquired a majority of the voting stock of the Company and commenced its plan to restart the operations. The change of control and management occurred on July 17, 2015, resulting in new management and a new Board of Directors. The Company commenced operations in the business of the promotion, acquisition and development of battery energy storage systems and related services and businesses.
Since July, 2015, management has been focused on developing its business plan, commencing development of battery energy storage projects, developing relationships within the industry. The Company’s business plan is to originate, develop and own energy storage systems in North America and may utilize different ownership structures for its projects; in certain cases owning the projects and obtaining financing; in other cases developing joint ventures as majority or minority developers, or establishing projects to different levels of development before selling the projects.
NOTE 2 – GOING CONCERN
These financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. At December 31, 2015, the Company had a working capital deficiency of $153,128.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount of liabilities that might be necessary should the Company be unable to continue in existence.
Continuation of the Company as a going concern is dependent upon achieving profitable operations or accessing sufficient operating capital. On July 17, 2015, the controlling interest of the Company was purchased by members of management and new management has identified and developed a line of business to help achieve profitability. However, there are no assurances that profitability will be achieved and that sufficient capital will be raised to initiate such an operation.
F-6 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 2 – GOING CONCERN (CONT’D)
The Company will be required to obtain capital (whether through equity or debt or combination thereof) in substantial amounts in order to satisfy its working capital needs and to develop projects as contemplated in this business plan and plan of operations. However, there are no assurances that sufficient capital will be raised. If unable to obtain sufficient capital on reasonable terms, the Company would be forced to restructure, file for bankruptcy or curtail operations.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The accompanying consolidated financial statements includes the accounts of Power Efficiency Corporation and its wholly owned subsidiary, Hillsborough Battery I LLC. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Actual results could differ from those estimates and the differences could be material.
Cash and Cash Equivalents:
The Company considers all highly-liquid investments with maturities of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions. From time to time, the Company may maintain cash balances at certain institutions in excess of the Federal Deposit Insurance Corporation limit.
Income Taxes:
Under ASC 740, "Income Taxes", deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and from net operating loss carryovers. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2015, there were no deferred taxes from net operating loss carryovers as it is believed that the Corporation will not benefit from any deferred tax benefits resulting from prior year net operating losses. The deferred tax asset of $5,887 is attributable to the future tax amortization of the organization costs.
F-7 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Uncertain Tax Positions:
The Company has adopted FASB ASC 740-10-25, Accounting for Uncertainty in Income Taxes. The Company is required to recognize, measure, classify, and disclose in the financial statements uncertain tax positions taken or expected to be taken in the Company’s tax returns. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the Company’s tax returns will not be challenged by the taxing authorities and that the Company will not be subject to additional tax, penalties, and interest as a result of such challenge. The Company’s 2012 and subsequent years remain open for tax examination.
Accounting for Share Based Compensation:
The Company accounts for employee stock options as compensation expense, in accordance with ASC 718. ASC 718 requires companies to expense the value of employee stock options and similar awards, and applies to all outstanding and vested stock-based awards.
As of December 31, 2015 and 2014, the Company had 4,000,000 options and 9,442,500 options, respectively, to purchase Common Stock issued and outstanding, with exercise prices ranging from $0.05 to $0.65 per share, all of which were issued prior to 2012. The Company has not issued any stock based options or other securities since 2012. There has been no active market for the Company’s Common Stock during the latest two fiscal years.
In accordance with ASC 718, the Company determines whether a share payment should be classified and accounted for as a liability award or equity award. All grants of share-based payments to service providers classified as equity awards are recognized in the financial statements based on their grant date fair values which are calculated using historical pricing. The Company has elected to recognize compensation expense based on the criteria that the stock awards vest immediately on the issuance date. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent period if actual forfeitures differ from initial estimates.
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future.
In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The impact of applying ASC 718 approximated $35,115 and $44,501 in additional compensation expense during the years ended December 31, 2015 and 2014, respectively. Such amounts are included in expense on the statement of operations.
The Company has adopted a new stock based compensation plan. See Note 12, Subsequent Events.
F-8 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Advertising:
Advertising costs are expensed as incurred. There were no advertising expenses for the years ended December 31, 2015 and 2014.
Research and Development:
Research and development expenditures are charged to expense as incurred. There were no research and development expenses for the years ended December 31, 2015 and 2014.
Net Loss Per Share:
Under the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company. As of December 31, 2015 and 2014, respectively, there were stock options outstanding for the purchase of 4,000,000 and 9,442,500 shares of Common Stock which could potentially dilute future earnings per share. At December 31, 2014 there were warrants outstanding for the purchase of 93,750 shares of common stock. Additionally, the Company has outstanding an aggregate of 472,307 shares of preferred stock of Classes B, C-1, D and E preferred stock convertible, into an aggregate of 352,200,200 shares of Common Stock in addition to 91,302,666 and 67,533,666 shares of Common Stock at December 31, 2015 and 2014, respectively.
Fair Value of Financial Instruments:
The Financial Accounting Standards Board’s ASC Topic 820, “Fair Value Measurements”, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.
The three levels are defined as follows:
Level 1 - | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
Level 2 - | inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
Level 3 - | inputs to the valuation methodology are unobservable. |
The Company’s financial instruments, classified as Level 1 within the fair value hierarchy, consist primarily of cash, deferred project costs, restricted deposits in money market accounts, a note receivable from affiliate and accrued dividends payable and expenses. The carrying amount of such financial instruments approximate their respective estimated fair value due to short term maturities and approximate market interest rates of these instruments. The Company’s accrued dividends payable approximate the fair value of such instruments based upon management’s best estimate of debt interest rates that would be available to the Company for financial arrangements at December 31, 2015 and 2014.
F-9 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Revenue Recognition:
The Company had no revenue during the years ended December 31, 2015 and 2014. The Company’s business model provides that revenue will be derived from payments to the Company as its battery storage systems generate revenue from electric market participants for the sale of electricity into the market.
Recent Accounting Pronouncements:
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the consolidated financial statements of the Company.
NOTE 4 – NET OPERATING LOSSES
As of December 31, 2015, the Company had net operating losses (“NOLs”) of approximately $40,000,000 limited to approximately $1,200,000 under the provisions of Section 382 of the Internal Revenue Code (see below). These amounts are available to be carried forward to offset future taxable income. The carry forwards begin to expire during the year ended December 31, 2020. The Company has provided a full 100% valuation allowance on the deferred tax assets at December 31, 2015 and 2014 to reduce such deferred income tax assets to zero as it is management’s belief that realization of such amounts do not meet the criteria required by generally accepted accounting principles. Management will review the valuation allowance required periodically and make adjustments if warranted.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the utilization of net operating loss carry forwards is limited under the change in stock ownership rules of the Code. As a result, NOLs prior to the changes of control in 2012 and 2015 are limited. The Company’s operating loss carry forwards are subject to these limitations. Future ownership changes could also further limit the utilization of any net operating loss carry forwards as of that date.
NOTE 5 – DEFERRED PROJECT COSTS
The Company has incurred costs in the amount of $50,538 related to two battery storage system projects. The costs incurred were for due diligence fees including consultants and an application fee and zoning application fees to the utility and local governments for approval to accept one of the projects. Management estimates that one of the projects should be operational in the first half of calendar 2017.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
(a) Management Agreement/Consulting Agreements
During the period from 2012 until the change of management and control completed in July, 2015, the Company had a consulting arrangement with Northcoast Management, which was engaged to provide management services to the Company, including provision of the services of its owner to serve as President of the Company during this tenure at the Company. During the period from late 2012 to July 2015, the Company was either winding down its operations or had ceased substantially all business activities other than maintaining its corporate existence. During 2015 and 2014 respectively, the Company made payments of $18,774 and $1,500 to Northcoast Management.
F-10 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 6 – COMMITMENTS AND CONTINGENCIES (CONT’D)
(b) Payroll Tax Audit
During the years 2010 through the third quarter of calendar year 2012, the Company had a San Diego, California office presence. Due to its limited operations during the period the Company had a small number of California based employees and also utilized contractors and consultants during the period for marketing, research and finance functions. This California facility was closed during 2012.
Subsequent to the closing of the California facility, during October 2013, the State of California Employment Development Department (EDD) scheduled then initiated and audit of payroll for the Company’s California operations. The period covered by the audit was the period beginning the fourth quarter of 2010 through the third quarter of 2013. Since a new business occupied the premises and EDD was not successful in making contact with the Company they developed an audit liability of approximately $196,000 (including penalties and interest) based upon estimated payroll, and have filed a lien. Accordingly, the Company has recorded a liability in that amount. After review of third party payroll services reports for the period management estimates that the amount that will be due upon examination of the actual payroll records will most likely be less than the audit liability developed by EDD. The Company is in the process of contacting the proper authorities at EDD to review its findings.
(c) Leases For Real Property
In connection with a proposed battery storage project in October 2015, the Company through its wholly owned subsidiary Hillsborough Battery I LLC (a New Jersey limited liability company), entered into a real property lease (guaranteed by the Company) for a .5 acre parcel of land to be used as the location for a converted battery storage conversion system. The lease is contingent upon receipt of utility and municipal approvals and commencement of operations of the battery storage system. The utility approval was received in February 2016 and the Company is awaiting approval from the municipality for zoning and other local approvals.
The initial lease is five years with an option to extend for an additional five years. The monthly rent for the initial term is $3,000 to be increased by an additional $2,500 if a second battery unit is installed on the premises. A $50,000 deposit is required upon commencement of the commercial operation date.
NOTE 7 – RELATED PARTY TRANSACTIONS
(a) On October 2015, the Company lent the sum of $10,000 to GDD Ventures, LLC which is owned by the Chief operating Officer and a Director of the Company. The note bears interest at a rate of three percent per annum. The note is due October 28, 2016. The balance of the note and the accrued interest at December 31, 2015 was $10,000 and $69, respectively. On February 9, 2016, the Company made a second loan to GDD Ventures, LLC in the amount of $10,000, which is due October 28, 2016, and bears interest at 5% per annum.
(b) After the change of Management, the Company remitted consulting fees aggregating $66,118 that were paid to Valeo Partners LLC which is owned by the CEO of the Company and to GDD Ventures, LLC which is owned by the COO of the Company. These fees were paid in conjunction with their duties as CEO and COO, respectively. Valeo Partners LLC and GDD Ventures, LLC collectively are the majority shareholders of the Company. Additionally, the Company paid consulting fees of $15,000 (included in deferred project costs) to Energy Innovative Products which is owned by the principals of the majority shareholders of the Company. The Company has not entered into formal employment agreements with its members of management except as discussed in Note 12.
F-11 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 7 – RELATED PARTY TRANSACTIONS (CONT’D)
(c) On December 1, 2015, the Company approved the issuance of 11,884,500 shares of Common Stock which were issued in July 2016 by its transfer agent to the Company’s Chief Financial Officer for past services and future services and other consideration. The Chief Financial Officer is a partner in the firm Raphael Sanders Goldberg Nikpour Cohen & Sullivan CPA’s, PLLC which will render accounting services to the Company.
On December 1, 2015, the Company approved the issuance of 11,884,500 shares of restricted Common Stock which were issued in July 2016 by its transfer agent to the Company’s outside law firm which acts as securities and general counsel to the Company in exchange for services. A partner in the law firm serves as Corporate Secretary to the Company.
(d) The Company utilizes office space at the offices of an entity controlled by its Chief Executive Officer who is also a director of the Company on a month-to-month basis.
NOTE 8 - WARRANTS
At December 31, 2015, the Company had no outstanding warrants.
At December 31, 2014, the Company had outstanding 93,750 warrants to purchase shares of Common Stock at an exercise price of $0.40 per share. The difference in the number of outstanding warrants has expired without exercise. The Company did not issue any warrants to acquire any of its securities in years 2013, 2014 or 2015.
The fair value of each warrant was estimated on the date of grant based on the Black-Scholes option pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment
The fair value of warrants granted is estimated on the date of grant based on the weighted-average assumptions in the table below. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the term of the respective warrant agreements. The historical daily stock volatility of the Company’s common stock (the Company’s only class of publically traded stock) over the contractual life of the stock warrant is used as the basis for the volatility assumption.
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Weighted average risk-free rate | - | 1.08 | % | |||||
Average contractual life in years | - | 0.24 | ||||||
Expected dividends | - | 0 | ||||||
Volatility | - | 152.20 | % |
NOTE 9 - STOCK OPTION PLAN
As of December 31, 2015, the Company had outstanding options to purchase 4,000,000 shares of Common Stock with exercise prices of between $0.05 and $0.55 per share. As of December 31, 2014, the Company had outstanding options to purchase 9,442,500 shares of Common Stock with exercise prices of between $0.05 and $0.65 per share. The difference in the number of outstanding options has expired without exercise. The Company did not issue any options to acquire any of its securities in years 2013, 2014 or 2015.
F-12 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 9 - STOCK OPTION PLAN (CONT’D)
In 2000, the Company adopted the 2000 Stock Option and Restricted Stock Plan (the "2000 Plan"). On July 16, 2009, the 2000 Plan was amended and restated. The 2000 Plan, as restated and amended, provided for the granting of options to purchase up to 25,000,000 shares of common stock. The Plan has expired.
The fair market value of stock options issued that has not been expensed was $351,000 and $1,640,600, to be expensed over 1.0 and 1.42 years as of December 31, 2015 and 2014, respectively.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants:
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Weighted average risk-free rate | 1.17 | % | 1.17 | % | ||||
Average Expected life in years | 1.00 | 1.42 | ||||||
Expected dividends | 0 | 0 | ||||||
Volatility | 154.22 | % | 154.22 | % | ||||
Forfeiture rate | 52 | % | 52 | % |
The fair value of options granted is estimated on the date of grant based on the weighted-average assumptions in the table above. The assumption for the expected life is based on evaluations of historical and expected exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. The historical daily stock volatility of the Company’s common stock (the Company’s only class of publicly traded stock) over the estimated life of the stock warrant is used as the basis for the volatility assumption.
The Company accounts for employee stock options as compensation expense, in accordance with FASB ASC 718. FASB ASC 718 requires companies to expense the value of employee stock options and similar awards over the requisite service period.
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be materially different from the amount recorded in the current period.
In July 2016, the Company adopted a new stock based compensation plan, with a reserve of 75,000,000 shares of Common Stock. See Note 12, Subsequent Events.
F-13 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Share based compensation was $35,115 and $44,501 in 2015 and 2014, respectively.
In December 2015, the Company issued an aggregate of 23,769,000 shares of Common Stock with a value of $23,769 to its outside law firm which acts as securities and general counsel to the Company and also to a member of management to retain their assistance in conducting due diligence on the Company, negotiating with tax authorities related to past tax claims, assisting management with developing its business plan, negotiating with potential sources of capital, initiating its first battery energy storage project, undertaking compliance with public company regulations and other professional services.
NOTE 11 – PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, par value $0.001 per share. With respect to the preferred stock, the Company designated: 140,000 shares as Series B Convertible Preferred Stock, of which 133,000 shares are issued and outstanding; 175,000 shares as Series C-1 Convertible Preferred Stock, of which 34,625 shares are issued and outstanding; 375,000 shares of Series D Convertible Preferred Stock, of which 304,377 are issued and outstanding; and 1,000 shares of Series E Preferred Stock, of which 305 are issued and outstanding.
At December 31, 2015 and 2014 the Company had:
ACCRUED DIVIDENDS | ||||||||||||||||
ISSUED AND | PAYABLE | |||||||||||||||
DESIGNATED | OUTSTANDING | DECEMBER | ||||||||||||||
SHARES | SHARES | 2015 | 2014 | |||||||||||||
Series B | 140,000 | 133,000 | $ | 2,128,000 | $ | 1,596,000 | ||||||||||
Series C-1 | 175,000 | 34,625 | 443,200 | 332,400 | ||||||||||||
Series D | 375,000 | 304,377 | 1,558,400 | 1,168,800 | ||||||||||||
Series E | 1,000 | 305 | - | - | ||||||||||||
$ | 4,129,600 | $ | 3,097,200 |
The Company has not issued or created any shares or classes of preferred stock since 2012. No shares of any class of preferred stock were converted into Common Stock during 2015 or 2014.
Each share of Series B Preferred Stock is initially convertible into 100 shares of the Company’s common stock, subject to adjustment under certain circumstances, based upon a stated value of $50.00 per share. There are 133,000 shares of Series B Preferred Stock issued and outstanding, convertible into 13,300,000 shares of Common Stock. The Series B Preferred Stock is convertible at the option of the holder at any time. The Series B Preferred Stock is also subject to mandatory conversion in the event the average closing price of the Company’s common stock for any ten day period equals or exceeds $1.00 per share, such conversion to be effective on the trading day immediately following such ten day period. The Series B Preferred Stock has a dividend equal to 8% of the aggregate $7,000,000 stated value of the Series B Preferred Stock, payable annually in cash or stock, at the discretion of the Company’s board of directors. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series B Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of preferred stock, an amount per share of Series B Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series B Stock for each share of Series B Stock held by them. For the years ended December 31, 2015 and December 31, 2014, the Company has accrued but undeclared dividends of $2,128,000 and $1,596,000 with respect to the Series B Preferred Stock.
F-14 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 11 – PREFERRED STOCK (CONT’D)
Each share of Series C-1 Preferred Stock is convertible into 100 shares of the Company’s common stock, subject to adjustment under certain circumstances, based upon a stated value of $40.00 per share. There are 34,625 shares of Series C-1 Preferred Stock issued and outstanding, convertible into 3,462,500 shares of Common Stock. The Series C-1 Preferred Stock is convertible at the option of the holder at any time. The Series C-1 Preferred Stock is also subject to mandatory conversion in the event the average closing price of the Company’s common stock for any ten day period equals or exceeds $1.00 per share, such conversion to be effective on the trading day immediately following such ten day period. The Series C-1 Preferred Stock has a dividend rate of 8% payable annually in cash or stock, at the discretion of the Company’s board of directors. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series C-1 Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of preferred stock, an amount per share of Series C-1 Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series C-1 Stock for each share of Series C-1 Stock held by them. For the years ended December 31, 2015 and December 31, 2014, the Company has accrued but undeclared dividends of $443,200 and $332,400 with respect to the Series C-1 Preferred Stock.
The Series D preferred stock has an annual dividend equal to 8% of the aggregate $5,220,000 stated value of the preferred stock ($16.00 per share), payable annually in cash or stock, at the discretion of the Company’s board of directors. There are 304,377 shares of Series D Preferred Stock issued and outstanding, convertible into 30,437,000 shares of Common stock. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series D preferred stock are entitled to be paid out of the assets of the Company, proportionally with any other series of preferred stock, an amount per share of Series D preferred stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series D preferred stock for each share of Series D preferred stock held by them.
The conversion price for the Series D preferred stock is $0.16 per share, and the Series D preferred stock is subject to mandatory conversion of 100 common shares per 1 Series D preferred share, in the event the average closing price of the Company’s common stock for any ten day period equals or exceeds $0.50 per share and the average daily trading volume is at least 50,000 shares of common stock per day during such ten-day period, such conversion to be effective on the trading day immediately following such ten day period. Series D preferred stock shall vote with the shares of Common Stock on an as converted basis from time to time, and not as a separate class, at any duly called annual or special meeting of stockholders of the Company. The holders of our Series D preferred stock have no pre-emptive rights, and the Company cannot amend the Series D preferred stock’s Certificate of Designation without first obtaining the approval of 75% of the holders of the outstanding Series D preferred stock. For the years ended December 31, 2015 and December 31, 2014, the Company has accrued but undeclared dividends of $1,558,400 and $1,168,800 with respect to the Series D Preferred Stock.
On January 27, 2012 and January 30, 2012, the Company consummated closings of a private placement offering for an aggregate of 305 shares of Series E Convertible Preferred Stock, par value of $0.001 per share. The Series E Preferred Stock carries no dividend, and each share of Series E Preferred Stock is convertible into 1,000,000 shares of Common Stock and also has voting rights on the same basis.
F-15 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 11 – PREFERRED STOCK (CONT’D)
The Company does not currently have sufficient authorized shares of its Common Stock to provide for the issuance of shares which might be issued upon conversion of, and payment of accrued dividends related to, its various classes of preferred stock (Classes B, C-1, D and E). The Company has authorized 350 million shares of Common Stock as of June 30, 2016, of which 91,302,666 are issued and outstanding. On July 20, 2016, the Company’s Board of Directors approved adopting an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of Common Stock to 700 million shares. The Company will be required to obtain approval from the holders of a majority of the voting shares of common stock and preferred stock for the amendment and expects to file an amendment with the Secretary of State of Delaware prior to August 25, 2016.
NOTE 12 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through August 11, 2016, the date on which the financial statements were available to be issued. No events, other than those described below, have occurred that require disclosure or adjustments.
1. Consulting and Officer Employment Agreements:
Effective July 20, 2016, the Board of Directors approved compensation and employment agreements with each of Gary Weiss, Ronald Scott Caputo and Jeffrey Lines.
Mr. Lines is currently a consultant to the Company and has been serving as a consultant since July 2015. Under the terms of his arrangement with the Company, he will continue to serve as a consultant until the Company has sufficient capital or revenue to employ him on a full time basis. Mr. Lines received total compensation of consulting fees of $14,580 during the year ended December 31, 2015. Mr. Lines has also received 10,000,000 restricted stock units under the 2016 Plan (see below). As a consultant, Mr. Lines is not required to devote his full business time and efforts to the Company’s business.
Assuming that Mr. Lines is employed on a full time basis, he will be entitled to participate on the same terms as other employees in the Company’s health and other benefit plans. Additionally, the Company will pay him a base salary of $150,000 per year. He will be entitled to a signing bonus of $10,000 per month commencing as of June 1, 2016 up to an aggregate of $60,000. At the time he is employed on a full time basis an employee, Mr. Lines will serve as Vice President – Project Manager. The term of employment will be one year from the date the employment agreement becomes effective.
The Company has also entered into an employment agreement, to commence when sufficient funds are obtained, with its CEO, Gary Weiss, who also serves as a director of the Company. The Company will pay him a base salary of $150,000 per year. He will be entitled to a signing bonus of $10,000 per month commencing as of June 1, 2016 up to an aggregate of $60,000. At the time he is employed on a full time basis an employee, Mr. Weiss will continue to serve as Chief Executive Officer and President. The term of employment will be three years from the commencement date. Mr. Weiss (through an entity controlled by him) received compensation in the amount of $20,235 during the year ended December 31, 2015.
F-16 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 12 - SUBSEQUENT EVENTS (CONT’D)
1. Consulting and Officer Employment Agreements (Cont’d):
The Company has also entered into an employment agreement, to commence when sufficient funds are obtained, with its President and Chief Operating Officer, Ronald Scott Caputo, who also serves as a director of the Company. The Company will pay him a base salary of $150,000 per year. He will be entitled to a signing bonus of $10,000 per month commencing as of June 1, 2016 up to an aggregate of $60,000. At the time he is employed on a full time basis an employee, Mr. Caputo will continue to serve as Chief Operating Officer. The term of employment will be three years from the commencement date. For the fiscal year ended December 31, 2015, Mr. Caputo (through and entity controlled by him) received compensation in the amount of $38,593 during the year ended December 31, 2015.
2. Stock Based Compensation Plan:
On July 20, 2016, the Board of Directors approved a new stock based compensation plan entitled the 2016 Omnibus Equity Incentive plan (this “2016 Plan”). The 2016 Plan was adopted by written consent by the holders of a majority of the shares of Common Stock (including holders of the Series B, C-1, D and E preferred stock entitled to vote and voting on an as converted basis) effective July 22, 2016.
There are a total of 75,000,000 shares of common stock reserved for issuance in connection with awards under the 2016 Plan.
Effective July 22, 2016, the Company has granted a total of 11,000,000 restricted shares under the 2016 Plan. As the 2016 Plan had not been adopted as of December 31, 2015 or December 31, 2014, no awards were outstanding under this plan as of such dates.
Under the 2016 Plan, options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other share-based awards and performance awards may be granted to eligible participants. Subject to the reservation of authority by the board of directors to administer the 2016 Plan and act as the committee thereunder, the 2016 Plan will be administered by a committee of (the “Committee”) established by the Board, which committee will have the authority to determine the terms and conditions of awards, and to interpret and administer the 2016 Plan.
The maximum number of shares of common stock that are available for awards under the 2016 Plan (subject to the adjustment provisions described in the plan for changes in capitalization), is 75,000,000 shares. If any shares of common stock subject to an award under the 2016 Plan, are forfeited, expire or are settled for cash (in whole or in part), the shares subject to the award may be used again for awards under the 2016 Plan to the extent of the forfeiture, expiration or cash settlement.
Options, stock appreciation rights (“SARs”), restricted stock awards, restricted stock unit awards, other share-based awards and performance awards may be granted under the 2016 Plan. Options may be either “incentive stock options,” as defined in Section 422 of the Code, or nonstatutory stock options. Awards may be granted under the 2016 Plan to an employee, non-employee member of the board of directors, consultant or advisor who is a natural person and provides services to the Company or a subsidiary, except for incentive stock options which may be granted only to employees.
F-17 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2015 AND 2014 |
NOTE 12 - SUBSEQUENT EVENTS (CONT’D)
3. Other Subsequent Events:
(a) On February 9, 2016, the Company made a second loan to GDD Ventures, LLC in the amount of $10,000, which is due October 28, 2016 and bears interest at 5% per annum.
(b) The Company has agreed to issue to a non employee director 1,000,000 restricted shares, as of July 20, 2016 as compensation for services under its 2016 Omnibus Equity Incentive Plan.
(c) On July 28, 2016, the Board of Directors authorized the issuance of 15,000,000 shares of restricted common stock to a third party consultant. The consultant is providing general business advice to management about its plan of operations, future markets and shareholder relations.
(d) On July 20, 2016, the Company’s Board of Directors approved adopting an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of Common Stock to 700 million shares. The Company will be required to obtain approval from the holders of a majority of the voting shares of common stock and preferred stock for the amendment and expects to file an amendment with the Secretary of State of Delaware prior to August 25, 2016.
(e) On May 23, 2016, the Board of Directors approved the issuance of 1,000,000 shares of common stock to one of the Company’s outside attorneys in consideration for legal services related to zoning and related local approvals for the Hillsborough, NJ BESS system. The attorney is the brother of the Chief Operating Officer and President.
(f) On July 30, 2016, the Company was selected through a bid auction process an award for two separate bids to supply up to 12 kilowatts of demand energy savings through the Consolidated Edison Brooklyn Queens Demand Energy Management Program. Under this program, Consolidated Edison of New York is offering incentives for energy management. Consolidated Edison Company of New York, Inc., provides electric, gas and steam service to New York City and Westchester County and is regulated by the New York Public Service Commission (NYSPSC). The Company will be required to provide electric usage savings during certain hours for 2017 and 2018 in specified neighborhoods in Brooklyn and Queens, New York and will be required to incur the expense of purchasing and installing such generator systems or develop other systems in order to meet its requirements. As a bid auction selectee, the Company will be required to enter into a contract for services with Consolidated Edison. The Company will also be required to provide a standby letter of credit in the amount of approximately $800,000 under the terms of the award, and guarantee levels of performance. If the Company is unable to satisfy the terms of the contract, or provide a standby letter of credit on terms satisfactory to Consolidated Edison it may be terminated from participation in the program.
F-18 |
POWER EFFICIENCY CORPORATION
AND SUBSIDIARY
FINANCIAL STATEMENTS
MARCH 31, 2016
(UNAUDITED)
F-19 |
TABLE OF CONTENTS
F-20 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
CONSOLIDATED BALANCE SHEETS |
MARCH 31, | DECEMBER 31, | |||||||
2016 (UNAUDITED) | 2015 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 71,253 | $ | 115,384 | ||||
Note receivable - Related party | 20,000 | 10,000 | ||||||
Prepaid expenses | 7,500 | 7,500 | ||||||
Current portion of deferred tax asset | 408 | 408 | ||||||
Accrued interest receivable | 185 | 69 | ||||||
Total Current Assets | 99,346 | 133,361 | ||||||
Other Assets | ||||||||
Deferred project costs | 50,538 | 50,538 | ||||||
Deferred tax asset | 5,378 | 5,479 | ||||||
Total Other Assets | 55,916 | 56,017 | ||||||
Total Assets | $ | 155,262 | $ | 189,378 | ||||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) | ||||||||
Current Liabilities | ||||||||
Accrued expenses | $ | 298,641 | $ | 286,489 | ||||
Long Term Liabilities | ||||||||
Accrued dividends payable | 4,387,700 | 4,129,600 | ||||||
Total Liabilities | 4,686,341 | 4,416,089 | ||||||
Commitments and Contingencies | ||||||||
Stockholders' (Deficit) | ||||||||
Preferred Stock, $0.001 par value, 10,000,000 shares authorized: issued and outstanding in 2015 and 2014 - Series B 133,000 shares, Series C-1 34,625 shares, Series D 304,377 shares and Series E 305 shares | 472 | 472 | ||||||
Common Stock, $0.001 par value, 350,000,000 shares authorized: 91,302,666 shares issued and outstanding at March 31, 2016 and December 31, 2015. | 91,303 | 91,303 | ||||||
Additional Paid-in Capital | 51,396,468 | 51,390,036 | ||||||
Accumulated (Deficit) | (56,019,322 | ) | (55,708,522 | ) | ||||
Total Stockholders' (Deficit) | (4,531,079 | ) | (4,226,711 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) | $ | 155,262 | $ | 189,378 |
See notes to the consolidated financial statements.
F-21 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
CONSOLIDATED STATEMENT OF OPERATIONS |
THREE MONTHS ENDED | ||||
MARCH 31, | ||||
2016 (UNAUDITED) | ||||
Revenues | $ | - | ||
General and Administrative Expenses | ||||
Legal & professional fees | 21,282 | |||
Consulting fees - Related party | 10,300 | |||
Business travel expenses | 7,484 | |||
Stock based compensation | 6,432 | |||
Office Expense | 2,538 | |||
Administrative consulting fees | 2,500 | |||
Stock transfer agent expense | 1,575 | |||
Franchise fees | 458 | |||
Bank service fees | 150 | |||
Organization costs | - | |||
Storage rental fees | - | |||
Total General and Administrative Expenses | 52,719 | |||
(Loss) from Operations | (52,719 | ) | ||
Other Income | 120 | |||
Net (Loss) Before Income Taxes | (52,599 | ) | ||
Income tax benefit | (101 | ) | ||
Net (Loss) | $ | (52,700 | ) | |
Dividends accrued on Preferred Stock | 258,100 | |||
Net (Loss) attributable to common shareholders | $ | (310,800 | ) | |
Basic and Fully Diluted (Loss) per Common Share | $ | (0.00069 | ) | |
Weighted average common shares outstanding basic and fully diluted | 447,502,866 |
See notes to the consolidated financial statements.
F-22 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) (UNAUDITED) |
THREE MONTHS ENDED MARCH 31, 2016 AND YEAR ENDED DECEMBER 31, 2015 |
Additional | Total | |||||||||||||||||||||||||||
Common Stock | Preferred Stock | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Deficit) | (Deficit) | ||||||||||||||||||||||
Balance - January 1, 2015 | 67,533,666 | $ | 67,534 | 472,307 | $ | 472 | $ | 51,354,921 | $ | (54,424,986 | ) | $ | (3,002,059 | ) | ||||||||||||||
2015 Net (Loss) | (251,136 | ) | (251,136 | ) | ||||||||||||||||||||||||
Preferred Stock Dividends Accrued - 2015 | (1,032,400 | ) | (1,032,400 | ) | ||||||||||||||||||||||||
Stock Based compensation | 35,115 | 35,115 | ||||||||||||||||||||||||||
Common Stock issued | 23,769,000 | 23,769 | 23,769 | |||||||||||||||||||||||||
Balance December 31, 2015 | 91,302,666 | $ | 91,303 | 472,307 | $ | 472 | $ | 51,390,036 | $ | (55,708,522 | ) | $ | (4,226,711 | ) | ||||||||||||||
Net (Loss) - Three months ended March 31,2016 | (52,700 | ) | (52,700 | ) | ||||||||||||||||||||||||
Preferred Stock Dividends Accrued – Three Months ended March 31, 2016 | (258,100 | ) | (258,100 | ) | ||||||||||||||||||||||||
Stock Based compensation | 6,432 | 6,432 | ||||||||||||||||||||||||||
Balance March 31, 2016 | 91,302,666 | $ | 91,303 | 472,307 | $ | 472 | $ | 51,396,468 | $ | (56,019,322 | ) | $ | (4,531,079 | ) |
See notes to the consolidated financial statements.
F-23 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY |
CONSOLIDATED STATEMENT OF CASH FLOWS |
THREE MONTHS ENDED | ||||
MARCH 31, | ||||
2016 | ||||
(UNAUDITED) | ||||
Operating Activities: | ||||
Net (loss) | $ | (52,700 | ) | |
Adjustments to reconcile net (loss) to net cash used in operating activities: | ||||
Stock based compensation | 6,432 | |||
Common Stock issued in connection with services rendered | - | |||
Amortization of deferred taxes | 101 | |||
Changes in operating assets and liabilities: | ||||
Deferred tax asset | - | |||
Prepaid expenses | - | |||
Accrued interest receivable | (116 | ) | ||
Deferred project costs | - | |||
Accrued expenses | 12,152 | |||
Net cash (used in) operating activities | (34,131 | ) | ||
Investing Activities: | ||||
Note Receivable - Related party | (10,000 | ) | ||
Net cash (used in) investing activities | (10,000 | ) | ||
(Decrease in) cash and cash equivalents | (44,131 | ) | ||
Cash and cash equivalents at beginning period | 115,384 | |||
Cash and cash equivalents at end of period | $ | 71,253 | ||
Supplemental disclosures | ||||
Cash paid during the period for interest | $ | - | ||
Cash paid during the period for income taxes | $ | - |
See notes to the consolidated financial statements.
F-24 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited financial statements include the accounts of the Company and its wholly owned subsidiary. In the opinion of management all adjustments have been made, which include normal recurring adjustments necessary to present fairly the consolidated financial statements. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Article 10 of SEC Regulation S-X. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the operating results for the full fiscal year ending December 31, 2016. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The Company has had no operations during the last three fiscal years and had no operations, generated no revenue or income during the quarter ended March 31, 2015; therefore no financial statements are presented for March 31, 2015. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report for the year ended December 31, 2015 on Form 10, as filed herewith.
NOTE 2 – NATURE OF BUSINESS
Power Efficiency Corporation ("Power Efficiency" and/or the "Company"), a Delaware Corporation was formed in July, 1994. Until 2012, the Company was in the business of designing, developing, marketing and selling proprietary solid state electrical devices designed to reduce energy consumption in alternating current induction motors. During such period of operations, the Company had one principal and proprietary product called the three phase Motor Efficiency Controller, which was intended to be used in industrial and commercial applications, such as rock crushers, granulators, and escalators. Additionally, during the period up to early 2012, the Company had developed a digital single phase controller in preparation for working with Original Equipment Manufacturers to incorporate the technology into their equipment.
In the spring of 2012 the then management of the Company began winding down substantive operations and ceased all activities and sold or abandoned any remaining assets and operations by the end of 2012.
The Company was a publicly reporting company filing periodic reports with the Securities and Exchange Commission. On April 17, 2012, the Company filed with the SEC to cease being a reporting company. At the time of the filing in April 2012, the Company had less than 200 shareholders of record and had 67,533,666 shares of Common Stock issued and outstanding, and little if any assets.
Until current management gained control of the Company in July, 2015, the Company had no operations, did not incur any material liabilities and issued no additional securities.
In July, 2015, current members of management acquired a majority of the voting stock of the Company and commenced its plan to restart the operations. The change of control and management occurred on July 17, 2015, resulting in new management and a new Board of Directors. The Company commenced operations in the business of the promotion, acquisition and development of battery energy storage systems and related services and businesses.
Since July, 2015, management has been focused on developing its business plan, commencing development of battery energy storage projects, developing relationships within the industry. The Company’s business plan is to originate, develop and own energy storage systems in North America and may utilize different ownership structures for its projects; in certain cases owning the projects and obtaining financing; in other cases developing joint ventures as majority or minority developers, or establishing projects to different levels of development before selling the projects.
F-25 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 3 – GOING CONCERN
These financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. At March 31, 2016, the Company had a working capital deficiency of $199,295.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount of liabilities that might be necessary should the Company be unable to continue in existence.
Continuation of the Company as a going concern is dependent upon achieving profitable operations or accessing sufficient operating capital. On July 17, 2015, the controlling interest of the Company was purchased by members of management and new management has identified and developed a line of business to help achieve profitability. However, there are no assurances that profitability will be achieved and that sufficient capital will be raised to initiate such an operation.
The Company will be required to obtain capital (whether through equity or debt or combination thereof) in substantial amounts in order to satisfy its working capital needs and to develop projects as contemplated in this business plan and plan of operations. However, there are no assurances that sufficient capital will be raised. If unable to obtain sufficient capital on reasonable terms, the Company would be forced to restructure, file for bankruptcy or curtail operations.
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The accompanying consolidated financial statements includes the accounts of Power Efficiency Corporation and its wholly owned subsidiary, Hillsborough Battery I LLC. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Actual results could differ from those estimates and the differences could be material.
Cash and Cash Equivalents:
The Company considers all highly-liquid investments with maturities of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions. From time to time, the Company may maintain cash balances at certain institutions in excess of the Federal Deposit Insurance Corporation limit.
F-26 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Income Taxes:
Under ASC 740, "Income Taxes", deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and from net operating loss carryovers. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of March 31, 2016, there were no deferred taxes from net operating loss carryovers as it is believed that the Corporation will not benefit from any deferred tax benefits resulting from prior year net operating losses. The deferred tax asset of $5,786 is attributable to the future tax amortization of the organization costs.
Uncertain Tax Positions:
The Company has adopted FASB ASC 740-10-25, Accounting for Uncertainty in Income Taxes. The Company is required to recognize, measure, classify, and disclose in the financial statements uncertain tax positions taken or expected to be taken in the Company’s tax returns. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the Company’s tax returns will not be challenged by the taxing authorities and that the Company will not be subject to additional tax, penalties, and interest as a result of such challenge. The Company’s 2012 and subsequent years remain open for tax examination.
Accounting for Share Based Compensation:
The Company accounts for employee stock options as compensation expense, in accordance with ASC 718. ASC 718 requires companies to expense the value of employee stock options and similar awards, and applies to all outstanding and vested stock-based awards.
As of March 31, 2016 and December 31, 2015, the Company had 4,000,000 options to purchase Common Stock issued and outstanding, with exercise prices ranging from $0.05 to $0.65 per share, all of which were issued prior to 2012. During the period for 2012 to March 31, 2016, the Company has not issued any stock based options or other securities. There has been no active market for the Company’s Common Stock during the latest two fiscal years.
In accordance with ASC 718, the Company determines whether a share payment should be classified and accounted for as a liability award or equity award. All grants of share-based payments to service providers classified as equity awards are recognized in the financial statements based on their grant date fair values which are calculated using historical pricing. The Company has elected to recognize compensation expense based on the criteria that the stock awards vest immediately on the issuance date. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent period if actual forfeitures differ from initial estimates.
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future.
F-27 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Accounting for Share Based Compensation (Cont’d):
In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The impact of applying ASC 718 approximated $6,432 and $35,115 in additional compensation expense during the three months ended March 31, 2016 and year ended December 31, 2015, respectively. Such amounts are included in expense on the statement of operations.
The Company has adopted a new stock based compensation plan. See Note 12, Subsequent Events.
Advertising:
Advertising costs are expensed as incurred. There were no advertising expenses for the three months ended March 31, 2016 and year ended December 31, 2015.
Research and Development:
Research and development expenditures are charged to expense as incurred. There were no research and development expenses for the three months ended March 31, 2016 and year ended December 31, 2015.
Net Loss Per Share:
Under the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company. As of March 31, 2016 and December 31, 2015, there were stock options outstanding for the purchase of 4,000,000 shares of Common Stock which could potentially dilute future earnings per share. Additionally, the Company has outstanding an aggregate of 472,307 shares of preferred stock of Classes B, C-1, D and E preferred stock convertible, into an aggregate of 352,200,200 shares of Common Stock in addition to 91,302,666 shares of Common Stock at March 31, 2016 and December 31, 2015.
Fair Value of Financial Instruments:
The Financial Accounting Standards Board’s ASC Topic 820, “Fair Value Measurements”, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.
F-28 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Fair Value of Financial Instruments (Cont’d):
The three levels are defined as follows:
Level 1 - | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
Level 2 - | inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
Level 3 - | inputs to the valuation methodology are unobservable. |
The Company’s financial instruments, classified as Level 1 within the fair value hierarchy, consist primarily of cash, deferred project costs, restricted deposits in money market accounts, a note receivable from affiliate and accrued dividends payable and expenses. The carrying amount of such financial instruments approximate their respective estimated fair value due to short term maturities and approximate market interest rates of these instruments. The Company’s accrued dividends payable approximate the fair value of such instruments based upon management’s best estimate of debt interest rates that would be available to the Company for financial arrangements at March 31, 2016.
Revenue Recognition:
The Company had no revenue during the three months ended March 31, 2016 and year ended December 31, 2015. The Company’s business model provides that revenue will be derived from payments to the Company as its battery storage systems generate revenue from electric market participants for the sale of electricity into the market.
Recent Accounting Pronouncements:
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the consolidated financial statements of the Company.
NOTE 5 – NET OPERATING LOSSES
As of March 31, 2016, the Company had net operating losses (“NOLs”) of approximately $40,000,000 limited to approximately $1,200,000 under the provisions of Section 382 of the Internal Revenue Code (see below). These amounts are available to be carried forward to offset future taxable income. The carry forwards begin to expire during the year ended December 31, 2020. The Company has provided a full 100% valuation allowance on the deferred tax assets at March 31, 2016 and December 31, 2015 to reduce such deferred income tax assets to zero as it is management’s belief that realization of such amounts do not meet the criteria required by generally accepted accounting principles. Management will review the valuation allowance required periodically and make adjustments if warranted.
F-29 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 5 – NET OPERATING LOSSES (CONT’D)
Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the utilization of net operating loss carry forwards is limited under the change in stock ownership rules of the Code. As a result, NOLs prior to the changes of control in 2012 and 2015 are limited. The Company’s operating loss carry forwards are subject to these limitations. Future ownership changes could also further limit the utilization of any net operating loss carry forwards as of that date.
NOTE 6 – DEFERRED PROJECT COSTS
The Company has incurred costs in the amount of $50,538 related to two battery storage system projects. The costs incurred were for due diligence fees including consultants and an application fee and zoning application fees to the utility and local governments for approval to accept one of the projects. Management estimates that one of the projects should be operational in the first half of calendar 2017.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
(a) Management Agreement/Consulting Agreements
During the period from 2012 until the change of management and control completed in July, 2015, the Company had a consulting arrangement with Northcoast Management, which was engaged to provide management services to the Company, including provision of the services of its owner to serve as President of the Company during this tenure at the Company. During the period from late 2012 to July 2015, the Company was either winding down its operations or had ceased substantially all business activities other than maintaining its corporate existence. During 2015, the Company made payments of $18,774 to Northcoast Management.
(b) Payroll Tax Audit
During the years 2010 through the third quarter of calendar year 2012, the Company had a San Diego, California office presence. Due to its limited operations during the period the Company had a small number of California based employees and also utilized contractors and consultants during the period for marketing, research and finance functions. This California facility was closed during 2012.
Subsequent to the closing of the California facility, during October 2013, the State of California Employment Development Department (EDD) scheduled then initiated and audit of payroll for the Company’s California operations. The period covered by the audit was the period beginning the fourth quarter of 2010 through the third quarter of 2013. Since a new business occupied the premises and EDD was not successful in making contact with the Company they developed an audit liability of approximately $196,000 (including penalties and interest) based upon estimated payroll, and have filed a lien. Accordingly, the Company has recorded a liability in that amount. After review of third party payroll services reports for the period management estimates that the amount that will be due upon examination of the actual payroll records will most likely be less than the liability developed by EDD. The Company is in the process of contacting the proper authorities at EDD to review its findings.
F-30 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 7 – COMMITMENTS AND CONTINGENCIES (CONT’D)
(c) Leases For Real Property
In connection with a proposed battery storage project in October 2015, the Company through its wholly owned subsidiary Hillsborough Battery I LLC (a New Jersey limited liability company), entered into a real property lease (guaranteed by the Company) for a .5 acre parcel of land to be used as the location for a converted battery storage conversion system. The lease is contingent upon receipt of utility and municipal approvals and commencement of operations of the battery storage system. The utility approval was received in February 2016 and the Company is awaiting approval from the municipality for zoning and other local approvals.
The initial lease is five years with an option to extend for an additional five years. The monthly rent for the initial term is $3,000 to be increased by an additional $2,500 if a second battery unit is installed on the premises. A $50,000 deposit is required upon commencement of the commercial operation date.
NOTE 8 – RELATED PARTY TRANSACTIONS
(a) Notes receivable from GDD Ventures, LLC, which is owned by the Chief Operating Officer and a Director of the Company, were $20,000 and $10,000 at March 31, 2016 and December 31, 2015, respectively. At March 31, 2016 there are two $10,000 notes; interest is at 3% on the first note and 5% on the second note. Both notes are due October 28, 2016.
(b) After the change of Management, the Company remitted consulting fees aggregating $66,118 that were paid to Valeo Partners LLC which is owned by the CEO of the Company and to GDD Ventures, LLC which is owned by the COO of the Company. These fees were paid in conjunction with their duties as CEO and COO, respectively. Valeo Partners LLC and GDD Ventures, LLC collectively are the majority shareholders of the Company. Additionally, the Company paid consulting fees of $15,000 (included in deferred project costs) to Energy Innovative Products which is owned by the principals of the majority shareholders of the Company. The Company has not entered into formal employment agreements with its members of management except as discussed in Note 12.
(c) On December 1, 2015, the Company approved the issuance of 11,884,500 shares of Common Stock which were issued in July 2016 by its transfer agent to the Company’s Chief Financial Officer for past services and future services and other consideration. The Chief Financial Officer is a partner in the firm Raphael Sanders Goldberg Nikpour Cohen & Sullivan CPA’s, PLLC which will render accounting services to the Company.
On December 1, 2015, the Company approved the issuance of 11,884,500 shares of restricted Common Stock which were issued in July 2016 by its transfer agent to the Company’s outside law firm which acts as securities and general counsel to the Company in exchange for services. A partner in the law firm serves as Corporate Secretary to the Company.
(d) The Company utilizes office space at the offices of an entity controlled by its Chief Executive Officer who is also a director of the Company on a month-to-month basis.
NOTE 9 - STOCK OPTION PLAN
At March 31, 2016 and December 31, 2015, the Company had outstanding options to purchase 4,000,000 shares of Common Stock with exercise prices of between $0.05 and $0.55 per share. The Company did not issue any options to acquire any of its securities in years 2013, 2014 or 2015.
F-31 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 9 - STOCK OPTION PLAN (CONT’D)
In 2000, the Company adopted the 2000 Stock Option and Restricted Stock Plan (the "2000 Plan"). On July 16, 2009, the 2000 Plan was amended and restated. The 2000 Plan, as restated and amended, provided for the granting of options to purchase up to 25,000,000 shares of common stock. The Plan has expired.
The fair market value of stock options issued that has not been expensed was $263,250 and $351,000 to be expensed over .75 and 1.0 years as of March 31, 2016 and December 31, 2015, respectively.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants:
Three Months | Year Ended | |||||||
Ended March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Weighted average risk-free rate | 1.07 | % | 1.17 | % | ||||
Average Expected life in years | 0.75 | 1.00 | ||||||
Expected dividends | 0 | 0 | ||||||
Volatility | 154.37 | % | 154.22 | % | ||||
Forfeiture rate | 52 | % | 52 | % |
The fair value of options granted is estimated on the date of grant based on the weighted-average assumptions in the table above. The assumption for the expected life is based on evaluations of historical and expected exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. The historical daily stock volatility of the Company’s common stock (the Company’s only class of publicly traded stock) over the estimated life of the stock warrant is used as the basis for the volatility assumption.
The Company accounts for employee stock options as compensation expense, in accordance with FASB ASC 718. FASB ASC 718 requires companies to expense the value of employee stock options and similar awards over the requisite service period.
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be materially different from what we have recorded in the current period.
In July 2016, the Company adopted a new stock based compensation plan, with a reserve of 75,000,000 shares of Common Stock. See Note 12, Subsequent Event.
F-32 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Share based compensation was $6,432 and $35,115 for the three months ended March 31, 2016 and year ended December 31, 2015, respectively.
In December 2015, the Company issued an aggregate of 23,769,000 shares of Common Stock with a value of $23,769 to its outside law firm which acts as securities and general counsel to the Company and also to a member of management to retain their assistance in conducting due diligence on the Company, negotiating with tax authorities related to past tax claims, assisting management with developing its business plan, negotiating with potential sources of capital, initiating its first battery energy storage project, undertaking compliance with public company regulations and other professional services.
NOTE 11 – PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, par value $0.001 per share. With respect to the preferred stock, the Company designated: 140,000 shares as Series B Convertible Preferred Stock, of which 133,000 shares are issued and outstanding; 175,000 shares as Series C-1 Convertible Preferred Stock, of which 34,625 shares are issued and outstanding; 375,000 shares of Series D Convertible Preferred Stock, of which 304,377 are issued and outstanding; and 1,000 shares of Series E Preferred Stock, of which 305 are issued and outstanding.
At March 31, 2016 and December 31, 2015 the Company had:
ACCRUED DIVIDENDS | ||||||||||||||||
ISSUED AND | PAYABLE | |||||||||||||||
DESIGNATED | OUTSTANDING | MARCH 31, | DECEMBER 31, | |||||||||||||
SHARES | SHARES | 2016 | 2015 | |||||||||||||
Series B | 140,000 | 133,000 | $ | 2,261,000 | $ | 2,128,000 | ||||||||||
Series C-1 | 175,000 | 34,625 | 470,900 | 443,200 | ||||||||||||
Series D | 375,000 | 304,377 | 1,655,800 | 1,558,400 | ||||||||||||
Series E | 1,000 | 305 | - | - | ||||||||||||
$ | 4,387,700 | $ | 4,129,600 |
The Company has not issued or created any shares or classes of preferred stock since 2012. No shares of any class of preferred stock were converted into Common Stock during 2015 or 2014.
Each share of Series B Preferred Stock is initially convertible into 100 shares of the Company’s common stock, subject to adjustment under certain circumstances, based upon a stated value of $50.00 per share. There are 133,000 shares of Series B Preferred Stock issued and outstanding, convertible into 13,300,000 shares of Common Stock. The Series B Preferred Stock is convertible at the option of the holder at any time. The Series B Preferred Stock is also subject to mandatory conversion in the event the average closing price of the Company’s common stock for any ten day period equals or exceeds $1.00 per share, such conversion to be effective on the trading day immediately following such ten day period. The Series B Preferred Stock has a dividend equal to 8% of the aggregate $7,000,000 stated value of the Series B Preferred Stock, payable annually in cash or stock, at the discretion of the Company’s board of directors. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series B Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of preferred stock, an amount per share of Series B Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series B Stock for each share of Series B Stock held by them. With respect to the Series B Preferred Stock, the Company has accrued but undeclared dividends of $2,261,000 and $2,128,000 at March 31, 2016 and December 31, 2015, respectively.
F-33 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 11 – PREFERRED STOCK (CONT’D)
Each share of Series C-1 Preferred Stock is convertible into 100 shares of the Company’s common stock, subject to adjustment under certain circumstances, based upon a stated value of $40.00 per share. There are 34,625 shares of Series C-1 Preferred Stock issued and outstanding, convertible into 3,462,500 shares of Common Stock. The Series C-1 Preferred Stock is convertible at the option of the holder at any time. The Series C-1 Preferred Stock is also subject to mandatory conversion in the event the average closing price of the Company’s common stock for any ten day period equals or exceeds $1.00 per share, such conversion to be effective on the trading day immediately following such ten day period. The Series C-1 Preferred Stock has a dividend rate of 8% payable annually in cash or stock, at the discretion of the Company’s board of directors. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series C-1 Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of preferred stock, an amount per share of Series C-1 Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series C-1 Stock for each share of Series C-1 Stock held by them. With respect to the Series C-1 Preferred Stock, the Company has accrued but undeclared dividends of $470,900 and $443,200 at March 31, 2016 and December 31, 2015, respectively.
The Series D preferred stock has an annual dividend equal to 8% of the aggregate $5,220,000 stated value of the preferred stock ($16.00 per share), payable annually in cash or stock, at the discretion of the Company’s board of directors. There are 304,377 shares of Series D Preferred Stock issued and outstanding, convertible into 30,437,000 shares of Common stock. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series D preferred stock are entitled to be paid out of the assets of the Company, proportionally with any other series of preferred stock, an amount per share of Series D preferred stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series D preferred stock for each share of Series D preferred stock held by them.
The conversion price for the Series D preferred stock is $0.16 per share, and the Series D preferred stock is subject to mandatory conversion of 100 common shares per 1 Series D preferred share, in the event the average closing price of the Company’s common stock for any ten day period equals or exceeds $0.50 per share and the average daily trading volume is at least 50,000 shares of common stock per day during such ten-day period, such conversion to be effective on the trading day immediately following such ten day period. Series D preferred stock shall vote with the shares of Common Stock on an as converted basis from time to time, and not as a separate class, at any duly called annual or special meeting of stockholders of the Company. The holders of our Series D preferred stock have no pre-emptive rights, and the Company cannot amend the Series D preferred stock’s Certificate of Designation without first obtaining the approval of 75% of the holders of the outstanding Series D preferred stock. With respect to the Series D Preferred Stock, the Company has accrued but undeclared dividends of $1,655,800 and $1,558,400 at March 31, 2016 and December 31, 2015, respectively.
On January 27, 2012 and January 30, 2012, the Company consummated closings of a private placement offering for an aggregate of 305 shares of Series E Convertible Preferred Stock, par value of $0.001 per share. The Series E Preferred Stock carries no dividend, and each share of Series E Preferred Stock is convertible into 1,000,000 shares of Common Stock and also has voting rights on the same basis.
F-34 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 11 – PREFERRED STOCK (CONT’D)
The Company does not currently have sufficient authorized shares of its Common Stock to provide for the issuance of shares which might be issued upon conversion of, and payment of accrued dividends related to, its various classes of preferred stock (Classes B, C-1, D and E). The Company has authorized 350 million shares of Common Stock as of June 30, 2016, of which 91,302,666 are issued and outstanding. On July 20, 2016, the Company’s Board of Directors approved adopting an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of Common Stock to 700 million shares. The Company will be required to obtain approval from the holders of a majority of the voting shares of common stock and preferred stock for the amendment and expects to file an amendment with the Secretary of State of Delaware prior to August 25, 2016.
NOTE 12 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through August 11, 2016, the date on which the financial statements were available to be issued. No events, other than those described below, have occurred that require disclosure or adjustments.
1. Consulting and Officer Employment Agreements:
Effective July 20, 2016, the Board of Directors approved compensation and employment agreements with each of Gary Weiss, Ronald Scott Caputo and Jeffrey Lines.
Mr. Lines is currently a consultant to the Company and has been serving as a consultant since July 2015. Under the terms of his arrangement with the Company, he will continue to serve as a consultant until the Company has sufficient capital or revenue to employ him on a full time basis. Mr. Lines received total compensation of consulting fees of $2,500 during the three months ended March 31, 2016 and $14,580 during the year ended December 31, 2015. Mr. Lines has also received 10,000,000 restricted stock units under the 2016 Plan (see below). As a consultant, Mr. Lines is not required to devote his full business time and efforts to the Company’s business.
Assuming that Mr. Lines is employed on a full time basis, he will be entitled to participate on the same terms as other employees in the Company’s health and other benefit plans. Additionally, the Company will pay him a base salary of $150,000 per year. He will be entitled to a signing bonus of $10,000 per month commencing as of June 1, 2016 up to an aggregate of $60,000. At the time he is employed on a full time basis an employee, Mr. Lines will serve as Vice President – Project Manager. The term of employment will be one year from the date the employment agreement becomes effective.
The Company has also entered into an employment agreement, to commence when sufficient funds are obtained, with its CEO, Gary Weiss, who also serves as a director of the Company. The Company will pay him a base salary of $150,000 per year. He will be entitled to a signing bonus of $10,000 per month commencing as of June 1, 2016 up to an aggregate of $60,000. At the time he is employed on a full time basis an employee, Mr. Weiss will continue to serve as Chief Executive Officer and President. The term of employment will be three years from the commencement date. Mr. Weiss (through an entity controlled by him) received compensation in the amount of $20,235 during the year ended December 31, 2015.
F-35 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 12 - SUBSEQUENT EVENTS (CONT’D)
1. Consulting and Officer Employment Agreements (Cont’d):
The Company has also entered into an employment agreement, to commence when sufficient funds are obtained, with its President and Chief Operating Officer, Ronald Scott Caputo, who also serves as a director of the Company. The Company will pay him a base salary of $150,000 per year. He will be entitled to a signing bonus of $10,000 per month commencing as of June 1, 2016 up to an aggregate of $60,000. At the time he is employed on a full time basis an employee, Mr. Caputo will continue to serve as Chief Operating Officer. The term of employment will be three years from the commencement date. Mr. Caputo (through an entity controlled by him) received compensation in the amount of $10,300 during the three months ended March 31, 2016 and $38,593 during the year ended December 31, 2015.
2. Stock Based Compensation Plan:
On July 20, 2016, the Board of Directors approved a new stock based compensation plan entitled the 2016 Omnibus Equity Incentive plan (this “2016 Plan”). The 2016 Plan was adopted by written consent by the holders of a majority of the shares of Common Stock (including holders of the Series B, C-1, D and E preferred stock entitled to vote and voting on an as converted basis) effective July 22, 2016.
There are a total of 75,000,000 shares of common stock reserved for issuance in connection with awards under the 2016 Plan.
Effective July 22, 2016, the Company has granted a total of 11,000,000 restricted shares under the 2016 Plan. As the 2016 Plan had not been adopted as of March 31, 2016 or December 31, 2015, no awards were outstanding under this plan as of such dates.
Under the 2016 Plan, options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other share-based awards and performance awards may be granted to eligible participants. Subject to the reservation of authority by the board of directors to administer the 2016 Plan and act as the committee thereunder, the 2016 Plan will be administered by a committee of (the “Committee”) established by the Board, which committee will have the authority to determine the terms and conditions of awards, and to interpret and administer the 2016 Plan.
The maximum number of shares of common stock that are available for awards under the 2016 Plan (subject to the adjustment provisions described in the plan for changes in capitalization), is 75,000,000 shares. If any shares of common stock subject to an award under the 2016 Plan, are forfeited, expire or are settled for cash (in whole or in part), the shares subject to the award may be used again for awards under the 2016 Plan to the extent of the forfeiture, expiration or cash settlement.
Options, stock appreciation rights (“SARs”), restricted stock awards, restricted stock unit awards, other share-based awards and performance awards may be granted under the 2016 Plan. Options may be either “incentive stock options,” as defined in Section 422 of the Code, or nonstatutory stock options. Awards may be granted under the 2016 Plan to an employee, non-employee member of the board of directors, consultant or advisor who is a natural person and provides services to the Company or a subsidiary, except for incentive stock options which may be granted only to employees.
F-36 |
POWER EFFICIENCY CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 12 - SUBSEQUENT EVENTS (CONT’D)
3. Other Subsequent Events:
(a) The Company has agreed to issue to a non employee director 1,000,000 restricted shares, as of July 20, 2016 as compensation for services under its 2016 Omnibus Equity Incentive Plan.
(b) On July 28, 2016, the Board of Directors authorized the issuance of 15,000,000 shares of restricted common stock to a third party consultant. The consultant is providing general business advice to management about its plan of operations, future markets and shareholder relations.
(c) On July 20, 2016, the Company’s Board of Directors approved adopting an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of Common Stock to 700 million shares. The Company will be required to obtain approval from the holders of a majority of the voting shares of common stock and preferred stock for the amendment and expects to file an amendment with the Secretary of State of Delaware prior to August 25, 2016.
(d) On May 23, 2016, the Board of Directors approved the issuance of 1,000,000 shares of common stock to one of the Company’s outside attorneys in consideration for legal services related to zoning and related local approvals for the Hillsborough, NJ BESS system. The attorney is the brother of the Chief Operating Officer and President.
(e) On July 30, 2016, the Company was selected through a bid auction process an award for two separate bids to supply up to 12 kilowatts of demand energy savings through the Consolidated Edison Brooklyn Queens Demand Energy Management Program. Under this program, Consolidated Edison of New York is offering incentives for energy management. Consolidated Edison Company of New York, Inc., provides electric, gas and steam service to New York City and Westchester County and is regulated by the New York Public Service Commission (NYSPSC). The Company will be required to provide electric usage savings during certain hours for 2017 and 2018 in specified neighborhoods in Brooklyn and Queens, New York and will be required to incur the expense of purchasing and installing such generator systems or develop other systems in order to meet its requirements. As a bid auction selectee, the Company will be required to enter into a contract for services with Consolidated Edison. The Company will also be required to provide a standby letter of credit in the amount of approximately $800,000 under the terms of the award, and guarantee levels of performance. If the Company is unable to satisfy the terms of the contract, or provide a standby letter of credit on terms satisfactory to Consolidated Edison it may be terminated from participation in the program.
F-37 |
EXHIBIT INDEX
The following documents are filed as exhibits hereto immediately following the “Financial Statements” section:
3.1 | Certificate of Incorporation as amended. |
3.2. | Amended and Restated By-Laws of Power Efficiency Corporation. |
10.1. | 2016 Omnibus Equity Incentive Plan. |
21. | Subsidiaries of Registrant. |
23.1 | Consent of Liebman Goldberg & Hymowitz LLP |
29 |
Exhibit 3.1
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS OF
POWER EFFICIENCY CORPORATION
(Amended and Restated as of July ____, 2016)
aRTICLE I - OFFICES AND AGENTS
1.1 Registered Office.
The corporation shall have and maintain in the State of Delaware a registered office which may, but need not be, the same as its place of business.
1.2 Other Offices.
The corporation may also have offices and places of business at such places within or without the State of Delaware as the Board of Directors (the “Board”) may from time to time determine or the business of the corporation may require.
aRTICLE II - STOCK AND STOCKHOLDERS
2.1 Certificates Representing Stock.
Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board or by the President or Executive Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. The certificates for shares of stock of the corporation shall be in such form as shall be determined by the Board, shall have set forth thereon any statements prescribed by statute, and shall be numbered and entered in the stock ledger of the corporation as they are issued. Any and all signatures on any such certificate may be facsimiles or other electronic format. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
(a) Shares Without Certificates.
Notwithstanding any other provisions herein, the Board may authorize the issuance of some or all of the shares of any or all of the corporation’s classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation. Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall send the shareholder a complete record containing the information required on certificates by applicable Delaware General Corporation Law (the “DGCL”).
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2.2 Lost Certificates.
The Board may direct that a new share certificate be issued in place of any certificate theretofore issued by the corporation which has been mutilated or which is alleged to have been lost, stolen or destroyed, upon presentation of each such mutilated certificate or the making by the person claiming any such certificate to have been lost, stolen or destroyed of an affidavit as to the fact and circumstances of the loss, theft or destruction thereof, or complying with such other procedures as may be established by the Board. The Board, in its discretion and as a condition precedent to the issuance of any new certificate, may require the owner of any certificate alleged to have been lost, stolen or destroyed, or his legal representative, to furnish the corporation with a bond, in such sum and with such surety or sureties as it may direct, as indemnity against any claim that may be made against the corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.
2.3 Fractions of Shares.
The corporation may, but shall not be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (l) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions with the Board may impose.
2.4 Stock Transfers.
Upon compliance with provisions restricting the transfer or registration of transfer of shares of stock, if any, transfers of stock shall be made only upon the transfer books of the corporation kept at an office of the corporation or by transfer agents designated to transfer shares of the stock of the corporation. Except where a certificate is issued in accordance with Section 2.2 of these By-laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefore. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes or series of stock of the corporation to restrict the transfer or voting of shares of stock of the corporation of any one or more classes or series owned by such stockholders in any manner not prohibited by the DGCL.
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2.5 Record Date.
For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or the allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
2.6 Meetings of Stockholders.
(a) Time and Place.
All meetings of stockholders shall be held at such time and such place, whether within or without the State of Delaware, as designated by the Board. The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the DGCL. In the absence of any such designation or determination, stockholders’ meetings shall be held at the corporation’s principal executive office.
(b) Annual Meetings.
An annual meeting of stockholders shall be held at such time and place as designated by the Board. At each annual meeting, the stockholders shall elect a Board and transact such other business as may properly be brought before the meeting.
(c) Special Meetings.
Special meetings of stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation of the corporation (the “Certificate”), may be called by the Chairman of the Board, the Chief Executive Officer (or, in the absence of a chief executive officer, the President) or a majority of the members of the Board then in office. The secretary of the corporation shall prepare a proper notice of any special meeting and business transacted at any special meeting shall be limited to the purposes stated in the notice of the meeting or in a duly executed waiver of notice thereof.
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If any person(s), other than the Board, authorized by these By-laws to call a special meeting of stockholders calls a special meeting, the request shall (1) be in writing; (2) specify the business proposed to be transacted; and (3) be delivered personally or sent by registered mail to the secretary of the corporation. Upon receipt of such a request, the Board shall determine the date, time and place of such special meeting, which shall be scheduled to be held on a date that is within ninety (90) days of receipt by the secretary of such request, or as soon thereafter as reasonably practicable in the judgment of the Board.
(d) Notice of Stockholders’ Meetings.
All notices of meetings of stockholders shall be sent or otherwise given in accordance with either Section 2.9 or Section 8.1 of these By-laws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, except as otherwise required by applicable law. The notice shall specify the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Any previously scheduled meeting of stockholders may be postponed, and, unless the Certificate provides otherwise, any special meeting of the stockholders may be cancelled by resolution duly adopted by a majority of the Board members then in office upon public notice given prior to the date previously scheduled for such meeting of stockholders.
Whenever notice is required to be given, under the DGCL, the Certificate or these By-laws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate with the Secretary of State of Delaware, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
Whenever notice is required to be given under any provision of the DGCL, the Certificate or these By-laws, to any stockholder to whom (a) notice of two (2) consecutive annual meetings, or (b) all, and at least two (2) payments (if sent by first-class mail) of dividends or interest on securities during a twelve (12) month period, have been mailed addressed to such person at such person’s address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth such person’s then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate with the Secretary of State of Delaware, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to Section 230(b) of the DGCL. The exception in subsection (a) of the above paragraph to the requirement that notice be given shall not be applicable to any notice returned as undeliverable if the notice was given by electronic transmission.
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(e) Stockholder List.
The Secretary of the corporation shall prepare and make, or cause to be prepared and made, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city or other municipality or community where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence of the stockholders entitled to examine the stock ledger, the list required by this subsection or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. The corporation shall have the power and authority to retain a stock transfer and registrar to maintain its stock ledger.
(f) Quorum.
Except as otherwise provided by statute or the Certificate, the holders of a majority of the shares of stock of the corporation issued and outstanding and entitled to vote thereat, present in person or by proxy, shall be necessary to and shall constitute a quorum for the transaction of business at each meeting of stockholders. If a quorum shall not be present at the time fixed for any meeting, the chairman of the meeting or the stockholders representing a majority of the voting power of the corporation’s capital stock present at the meeting in person or by proxy and entitled to vote thereat shall have power to adjourn the meeting from time to time, without notice other than an announcement at the meeting of the place, date and hour of the adjourned meeting, until a quorum shall be present. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted had a quorum been present at the time originally fixed for the meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
(g) Conduct of Meeting.
Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting: the Chairman of the Board, Vice-Chairman of the Board, the Chief Executive Officer, the President, the Executive Vice President, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the Board. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the chairman of the meeting shall appoint a secretary of the meeting. The Board of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry at the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless, and to the extent, determined by the Board or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules or parliamentary procedures.
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(h) Voting.
Except as otherwise provided by statute or by the Certificate, at any meeting of stockholders each stockholder shall be entitled to one vote for each outstanding share of stock of the corporation standing in such holder's name on the books of the corporation as of the record date for determining the stockholders entitled to notice of and to vote at such meeting. At any meeting of stockholders at which a quorum is present, all elections shall be determined by plurality vote and all other matters shall be determined by the vote of the holders of a majority of the shares present in person or by proxy and entitled to vote, unless the matter is one with respect to which, by express provision of statute, the Certificate or these By-laws, a different vote is required, in which case such express provision shall govern and control the determination of such matter.
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.5 of these By-laws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL. Except as otherwise provided in the provisions of Section 213 of the DGCL (relating to the fixing of a date for determination of stockholders of record) or these By-laws, each stockholder shall be entitled to that number of votes for each share of capital stock held by such stockholder as set forth in the Certificate.
(i) Proxy Representation.
Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent to corporate action in writing without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A stockholder may also authorize another person or persons to act for him, her or it as proxy in the manner(s) provided under Section 212(c) of the DGCL or as otherwise provided under Delaware law. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.
(j) Inspectors of Election.
The Board, in advance of any meeting of stockholders, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed in advance of the meeting, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them.
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(k) Adjournment of Meeting; Notice.
When a meeting is adjourned to another time or place, unless these By-laws otherwise require, notice need not be given of the adjourned meeting if the time, place if any thereof, and the means of remote communications if any by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the continuation of the adjourned meeting, the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting in accordance with the provisions of Section 2.6 (d) and 2.9 of these By-laws.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
2.7 Advance Notice of Stockholder Business at Stockholder Meetings.
(a) Only such business shall be conducted as shall have been properly brought before a meeting of the stockholders of the corporation. To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (ii) otherwise properly brought before the meeting by or at the direction of the Board, or (iii) a proper matter for stockholder action under all applicable laws and these By-laws and that has been properly brought before the meeting by a stockholder (A) who is a stockholder of record on the date of the giving of the notice provided for in Section 2.6 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (B) who complies with the notice procedures set forth in this Section 2.7. For the avoidance of doubt, except for nominations made in accordance with Section 3.4 of these By-laws, clause (iii) of this Section 2.7(a) shall be the exclusive means for a stockholder to bring business (other than business included in the corporation’s proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) before an annual meeting of stockholders.
(b) For such business to be considered properly brought before the meeting by a stockholder such stockholder must, in addition to any other applicable requirements, have given timely notice in proper form of such stockholder’s intent to bring such business before such meeting. To be timely, such stockholder’s notice must be delivered to or mailed and received by the secretary of the corporation at the principal executive offices of the corporation not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the anniversary date of the immediately preceding annual meeting; provided, however, that, subject to the last sentence of this paragraph, in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed (other than as a result of adjournment) by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth (10th) day following the date on which such notice of the date of such meeting was mailed or the Public Announcement (as defined below) of the date of such meeting is first made by the corporation. In no event shall an adjournment or postponement of an annual meeting or the Public Announcement thereof commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
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(c) To be in proper form, a stockholder’s notice to the secretary shall be in writing and shall set forth:
(i) the name and record address of the stockholder who intends to propose the business and any Stockholder Associated Person (as defined below);
(ii) the class or series and number of shares of capital stock of the corporation that are owned beneficially or of record by such stockholder and any Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any Stockholder Associated Person, and a representation that the stockholder will notify the corporation in writing of the class and number of such shares owned of record and beneficially by each such person as of the record date for the meeting not later than five business days following the record date;
(iii) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, or whether any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit from share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, and a representation that the stockholder will notify the corporation in writing of any such agreement, arrangement or understanding in effect as of the record date for the meeting not later than five (5) business days after the record date for such meeting;
(iv) a description of any agreement, arrangement or understanding (whether or not in writing) with respect to any business between or among such stockholder or Stockholder Associated Person and any other person (including without limitation any such agreements, arrangements or understandings relating to the corporation or its securities), including without limitation any agreements that would be required to be described or reported pursuant to Item 5 or Item 6 of Schedule 13D (regardless of whether the requirement to file a Schedule 13D is applicable to the stockholder or Stockholder Associated Person) and a representation that the stockholder will notify the corporation in writing within five (5) business days after the record date for such meeting of any such agreement, arrangement or understanding in effect as of the record date for the meeting;
(v) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to introduce the business specified in the notice;
(vi) a brief description of each matter of business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting;
(vii) any material interest of the stockholder or any Stockholder Associated Person in such business;
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(viii) a statement whether either such stockholder or any Stockholder Associated Person intends, or is part of a group which intends, to deliver a proxy statement and form of proxy to holders of at least the percentage of the corporation’s voting shares required under applicable law to carry the proposal (such statement, a “Business Solicitation Statement”); and
(ix) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Exchange Act.
(d) No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.7 (and if applicable, Section 3.4 of these By-laws). In addition, business may not be brought before the meeting if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Business Solicitation Statement applicable to such business. The chairman of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that business was not properly brought before the annual meeting and in accordance with the provisions of this Section 2.7, and, if the chairman should so determine, he or she shall so declare at the annual meeting that any such business not properly brought before the annual meeting shall not be transacted. Notwithstanding the foregoing provisions of this section, if the stockholder (or a qualified representative of the stockholder) is not present at the meeting to propose such business, such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote have been received by the corporation. For purposes of this section and section 3.4 of these By-laws, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or authorized by a writing executed by such stockholder (or a reliable reproduction or electronic transmission of the writing) delivered to the corporation prior to the making of such proposal at such meeting by such stockholder stating that such person is authorized to act for such stockholder as proxy at the meeting of stockholders.
(e) Notwithstanding the foregoing, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.7. Nothing in these By-laws shall be deemed to affect any rights of stockholders to request inclusion of proposals in, nor the right of the corporation to omit a proposal from, the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(f) For purposes of these By-laws,
(i) a “Stockholder Associated Person” of any stockholder shall mean (a) any beneficial owner on whose behalf the stockholder is proposing such business or, for purposes of Section 3.4 of these By-laws, proposing a director nomination and (b) any person controlling, directly or indirectly, or acting in concert with, such stockholder or beneficial owner;
(ii) “Public Announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act; and
(iii) shares shall be treated as “beneficially owned” by a person if the person (a) beneficially owns such shares, directly or indirectly, for purposes of Section 13(d) of the Exchange Act and Regulations 13D and 13G thereunder, or (b) has or shares pursuant to any agreement, arrangement or understanding (whether or not in writing) (A) the right to acquire such shares (whether such right is exercisable immediately or only after the passage of time or the fulfillment of a condition or both), (B) the right to vote such shares, alone or in concert with others, and/or (C) investment power with respect to such shares, including the power to dispose of, or to direct the disposition of, such shares.
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2.8 Action of Stockholders without a Meeting.
Any action required or permitted to be taken at an annual or special meeting of stockholders by statute, the Certificate or these By-laws, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, as determined in accordance with the DGCL. Where any action is taken in such manner by less than unanimous written consent, prompt written notice of the taking of such action shall be given to all stockholders who have not consented in writing thereto.
2.9 Manner of Giving Notice; Affidavit of Notice.
(a) Notice of any meeting of stockholders shall be given:
(i) if mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the corporation’s records;
(ii) if electronically transmitted, as provided in Section 8.1 of these By-laws; or
(iii) otherwise, when delivered.
(b) An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or any other agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(c) Notice may be waived in accordance with Section 7.9 of these By-laws.
aRTICLE III - DIRECTORS
3.1 Powers.
Subject to the provisions of the DGCL and any limitations in the Certificate, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. The Board may exercise all such powers of the corporation and do all such lawful acts on its behalf as are not by the DGCL or by the Certificate or by these By-Laws directed or required to be exercised by the stockholders.
3.2 Qualifications.
Directors need not be stockholders of the corporation, citizens of the United States or residents of the State of Delaware.
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3.3 Number.
Subject to the rights, if any, of the holders of any series of preferred stock then outstanding to elect directors under specified circumstances, the authorized number of directors shall be determined from time to time by resolution of the Board, provided the Board shall consist of at least three members. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
3.4 Advance Notice of Director Nominations.
(a) Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the corporation. To be properly brought before an annual meeting of stockholders, or any special meeting of stockholders called for the purpose of electing directors, nominations for the election of director must be (a) specified in the notice of meeting (or any supplement thereto), (b) made by or at the direction of the Board (or any duly authorized committee thereof) or (c) made by any stockholder of the corporation who (i) is a stockholder of record on the date of the giving of the notice provided for in this Section 3.4 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) complies with the notice procedures set forth in this Section 3.4.
(b) In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the secretary of the corporation. To be timely, a stockholder’s notice to the secretary must be delivered to or mailed and received at the principal executive offices of the corporation, in the case of an annual meeting, in accordance with the provisions set forth in Section 2.7 of these By-laws, and, in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the date on which such notice of the date of such meeting was mailed or on which Public Announcement of the date of the special meeting is was made by the corporation, whichever first occurs. In no event shall an adjournment or postponement of an annual meeting or a special meeting called for the purpose of electing directors, or the Public Announcement thereof commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(c) To be in proper written form, a stockholder’s notice to the secretary must set forth:
(i) as to each person whom the stockholder proposes to nominate for election as a director (a “nominee”): (a) the name, age, business address and residence address of the person, (b) the principal occupation or employment of the person, (c) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by the person, (d) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of the nominee with respect to any securities of the corporation, or whether any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of the nominee, (e) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (f) any other information relating to such person that would be required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder by the SEC (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and
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(ii) as to such stockholder giving notice: (a) the information required to be provided pursuant to Section 2.7 (including without limitation (1) all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any Stockholder Associated Person were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant, (2) all information required to be disclosed by the stockholder under Regulation 14A under the Exchange Act, and (3) to the extent that Section 2.7 refers to other business between the stockholder providing notice and any other person, for the purpose of this Section 3.4, such business shall mean the nomination of the individual(s) for election to the Board); (b) in lieu of the information required by Section 2.7(c)(viii), a statement whether either such stockholder or Stockholder Associated Person intends, or is part of a group which intends, to deliver a proxy statement and form of proxy to holders of a number of the corporation’s voting shares reasonably believed by such stockholder or Stockholder Associated Person to be necessary to elect such nominee(s) (such statement, a “Nominee Solicitation Statement”); and (c) as to the stockholder giving the notice and the Stockholder Associated Person(s), if any, on whose behalf the nomination is made, such stockholder’s and Stockholder Associated Person’s written consent to the public disclosure of information provided pursuant to this Section 3.4.
(d) At the request of the Board, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee; in the absence of the furnishing of such information if requested, such stockholder’s nomination shall not be considered in proper form pursuant to this Section 3.4.
(e) Without exception, no person shall be eligible for election or re-election as a director of the corporation at an annual meeting of stockholders unless nominated in accordance with the procedures set forth in this Section 3.4. In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these By-laws, and if the chairman should so determine, he or she shall so declare at the meeting, and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this section, if the stockholder (or a qualified representative of the stockholder, as defined in Section 2.7(d) of these By-Laws) is not present at the meeting to present such nomination, such nomination shall be disregarded, notwithstanding that proxies in respect of such nomination may have been received by the corporation.
(f) Notwithstanding the foregoing provisions of this Section 3.4, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.4.
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3.5 Election, Qualification and Term of Directors.
Except as provided in Section 3.6 and Section 3.7 of these By-laws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the Certificate or these By-laws. The Certificate or these By-laws may prescribe other qualifications for directors. Each director, including a director elected to fill a vacancy, shall hold office for a term expiring at the annual meeting of stockholders next succeeding his or her election and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. All elections of directors shall be by written ballot, unless otherwise provided in the Certificate. If authorized by the Board, such requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission, provided that any such electronic transmission must either be set forth or submitted with information from which it can be determined that the electronic transmission was authorized.
3.6 Resignation and Removal.
Any director may resign at any time by written notice (including by electronic transmission) to the corporation. Such notice shall take effect at the time therein specified or, if no time is specified immediately, and, unless specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Any director or the whole Board may be removed, with cause, by the holders of a majority of the shares entitled to vote at an election of directors, and any director or the whole board of directors may be removed without cause by the holders of a majority of the shares of the class then entitled to vote for the election of the director or directors sought to be removed. Any such removal shall be without prejudice to the rights, if any, of the director so removed under any contract of service or other agreement with the corporation.
3.7 Vacancies.
Unless otherwise provided in the Certificate or these By-laws and subject to the rights, if any, of the holders of any series of preferred stock of the corporation then outstanding and unless the Board otherwise determines, any vacancy in the Board occurring by reason of the death, resignation or disqualification of any director, the removal of any director from office for cause or without cause, an increase in the number of directors, or otherwise, may be filled by a majority of the directors then in office elected by the holders of the shares of the class entitled to vote at an election of directors for the vacancy sought to be filled, although such majority is less than a quorum, or by the sole remaining director of such class, or by the stockholders of such class. Each director elected to fill a vacancy shall hold office for a term expiring at the next succeeding annual meeting of stockholders and until his successor is elected and has qualified or until his earlier displacement from office by resignation, removal or otherwise. If one or more directors shall resign from the Board effective at a future date, a majority of the directors then in office, including those who have so resigned, elected by the holders of the shares of the Class entitled to vote at an election of directors for the vacancy sought to be filled, may fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.
3.8 Meetings of the Board of Directors.
(a) Regular Meetings.
Regular meetings of the Board may be held, without notice, at such times and places as shall from time to time be fixed in advance by resolution of the Board.
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(b) Special Meetings; Notice.
Special meetings of the Board for any purpose or purposes may be called at any time by the Chairman of the Board, the Chief Executive Officer, or the President, and, at the written request of a majority of the members of the whole Board, shall be called by the Chairman of the Board, the Chief Executive Officer, the President or the Secretary. The person(s) authorized to call the special meetings of the Board may fix the place and time of the meeting. Notice of the time and place of special meetings shall be: delivered personally by hand, by courier or by telephone; sent by United States first-class mail, postage prepaid; sent by facsimile; or sent by electronic mail, directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the corporation’s records. If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least twenty-four (24) hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated either to the director or to a person at the office of the director who the person giving notice has reason to believe will promptly communicate such notice to the director. The notice need not specify the place of the meeting if the meeting is to be held at the corporation’s principal executive office nor the purpose of the meeting.
(c) Chairman of the Meeting.
The Chairman of the Board, if present and acting, shall preside at all meetings of the Board. Otherwise, the Vice-Chairman, the Chief Executive Officer or the President, if present and acting, or any other director chosen by the Board, shall preside.
(d) Quorum and Voting.
At all meetings of the Board, a majority of the whole shall be necessary and sufficient to constitute a quorum for the transaction of business, except when a vacancy or vacancies prevents such a majority, whereupon a majority of the directors in office or appointed to such committee shall constitute a quorum, provided that such majority shall constitute at least one-third of the whole Board, as the case may be. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute or the Certificate or these By-Laws. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board which authorizes a contract or transaction between the corporation and one or more of its directors, or between the corporation and any other corporation, partnership, association or other organization in which one or more of the directors of the corporation are directors or officers, or have a financial interest. If a quorum shall not be present at any meeting of the Board, the members of the Board present thereat may adjourn the meeting from time to time, without notice other than an announcement at the meeting, until a quorum shall be present.
(e) Location of Meetings; Telephone Participation.
The Board may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the Certificate or these By-laws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
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(f) Adjourned Meeting; Notice.
If a quorum is not present at any meeting of the Board, then a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
3.9 Waiver of Notice.
Whenever notice is required to be given under any provisions of the DGCL, the Certificate or these By-laws, a written waiver thereof, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting solely for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate or these By-laws.
3.10 Board Action by Written Consent without a Meeting.
Unless otherwise restricted by the Certificate or these By-laws, any action required or permitted to be taken at any meeting of the Board, may be taken without a meeting if all members of the Board, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
3.11 Compensation of Directors.
Unless otherwise restricted by the Certificate or these By-laws the Board is authorized to make provision for reasonable compensation to its members for their services as directors and to fix the basis and conditions upon which this compensation shall be paid. Any director may also serve the corporation in any other capacity and receive compensation therefor in any form.
3.12 Reliance on Books and Records.
A member of the Board or of any committee thereof designated by the Board as provided in these By-laws, shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or reports made to the corporation by any of its officers, or by an independent certified public accountant or by an appraiser selected with reasonable care by the Board or by any such committee, or in relying in good faith upon other records of the corporation.
3.13 Chairman of the Board.
The Board shall elect one of its members to be chairman of the Board and may elect one (1) or more members of the Board to act as co-chairman or vice chair in its discretion. The Board shall fill any vacancy in the position of chairman of the Board at such time and in such manner as the Board shall determine. Unless otherwise determined by the Board, neither the chairman of the Board nor any co-chairman or vice chair of the Board shall be considered an officer of the corporation solely by virtue of such position.
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3.14 Duties.
The director(s) holding the positions set forth below shall have the powers and duties set forth below unless otherwise determined by the Board.
(a) Duties of the Chairman of the Board. The chairman of the Board shall if present, preside at meetings of the stockholders and the Board, unless the Board determines otherwise, and shall exercise and perform such other powers and duties as may from time to time be assigned to him or her by the Board or as may be prescribed by these By-laws.
(b) Duties of Vice-Chair of the Board. Any vice chair shall preside at meetings of the stockholders and at meetings of the Board in the absence of the chairman, unless the Board determines otherwise. The vice chair shall have such authority as specified by the chairman, the Board or these By-laws.
aRTICLE IV - COMMITTEES OF DIRECTORS
4.1 Designation of Committees.
The Board may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The Board may add or remove members of any committee from time to time in its discretion. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these By-laws, shall have and may exercise such lawfully delegable powers and duties as the Board may confer. Each committee will comply with all applicable provisions of: the Sarbanes-Oxley Act of 2002, the rules and regulations of the Securities and Exchange Commission, and the rules and requirements of The Nasdaq Stock Market or the New York Stock Exchange, as applicable, and will have the right to retain independent legal counsel and other advisers at the corporation’s expense.
4.2 Tenure; Reports; Procedures.
Each such committee shall serve at the pleasure of the Board. It shall keep minutes of its meetings and report the same to the Board as and when requested by the Board, and it shall observe such other procedures with respect to its meetings as are prescribed in these By-laws or, to the extent not prescribed herein, as may be prescribed by the Board.
4.3 Meetings and Actions of Committees.
(a) Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:
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(i) Section 3.8 (e) (place of meetings and meetings by telephone);
(ii) Section 3.8 (a) (regular meetings);
(iii) Section 3.8(b) (special meetings and notice);
(iv) Section 3.8 (d) (quorum and voting);
(v) Section 3.9 (waiver of notice);
(vi) Section 3.10 (action without a meeting); and
(vii) Section 3.8 (f) (adjournment and notice of adjournment).
with such changes in the context of those By-laws as are necessary to substitute the committee and its members for the Board and its members.
(b) Notwithstanding the foregoing:
(i) the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
(ii) special meetings of committees may also be called by resolution of the Board; and
(iii) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these By-laws.
aRTICLE V - OFFICERS
5.1 Officers.
The officers of the corporation shall include the chief executive officer, the president, the chief financial officer, the secretary, and the treasurer. The corporation may also have, at the discretion of the Board, a chief operating officer, controller, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries, and any such other officers with such powers and duties as the Board shall deem necessary, as may be appointed in accordance with the provisions of these By-laws. Any number of offices may be held by the same person. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board.
5.2 Appointment of Officers.
The Board shall appoint the officers of the corporation annually at its first meeting following the meeting of the stockholders at which the Board was elected, except that the corporation may appoint such other officers in accordance with the provisions of Sections 5.3 of these By-laws, subject to the rights, if any, of an officer under any contract of employment. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. A failure to elect officers shall not dissolve or otherwise affect the corporation.
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5.3 Subordinate Officers.
The Board may appoint, or empower the chief executive officer and/or the president of the corporation, to appoint and set the compensation of, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these By-laws or as the Board or the chief executive officer (if so designated by the Board) may from time to time determine.
5.4 Removal and Resignation of Officers.
Any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer appointed by the Board, by any officer upon whom such power of removal may be conferred by the Board, whether or not any other person shall have been elected or appointed to succeed him.
Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
5.5 Vacancies in Offices.
Any vacancy occurring in any office of the corporation shall be filled by the Board or as provided in Section 5.2.
5.6 Chief Executive Officer.
Subject to the control of the Board and any supervisory powers the Board may give to the chairman of the Board, the chief executive officer shall, together with the president or presidents of the corporation, have general supervision, direction, and control of the business and affairs of the corporation and shall see that all orders and resolutions of the Board are carried into effect. The chief executive officer shall, together with the president or presidents of the corporation, also perform all duties incidental to this office that may be required by law and all such other duties as are properly required of this office by the Board. In the absence of the chairman of the Board, the chief executive officer shall serve as chairman of and preside at all meetings of the stockholders. In the absence of the chairman of the Board, the chief executive officer, if such officer is a director, shall preside at all meetings of the Board.
5.7 President(s).
Subject to the control of the Board and the chief executive officer (if the positions of the chief executive officer and the president are not held by the same persons), and any supervisory powers the Board may give to the chairman of the Board and the chief executive officer (where the position of the chief executive officer is filled by a different individual than who is the president), the president or presidents of the corporation shall, together with the chief executive officer, have general supervision, direction, and control of the business and affairs of the corporation and shall see that all orders and resolutions of the Board are carried into effect. A president shall have such other powers and perform such other duties as from time to time may be prescribed for him or her by the Board, these By-laws, or the chairman of the Board and the chief executive officer.
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5.8 Vice-Presidents.
In the absence or disability of any president, the vice presidents, if any, in order of their rank as fixed by the Board or, if not ranked, a vice president designated by the Board, shall perform all the duties of a president. When acting as a president, the appropriate vice president shall have all the powers of, and be subject to all the restrictions upon, that president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board, these By-laws, the chairman of the Board, the chief executive officer or, in the absence of a chief executive officer, one of more of the presidents.
5.9 Secretary.
(a) The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show
(i) the time and place of each meeting;
(ii) whether regular or special;
(iii) the names of those present at directors’ meetings or committee meetings;
(iv) the number of shares present or represented at stockholders’ meetings; and
(v) the proceedings thereof.
(b) The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the Board, a share register, or a duplicate share register showing:
(i) the names of all stockholders and their addresses;
(ii) the number and classes of shares held by each;
(iii) the number and date of certificates evidencing such shares; and
(iv) the number and date of cancellation of every certificate surrendered for cancellation.
(c) The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board required to be given by law or by these By-laws. The secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board or by these By-laws.
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5.10 Chief Financial Officer.
The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as the Board may designate. The chief financial officer shall disburse the funds of the corporation as may be ordered by the Board, shall render to the chief executive officer or, in the absence of a chief executive officer, any president and directors, whenever they request it, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board or these By-laws. The chief financial officer may be the treasurer of the corporation.
5.11 Treasurer.
The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The treasurer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as the Board may designate. The treasurer shall disburse the funds of the corporation as may be ordered by the Board, shall render to the chief executive officer or, in the absence of a chief executive officer, one or more of the presidents and directors, whenever they request it, an account of all his or her transactions as treasurer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board or these By-laws. The treasurer may also be the Chief financial Officer,
5.12 Assistant Secretary.
The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the Board (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of the secretary’s inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as may be prescribed by the Board or these By-laws.
5.13 Assistant Treasurer.
The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the chief financial officer or treasurer or in the event of the chief financial officer’s or treasurer’s inability or refusal to act, perform the duties and exercise the powers of the chief financial officer or treasurer, as applicable, and shall perform such other duties and have such other powers as may be prescribed by the Board or these By-laws.
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5.14 Representation of Shares of Other Corporations.
The chairman of the Board, the chief executive officer, any president or vice president of this corporation, of if so authorized by the Board or the chief executive officer or president, then any treasurer or secretary of this corporation, or any other person so authorized by the Board, the chief executive officer, or president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares or other equity interests of any other corporation or entity standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
5.15 Authority and Duties of Officers.
In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board.
aRTICLE VI - RECORDS AND REPORTS
6.1 Maintenance and Inspection of Records.
The corporation shall, either at its principal executive office or at such place or places as designated by the Board, or through a third party stock transfer and registrar agent, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these By-laws, as may be amended to date, minute books, accounting books and other records. Any such records maintained by the corporation may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to the provisions of the DGCL. When records are kept in such manner, a clearly legible paper form produced from or by means of the information storage device or method shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper form accurately portrays the record.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal executive office.
6.2 Inspection by Directors.
Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director.
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aRTICLE VII - GENERAL PROVISIONS
7.1 Dividends and Distributions; Reserves.
Subject to all applicable provisions of the DGCL, the Certificate and any indenture or other agreement to which the corporation is a party or by which it is bound, the Board may declare to be payable, in cash, in other property or in shares of the corporation of any class or series, such dividends and distributions upon or in respect of outstanding shares of the corporation of any class or series as the Board may at any time or from time to time deem to be advisable. Before declaring any such dividend or distribution, the Board may cause to be set aside, out of any funds or other property or assets of the corporation legally available for the payment of dividends or distributions, such sum or sums as the Board, in their absolute discretion, may consider to be proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board may deem conducive to the interest of the corporation, and the Board may modify or abolish any such reserve in the manner in which it was created.
7.2 Checks, Notes, Etc.
All checks or other orders for the payment of money, all notes or other instruments evidencing indebtedness of the corporation and all receipts for money paid to the corporation shall be signed, drawn, accepted, endorsed or otherwise executed on its behalf, as the case may be, in such manner and by such officer or officers or such other person or persons as the Board may from time to time designate. The Board may authorize the use of facsimile signatures of any officer or employee in lieu of manual signatures.
7.3 Fiscal Year.
The fiscal year of the corporation shall be fixed, and may from time to time be changed, by resolution of the Board.
7.4 Seal.
The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.
7.5 Voting of Securities of Other Corporations.
In the event that the corporation shall at any time or from time to time own and have power to vote any securities (including but not limited to shares of stock) of any other issuer, they shall be voted by such person or persons, to such extent and in such manner as may be determined by the Board.
7.6 Execution of Corporate Contracts and Instruments.
Except as otherwise provided in these By-laws, the Board, or any officers of the corporation authorized thereby, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances.
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7.7 Construction; Definition.
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these By-laws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.
7.8 Registered Stockholders.
(a) The corporation:
(i) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;
(ii) shall be entitled to hold liable for calls and assessments on partly paid shares the person registered on its books as the owner of shares; and
(iii) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
7.9 Waiver of Notice.
Whenever notice is required to be given under any provision of the DGCL, the Certificate or these By-laws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting solely for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate or these By-laws.
aRTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION
8.1 Notice by Electronic Transmission.
(a) Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the Certificate or these By-laws, any notice to stockholders given by the corporation under any provision of the DGCL, the Certificate or these By-laws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:
(i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and
(ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice.
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However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
(b) Any notice given pursuant to the preceding paragraph shall be deemed given:
(i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
(iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iv) if by any other form of electronic transmission, when directed to the stockholder.
(c) An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
8.2 Definition of Electronic Transmission.
An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
8.3 Inapplicability.
Notice by a form of electronic transmission shall not apply to Section 164 (failure to pay for stock; remedies), Section 296 (adjudication of claims; appeal), Section 311 (revocation of voluntary dissolution), Section 312 (renewal, revival, extension and restoration of certificate of incorporation) or Section 324 (attachment of shares of stock) of the DGCL.
aRTICLE IX - INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES
9.1 Right to Indemnification.
Subject to Section 9.2 of these By-laws, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, administrative, investigative or criminal, by reason of the fact that such person (or the legal representative of such person) is or was a director or officer of the corporation or any predecessor of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against all liability and loss suffered and expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action, suit or proceeding, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action, had no reasonable cause to believe such person’s conduct was unlawful; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Notwithstanding the foregoing, the corporation shall not be obligated under this Article IX to indemnify any person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person seeking indemnification unless such proceeding (or part thereof) was authorized in the first instance by the Board.
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9.2 Authorization of Indemnification.
Any indemnification under this Article IX shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 9.1 of these By-laws. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the corporation. To the extent, however, that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.
9.3 Good Faith Defined.
For purposes of any determination under Section 9.2 of these By-laws, to the fullest extent permitted by applicable law, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on: (i) the records or books of account of the corporation or another enterprise, (ii) information supplied to such person by the officers of the corporation or another enterprise in the course of their duties, (iii) the advice of legal counsel for the corporation or another enterprise, or (iv) information or records given or reports made to the corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation or another enterprise. The term “another enterprise” as used in this Section 9.3 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the corporation as a director, officer, employee or agent. The provisions of this Section 9.3 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 9.1.
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9.4 Expenses Payable in Advance.
To the fullest extent not prohibited by the DGCL, or by any other applicable law, expenses incurred by a person who is or was a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding; provided, however, that the payment of such expenses shall be made only upon receipt of an undertaking by or on behalf of such person to repay such amounts advanced if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this Article IX or otherwise. Further, the corporation shall not be required to advance any expenses to a person against whom the corporation directly brings a claim alleging that such person has breached such person’s duty of loyalty to the corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction.
9.5 Non-Exclusivity.
The indemnification and advancement of expenses provided by or granted pursuant to this Article IX shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate, any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the corporation that indemnification of the persons specified in Section 9.1 shall be made to the fullest extent permitted by law. The provisions of this Article IX shall not be deemed to preclude the indemnification of any person who is not specified in Section 9.1but whom the corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law, and the rights granted under such agreements or arrangements may be greater than those provided in this Article IX.
9.6 Insurance.
To the fullest extent permitted by the DGCL or any other applicable law, the corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was a director, officer, employee or agent of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article IX.
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9.7 Certain Definitions.
For purposes of this Article IX, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article IX, references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Article IX.
9.8 Survival of Indemnification and Advancement of Expenses.
The rights to indemnification and advancement of expenses conferred by this Article IX shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, administrators and other personal and legal representatives of such a person.
9.9 Limitation on Indemnification.
Notwithstanding anything contained in this Article IX to the contrary, the corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of the corporation.
9.10 Indemnification of Employees and Agents.
The corporation may, to the extent authorized from time to time by the Board, provide rights to indemnification and to the advancement of expenses to employees and agents of the corporation similar to those conferred in this Article IX to directors and officers of the corporation.
9.11 Effect of Amendment or Repeal.
Neither any amendment or repeal of any Section of this Article IX, nor the adoption of any provision of the Certificate or the By-laws inconsistent with this Article IX, shall adversely affect any right or protection of any director, officer, employee or other agent established pursuant to this Article IX existing at the time of such amendment, repeal or adoption of an inconsistent provision, including without limitation by eliminating or reducing the effect of this Article IX, for or in respect of any act, omission or other matter occurring, or any action or proceeding accruing or arising (or that, but for this Article IX, would accrue or arise), prior to such amendment, repeal or adoption of an inconsistent provision.
aRTICLE X - MISCELLANEOUS
10.1 Provisions of Certificate Shall Govern.
In the event of any inconsistency between the terms of these By-laws and the Certificate, the terms of the Certificate will govern.
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10.2 Amendment.
A majority of the whole Board shall have the power, by resolution, to amend or repeal these By-laws or to adopt new by-laws; provided, however, that such power shall not divest the stockholders of the power, nor limit their power, to adopt, amend or repeal the By-laws.
Adopted as of July 20, 2016 | |||
POWER EFFICIENCY CORPORATION | |||
By: | /s/ Brian C. Daughney | ||
Secretary | |||
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Exhibit 10.1
POWER EFFICIENCY CORPORATION
2016 OMNIBUS EQUITY INCENTIVE PLAN
POWER EFFICIENCY CORPORATION. (the “Company”), a Delaware corporation, hereby establishes and adopts the following 2016 Omnibus Equity Incentive Plan (this “Plan”).
1. | PURPOSE OF THIS PLAN |
The purpose of this Plan is to advance the interests of the Company’s stockholders and the Company by enhancing the Company’s ability to attract, retain and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to align their interests with those of the Company’s stockholders.
2. | DEFINITIONS |
2.1. “Affiliate” means, with respect to a Person, another Person that directly or indirectly controls, or is controlled by, or is under common control with such Person.
2.2. “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Other Share-Based Award, Performance Award or any other right, interest or option relating to Shares or other property (including cash) granted pursuant to the provisions of this Plan.
2.3. “Award Agreement” shall mean any agreement, contract or other instrument or document evidencing any Award hereunder, including through an electronic medium.
2.4. “Board” shall mean the board of directors of the Company.
2.5. “Cause” means with respect to a Participant’s Termination of Employment or Termination of Consultancy, the following: (a) in the case where there is no employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant applicable to the Award (or where there is such an agreement but it does not define “cause” (or words of like import), termination due to: (i) a Participant’s conviction of, or plea of guilty or nolo contendere to, a felony; (ii) perpetration by a Participant of an illegal act, dishonesty, or fraud that could cause significant economic injury to the Company; (iii) a Participant’s insubordination, refusal to perform his or her duties or responsibilities for any reason other than illness or incapacity or materially unsatisfactory performance of his or her duties for the Company; (iv) continuing willful and deliberate failure by the Participant to perform the Participant’s duties in any material respect, provided that the Participant is given notice and an opportunity to effectuate a cure as determined by the Committee; (v) a Participant’s willful misconduct with regard to the Company that could have a material adverse effect on the Company; or (vi) an act of moral turpitude, whether or not resulting in a conviction by a court of law, which, in the opinion of the Board of Directors, materially and adversely affects the reputation of the Company; or (b) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award that defines “cause” (or words of like import), “cause” as defined under such agreement. With respect to a Participant’s Termination of Directorship, “cause” means an act or failure to act that constitutes cause for removal of a director under applicable Delaware law or the Company’s Certificate of Incorporation.
2.6. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
2.7. “Committee” shall mean the Compensation Committee of the Board or a subcommittee thereof formed by the Compensation Committee to act as the Committee hereunder, or in the event no such committee is formed, the Board of Directors. The Committee shall consist of no fewer than two Directors, each of whom is: (i) a “Non-Employee Director” within the meaning of Rule 16b-3 of the Exchange Act; (ii) an “outside director” within the meaning of Section 162(m) of the Code, to the extent the Board has members meeting such qualifications; and (iii) an “independent director” for purpose of the rules of the principal U.S. national securities exchange on which the Shares are traded, to the extent required by such rules. Anything to the contrary in this Plan notwithstanding, the Board reserves all authority to administer this Plan and to act as the Committee hereunder.
2.8. “Consultant” shall mean any consultant or advisor who provides services to the Company or any Subsidiary, so long as such person: (i) renders bona fide services that are not in connection with the offer and sale of the Company’s securities in a capital raising transaction and does not directly or indirectly promote or maintain a market for the Company’s securities; and (ii) can be covered as a consultant under the applicable rules of the Securities and Exchange Commission for registration of shares on a Form S-8 registration statement (or a successor form thereto).
2.9. “Covered Employee” shall mean an Employee of the Company or its subsidiaries who is a “covered employee” within the meaning of Section 162(m) of the Code.
2.10. “Director” shall mean a non-employee member of the Board.
2.11. “Dividend Equivalents” shall have the meaning set forth in Section 12.4.
2.12. “Effective Date” shall have the meaning set forth in Section 10.1.
2.13. “Employee” shall mean any employee or officer of the Company or any Subsidiary and any prospective employee conditioned upon, and effective not earlier than, such person becoming an employee or officer of the Company or any Subsidiary.
2.14. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
2.15. “Fair Market Value” shall mean, with respect to Shares as of any date, the per Share closing price of the Shares: (i) if the Shares are listed on a national securities exchange, the closing sale price reported as having occurred on the principal securities exchange on which the Shares are listed and traded on such date, or, if there is no such sale on that date, then on the last preceding date on which such a sale was reported; (ii) if the Shares are not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the final ask price reported on such date, or, if there is no such sale on such date, then on the last preceding date on which a sale was reported; or (iii) if the Shares are not listed on a national securities exchange nor quoted on an inter-dealer quotation system on a last sale basis, the amount determined by the Committee to be the fair market value of the Shares as determined by the Committee in its sole discretion. The Fair Market Value of any property other than Shares shall mean the market value of such property determined by such methods or procedures as shall be established from time to time by the Committee, subject to the requirements of Section 409A of the Code.
2.16. “Incentive Stock Option” shall mean an Option which when granted is intended to qualify as an incentive stock option for purposes of Section 422 of the Code.
2.17. “Limitations” shall have the meaning set forth in Section 8.7.
2.18. “Non-Qualified Stock Option” means any Stock Option awarded under the Plan that is not an Incentive Stock Option.
2.19. “Option” shall mean any right granted to a Participant under this Plan allowing such Participant to purchase Shares at such price or prices and during such period or periods as the Committee shall determine.
2.20. “Other Share-Based Award” shall have the meaning set forth in Section 9.1.
2.21. “Participant” shall mean an Employee, Consultant or Director who is selected by the Committee to receive an Award under this Plan.
2.22. “Performance Award” shall mean any Award of Performance Shares or Performance Units granted pursuant to Article 8.
2.23. “Performance Period” shall mean the period established by the Committee during which any performance goals specified by the Committee with respect to such Award are to be measured.
2.24. “Performance Share” shall mean any grant pursuant to Article 8 of a unit valued by reference to a designated number of Shares, which value will be paid to the Participant upon achievement of such performance goals as the Committee shall establish.
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2.25. “Performance Unit” shall mean any grant pursuant to Article 8 of a unit valued by reference to a designated amount of cash or property other than Shares, which value will be paid to the Participant upon achievement of such performance goals during the Performance Period as the Committee shall establish.
2.26. “Restricted Stock” shall mean any Share issued with the restriction that the holder may not sell, transfer, pledge or assign such Share and with such other restrictions as the Committee, in its sole discretion, may impose (including any restriction on the right to vote such Share and the right to receive any dividends), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.
2.27. “Restricted Stock Award” shall have the meaning set forth in Section 7.1.
2.28. “Restricted Stock Unit” means an Award that is valued by reference to a Share, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including without limitation, cash or Shares, or any combination thereof, and that has such restrictions as the Committee, in its sole discretion, may impose, including without limitation, any restriction on the right to retain such Awards, to sell, transfer, pledge or assign such Awards, and/or to receive any cash Dividend Equivalents with respect to such Awards, which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.
2.29. “Restricted Stock Unit Award” shall have the meaning set forth in Section 7.1.
2.30. “Services” shall mean services provided to the Company or any Subsidiary or any successor company (or a subsidiary or parent thereof), whether as an Employee, Consultant or Director, unless, in connection with the conversion, if any, of a Participant from one classification (i.e., Employee, Consultant or Director) to another, the Committee, in its sole and absolute discretion, determines that any on-going services to the Company or any Subsidiary or any successor company (or a subsidiary or parent thereof) shall not constitute “Services.”
2.31. “Shares” shall mean the shares of common stock of the Company, par value $0.001 per share.
2.32. “Stock Appreciation Right” shall mean the right granted to a Participant pursuant to Article 6.
2.33. “Subsidiary” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the relevant time each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.
2.34. “Substitute Awards” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
2.35. “Termination” means a Termination of Consultancy, Termination of Directorship or Termination of Employment, as applicable.
2.36. “Termination of Consultancy” means: (a) that the Consultant is no longer acting as a consultant to the Company or an Affiliate; or (b) when an entity that is retaining a Participant as a Consultant ceases to be an Affiliate unless the Participant otherwise is, or thereupon becomes, a Consultant to the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the event that a Consultant becomes an Employee or a Director upon the termination of his or her consultancy, unless otherwise determined by the Committee, in its sole discretion, no Termination of Consultancy shall be deemed to occur until such time as such Consultant is no longer a Consultant, an Employee or a Director. Notwithstanding the foregoing, the Committee may, in its sole discretion, otherwise define Termination of Consultancy in the Award agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Consultancy thereafter.
2.37. “Termination of Directorship” means that the Director has ceased to be a Director of the Company; except that if a Director becomes an Employee or a Consultant upon the termination of his or her directorship, his or her ceasing to be a Director of the Company shall not be treated as a Termination of Directorship unless and until the Participant has a Termination of Employment or Termination of Consultancy, as the case may be.
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2.38. “Termination of Employment” means: (a) a termination of employment of a Participant from the Company and its Affiliates; or (b) when an entity that is employing a Participant ceases to be an Affiliate, unless the Participant otherwise is, or thereupon becomes, employed by the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the event that an Employee becomes a Consultant or a Director upon the termination of his or her employment, unless otherwise determined by the Committee, in its sole discretion, no Termination of Employment shall be deemed to occur until such time as such Employee is no longer an Employee, a Consultant or a Director. Notwithstanding the foregoing, the Committee may, in its sole discretion, otherwise define Termination of Employment in the Award agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Employment thereafter.
3. SHARES SUBJECT TO THIS PLAN
3.1. Number of Shares. (a) Subject to adjustment as provided for in this Plan, as of the Effective Date, a total of 75,000,000 Shares shall be authorized for grant under this Plan. Subject at all times to Section 13.3, if: (i) any Shares subject to an Award are forfeited or expire or an Award is settled for cash (in whole or in part) pursuant to the terms of an Award Agreement, the Shares subject to such Award, to the extent of such forfeiture, expiration or cash settlement, again be available for Awards under this Plan, in accordance with this Section 3.1. Notwithstanding anything to the contrary contained herein, the following Shares shall not be added to the Shares authorized for grant under paragraph (a) of this Section: (i) Shares tendered by the Participant or withheld by the Company in payment of the purchase price of an Option; (ii) Shares tendered by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an Award; (iii) Shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof; and (iv) Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Options.
(b) Substitute Awards shall not reduce the Shares authorized for grant under this Plan. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under this Plan and shall not reduce the Shares authorized for grant under this Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Directors prior to such acquisition or combination.
3.2. Character of Shares. Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares purchased in the open market or otherwise. No fractional shares shall be issued under the Plan and the Committee shall determine the manner in which fractional share value shall be treated.
3.3. Limitations on Grants to Individual Participants. Subject to adjustment as provided in Section 12.2, no Participant may: (i) be granted Options or Stock Appreciation Rights during any 12-month period with respect to more than 1,000,000 Shares; and (ii) earn more than 500,000 Shares for each twelve (12) months in the vesting period or Performance Period with respect to Restricted Stock Awards, Restricted Stock Unit Awards, Performance Awards and/or Other Share-Based Awards that are intended to comply with the performance-based exception under Code Section 162(m) and are denominated in Shares. In addition to the foregoing, the maximum dollar value that may be earned by any Participant for each twelve (12) months in a Performance Period with respect to Performance Awards that are intended to comply with the performance-based exception under Code Section 162(m) and are denominated in cash is $250,000. If an Award is cancelled, the cancelled Award shall continue to be counted toward the applicable limitation in this section.
4. ELIGIBILITY AND ADMINISTRATION
4.1. Eligibility. Any Employee (inclusive of officers), Consultant or Director shall be eligible to be selected as a Participant.
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4.2. Administration. (a) This Plan shall be administered by the Committee, or in the absence of a Committee, the full Board of Directors. The Committee shall have full power and authority, subject to the provisions this Plan and subject to such orders or resolutions not inconsistent with the provisions of this Plan as may from time to time be adopted by the Board, to: (i) select the Employees, Directors and Consultants to whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Awards, not inconsistent with the provisions of this Plan, to be granted to each Participant hereunder; (iii) determine the number of Shares to be covered by each Award granted hereunder; (iv) determine the terms and conditions, not inconsistent with the provisions of this Plan, of any Award granted hereunder (including, but not limited to, the exercise or purchase price (if any), any restriction or limitation, any vesting schedule or acceleration thereof, or any forfeiture restrictions or waiver thereof, regarding any Award and the Shares relating thereto, based on such factors, if any, as the Committee shall determine, in its sole discretion); (v) determine whether, to what extent and under what circumstances Awards may be settled in Shares, cash or other property; (vi) determine whether, to what extent, and under what circumstances Shares, cash or other property and other amounts payable with respect to an Award made under this Plan shall be deferred either automatically or at the election of the Participant, in any case, in a manner intended to comply with Section 409A of the Code; (vii) determine whether, to what extent and under what circumstances any Award shall be canceled or suspended; (viii) interpret and administer this Plan and any instrument or agreement entered into under or in connection with this Plan, including any Award Agreement; (ix) correct any defect, supply any omission or reconcile any inconsistency in this Plan or any Award in the manner and to the extent that the Committee shall deem desirable to carry it into effect; (x) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of this Plan; (xi) determine whether any Award, other than an Option or Stock Appreciation Right, will have Dividend Equivalents; and (xii) make any other determination and take any other action that the Committee deems necessary or desirable for administration of this Plan. Decisions of the Committee shall be final, conclusive and binding on all persons or entities, including the Company, any Participant, and any Subsidiary.
(b) Subject to the terms of this Plan, the Committee shall, in its sole discretion, have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan and perform all acts, as it shall, from time to time, deem advisable; to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. To the extent not inconsistent with applicable law, including Section 162(m) of the Code, or the rules and regulations of the principal U.S. national securities exchange on which the Shares are traded, the Committee may delegate to: (i) a committee of one or more directors of the Company any of the authority of the Committee under this Plan, including the right to grant, cancel or suspend Awards; and (ii) to the extent permitted by law, to one or more executive officers or a committee of executive officers the right to grant Awards to Employees who are not Directors or executive officers of the Company and the authority to take action on behalf of the Committee pursuant to this Plan to cancel or suspend Awards to Employees who are not Directors or executive officers of the Company. To the extent applicable, the Plan is intended to comply with the applicable requirements of Rule 16b-3 and with respect to Awards intended to be “performance-based,” the applicable provisions of Section 162(m) of the Code, and the Plan shall be limited, construed and interpreted in a manner so as to comply therewith.
5. OPTIONS
5.1. Grant of Options. Options may be granted hereunder to Participants either alone or in addition to other Awards granted under this Plan. Any Option shall be subject to the terms and conditions of this Article and to such additional terms and conditions, not inconsistent with the provisions of this Plan, as the Committee shall deem desirable. Each Stock Option granted under the Plan shall be one of two types: (a) an Incentive Stock Option; or (b) a Non-Qualified Stock Option. The Committee shall, in its sole discretion, have the authority to grant any Consultant or Director Non-Qualified Stock Options. To the extent that any Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Option or the portion thereof that does not qualify shall constitute a separate Non-Qualified Stock Option.
5.2. Award Agreements. All Options granted pursuant to this Article shall be evidenced by a written Award Agreement in such form and containing such terms and conditions as the Committee shall determine which are not inconsistent with the provisions of this Plan. The terms of Options need not be the same with respect to each Participant. Granting an Option pursuant to this Plan shall impose no obligation on the recipient to exercise such Option. Any individual who is granted an Option pursuant to this Article may hold more than one Option granted pursuant to this Plan at the same time.
5.3. Option Price. Other than in connection with Substitute Awards, the option price per each Share purchasable under any Option granted pursuant to this Article shall not be less than 100% of the Fair Market Value of one Share on the date of grant of such Option; provided, however, that in the case of an Incentive Stock Option granted to a Participant who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Subsidiary, the option price per share shall be no less than 110% of the Fair Market Value of one Share on the date of grant. Other than pursuant to Section 12.2, the Committee shall not without the approval of the Company’s stockholders: (a) lower the option price per Share of an Option after it is granted; (b) cancel an Option when the option price per Share exceeds the Fair Market Value of the underlying Shares in exchange for cash or another Award (other than in connection with a Change in Control or a Substitute Award); or (c) take any other action with respect to an Option that would be treated as a repricing under the rules and regulations of the principal securities exchange on which the Shares are traded.
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5.4. Vesting and Term of Option. The terms of each Option shall be fixed by the Committee in its sole discretion; provided that no Option shall be exercisable after the expiration of ten (10) years from the date the Option is granted, except in the event of death or disability; provided, however, that the term of the Option shall not exceed five (5) years from the date the Option is granted in the case of an Incentive Stock Option granted to a Participant who, at the time of the grant, owns stock (not inclusive of the actual grant) representing more than 10% of the voting power of all classes of stock of the Company or any Subsidiary. Options awarded hereunder shall vest and become exercisable in whole or in part, in accordance with such vesting conditions as the Committee shall determine, which conditions shall be stated in the Award Agreement. Vested Options may be exercised in any order elected by the Participant whether or not the Participant holds any unexercised Options under this Plan or any other plan of the Company.
5.5. Exercise of Options. (a) Options granted under this Plan shall be exercised by the Participant or by a permitted assignee thereof (or by a Participant’s executors, administrators, guardian or legal representative, as may be provided in an Award Agreement) as to all or part of the Shares covered thereby which are vested at such time of exercise, by giving notice of exercise to the Company or its designated agent, specifying the number of Shares to be purchased. The notice of exercise shall be in such form, made in such manner, and in compliance with such other requirements consistent with the provisions of this Plan as the Committee may prescribe from time to time
(b) Unless otherwise provided in an Award Agreement, full payment of such purchase price shall be made at the time of exercise and shall be made: (i) in cash or cash equivalents (including certified check or bank check or wire transfer of immediately available funds); (ii) to the extent provided for in the applicable Award Agreement or approved by the Committee, in its sole discretion, by delivery (either by actual delivery or attestation) of shares of Common Stock owned by the Participant valued at their Fair Market Value as determined by the Committee, provided: (A) such method of payment is then permitted under applicable law; (B) such Common Stock, if acquired directly from the Company, was owned by the Participant for such minimum period of time, if any, as may be established by the Committee in its discretion; and (C) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements; (iii) to the extent permitted by applicable law and provided for in the applicable Award Agreement or approved by the Committee in its sole discretion, by payment of such other lawful consideration having a Fair Market Value on the exercise date equal to the total purchase price as the Committee may determine; (iv) except as may otherwise be provided in the applicable Award Agreement, by: (A) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding; or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check or wire transfer of funds sufficient to pay the exercise price and any required tax withholding; (v) through any other method specified in an Award Agreement, or (vi) through any combination of any of the foregoing.
(c) The notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other office as the Committee may from time to time direct, and shall be in such form, containing such further provisions consistent with the provisions of this Plan, as the Committee may from time to time prescribe. In no event may any Option granted hereunder be exercised for a fraction of a Share. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.
(d) Notwithstanding the foregoing, an Award Agreement may provide at the time of grant, in the discretion of the Committee, that if on the last day of the term of an Option the Fair Market Value of one Share exceeds the option price per Share, the Participant has not exercised the Option (or a tandem Stock Appreciation Right, if applicable) and the Option has not expired, the Option shall be deemed to have been exercised by the Participant on such day with payment made by withholding Shares otherwise issuable in connection with the exercise of the Option; provided, however, that this feature, to the extent contained in an Option, may only be utilized to the extent that the holder of such Option is an active Employee, Director or Consultant as of the last day of the term of such Option. In such event, the Company shall deliver to the Participant the number of Shares for which the Option was deemed exercised, less the number of Shares required to be withheld for the payment of the total purchase price and required withholding taxes; provided, however, any fractional Share shall be settled in cash.
5.6. Incentive Stock Options. The Committee may grant Options intended to qualify as “incentive stock options” as defined in Section 422 of the Code, to any employee of the Company or any Subsidiary, subject to the requirements of Section 422 of the Code. To the extent that the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Employee during any calendar year under the Plan and/or any other stock option plan of the Company, any Subsidiary or any Parent exceeds $100,000 (or such other dollar amount as may be applicable from time to time under the Code) , such Options shall be treated as Non-Qualified Stock Options. Should any provision of the Plan not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may, in its sole discretion, amend the Plan accordingly, without the necessity of obtaining the approval of the stockholders of the Company. Solely for purposes of determining whether Shares are available for the grant of “incentive stock options” under this Plan, the maximum aggregate number of Shares that may be issued pursuant to “incentive stock options” granted under this Plan shall be the number of Shares set forth in the first sentence of Section 3.1(a), subject to adjustments provided in Section 12.2.
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6. STOCK APPRECIATION RIGHTS
6.1. Grant and Exercise. The Committee may grant Stock Appreciation Rights: (a) in conjunction with all or part of any Option granted under this Plan or at any subsequent time during the term of such Option; (b) in conjunction with all or part of any Award (other than an Option) granted under this Plan or at any subsequent time during the term of such Award; or (c) without regard to any Option or other Award in each case upon such terms and conditions as the Committee may establish in its sole discretion.
6.2. Terms and Conditions. Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time by the Committee, including the following:
(a) Upon the exercise of a Stock Appreciation Right, the holder shall have the right to receive the excess of (i) the Fair Market Value of one Share on the date of exercise (or such amount less than such Fair Market Value as the Committee shall so determine at any time during a specified period before the date of exercise) over (ii) the grant price of the Stock Appreciation Right on the date of grant, which, except in the case of Substitute Awards or in connection with an adjustment provided in Section 12.2, shall not be less than the Fair Market Value of one Share on such date of grant of the Stock Appreciation Right.
(b) The Committee shall determine in its sole discretion whether payment of a Stock Appreciation Right shall be made in cash, in whole Shares or other property, or any combination thereof. The provisions of Stock Appreciation Rights need not be the same with respect to each recipient. The Committee may impose such terms and conditions on Stock Appreciation Rights granted in conjunction with any Award (other than an Option) as the Committee shall determine in its sole discretion.
(c) Stock Appreciation Rights may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board, together with any other documents required by the Board. The Committee may impose such other terms and conditions on the exercise of any Stock Appreciation Right, as it shall deem appropriate. A Stock Appreciation Right shall: (i) have a grant price per Share of not less than the Fair Market Value of one Share on the date of grant or, if applicable, on the date of grant of an Option with respect to a Stock Appreciation Right granted in exchange for or in tandem with, but subsequent to, the Option (subject to the requirements of Section 409A of the Code) except in the case of Substitute Awards or in connection with an adjustment provided in Section 12.2; and (ii) have a term not greater than ten (10) years.
(d) Without the approval of the Company’s stockholders, other than pursuant to Section 12.2, the Committee shall not: (i) reduce the grant price of any Stock Appreciation Right after the date of grant; (ii) cancel any Stock Appreciation Right when the grant price per Share exceeds the Fair Market Value of the underlying Shares in exchange for cash or another Award (other than in connection with a Change in Control or a Substitute Award)); or (iii) take any other action with respect to a Stock Appreciation Right that would be treated as a repricing under the rules and regulations of the principal securities market on which the Shares are traded.
(e) An Award Agreement may provide at the time of grant, in the discretion of the Committee, that if on the last day of the term of a Stock Appreciation Right the Fair Market Value of one Share exceeds the grant price per Share of the Stock Appreciation Right, the Participant has not exercised the Stock Appreciation Right, and the Stock Appreciation Right has not expired, the Stock Appreciation Right shall be deemed to have been exercised by the Participant on such day; provided, however, that this feature, to the extent contained in an Stock Appreciation Right, may only be utilized to the extent that the holder of such Stock Appreciation Right is an active Employee, Director or Consultant as of the last day of the term of such Stock Appreciation Right. In such event, the Company shall make payment to the Participant in accordance with this Section, reduced by the number of Shares (or cash) required for withholding taxes; any fractional Share shall be settled in cash.
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7. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
7.1. Grants. Awards of Restricted Stock and of Restricted Stock Units may be issued hereunder to Participants either alone or in addition to other Awards granted under this Plan (a “Restricted Stock Award” or “Restricted Stock Unit Award” respectively), and such Restricted Stock Awards and Restricted Stock Unit Awards shall also be available as a form of payment of Performance Awards and other earned cash-based incentive compensation. A Restricted Stock Award or Restricted Stock Unit Award may be subject to vesting restrictions imposed by the Committee covering a period of time specified by the Committee. Subject to applicable law, the Committee has absolute discretion to determine whether any consideration (other than services) is to be received by the Company or any Subsidiary as a condition precedent to the issuance of Restricted Stock or Restricted Stock Units.
7.2. Award Agreements. The terms of any Restricted Stock Award or Restricted Stock Unit Award granted under this Plan may be set forth in a written Award Agreement which shall contain provisions determined by the Committee and not inconsistent with this Plan. The terms of Restricted Stock Awards and Restricted Stock Unit Awards need not be the same with respect to each Participant.
7.3. Rights of Holders of Restricted Stock and Restricted Stock Units. Unless otherwise provided in an Award Agreement, beginning on the date of grant of the Restricted Stock Award and subject to execution of an Award Agreement, if so required, the Participant shall become a stockholder of the Company with respect to all Shares subject to the Award Agreement and shall have all of the rights of a stockholder, including the right to vote such Shares and the right to receive distributions made with respect to such Shares. A Participant receiving a Restricted Stock Unit Award shall have only those rights specifically provided for by the Award Agreement, provided that in no event shall such a participant possess voting rights with respect to such Award. Except as otherwise provided in an Award Agreement any Shares or any other property (other than cash) distributed as a dividend or otherwise with respect to any Restricted Stock Award or Restricted Stock Unit Award as to which the restrictions have not yet lapsed shall be subject to the same restrictions as such Restricted Stock Award or Restricted Stock Unit Award. Notwithstanding the provisions of this Section, cash dividends, stock and any other property (other than cash) distributed as a dividend or otherwise with respect to any Restricted Stock Award or Restricted Stock Unit Award that vests based on achievement of performance goals shall either: (i) not be paid or credited; or (ii) be accumulated, shall be subject to restrictions and risk of forfeiture to the same extent as the Restricted Stock or Restricted Stock Units with respect to which such cash, stock or other property has been distributed and shall be paid at the time such restrictions and risk of forfeiture lapse.
7.4. Restrictions and Conditions. Restricted Stock and Restricted Stock Units awarded pursuant to the Plan shall be subject to the following restrictions. The Participant shall not be permitted to Transfer shares of Restricted Stock awarded under the Plan during the period or periods set by the Committee (the “Restriction Period”) commencing on the date of such Award, as set forth in an Award Agreement and such agreement shall set forth a vesting schedule and any events that would accelerate vesting of the Award. Within these limits, based on service, attainment of performance goals and/or such other factors or criteria as the Committee may determine in its sole discretion, the Committee may condition the grant or provide for the lapse of such restrictions in installments in whole or in part, or may accelerate the vesting of all or any part of any Award and/or waive the deferral limitations for all or any part of any Award.
7.5. Issuance of Shares. Any Restricted Stock granted under this Plan may be evidenced in such manner as the Board may deem appropriate, including book-entry registration or issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company or its designee. Such certificate or certificates shall be registered in the name of the Participant and, and shall, in addition to such legends required by applicable securities laws, bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, in such form as may be determined by the Committee.
7.6. Payment of Director Fees. Directors shall, if determined by the Board, receive awards in the form of Restricted Stock or Restricted Stock Units in lieu of all or a portion of any annual payment of fees for services. In addition, if permitted by the Board, Directors may elect to receive Restricted Stock or Restricted Stock Units in lieu of all or a portion of their annual and committee retainers and annual meeting fees or other payments for services. The Board (or if so delegated, the Committee) shall, in its absolute discretion, establish such rules and procedures as it deems appropriate for such elections and for payment in Restricted Stock or Restricted Stock Units.
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8. | PERFORMANCE AWARDS |
8.1. Grants. Performance Awards in the form of Performance Shares or Performance Units, as determined by the Committee in its sole discretion, may be granted hereunder to Participants, for no consideration or for such minimum consideration as may be required by applicable law, either alone or in addition to other Awards granted under this Plan. The performance goals to be achieved for each Performance Period shall be conclusively determined by the Committee and shall be based upon the criteria set forth in Section 8.5.
8.2. Award Agreements. The terms of any Performance Award granted under this Plan shall be set forth in a written Award Agreement which shall contain provisions determined by the Committee and not inconsistent with this Plan. If a Performance Award has Dividend Equivalents, provision for such shall be contained in the applicable Award Agreement. The terms of Performance Awards need not be the same with respect to each Participant.
8.3. Payment. Except as provided in Article 11 or as may be provided in an Award Agreement, Performance Awards will be distributed only after the end of the relevant Performance Period. Performance Awards may be paid in Shares, cash, other property, or any combination thereof, in the sole discretion of the Committee. Performance Awards may be paid in a lump sum or in installments following the close of the Performance Period or, in accordance with procedures established by the Committee, on a deferred basis subject to the requirements of Section 409A of the Code. The amount of the Award to be distributed shall be conclusively determined by the Committee.
8.4. Terms and Conditions. The performance criteria to be achieved during any Performance Period and the length of the Performance Period shall be determined by the Committee prior to the grant of each Performance Award and shall be subject to the following terms and conditions:
(a) The Committee shall establish the objective performance goals for the earning of Performance Awards based on a Performance Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance goals are substantially uncertain. Each grant may specify in respect of such performance goals a minimum acceptable level of achievement and may set forth a formula for determining the number of Performance Shares or Performance Units that will be earned if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified performance goals. At the expiration of the applicable Performance Period, the Committee shall determine the extent to which the performance goals established pursuant to Section 8.5 are achieved and the percentage of each Performance Award that has been earned.
(b) Unless otherwise determined by the Committee at the time of grant, amounts equal to any dividends declared during the Performance Period with respect to the number of shares of Common Stock covered by a Performance Share will not be paid to the Participant.
8.5. Performance Criteria. If the Committee determines that a Restricted Stock Award, a Restricted Stock Unit, a Performance Award or an Other Share-Based Award is intended to be subject to this Article 8, the lapsing of restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Committee, which shall be based on the attainment of specified levels of one or any combination of the following: (a) earnings per share; (b) operating income (before or after taxes); (c) net income (before or after taxes); (d) net sales; (e) cash flow; (f) gross profit; (g) gross profit return on investment; (h) gross margin return on investment; (i) gross margin; (j) working capital; (k) earnings before interest and taxes; (l) earnings before interest, tax, depreciation and amortization; (m) return on equity; (n) return on assets; (o) return on capital; (p) return on invested capital; (q) net revenues; (r) gross revenues; (s) revenue growth or product revenue growth; (t) total shareholder return; (u) appreciation in and/or maintenance of the Company’s market capitalization; (v) cash flow or cash flow per share (before or after dividends); (w) economic value added; (x) the fair market value of the shares of the Company’s Common Stock; (y) the growth in the value of an investment in the Company’s Common Stock assuming the reinvestment of dividends; (z) reduction in expenses or improvement in or attainment of expense levels or working capital levels; (aa) financing and other capital raising transactions; (bb) debt reductions; (cc) regulatory achievements (including submitting or filing applications or other documents with regulatory authorities, having any such applications or other documents accepted for review by the applicable regulatory authority or receiving approval of any such applications or other documents); or (dd) strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property). Such performance goals also may be based solely by reference to the Company’s performance or the performance of a Subsidiary, division, business segment or business unit of the Company, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. The Committee may also exclude charges related to an event or occurrence which the Committee determines should appropriately be excluded, including: (A) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges; (B) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management; or (C) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles. Such performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, and the regulations thereunder.
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8.6. Adjustment and Restrictions. Notwithstanding any provision of this Plan (other than Article 11), with respect to any Performance Award, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance goals, except in the case of the death or disability of the Participant or as otherwise determined by the Committee in special circumstances. The Committee shall have the power to impose such other restrictions on Awards subject to this Article as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m) of the Code.
9. | OTHER SHARE-BASED AWARDS |
9.1. Grants. The Committee, in its sole discretion, is authorized to grant to Participants, other Awards of Shares and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares or other property (“Other Share-Based Awards”), that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Common Stock, including, but not limited to, shares of Common Stock awarded purely as a bonus and not subject to any restrictions or conditions, shares of Common Stock in payment of the amounts due under an incentive or performance plan sponsored or maintained by the Company or an Affiliate, performance units, dividend equivalent units, stock equivalent units, restricted stock units and deferred stock units. To the extent permitted by law, the Committee may, in its sole discretion, permit Participants to defer all or a portion of their cash compensation in the form of Other Share-Based Awards granted under the Plan, subject to the terms and conditions of any deferred compensation arrangement established by the Company, which shall be intended to comply with Section 409A of the Code. Other Stock-Based Awards may be granted either alone or in addition to or in tandem with other Awards granted under the Plan. Other Share-Based Awards may be subject to vesting restrictions imposed by the Committee covering a period of time specified by the Committee. The Committee has absolute discretion to determine whether any consideration (other than services) is to be received by the Company or any Subsidiary as a condition precedent to the issuance of Other Share-Based Awards.
9.2. Award Agreements. The terms of Other Share-Based Awards granted under this Plan shall be set forth in a written Award Agreement which shall contain provisions determined by the Committee and not inconsistent with this Plan. The terms of such Awards need not be the same with respect to each Participant. Unless otherwise determined by the Committee at the time of Award, subject to the provisions of the Award agreement and the Plan, the recipient of an Other-Share Based Award shall not be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number of shares of Common Stock covered by the Award. Any Other Share-Based Award and any Shares covered by any such Award shall vest or be forfeited to the extent so provided in the Award Agreement, as determined by the Committee, in its sole discretion. Notwithstanding the provisions of this Section, Dividend Equivalents and any property (other than cash) distributed as a dividend or otherwise with respect to the number of Shares covered by a Other Share-Based Award that vests based on achievement of performance goals shall be subject to restrictions and risk of forfeiture to the same extent as the Shares covered by a Other Share-Based Award with respect to which such cash, Shares or other property has been distributed.
9.3. Payment. Except as may be provided in an Award Agreement, Other Share-Based Awards may be paid in cash, Shares, other property, or any combination thereof, in the sole discretion of the Committee. Other Share-Based Awards may be paid in a lump sum or in installments or, in accordance with procedures established by the Committee, on a deferred basis subject to the requirements of Section 409A of the Code.
10. | EFFECTIVENESS OF PLAN; TERMINATION OF AWARDS |
10.1. Effective Date and Termination of Plan. The Plan shall be effective on the date of the approval of the Plan by the holders of the shares entitled to vote at a duly constituted meeting of the stockholders of the Company, which approval shall be obtained within 12 months of the date this Plan is approved by the Board. The Plan shall be null and void and of no effect if the foregoing condition is not fulfilled and in such event each Award shall, notwithstanding any of the preceding provisions of the Plan, be null and void and of no effect. Awards may be granted under the Plan at any time and from time to time on or prior to the tenth anniversary of the effective date of the Plan, on which date the Plan will expire except as to Awards then outstanding under the Plan. Such outstanding Awards shall remain in effect until they have been exercised or terminated, or have expired.
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10.2. Termination of Awards. The Committee shall determine and set forth in each Award Agreement whether any Awards granted in such Award Agreement will continue to be exercisable, and the terms of such exercise, on and after the date that a Participant ceases to be employed by or to provide services to the Company or any Subsidiary (including as a Director or Consultant), whether by reason of death, disability, voluntary or involuntary termination of employment or services, or otherwise. The date of termination of a Participant’s employment or services will be determined by the Committee, which determination will be final. Unless otherwise determined by the Committee at the time of grant, the following provisions shall apply.
(a) Rules Applicable to Options and Stock Appreciation Rights. Unless otherwise provided in an Award Agreement, as may be determined by the Committee at grant (or, if no rights of the Participant are reduced, thereafter) or under the terms of an Employment or Consulting or similar agreement with the Participant:
(i) Termination by Reason of Death, Disability or Retirement. If a Participant’s Termination is by reason of death or Disability, all Options or Stock Appreciation Rights that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant (or, in the case of death, by the legal representative of the Participant’s estate) at any time within a one-year period from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options or Stock Appreciation Rights; provided, however, if the Participant dies within such exercise period, all unexercised Stock Options or Stock Appreciation Rights held by such Participant shall thereafter be exercisable, to the extent to which they were exercisable at the time of death, for a period of one year from the date of such death, but in no event beyond the expiration of the stated term of such Options or Stock Appreciation Rights.
(ii) Termination Without Cause. If a Participant’s Termination is a termination without Cause, all Options or Stock Appreciation Rights that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant at any time within a period of 90 days from the date of such Termination, but in no event beyond the expiration of the stated term of such Options or Stock Appreciation Rights.
(iii) Termination for Cause. If a Participant’s Termination: (1) is for Cause; or (2) is a voluntary Termination by the Participant after the occurrence of an event that would be grounds for a Termination for Cause, all Options or Stock Appreciation Rights, whether vested or not vested, that are held by such Participant shall thereupon terminate and expire as of the date of such Termination.
(iv) Unvested Options and Stock Appreciation Rights. Options or Stock Appreciation Rights that are not vested as of the date of a Participant’s Termination for any reason shall terminate and expire as of the date of such Termination.
(b) Rules Applicable to Restricted Stock, Restricted Stock Units Performance Awards and Other Stock-Based Awards. Unless otherwise provided in an Award Agreement, as may be determined by the Committee at grant or thereafter, upon a Participant’s Termination for any reason: (i) with respect to Restricted Stock Awards or Restricted Stock Unit Awards subject to vesting, (A) in the event a Participant who is an Employee ceases to be employed with the consent of the Committee or upon the Participant’s death or Disability before the end of a vesting period subject only to continued service with the Company or a Subsidiary, the number of Shares subject to the Restricted Stock Award or Restricted Stock Unit Award that shall vest shall be determined by the Committee; and (B) in the event the Participant ceases to be employed for any other reason, all Shares subject to the Restricted Stock Award or Restricted Stock Unit Award which are still unvested shall be forfeited; and (ii) any unvested Performance Awards or Other Stock-Based Awards shall be forfeited.
10.3. Cancellation of Award; Forfeiture of Gain. Notwithstanding anything to the contrary contained herein, an Award Agreement may provide that the Award shall be canceled if the Participant, without the consent of the Company, while employed by the Company or any Subsidiary or after termination of such employment or service, violates a non-competition, non-solicitation or non-disclosure covenant or agreement or otherwise engages in activity that is in conflict with or adverse to the interest of the Company or any Subsidiary (including conduct contributing to any financial restatements or financial irregularities), as determined by the Committee in its sole discretion. The Committee may provide in an Award Agreement that if within the time period specified in the Agreement the Participant establishes a relationship with a competitor or engages in an activity referred to in the preceding sentence, the Participant will forfeit any gain realized on the vesting or exercise of the Award and must repay such gain to the Company.
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11. CHANGE IN CONTROL PROVISIONS
11.1. Impact on Certain Awards. Award Agreements may provide that in the event of a Change in Control of the Company (as defined in Section 11.3): (i) Options and Stock Appreciation Rights outstanding as of the date of the Change in Control shall be cancelled and terminated without payment if the Fair Market Value of one Share as of the date of the Change in Control is less than the per Share Option exercise price or Stock Appreciation Right grant price; and (ii) all Performance Awards shall be (x) considered to be earned and payable based on achievement of performance goals or based on target performance (either in full or pro rata based on the portion of Performance Period completed as of the date of the Change in Control), and any limitations or other restrictions shall lapse and such Performance Awards shall be immediately settled or distributed or (y) converted into Restricted Stock or Restricted Stock Unit Awards based on achievement of performance goals or based on target performance (either in full or pro rata based on the portion of Performance Period completed as of the date of the Change in Control) that are subject to Section 11.2. Notwithstanding anything to the contrary in this Section 11 (including all provisions of this Section 11) in the event that the Award Agreement does not explicitly state the intended treatment or acceleration or vesting of the Award upon a Change of Control, then the Award shall vest in accordance with the terms originally stated therein and there shall be no accelerated vesting or earning of any such Award.
11.2. Assumption or Substitution of Certain Awards. (a) Unless otherwise provided in an Award Agreement, in the event of a Change in Control of the Company in which the successor company assumes or substitutes for an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based Award (or in which the Company is the ultimate parent corporation and continues the Award), if a Participant’s employment or service as a Director with such successor company (or the Company) or a subsidiary thereof terminates within 24 months following such Change in Control (or such other period set forth in the Award Agreement, including prior thereto if applicable) and under the circumstances specified in the Award Agreement: (i) Options and Stock Appreciation Rights outstanding as of the date of such termination of employment will immediately vest, become fully exercisable, and may thereafter be exercised for 24 months (or the period of time set forth in the Award Agreement), (ii) the restrictions, limitations and other conditions applicable to Restricted Stock and Restricted Stock Units outstanding as of the date of such termination of employment shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all restrictions, limitations and conditions and become fully vested, and (iii) the restrictions, limitations and other conditions applicable to any Other Share-Based Awards or any other Awards shall lapse, and such Other Share-Based Awards or such other Awards shall become free of all restrictions, limitations and conditions and become fully vested and transferable to the full extent of the original grant. For the purposes of this Section 11.2, an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based Award shall be considered assumed or substituted for if following the Change in Control the Award confers the right to purchase or receive, for each Share subject to the Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based Award immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) received in the transaction constituting a Change in Control by holders of Shares for each Share held on the effective date of such 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 transaction constituting a Change in Control is not solely common stock of the successor company, the Committee may, with the consent of the successor company, provide that the consideration to be received upon the exercise or vesting of an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based Award, for each Share subject thereto, will be solely common stock of the successor company substantially equal in fair market value to the per Share consideration received by holders of Shares in the transaction constituting a Change in Control. The determination of such substantial equality of value of consideration shall be made by the Committee in its sole discretion and its determination shall be conclusive and binding.
(b) Unless otherwise provided in an Award Agreement, in the event of a Change in Control of the Company to the extent the successor company does not assume or substitute for an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based Award (or in which the Company is the ultimate parent corporation and does not continue the Award), then immediately prior to the Change in Control: (i) those Options and Stock Appreciation Rights outstanding as of the date of the Change in Control that are not assumed or substituted for (or continued) shall immediately vest and become fully exercisable; (ii) restrictions, limitations and other conditions applicable to Restricted Stock and Restricted Stock Units that are not assumed or substituted for (or continued) shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all restrictions, limitations and conditions and become fully vested; and (iii) the restrictions, other limitations and other conditions applicable to any Other Share-Based Awards or any other Awards that are not assumed or substituted for (or continued) shall lapse, and such Other Share-Based Awards or such other Awards shall become free of all restrictions, limitations and conditions and become fully vested and transferable to the full extent of the original grant.
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(c) The Committee, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Option and Stock Appreciation Right outstanding shall terminate within a specified number of days after notice to the Participant, and/or that each Participant shall receive, with respect to each Share subject to such Option or Stock Appreciation Right, an amount equal to the excess of the Fair Market Value of such Share immediately prior to the occurrence of such Change in Control over the exercise price per Share of such Option and/or Stock Appreciation Right; such amount to be payable in cash, in one or more kinds of stock or property (including the stock or property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its discretion, shall determine.
11.3. Change in Control. For purposes of this Plan, unless otherwise provided in an Award Agreement, Change in Control means the occurrence of any one of the following events after the date of approval of this Plan by the Board:
(a) Over a period of 24 consecutive months or less, there is a change in the composition of the Board such that a majority of the Board (rounded up to the next whole number, if a fraction) ceases, by reason of one or more proxy contests for the election of Board members, to be composed of individuals who either: (i) have been Board members continuously since the beginning of that period; or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in the preceding clause (i) who were still in office at the time that election or nomination was approved by the Board; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to satisfy the criteria described in the preceding clause (ii);
(b) Any person or group of persons (within the meaning of Section 13(d)(3) of the Exchange Act) directly or indirectly acquires beneficial ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities, other than: (i) the Company or any corporation, partnership, limited liability company, business trust, or other entity that is an Affiliate of the Company; (ii) an employee benefit plan of the Company or an Affiliate; (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or an Affiliate; or (iv) an underwriter temporarily holding securities pursuant to an offering of such securities;
(c) The consummation of a merger or consolidation of the Company with or into another person or the sale, transfer, or other disposition of all or substantially all of the Company’s assets to one or more other persons in a single transaction or series of related transactions that requires the approval of the Company’s stockholders, whether for such transaction or the issuance of securities in such transaction (a “Business Combination”), unless in connection with such Business Combination securities possessing more than 50% of the total combined voting power of the survivor’s or acquiror’s outstanding securities (or the securities of any parent thereof) are held by a person or persons who held securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities (“Voting Securities”) immediately prior to such Business Combination and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to such Business Combination; or
(d) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or the consummation of a sale of all or substantially all of the Company’s assets.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than 50% of the Voting Securities as a result of the acquisition of Voting Securities by the Company which reduces the number of Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Voting Securities that increases the percentage of outstanding Voting Securities beneficially owned by such person, a Change in Control shall then occur.
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12. PROVISIONS WITH GENERAL APPLICABILITY
12.1. Amendment and Termination of this Plan. The Board may, from time to time, alter, amend, suspend or terminate this Plan as it shall deem advisable, subject to any requirement for stockholder approval imposed by applicable law, including the rules and regulations of the principal securities market on which the Shares are traded; provided that the Board may not amend this Plan in any manner that would result in noncompliance with Rule 16b-3 of the Exchange Act; and further provided that the Board may not, without the approval of the Company’s stockholders, amend this Plan to: (a) increase the number of Shares that may be the subject of Awards under this Plan (except for adjustments pursuant to Section 12.2); (b) expand the types of awards available under this Plan; (c) materially expand the class of persons eligible to participate in this Plan; (d) amend any provision of Section 5.3 or Section 6.2(a); (e) increase the maximum permissible term of any Option or Stock Appreciation Right; (f) increase the Limitations; or (g) or otherwise materially increase the benefits accruing to Participants under this Plan. The Board may not, without the approval of the Company’s stockholders, take any other action with respect to an Option or Stock Appreciation Right that would be treated as a repricing under the rules and regulations of the principal securities exchange on which the Shares are traded, including a reduction of the exercise price of an Option or the grant price of a Stock Appreciation Right or the exchange of an Option or Stock Appreciation Right for cash or another Award. In addition, no amendments to, or termination of, this Plan shall impair the rights of a Participant in any material respect under any Award previously granted without such Participant’s consent.
12.2. Changes in Capital Structure. In the event of any: (a) any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split; (b) any merger, combination, consolidation, or other reorganization; (c) any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Shares (whether in the form of securities, cash (other than regular cash dividends) or property); (d) any exchange of Shares or other securities of the Company, or any similar, unusual or extraordinary corporate transaction in respect of the Shares; or (e) a sale of all or substantially all the business or assets of the Company as an entirety, then the Committee shall, in such manner, to such extent (if any) and at such time as it deems appropriate and equitable in the circumstances in order to preserve, but not increase, the benefits or potential benefits intended to be made available under the Plan or an outstanding Award: (i) proportionately adjust any or all of: (A) the number and type of shares of Shares (or other securities) that thereafter may be made the subject of Awards (including the specific share limits, maximums and numbers of shares set forth elsewhere in this Plan); (B) the number, amount and type of shares of Shares (or other securities or property) subject to any or all outstanding Awards; (C) the grant, purchase, or exercise price of any or all outstanding Award; (D) the securities, cash or other property deliverable upon exercise or payment of any outstanding Awards, or (E) the performance standards applicable to any outstanding Awards; or (ii) make provision for a cash payment or for the assumption, substitution or exchange of any or all outstanding share-based Awards or the cash, securities or property deliverable to the holder of any or all outstanding share-based Awards, based upon the distribution or consideration payable to holders of the Shares upon or in respect of such event. Notwithstanding the foregoing, to the extent possible, all adjustments shall be made in a manner to avoid: (i) an Award that is not already subject to Section 409A of the Code from becoming subject to Section 409A of the Code; and (ii) the imposition of penalties pursuant to Section 409A of the Code. In any of such events, the Committee may take such action prior to such event to the extent that the Committee deems the action necessary to permit the Participant to realize the benefits intended to be conveyed with respect to the underlying shares in the same manner as is or will be available to stockholders generally. In the case of any stock split or reverse stock split, if no action is taken by the Committee, the proportionate adjustments contemplated by clause (i) above shall nevertheless be made.
12.3. Transferability of Awards. Except as provided below, no Award and no Shares that have not been issued or as to which any applicable restriction, performance or deferral period has not lapsed, may be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution, and such Award may be exercised during the life of the Participant only by the Participant or the Participant’s guardian or legal representative. To the extent and under such terms and conditions as determined by the Committee, a Participant may assign or transfer an Award without consideration (each transferee thereof, a “Permitted Assignee”) to: (i) the Participant’s spouse, children or grandchildren (including any adopted and step children or grandchildren), parents, grandparents or siblings; (ii) to a trust for the benefit of one or more of the Participant or the persons referred to in clause (i); (iii) to a partnership, limited liability company or corporation in which the Participant or the persons referred to in clause (i) are the only partners, members or shareholders; or (iv) for charitable donations; provided that such Permitted Assignee shall be bound by and subject to all of the terms and conditions of this Plan and the Award Agreement relating to the transferred Award and shall execute an agreement satisfactory to the Company evidencing such obligations; and provided further that such Participant shall remain bound by the terms and conditions of this Plan. The Company shall cooperate with any Permitted Assignee and the Company’s transfer agent in effectuating any transfer permitted under this Section.
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12.4. Deferral; Dividend Equivalents. The Committee shall be authorized to establish procedures pursuant to which the payment of any Award may be deferred consistent with the requirements of Section 409A of the Code. Subject to the provisions of this Plan and any Award Agreement, the recipient of an Award other than an Option or Stock Appreciation Right may, if so determined by the Committee, be entitled to receive, currently or on a deferred basis, cash, stock or other property dividends, or cash payments in amounts equivalent to cash, stock or other property dividends on Shares (“Dividend Equivalents”) with respect to the number of Shares covered by the Award, as determined by the Committee, in its sole discretion. The Committee may provide that such amounts and Dividend Equivalents (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested and may provide that such amounts and Dividend Equivalents are subject to the same vesting or performance conditions as the underlying Award. Notwithstanding the foregoing, Dividend Equivalents credited in connection with an Award that vests based on the achievement of performance goals shall be subject to restrictions and risk of forfeiture to the same extent as the Award with respect to which such Dividend Equivalents have been credited.
12.5. Privileges of Stock Ownership. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are restricted stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the restricted stock; provided, further, that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant’s original purchase price.
12.6. Custody. To enforce any restrictions on a Participant’s Award, the Committee may require the Participant to deposit all Award Agreements or certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates.
13. COMPLIANCE MATTERS
13.1. Compliance with Section 409A of the Code. This Plan is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the extent that an Award or the payment, settlement or deferral thereof is subject to Section 409A of the Code, the Award shall be granted, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. Any provision of this Plan that would cause the grant of an Award or the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code.
13.2. Section 16(b) of the Exchange Act. All elections and transactions under the Plan by persons subject to Section 16 of the Exchange Act involving shares of Common Stock are intended to comply with any applicable exemptive condition under Rule 16b-3. The Committee may, in its sole discretion, establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder.
13.3. Listing and Registration. (a) Each Award shall be subject to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration, or qualification of such Award, or any Shares or other property subject thereto, upon any securities exchange or under any foreign, federal or state securities or other law or regulation, or the consent or approval of any governmental body or the taking of any other action to comply with or otherwise with respect to any such law or regulation, is necessary or desirable as a condition to or in connection with the granting of such Award or the issue, delivery or purchase of Shares or other property thereunder, no such Award may be exercised or paid in Shares or other property unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Committee. The holder of the Award will supply the Company with such certificates, representations and information as the Company shall request and shall otherwise cooperate with the Company in effecting or obtaining such listing, registration, qualification, consent, approval or other action. In the case of persons subject to Section 16 of the Exchange Act, the Committee may at any time impose any limitations upon the exercise, delivery or payment of any Award which, in the discretion of the Committee, are necessary or desirable in order to comply with Section 16 and the rules and regulations thereunder. If the Company, as part of an offering of securities or otherwise, finds it desirable or necessary because of foreign, federal or state legal or regulatory requirements to suspend the period during which Options or Stock Appreciation Rights may be exercised, the Committee may, in its discretion and without the holders’ consent, so suspend such period on not less than 15 days prior written notice to the holders thereof.
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(b) At the option of the Committee, the obligation of the Company to issue Shares to a Participant upon the grant of any Award or exercise of an Option or other Award, may be conditioned upon obtaining appropriate representations, warranties, restrictions and agreements of the Participant. Among other representations, warranties, restrictions and agreements, the Participant may be required to represent and agree that the purchase or receipt of Shares shall be for investment, and not with a view to the public resale or distribution thereof, unless the Shares are registered under the Securities Act and the issuance and sale of the Shares complies with all other laws, rules and regulations applicable thereto.
(c) Unless the issuance of such Shares is registered under the Securities Act of 1933, as amended (the “Securities Act”) (and any similar law of a foreign jurisdiction applicable to the Participant), the Participant shall acknowledge that the Shares purchased are not registered under the Securities Act (or any such other law) and may not be sold or otherwise transferred unless the Shares have been registered under the Securities Act (or any such other law) in connection with the sale or other transfer thereof, or that counsel satisfactory to the Company has issued an opinion satisfactory to the Company that the sale or other transfer of such Shares is exempt from registration under the Securities Act (or any such other law), and unless said sale or transfer is in compliance with all other applicable laws, rules and regulations, including all applicable federal, state and foreign securities laws, rules and regulations. All certificates for Shares delivered under this Plan pursuant to any Award shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. Unless the Shares subject to an Award are registered under the Securities Act, the certificates representing such Shares issued shall contain the following legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF, BY GIFT OR OTHERWISE, OR IN ANY WAY ENCUMBERED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND UNDER APPLICABLE STATE SECURITIES LAWS.
14. MISCELLANEOUS
14.1. Award Agreements. Each Award Agreement shall either be: (a) in writing in a form approved by the Committee and executed by the Company by an officer duly authorized to act on its behalf; or (b) an electronic notice in a form approved by the Committee and recorded by the Company (or its designee) in an electronic recordkeeping system used for the purpose of tracking one or more types of Awards as the Committee may provide; in each case and if required by the Committee, the Award Agreement shall be executed or otherwise electronically accepted by the recipient of the Award in such form and manner as the Committee may require. The Committee may authorize any officer of the Company to execute any or all Award Agreements on behalf of the Company. The Award Agreement shall set forth the material terms and conditions of the Award as established by the Committee consistent with the provisions of this Plan.
14.2. Tax Withholding. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for such withholding are insufficient, including amounts from any other sums or property due or to become due from the Company to the Participant, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. If a Participant’s benefit is to be received in the form of Shares, and such Participant fails to make arrangements for the payment of tax, the Company may withhold such Shares having a value equal to the amount required to be withheld. When a Participant who is subject to Section 16 of the Exchange Act is required to pay the Company an amount required to be withheld under applicable income and employment tax laws, the Participant may elect to satisfy the obligation, in whole or in part, by electing to have withheld, from the shares required to be delivered to the Participant, Shares having a value equal to the amount required to be withheld, or by delivering to the Company other Shares held by such Participant. The Shares used for tax withholding will be valued at an amount equal to the Fair Market Value per Share of such Shares on the date the benefit is to be included in Participant’s income. In no event shall the Fair Market Value per Share of the Shares to be withheld and delivered pursuant to this Section to satisfy applicable withholding taxes in connection with the benefit exceed the minimum amount of taxes required to be withheld. Participants shall also make such arrangements as the Company may require for the payment of any withholding tax obligation that may arise in connection with the disposition of Shares acquired upon the exercise of Options.
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14.3. No Right of Employment or Service and No Claims to Awards. This Plan is purely voluntary on the part of the Company, and the continuance of the Plan shall not be deemed to constitute a contract between the Company and any Participant, or to be consideration for or a condition of the employment or service of any Participant. Nothing in this Plan nor the grant of an Award hereunder shall confer upon any Employee, Director of Consultant the right to continue in the employment or service of the Company or any Subsidiary or affect any right that the Company or any Subsidiary may have to terminate the employment or service of (or to demote or to exclude from future Awards under this Plan) any such Employee, Director or Consultant at any time for any reason. No Participant shall have any right to or interest in Awards authorized hereunder prior to the award thereof to such Participant, and upon such Award the Participant shall have only such rights and interests as are expressly provided herein, subject, however, to all applicable provisions of the Company’s Certificate of Incorporation, as the same may be amended from time to time. Except as specifically provided by the Committee, the Company shall not be liable for the loss of existing or potential profit from an Award granted in the event of termination of an employment or other relationship. No Employee or Participant shall have any claim to be granted any Award under this Plan, and there is no obligation for uniformity of treatment of Employees or Participants under this Plan. In the case of any Employee on an approved leave of absence, the Committee may make such provisions with respect to continuance of Awards previously granted while on leave from the employ of the Company or a Subsidiary as it may deem equitable.
14.4. Substitute Awards. Notwithstanding any other provision of this Plan, the terms of Substitute Awards may vary from the terms set forth in this Plan to the extent the Committee deems appropriate to conform, in whole or in part, to the provisions of the awards in substitution for which they are granted.
14.5. Nature of Payments. All Awards made pursuant to this Plan are in consideration of services performed or to be performed for the Company or any Subsidiary, division or business unit of the Company. Any income or gain realized pursuant to Awards under this Plan constitute a special incentive payment to the Participant and shall not be taken into account, to the extent permissible under applicable law, as compensation for purposes of any of the employee benefit plans of the Company or any Subsidiary except as may be determined by the Committee or by the Board or board of directors of the applicable Subsidiary.
14.6. Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.
14.7. Severability. If any provision of this Plan shall be held unlawful or otherwise invalid or unenforceable in whole or in part by a court of competent jurisdiction, such provision shall: (a) be deemed limited to the extent that such court of competent jurisdiction deems it lawful, valid and/or enforceable and as so limited shall remain in full force and effect; and (b) not affect any other provision of this Plan or part thereof, each of which shall remain in full force and effect. If the making of any payment or the provision of any other benefit required under this Plan shall be held unlawful or otherwise invalid or unenforceable by a court of competent jurisdiction, such unlawfulness, invalidity or unenforceability shall not prevent any other payment or benefit from being made or provided under this Plan, and if the making of any payment in full or the provision of any other benefit required under this Plan in full would be unlawful or otherwise invalid or unenforceable, then such unlawfulness, invalidity or unenforceability shall not prevent such payment or benefit from being made or provided in part, to the extent that it would not be unlawful, invalid or unenforceable, and the maximum payment or benefit that would not be unlawful, invalid or unenforceable shall be made or provided under this Plan.
14.8. Construction. As used in this Plan, the words “include” and “including” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”
14.9. Unfunded Status of this Plan. This Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.
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14.10. Governing Law. This Plan and all determinations made and actions taken thereunder, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware, without reference to principles of conflict of laws, and construed accordingly.
14.11. Foreign Employees. Awards may be granted to Participants who are foreign nationals or employed outside the United States, or both, on such terms and conditions different from those applicable to Awards to Employees employed in the United States as may, in the judgment of the Committee, be necessary or desirable in order to recognize differences in local law or tax policy. The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Company’s obligation with respect to tax equalization for Employees on assignments outside their home country.
14.12. No Registration Rights; No Right to Settle in Cash. The Company has no obligation to register with any governmental body or organization (including, without limitation, the U.S. Securities and Exchange Commission “SEC”)) any of: (a) the offer or issuance of any Award; (b) any Shares issuable upon the exercise of any Award; or (c) the sale of any Shares issued upon exercise of any Award, regardless of whether the Company in fact undertakes to register any of the foregoing. In particular, in the event that any of (x) any offer or issuance of any Award, (y) any Shares issuable upon exercise of any Award, or (z) the sale of any Shares issued upon exercise of any Award are not registered with any governmental body or organization (including, without limitation, the SEC), the Company will not under any circumstance be required to settle its obligations, if any, under this Plan in cash.
14.13. Captions. The captions in this Plan are for convenience of reference only, and are not intended to narrow, limit or affect the substance or interpretation of the provisions contained herein.
14.14. Notices. Any notice to be given to the Company pursuant to the provisions of this Plan shall be addressed to the Company in care of its Secretary (or such other person as the Company may designate from time to time) at its principal executive office, and any notice to be given to a Participant shall be delivered personally or addressed to him or her at the address given beneath his or her signature on his or her Award Agreement, or at such other address as such Participant or his or her permitted transferee (upon the permitted transfer) may hereafter designate in writing to the Company. Any such notice shall be deemed duly given on the date and at the time delivered via hand delivery, courier or recognized overnight delivery service or, if sent via telecopier, on the date and at the time telecopied with confirmation of delivery or, if mailed, on the date five (5) days after the date of the mailing (which shall be by regular, registered or certified mail). Delivery of a notice by telecopy (with confirmation) shall be permitted and shall be considered delivery of a notice notwithstanding that it is not an original that is received. It shall be the obligation of each Participant and each permitted transferee to provide the Secretary of the Company, by letter mailed as provided herein, with written notice of his or her direct mailing address.
Duly Adopted by the Board of Directors as of July 20, 2016.
Duly Adopted by Shareholders as of August 11, 2016.
POWER EFFICIENCY CORPORATION | |||
By: | |||
Name: | |||
Title: | |||
By: | |||
Name: | |||
Title: |
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Exhibit 21
Subsidiaries of Registrant
1. | Hillsborough Battery LLC |
Exhibit 23.1
LIEBMAN GOLDBERG & HYMOWITZ LLP
Certified Public Accountants
595 Stewart Avenue, Suite 420
Garden City, New York 11530
Tel (516) 228-6600
Fax(516) 228-6664
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on [Form 10] of our report dated August 10, 2016, with respect to our audit of the consolidated financial statements of Power Efficiency Corporation, as filed with the Securities and Exchange Commission.
We also consent to the reference to us under the caption “Experts” in this Registration Statement on Form 10.
/s/ Liebman Goldberg & Hymowitz, LLP
Liebman Goldberg & Hymowitz, LLP
Garden City, New York
August 11, 2016
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