UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 22, 2019 (November 19, 2019)
NANOPHASE TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 0-22333 | 36-3687863 |
| (State or other | (Commission | (IRS Employer |
| jurisdiction of | File Number) | Identification No.) |
| incorporation) |
1319 Marquette Drive, Romeoville, Illinois 60446
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (630) 771-6700
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01. Entry into a Material Definitive Agreement.
On November 20, 2019, Nanophase Technologies Corporation (the “Company”) closed the transactions under the Securities Purchase Agreement, dated November 13, 2019 (the “SPA”), between the Company and Bradford T. Whitmore. At the closing and pursuant to the SPA, the Company issued Mr. Whitmore a 2% Second Secured Convertible Promissory Note in the original principal amount of $2,000,000 (the “Convertible Note”), and the Company, the Company’s sole subsidiary Solésence, LLC and Mr. Whitmore entered into a Commercial Security Agreement to secure the Company’s obligations under the Convertible Note (the “Security Agreement”). The SPA, the Convertible Note and the Security Agreement were previously disclosed in Part II, Item 2 of the Company’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2019, which was filed with the Securities and Exchange Commission (the “Commission”) on November 14, 2019. Such disclosure is incorporated into this Item 1.01. The text of the SPA, the Security Agreement and the Convertible Note was previously filed as Exhibits 4.1, 4.2 and 4.3, respectively, to the Company’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2019, which was filed with the Commission on November 14, 2019, and the summary of the SPA, the Security Agreement and the Convertible Note in this Item 1.01 is qualified in its entirety by reference to the complete text thereof, which is incorporated herein.
Item 2.03. Creation of a Direct Financial Obligation
The disclosure under Item 1.01 of this current report on Form 8-K is incorporated in this Item 2.03. The SPA, the Convertible Note and the Security Agreement were previously disclosed in Part II, Item 2 of the Company’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2019, which was filed with the Commission on November 14, 2019. Such disclosure is incorporated into this Item 2.03.
Item 3.02. Unregistered Sales of Equity Securities
The disclosure under Item 1.01 of this current report on Form 8-K is incorporated in this Item 3.02. The SPA, the Convertible Note and the Security Agreement were previously disclosed in Part II, Item 2 of the Company’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2019, which was filed with the Commission on November 14, 2019. Such disclosure is incorporated into this Item 3.02.
Item 5.02. Compensatory Arrangements of Certain Officers.
(e) 2019 Equity Compensation Plan
At the 2019 Annual Meeting of Stockholders of the Company held on November 19, 2019 (the “Annual Meeting”), the Company’s stockholders approved the Company’s 2019 Equity Compensation Plan (the “Plan” or the “2019 Plan”), which is designed to replace the Company’s existing 2010 Equity Compensation Plan (the “2010 Plan”). Consistent with such approval, the Company implemented the 2019 Plan effective November 19, 2019, and the 2010 Plan was terminated effective November 19, 2019.
The following is a general summary of the 2019 Plan and is qualified in its entirety by the full text of the 2019 Plan, which is filed as Exhibit 10.1 to this current report on Form 8-K. Capitalized terms not defined herein have the meanings ascribed to such terms in the plan document.
Participants in the 2019 Plan. Employees of the Company, its parents and its subsidiaries, including employees who are officers or directors, and directors of the Company who are not employees are eligible to receive awards under the 2019 Plan.
Administration. The 2019 Plan will be administered by the compensation committee of the Board (the “Committee”). The Committee will have sole authority to (i) determine the individuals to whom grants shall be made under the 2019 Plan, (ii) determine the type, size and terms of the grants to be made to each such individual, (iii) determine the time when the grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, and (iv) make all determinations with respect to any other matters arising under the 2019 Plan.
Shares Available for the 2019 Plan. Subject to adjustment as provided in the 2019 Plan (for example, in the event of recapitalization, stock split, stock dividend, merger, reorganization or similar event), the maximum number of shares of common stock that may be subject to options issued under the 2019 Plan is 3,000,000 shares, and the maximum number of shares of common stock that may be subject to options issued under the 2019 Plan to any eligible participant in the 2019 Plan in any single calendar year is the lesser of 2% of outstanding shares of the Company’s common stock for employees and 0.5% for directors, or 600,000 shares in the aggregate (subject to exceptions contained in the Plan, including for grants to newly hired employees). Grants for newly hired employees are excluded from the maximum annual share grant cap.
Awards. Awards under the 2019 Plan may consist of grants of incentive stock options or non-qualified options. Except for grants made to a person as an inducement material to the individual’s entering into employment with the Company, no person may receive more than 20% of the aggregate number of any class of Grants made during any calendar year.
Reorganization or Change in Control. Under the 2019 Plan, a “Reorganization” shall be deemed to occur if the stockholders of the Company approve (or, if stockholder approval is not required, the Board approves) an agreement providing for (i) the merger or consolidation of the Company with another corporation where the stockholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares of the Company’s stock entitling such stockholders to more than 50% of all votes to which all stockholders of the surviving corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote), (ii) the sale or other disposition of all or substantially all of the assets of the Company, or (iii) a liquidation or dissolution of the Company. A “Change of Control” shall be deemed to have occurred if any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or any of its subsidiaries or affiliates becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing a majority of the voting power of the then outstanding securities of the Company except where the acquisition is approved by the Board of Directors.
Upon a Reorganization where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), all outstanding options under the 2019 Plan that are not exercised will be assumed by, or replaced with comparable options or rights by, the surviving corporation. In addition, upon any Reorganization or a Change of Control, (i) the Company will provide each participant with outstanding grants written notice of such event, and (ii) all outstanding Options will automatically accelerate and become fully exercisable.
Termination and Amendment. The Board of Directors may at any time terminate or from time to time amend the 2019 Plan; provided, that the Board of Directors may not make any amendment to the 2019 Plan without the approval of the stockholders if such stockholder approval is required by any requirement of applicable law or regulation. The 2019 Plan shall terminate on the day immediately preceding the tenth anniversary of the effective date of the Plan, unless the Plan is terminated earlier by the Board or is extended by the Board with the approval of the stockholders.
Outstanding Grants and Effect on Prior Plan. Upon the effective date of the 2019 Plan, the 2010 Plan was terminated subject to the provisions of Section 3.5 of the 2010 Plan, relating to the post-termination effectiveness of grants under the 2010 Plan. The 2019 Plan is not an amendment or restatement of the 2010 Plan.
Item 5.03. Amendment to Articles of Incorporation.
On November 19, 2019, the Company’s stockholders adopted an amendment to the Company’s Certificate of Incorporation, as amended, to increase the number of authorized shares of common stock of the Company from 42,000,000 shares to 55,000,000 shares, as disclosed in the Company’s definitive proxy statement that was filed with the Commission on October 17, 2019, as supplemented by amendment no. 1 thereto which was filed with the Commission on November 15, 2019. The amendment to the Company’s Certificate of Incorporation was effective on November 20, 2019 by filing the Fourth Amendment to the Certificate of Incorporation with the Delaware Secretary of State (the “Fourth Amendment”). The text of the Fourth Amendment is attached hereto as Exhibit 3.1 and is incorporated herein.
Item 5.07. Submission of Matters to a Vote of Security Holders.
The Annual Meeting was held on November 19, 2019. The following is a summary of the proposals submitted to the Company’s stockholders, as described in the Company’s definitive proxy statement filed with the Commission on October 17, 2019, and final results of the voting on each matter.
| 1) | The stockholders voted to elect one Class I director to the Board. Results of the voting were as follows: |
|
Director |
For | Authority Withheld |
Abstentions | Broker Non-Votes | ||||
| R. Janet Whitmore | 24,925,379 | 248,977 | — | 6,782,357 |
At the recommendation of the Board’s Nominating and Corporate Governance Committee and as disclosed in the Company’s proxy statement for the Annual Meeting that was filed with the Commission on October 17, 2019, the Board decided to reduce the size of the Board, effective as of the commencement of the Annual Meeting and as permitted by the by-laws of the Company and Article VI of the Company’s certificate of incorporation, from seven directors to five directors. After such reduction and in addition to Ms. Whitmore as the sole Class I director whose term as director will expire at the Company’s 2022 annual meeting of stockholders, the Board consists of two Class II directors, Richard W. Siegel, Ph.D. and W. Ed Tyler, whose terms as director will expire at the Company’s 2020 annual meeting of stockholders and two Class III directors, Jess A. Jankowski and George A. Vincent, III, whose terms as director will expire at the Company’s 2021 annual meeting of stockholders.
| 2) | The stockholders voted to approve, in an advisory, non-binding vote, the compensation paid to the Company’s named executive officers. Results of the voting were as follows: |
|
For |
Against |
Abstentions |
Broker | |||
| 24,665,283 | 308,543 | 200,530 | 6,782,357 |
| 3) | The stockholders voted, in an advisory, non-binding vote, on their preferred frequency of future advisory votes to approve the compensation paid to the Company’s named executive officers. Results of the voting were as follows: |
|
1 Year |
2 Years |
3 Years |
Abstentions | |||
| 1,064,502 | 19,897 | 23,864,581 | 225,376 |
At the regular meeting of the Board immediately following the Annual Meeting, the Board considered the results of the stockholders’ advisory vote on the frequency of future votes to approve the compensation paid to the Company’s named executive officers, and the Board decided, in light of such results, that the Company will include a stockholder vote on the compensation of its named executive officers in its proxy materials every three years until the next required vote on the frequency of stockholder votes on the compensation of the Company’s named executive officers.
| 4) | The stockholders voted to adopt an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 42,000,000 to 55,000,000. Results of the voting were as follows: |
|
For |
Against |
Abstentions |
Broker | |||
| 24,743,214 | 363,072 | 68,070 | 6,782,357 |
| 5) | The stockholders voted to approve the Nanophase Technologies Corporation 2019 Equity Compensation Plan. Results of the voting were as follows: |
|
For |
Against |
Abstentions |
Broker | |||
| 24,777,923 | 369,726 | 26,707 | 6,782,357 |
| 6) | The stockholders did not adopt an amendment to the Company’s Certificate of Incorporation to allow special meetings to be called by stockholders of record who own, in the aggregate, at least 33% of the voting power of the outstanding shares of the Company. Results of the voting were as follows: |
|
For |
Against |
Abstentions |
Broker | |||
| 24,886,662 | 198,609 | 89,085 | 6,782,357 |
| 7) | The stockholders voted to ratify the appointment by the Company’s Audit and Finance Committee of RSM US LLP as the independent auditors of the financial statements for the Company’s fiscal year ending December 31, 2019. Results of the voting were as follows: |
|
For |
Against |
Abstentions |
Broker | |||
| 31,403,136 | 201,329 | 352,248 | — |
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit 3.1* | Fourth Amendment to the Certificate of Incorporation of Nanophase Technologies Corporation |
| Exhibit 4.1 | Securities Purchase Agreement, dated November 13, 2019, between Nanophase Technologies Corporation and Bradford T. Whitmore, incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 |
| Exhibit 4.2 | Commercial Security Agreement, dated November 20, 2019, between Nanophase Technologies Corporation, Solésence, LLC and Bradford T. Whitmore, incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 |
| Exhibit 4.3 | 2% Second Secured Convertible Note, dated November 20, 2019, made by the Nanophase Technologies Corporation and payable to the order of Bradford T. Whitmore, incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 |
| Exhibit 10.1* | Nanophase Technologies Corporation 2019 Equity Compensation Plan |
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: November 22, 2019
| NANOPHASE TECHNOLOGIES CORPORATION | ||
| By: | /s/ JESS JANKOWSKI | |
| Name: Jess Jankowski | ||
| Title: Chief Executive Officer | ||
NANOPHASE TECHNOLOGIES CORPORATION 8-K
Exhibit 3.1
FOURTH AMENDMENT
TO
THE CERTIFICATE OF INCORPORATION
OF
NANOPHASE TECHNOLOGIES CORPORATION
Pursuant to the Certificate of Incorporation of Nanophase Technologies Corporation, as amended, and the Delaware General Corporation Law, the undersigned corporation, organized and existing under and by virtue of the Delaware General Corporation Law, hereby adopts the following Amendment to its Certificate of Incorporation:
FIRST: That at a meeting of the Board of Directors of Nanophase Technologies Corporation (the “Corporation”) resolutions were duly adopted setting forth this proposed amendment of the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and directing that said amendment be submitted to the stockholders of the Corporation for consideration at the Corporation’s 2019 annual meeting of stockholders.
SECOND: Article IV, Section A of the Certificate of Incorporation of the Corporation, as previously amended, is hereby amended and restated in its entirety to read as follows:
ARTICLE IV
A. The Corporation shall have authority to issue the following classes of stock in the number of shares and at the par value as indicated opposite the name of the class:
Class | Number of Shares Authorized | Par Value per Share | ||||||
| Common Stock (the “Common Stock”) | 55,000,000 | $ | .01 | |||||
| Preferred Stock (the “Preferred Stock”) | 24,088 | $ | .01 | |||||
The designations and the powers, preferences and relative participating, option or other rights of the Common and Preferred stockholders, and the qualifications, limitations or restrictions thereof remain unchanged.
THIRD: Pursuant to Section 242 of the Delaware General Corporation Law, at the Corporation’s 2019 annual meeting of stockholders, duly called and held upon notice in accordance with Section 222 of the Delaware General Corporation Law, a majority of the outstanding stock entitled to vote thereon and a majority of the outstanding stock of each class entitled to vote thereon as a class duly approved the amendment to the Certificate of Incorporation of the Corporation, as amended, set forth in this Certificate of Amendment.
FOURTH: That said amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law.
FIFTH: This amendment shall be effective on the date this Certificate of Amendment is filed with and accepted by the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed this 20th day of November, 2019.
Nanophase Technologies Corporation | ||
| By: | /s/ Jess Jankowski | |
Jess Jankowski Chief Executive Officer | ||
NANOPHASE TECHNOLOGIES CORPORATION 8-K
Exhibit 10.1
NANOPHASE TECHNOLOGIES CORPORATION
2019 EQUITY COMPENSATION PLAN
The purpose of the 2019 Nanophase Technologies Corporation Equity Compensation Plan (the “Plan”) is to provide designated employees of Nanophase Technologies Corporation (the “Company”) and its subsidiaries, and certain advisors, including non-employee members of the Board of Directors of the Company (the “Board”) who perform services for the Company or its subsidiaries, with the opportunity to receive grants of incentive stock options, non-qualified options, restricted shares, performance shares and stock appreciation rights. The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefiting the Company’s shareholders, and will align the economic interests of the participants with those of the shareholders.
ARTICLE I
ADMINISTRATION OF THE PLAN
Section 1.1 Administration.
(a) Committee. The Plan shall be administered and interpreted by the Compensation and Governance Committee of the Board (the “Committee”). The Committee shall consist of three or more persons appointed by the Board, all of whom shall be “outside directors” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and related Treasury regulations, shall be “non-employee directors” as defined under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
(b) Committee Authority. The Committee shall have the sole authority to (i) determine the individuals to whom grants shall be made under the Plan, (ii) determine the type, size and terms of the grants to be made to each such individual, (iii) determine the time when the grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, and (iv) make all determinations with respect to any other matters arising under the Plan. The Committee may delegate the authority to make grants during the periods between regularly scheduled meetings of the Committee; however, grants in excess of 5,000 shares or grants with non-standard terms shall be made subject to Committee approval. Any grant made pursuant to the Committee’s delegated authority shall be reported to the Board at the next meeting following the grant.
(c) Committee Determinations. The Committee shall have power and authority to interpret the Plan, make factual determinations, and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan as it deems necessary or advisable, in its sole discretion. The Committee’s interpretations and determinations shall be conclusive and binding on all persons having any interest in the Plan. Determinations made by the Committee under the Plan need not be uniform as to similarly situated individuals.
Section 1.2 Grants. Awards under the Plan may consist of grants of (i) incentive stock options as described in Section 2.1 (“Incentive Stock Options”) and (ii) non-qualified options as described in Section 2.1 (“Non-qualified Options”) (Incentive Stock Options and Non-qualified Options are collectively referred to as “Options”).
All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions specified in the individual in a grant instrument (the “Grant Instrument”). The Committee shall approve the form and provisions of each Grant Instrument.
Section 1.3 Shares Subject to the Plan.
(a) Shares Authorized.
(i) For purposes of the Plan, a “Share” means one share of common stock of the Company, par value $0.01 per share. Subject to adjustments as provided in Section 1.3(b) below, the aggregate number of Shares available for Grants under the Plan shall be 3,000,000 Shares.
(ii) For each calendar year, Grants under the Plan shall also be subject to the following limitations:
(A) Subject to adjustments as provided in Section 1.3(b) below, and for other than newly hired employees receiving grants as part of their initial compensation, the maximum aggregate number of Shares that shall be subject to Grants made under this Plan during any calendar year shall be 600,000 Shares. This limit shall not apply to Grants made to a person as an inducement material to the individual’s entering into employment with the Company (“New Hire Grants”).
(B) No grant recipient (“Grantee”) shall receive more than twenty (20) percent of the aggregate number of any class of Grants, excluding any New Hire Grants, made during any calendar year. This will make the absolute limit that any Grantee can receive in any given calendar year equal to 120,000 (20% of 600,000 shares, as referenced above), excluding any New Hire Grants that Grantee may have received in that same calendar year.
(C) During each calendar year, Employees shall be granted under the Plan no more than two (2) percent of the Company’s outstanding Shares and Non-Employee Directors shall be granted no more than one-half (1/2) percent of the Company’s outstanding Shares. The number of outstanding Shares for purpose of this subsection will be determined as of the first business day of each applicable calendar year on a fully-diluted basis.
(iii) The limitations set forth in subsection (ii) above shall not apply to New Hire Grants made to a person as an inducement material to the individual’s entering into employment with the Company, except for the overall limit of the New Hire Grant being 120,000 Options, as described in subsection (ii)(B) per person as it applies to this type of grant only. In addition, New Hire Grants shall not count against the aggregate maximum amounts set forth above in subsection (ii)(A) above.
(iv) The Shares may be authorized but unissued Shares or reacquired Shares, including Shares purchased by the Company on the open market for purposes of the Plan. If and to the extent Options granted under the Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised, the Shares subject to such Grants shall no longer be available for future Grants for purposes of the Plan. Once the cumulative Options granted within the life of the Plan reach 3,000,000, there will be no further shares available for Grants without an amendment to the Plan to authorize additional shares being added to the Plan.
(b) Adjustments for Significant Events. If the number or kind of outstanding Shares change by reason of (i) a dividend, spin-off, recapitalization, split or combination or exchange of Shares, (ii) a merger, reorganization or consolidation in which the Company is the surviving corporation, (iii) a reclassification or change in par value, or (iv) any other extraordinary or unusual event affecting the outstanding Shares of the Company as a class without the Company’s receipt of consideration, or if the value of outstanding Shares is substantially reduced as a result of a spin-off or the Company’s payment of an extraordinary dividend or distribution the maximum number of Shares available for Grants, the maximum number of Shares that any individual participating in the Plan may be granted in any year, the number of Shares covered by outstanding Grants, the kind of Shares issued under the Plan, and the price per Share or the applicable market value of such Grants may be appropriately adjusted by the Committee to reflect any increase or decrease in the number of, or change in the kind or value of, issued Shares to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under such Grants. Any fractional Shares resulting from such adjustment shall be eliminated. Any adjustments determined by the Committee shall be final, binding and conclusive.
Section 1.4 Eligibility for Participation.
(a) Eligible Persons. All employees of the Company, its parents and its subsidiaries (“Employees”), including Employees who are officers or members of the Board, and members of the Board who are not Employees (“Non-Employee Directors”) shall be eligible to participate in the Plan. Advisors who perform services to the Company or any of its parents or its subsidiaries (“Key Advisors”) shall be eligible to participate in the Plan if the Key Advisors render bona fide services and such services are not in connection with the offer or sale of securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the Employees, Non-Employee Directors and Key Advisors to receive Grants.
ARTICLE II
EQUITY INCENTIVE GRANTS
Section 2.1 Options.
(a) Number of Shares. The Committee shall determine the number of Shares that will be subject to each Grant of Options, subject to the limitations in Section 1.3 above.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code or Non-qualified Options that are not intended so to qualify or any combination of Incentive Stock Options and Non-qualified Options.
(ii) The purchase price (the “Exercise Price”) of Shares subject to an Option shall be equal to, or greater than, the Fair Market Value (as defined below) of a Share on the date the Option is granted. The Exercise Price of an Incentive Stock Option shall be equal to, or greater than, the Fair Market Value of a Share on the date the Incentive Stock Option is granted and may not be granted to an Employee who, at the time of grant, owns Shares possessing more than 10 percent of the total combined voting power of all Shares and other classes of stock of the Company or any parent or subsidiary of the Company, unless the Exercise Price per Share is not less than 110% of the Fair Market Value of a Share on the date of grant.
(iii) If the Shares are publicly traded, then the Fair Market Value per Share shall be determined as follows: (x) if the principal trading market for the Shares is a national securities exchange or the Nasdaq National Market, the last reported sale price thereof on the date of grant or, if there were no trades on that date, the earliest subsequent date upon which a sale was reported, or (y) if the Shares are not principally traded on such exchange or market, the mean between the last reported “bid” and “asked” prices of a Share on the following date, as reported on Nasdaq or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable and as the Committee determines. If the Shares are not publicly traded or, if publicly traded, are not subject to reported transactions or “bid” or “asked” quotations as set forth above, the Fair Market Value per Share shall be as determined in good faith by the Committee; provided that, if the Shares are publicly traded, the Committee may make such discretionary determinations where the Shares have not been traded for 10 trading days.
(c) Option Term. The Committee shall determine the term of each Option. The term of any Option shall not exceed seven years from the date of grant. For Incentive Stock Options granted to an Employee who, at the time of grant, owns Shares possessing more than 10 percent of the total combined voting power of all Shares and other classes of stock of the Company, or any parent or subsidiary of the Company, the term shall not exceed five years from the date of grant.
(d) Vesting of Options. Options shall vest in accord with the terms and conditions specified in the Grant Instrument. The Committee may accelerate the vesting of any or all outstanding Options at any time for any reason.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised while the Grantee is an Employee, Key Advisor or member of the Board. In the event that a Grantee has a Termination of Service (as defined below) for any reason other than Disability (as defined below), death or Cause (as defined below), any Option which is otherwise exercisable by the Grantee shall terminate unless exercised within 90 days after the date of such termination, but in any event no later than the date of expiration of the Option term. Any Options that the Grantee cannot exercise at the time of a Termination of Service shall terminate as of such date.
(ii) In the event a Grantee is terminated for Cause, unless otherwise determined by the Committee (x) any Option held by the Grantee shall terminate as of the date of such Termination of Service and (y) the Grantee shall automatically forfeit all Shares underlying any exercised portion of an Option for which the Company has not yet delivered the certificates, upon refund by the Company of the Exercise Price paid by the Grantee for such Shares.
(iii) In the event a Grantee has a Termination of Service on account of Disability, any Option which is otherwise exercisable by the Grantee shall terminate unless exercised within one year after the date of such Termination of Service, but in any event no later than the date of expiration of the Option term. Unless provided otherwise in the applicable Grant Instrument, any of the Grantee’s Options which are not otherwise exercisable as of the date of such Termination of Service shall terminate as of such date.
(iv) If the Grantee dies while an Employee, Key Advisor or member of the Board or within 90 days after the date on which the Grantee has a Termination of Service, any Option that is otherwise exercisable by the Grantee shall terminate unless exercised within one year after the date of such death or Termination of Service, but in any event no later than the date of expiration of the Option term. Unless provided otherwise in the applicable Grant Instrument, any of the Grantee’s Options that are not otherwise exercisable as of the date shall terminate as of such date.
(v) For purposes of the Plan:
(A) “Cause” shall mean a finding by the Committee that (1) the Grantee has breached his or her employment, service, noncompetition, nonsolicitation or other similar contract with the Company or its parent and subsidiary corporations, (2) has been engaged in disloyalty to the Company or its parent and subsidiary corporations, including, without limitation, fraud, embezzlement, theft, commission of a felony or dishonesty in the course of his or her employment or service, (3) has disclosed trade secrets or confidential information of the Company or its parents and subsidiary corporations to persons not entitled to receive such information or (4) has entered into competition with the Company or its parent or Subsidiary Corporations. Notwithstanding the foregoing, if the Grantee has an employment agreement with the Company defining “Cause,” then such definition shall supersede the foregoing definition.
(B) “Disability” shall mean a Grantee’s becoming disabled within the meaning of Section 22(e)(3) of the Code. Notwithstanding the foregoing, if the Grantee has an employment agreement with the Company defining “Disability,” then such definition shall supersede the foregoing definition.
(C) “Termination of Service” shall mean a Grantee’s termination of employment or service as an Employee, Key Advisor or member of the Board unless the Grantee continues without interruption to serve thereafter in another such capacities.
(f) Exercise of Options. A Grantee may exercise an Option that has become exercisable, in whole or in part, by delivering a notice of exercise to the Company with payment of the Exercise Price. The Grantee shall pay the Exercise Price (x) in cash, (y) by delivering Shares owned by the Grantee for the period necessary to avoid a charge to the Company’s earnings for financial reporting purposes and to avoid adverse accounting consequences to the Company (including Shares acquired in connection with the exercise of an Option, subject to such restrictions as the Committee deems appropriate) and having a Fair Market Value on the date of exercise equal to the Exercise Price, or (z) by such other method as the Committee may approve, including payment through a broker in accord with procedures permitted by Regulation T of the Federal Reserve Board; provided, that, for purposes of assisting a Grantee (other than a Grantee who is a director or an executive officer of the Company) to exercise an Option, the Company may make loans to such Grantee or guarantee loans made by third parties to such Grantee, on such terms and conditions as the Committee may authorize. Such Grantee shall pay the Exercise Price at the time of exercise and shall satisfy the withholding tax requirements of Section 3.1.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option shall provide that, if the aggregate Fair Market Value of the Shares on the date of the grant with respect to which Incentive Stock Options are exercisable for the first time by a Grantee during any calendar year, under the Plan and any other equity compensation plan of the Company or a parent or subsidiary, exceeds $100,000, then the option, as to the excess, shall be treated as a Non-qualified Option. No Incentive Stock Option shall be granted to any person who is not an Employee of the Company or a parent or subsidiary of the Company (within the meaning of Section 424(f) of the Code).
ARTICLE III
GENERAL MATTERS
Section 3.1 Withholding of Taxes.
(a) Required Withholdings. The Company shall be entitled to withhold from any payments or deemed payments any amount of tax withholding (including all federal, state and local taxes) determined by the Committee to be required by law. Without limiting the generality of the foregoing, the Committee may, in its discretion, require the Grantee to pay the amount that the Committee deems necessary to satisfy the Company’s obligation to withhold federal, state or local income or other taxes incurred by reason of the exercise of any Option, or (ii) any other applicable income recognition event. Notwithstanding anything contained in the Plan to the contrary, the Grantee’s satisfaction of any tax- withholding requirements imposed by the Committee shall be a condition precedent to the Company’s obligation as may otherwise be provided hereunder to provide Shares to the Grantee and to the release of any restrictions as may otherwise be provided hereunder, as applicable; and the applicable options shall be forfeited upon the failure of the Grantee to satisfy such requirements with respect to, as applicable, (i) the exercise of the Option or (ii) any other applicable income recognition event.
(b) Election to Withhold Shares. If the Committee so permits, a Grantee may make a written election to satisfy the Company’s income tax withholding obligation with respect to an Option, Restricted Shares or Performance Shares by having Shares withheld by the Company from the Shares otherwise to be received, or to deliver previously owned Shares (not subject to restrictions hereunder). The number of Shares so withheld or delivered shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. Where the exercise of an Incentive Stock Option does not give rise to an obligation by the Company to withhold federal, state or local income or other taxes on the date of exercise, but may give rise to such an obligation in the future, the Committee may, in its discretion, make such arrangements and impose such restrictions as it deems necessary or appropriate. The election must be in a form and manner prescribed by the Committee and shall be subject to the prior approval of the Committee.
Section 3.2 Transferability of Grants.
(a) In General. Except as provided in Section 3.2(b), only the Grantee may exercise rights under a Grant during the Grantee’s lifetime. A Grantee may not transfer those rights except by will or by the laws of descent and distribution. When a Grantee dies, the personal representative or other person entitled to succeed to the rights of the Grantee (“Successor Grantee”) may exercise such rights in accordance with the terms of the Plan. A Successor Grantee must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Grantee’s will or under the applicable laws of descent and distribution.
(b) Transfer of Non-qualified Options. Notwithstanding the foregoing, the Committee may provide in a Grant Instrument that a Grantee may transfer Non-qualified Options to family members or other persons or entities according to such terms as the Committee may determine where the Committee determines that such transferability does not result in accelerated federal income taxation; provided that the Grantee receives no consideration for the transfer of an Option and the transferred Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately before the transfer.
Section 3.3 Reorganization or Change in Control of the Company.
(a) Definitions.
(i) As used herein, a “Reorganization” shall be deemed to have occurred if the shareholders of the Company approve (or, if shareholder approval is not required, the Board approves) an agreement providing for (i) the merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, Shares entitling such shareholders to more than 50% of all votes to which all shareholders of the surviving corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote), (ii) the sale or other disposition of all or substantially all of the assets of the Company, or (iii) a liquidation or dissolution of the Company.
(ii) As used herein, a “Change of Control” shall be deemed to have occurred if any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or any of its subsidiaries or affiliates becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing a majority of the voting power of the then outstanding securities of the Company except where the acquisition is approved by the Board.
(b) Assumption of Grants. Upon a Reorganization where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), all outstanding Options that are not exercised shall be assumed by, or replaced with comparable options or rights by, the surviving corporation.
(c) Notice and Acceleration. Upon a Reorganization or a Change of Control, (i) the Company shall provide each Grantee with outstanding Grants written notice of such event and (ii) all outstanding Options shall automatically accelerate and become fully exercisable.
Section 3.4 Requirements for Issuance or Transfer of Shares.
(a) Shareholder’s Agreement. The Committee may require that a Grantee execute a shareholder’s agreement with respect to any Shares distributed pursuant to the Plan.
(b) Limitations on Issuance or Transfer of Shares. No Shares shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Grant made to any Grantee hereunder on such Grantee’s undertaking in writing to comply with such restrictions on his or her subsequent disposition of such Shares as the Committee shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation thereof, and certificates representing such Shares may be legended to reflect any such restrictions. Certificates representing Shares issued or transferred under the Plan will be subject to such stop-transfer orders, registration and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon.
Section 3.5 Amendment and Termination of the Plan.
(a) Amendment. If shareholder approval for any amendment to the Plan is required by any applicable law or regulation, the Board may not make such amendment to the Plan without the approval of the shareholders. Otherwise, the Board may amend or terminate the Plan at any time.
(b) Termination of Plan. The Plan shall terminate on the day immediately preceding the tenth anniversary of the Effective Date (as defined below), unless the Plan is terminated earlier by the Board or is extended by the Board with the approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or amendment of the Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee unless the Grantee consents or unless the amendment is required in order to comply with applicable law. The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended in accord with the Plan or may be amended by agreement of the Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No other statements, representations, explanatory materials or examples, oral or written, may amend the Plan in any manner. The Plan shall be binding upon and enforceable against the Company and its successors and assigns.
Section 3.6 Miscellaneous.
(a) Programs. The Committee may adopt one or more programs not inconsistent with this Plan pursuant to which Grants may be made under this Plan. Such programs shall be deemed merely programs of implementation of this Plan and shall not be deemed new plans.
(b) Funding of the Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under the Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants.
(c) Rights of Participants. Nothing in the Plan shall entitle any Employee, Non-Employee Director, Key Advisor or other person to any claim or right to be granted a Grant under the Plan. Neither the Plan nor any action taken under it shall be construed as giving any individual any rights to be retained by or in the employ of the Company or any other employment rights.
(d) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Grant. The Committee shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
(e) Section Headings. Section headings are for reference only. In the event of a conflict between a title and the content of a Section, the content of the Section shall control.
(f) Effective Date of the Plan. Provided the Plan has been approved by the Company’s Board of Directors, the Plan shall be effective on the first business day immediately following the Plan’s approval by the Shareholders of the Company (the “Effective Date”).
(g) Deferred Compensation. No deferral of compensation (as defined under Code Section 409A or guidance thereto) is intended under this Plan. The Committee may permit deferrals of compensation pursuant to the terms of the Grant Agreement, a separate plan or a subplan which meets the requirements of Code Section 409A and any related guidance. Participants shall only be granted Awards under this Plan that meet the requirements of Code Section 409A or qualify for an exemption under Code Section 409A or any related guidance. If any participant receives an Award that does not comply with Code Section 409A or qualify for an exemption thereto, such Award shall be null and void and shall be deemed to have never been granted. Additionally, to the extent any Award is subject to Code Section 409A, notwithstanding any provision herein to the contrary, the Plan does not permit the acceleration of the time or schedule of any distribution related to such Award, except as permitted by Code Section 409A, the regulations thereunder, and/or the Secretary of the United States Treasury.
(h) Grants in Connection with Corporate Transactions and Otherwise. Nothing contained in the Plan shall be construed to (i) limit the right of the Committee to make Grants under the Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees or for other proper corporate purposes, or (ii) limit the right of the Company to grant stock options or make other awards outside of the Plan. Without limiting the foregoing, the Committee may make a Grant to an employee of another corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company or any of its subsidiaries in substitution for a stock option grant made to such employee by such corporation. The terms and conditions of the substitute grants may vary from the terms and conditions required by the Plan and from those of the substituted stock incentives. The Committee shall prescribe the provisions of the substitute grants.
(i) Compliance with Law. The Plan, the exercise of Options and the obligations of the Company to issue or transfer Shares under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. With respect to persons subject to Section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation. The Committee may, in its sole discretion, agree to limit its authority under this Section.
(j) Successors. All obligations of the Company under the Plan with respect to awards granted under it shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company.
(k) Governing Law. The validity, construction, interpretation and effect of the Plan and Grant Instruments issued under the Plan shall exclusively be governed by and determined in accordance with the law of the State of Delaware.
(l) Transition Provisions Relating to the Prior Plans. Upon the Effective Date of the Plan, the Company’s 2010 Equity Compensation Plan (the “2010 Plan”) shall be terminated subject to the provisions of Section 3.5 of the 2010 Plan, which will relate to the post-termination effectiveness of grants under the 2010 Plan. The Plan shall not be deemed an amendment or restatement of the 2010 Plan. Nothing in the Plan shall be deemed to impair the rights of or give any new or additional rights to any person who received grants under the 2010 Plan.
Upon the Effective Date of the 2010 Plan, the Company’s 2004 Equity Compensation Plan (as amended, the “2004 Plan”), 2005 Non-Employee Director Restricted Stock Plan (as amended, the “2005 Plan”), and the Amended and Restated 2006 Stock Appreciation Rights Plan (the “2006 Plan was terminated subject to the provisions of Section 3.5(c) of the 2004 Plan, Section 3.2 of the 2005 Plan, and Section 3.1 of the 2006 Plan, each relating to the post-termination effectiveness of grants under the 2004 Plan, the 2005 Plan, and the 2006 Plan, respectively. Nothing in the Plan shall be deemed to impair the rights of or give any new or additional rights to any person who received grants under the 2004 Plan, the 2005 Plan, or the 2006 Plan.