IDO SECURITY INC.
17 STATE STREET
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. THE ACTIONS DESCRIBED IN THIS INFORMATION STATEMENT HAVE ALREADY BEEN APPROVED BY A MAJORITY OF OUR SHAREHOLDERS. A VOTE OF THE REMAINING SHAREHOLDERS IS NOT NECESSARY.
IDO Security Inc. (“we” or the “Company”) has obtained the written consent of eight stockholders representing approximately 75% of our issued and outstanding shares of Common Stock on November 15, 2007, the record date for obtaining the consents, for the following actions:
(i) to increase the number of shares of Common Stock, $0.001 par value per share (the “Common Stock”) from 50 million to 100 million (the “Authorized Share Increase”) as set forth in the Certificate of Amendment to our Certificate of Incorporation attached hereto as Annex A (the “Certificate of Amendment”);
(ii) to adopt the Equity Incentive Plan (the “Equity Incentive Plan”) for employees and consultants attached hereto as Annex B initially reserving for issuance thereunder 3,000,000 shares of Common Stock; and
(iii) to adopt the 2007 Non-Employee Directors Stock Option Plan (the “Directors Plan”) for non-employee directors attached hereto as Annex C, initially reserving for issuance thereunder 1,000,000 shares of Common Stock.
The Company plans to mail this Information Statement to stockholders as of the Record Date on or about February 26, 2008.
Pursuant to regulations promulgated under the Securities Exchange Act of 1934, as amended, the approval of the Authorized Share Increase, the Equity Incentive Plan and the Directors Plan (collectively, the “Corporate Actions”) may not be effected until at least 20 calendar days after this Information Statement is sent or given to our shareholders.
We will pay all costs associated with the preparation and distribution of this Information Statement, including all mailing and printing expenses.
VOTE REQUIRED
As discussed in further detail below, the Authorized Share Increase required the approval of shareholders holding a majority of the outstanding votes and the adoption of each of the Equity Incentive Plan and the Non-Employee Directors Plan (and initial reservation of the shares thereunder) required the approval of the majority of the shares that would have participated in a meeting to adopt such plans (had one been held). The consent of the requisite number of shares for each of the Authorized Share Increase and the adoption of the Equity Incentive Plan and the Directors Plan has been received. As of the Record Date, the Common Stock was our only class of outstanding voting securities. The holders of the Common Stock are entitled to one vote for each share.
MEETING NOT REQUIRED
Under Section 78.390 of the Nevada Revised Statutes (the “Nevada Law”), an amendment to our Articles of Incorporation must be proposed by resolution of the Board of Directors and be approved of by shareholders holding shares entitling them to exercise at least a majority of the voting power of the company. While the approval of the Equity Incentive Plan and the Non-Employee Directors Plan are not required under Nevada law, it is required under relevant federal tax regulations.
Section 78.320 of the Nevada Law provides that, unless otherwise provided in a corporation's articles of incorporation or bylaws, actions required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if a written consent thereto is signed by shareholders holding not less than at least a majority of the voting power of the company. In order to eliminate the costs and management time involved in holding a special meeting, our Board of Directors decided to obtain, and did in fact obtain on the Record Date, the written consent of shareholders holding at least 34,336,250 shares representing more than the requisite number of votes that is necessary to authorize or take such action.
DISSENTERS RIGHTS OF APPRAISAL
There are no dissenter's rights of appraisal applicable to this action to adopt the Amendments.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT
The following table sets forth the number of shares of common stock beneficially owned as of the Record Date by (a) each person who, to the Company's knowledge, beneficially owned on that date more than 5% of the outstanding Common Stock, (b) each of the Company's directors and the named executive officers and (c) all current directors and executive officers of the Company as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act. Except as indicated below, the shareholders listed possess sole voting and investment power with respect to their shares. Name and Address of Beneficial Owner | | Common Stock Beneficially Owned | | | | Percentage of Common Stock | |
Michael Goldberg President and acting Chief Executive Officer c/o 17 State Street New York, NY | | | 693,750 (1) | | | | | 1.98% | | |
Henry Shabat Chief Operating Officer of IDO Security Ltd. c/o 17 State Street New York,, NY | | | 60,000 (2) | | | | | * | | |
Jorge Wolf Manager of Business Development c/o 17 State Street New York,, NY | | | 300,000 (3) | | | | | * | | |
John Mitola Director c/o 17 State Street New York,, NY | | | 50,000 (4) | | | | | * | | |
Mr. Gil Stiss Chief Technology Officer of IDO Security Ltd. 41/13 Nahal Lachish St., Ashdod, Israel 77707 | | | 5,100,000 (5) | | | | | 14.85 | % | |
Mr. Zeev Bronfeld 6 Uri Street Tel Aviv, Israel | | | 2,750,001 | | | | | 8.0 | % | |
EDA Capital Corporation 1685 - 54th Street, Brooklyn NY 11204 | | | 2,750,001 | | | | | 8.0 | % | |
ACC Holdings Ltd. Pasea Estate, Road Town, Tortola, British Virgin Island | | | 2,750,001 | | | | | 8.0 | % | |
Pentium Management Ltd. 12 Parnes Str, Apt 10 Har Nof, Jerusalem Israel | | | 1,756,248 | | | | | 5.11 | % | |
Zegal & Ross Capital LLC 20 Robert Pitt Drive, Suite 214 Monsey, New York 10952 | | | 2,418,748 | | | | | 7.04 | % | |
Melton Management Ltd. P.O. Box 3161 Road Town, Tortola, British Virgin Islands | | | 2,055,000 | | | | | 5.98 | % | |
Double U Master Fund LP Harbor Hse Waterfront Dr. POB 972 Road Town Tortola BVI | | | 1,836,250 | | | | | 5.35 | % | |
Adi Levy 7 Sapir St. Gedera, Israel 70700 | | | 2,700,000 | | | | | 8.0 | % | |
Rolfe Investments Ltd. Trustco Services Ltd. POB 4436 Zug CH-6304 Switzerland | | | 2,750,001 | | | | | 8.0 | % | |
Yoav Hirsh 41/13 Nahal Lachish St. Ashdod 77707 Israel | | | 2,250,000 | | | | | 6.55 | % | |
All directors and officers as a group | | | 6,203,750 | | | | | 17.50 | % | |
| | | | | | | | | | | |
* Less than 1%.
| (1) | Represent shares of Common stock issuable upon exercise of employee stock options. Does not include an additional 506,250 shares issuable upon exercise of employee stock options scheduled to vest over the next 18 months. |
| (2) | Represent shares of Common stock issuable upon exercise of employee stock options. Does not include an additional 180,000 shares issuable upon exercise of employee stock options scheduled to vest over the next 18 months. |
| (3) | Represent shares of Common stock issuable upon exercise of employee stock options. Does not include an additional 900,000 shares issuable upon exercise of employee stock options scheduled to vest over the next 18 months. |
| (4) | Represent shares of Common stock issuable upon exercise of employee stock options. Does not include an additional 50,000 shares issuable upon exercise of employee stock options scheduled to vest over the next 6 months |
| (5) | The stockholder holds an irrevocable proxy from the holders of an additional 5,850,000 shares of Common Stock to vote their shares on all matters submitted to stockholders. The selling stockholder disclaims any beneficial interest in the shares to which he holds a proxy. |
| | |
| | |
VOTE OBTAINED
The number of outstanding shares of Common Stock as of the Record Date was 34,336,250. The following individuals owning the number of shares set forth opposite their names, consented in writing to the Amendment as of the Record Date:
| ACC Holdings Ltd. | | 2,750,001 |
| Brasshoren Ltd. | | 459,000 |
| Double U Master Fund LP | | 1,836,250 |
| EDA Capital Corporation | | 2,750,001 |
| Pentium Management Ltd. | | 1,756,248 |
| Zegal & Ross Capital LLC | | 2,418,748 |
| Zev Bronfeld | | 2,750,001 |
| Gil Stiss | | 10,950,000 (1) |
| | | |
| TOTAL | 25,670,249 |
(1) Includes 5,850,000 shares of Common Stock for which stockholder holds an irrevocable proxy.
EXECUTIVE COMPENSATION
We have not paid any compensation to our acting Chief Executive Officer, or to any other executive officer or director, during the year ended December 31, 2006.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK
THAT THE COMPANY IS AUTHORIZED TO 100,000,000
As of February 15, 2008, 42,702,198 shares of our Common Stock were outstanding. We also have approximately 4.5 million shares of Common Stock reserved for possible future issuance in connection with outstanding options, warrants, and convertible debentures. Under the Articles of Incorporation, there are currently authorized 50 million shares Common Stock. Accordingly, the Company has approximately 2.8 million shares of Common Stock available for further issuances.
REASONS FOR THE PROPOSED AUTHORIZED SHARE INCREASE
Between December 5 and January 24, 2008, the Company raised gross proceeds of $5,404,550 in a private placement to accredited investors (collectively the “Investors”) of its Senior Secured Promissory Notes (collectively the “Notes”). The holders of certain bridge notes participated in the private placement and the gross proceeds raised include amounts the Company owed to these investors in the approximate amount of $2.7 million that were offset against such investors’ respective purchases of the Notes. The outstanding principal amount of the Notes is convertible at the option of the Investors at any time and from time to time into shares of Common Stock at a conversion price of $1.00 per share of Common Stock, or initially 5,404,550 shares of Common Stock, subject to certain adjustments. In connection with this investment, the Company issued to the Investors Common Stock Purchase Warrants (the “Warrants”) to purchase initially up to 5,404,550 shares of Common Stock, of which Warrants for 2,702,275 shares are at an exercise price of $2.00 per share and Warrants for 2,702,275 shares are at an exercise price of $3.00. The per share exercise price and the share amounts are subject to adjustment under certain conditions.
As noted above, the Company does not currently have enough authorized shares available for issuance upon the conversion of the Notes or the exercise of the warrants. The Investors have accordingly agreed to suspend the Company’s obligations to reserve shares of Common Stock to support issuances in respect of the Notes and the warrants pending the filing of the Charter Amendment; provided, that, if the Charter Amendment is not filed by March 31, 2008, then such failure to file the amendment shall constitute and an Event of Default under the transaction documents.
Additionally, management believes that the Company will need to raise additional capital in order to meet its operating requirements for through the next 12 months, and that it will be extremely difficult to raise such capital without increasing its authorized Common Stock as provided for in the Certificate of Amendment. Currently, except as provided above, the Company has not received any financing proposals or indications of interest from any person with respect to additional investments or any other investment nor has the Company circulated any proposed terms for acceptance.
Finally, the Board of Directors believes that the Authorized Share Increase will provide the Company with greater flexibility to issue shares of Common Stock for future corporate needs such as raising additional capital to support ongoing and expanded commercialization activities. Among other things, the proposed Authorized Share Increase will make available shares for future activities that are consistent with the Company’s growth strategy, including, without limitation, completing financings to support the Company’s increasing commercialization activities, establishing additional strategic relationships, acquiring or investing in complementary businesses or products, business acquisitions as well as providing equity incentives to employees. Approval of the proposed Authorized Share Increase would allow the Board to authorize the issuance of Common Stock without waiting for the next annual meeting of shareholders in order to increase the authorized capital. If, in a particular instance, shareholder approval were required by law, the rules of any stock exchange on which the Company’s shares are listed, or otherwise deemed advisable by the Board of Directors, then the matter would be referred to the shareholders of the Company.
WILL THE COMPANY BE ISSUING ADDITIONAL SHARES?
Except for the proposed use in procuring additional investments, and reserving shares for issuance pursuant to the Notes and the Warrants, at the present moment the Company does not have any plan, proposal, commitment or understanding, whether written or oral, to issue any of the additional shares of Common Stock that would be authorized by the Authorized Share Increase.
The number of shares of Common Stock that the Company may ultimately need to issue in order to meet its capital requirements would be based on a number of uncertainties, which include, but are not limited to:
| | · | The uncertainty of future partnering or licensing revenues, including potential equity investments into the Company whereby the Company would possibly issue stock directly to a strategic partner; |
| | · | the uncertainty of investors exercising for cash warrants that the Company issued over the past 24 months in connection with the private placement of its convertible debentures; |
| | · | the uncertainty of the market price of the Common Stock; and |
| | · | the uncertainty of the Company’s access to the capital markets and its cost of capital. |
The above uncertainties make it difficult for the Company to estimate the number of shares of Common Stock that it may issue at any time.
Once the Charter Amendment is filed, the Board of Directors would be able to issue these additional shares of Common Stock in its discretion from time to time, subject to any applicable rules and regulations in the case of any particular issuance or reservation for issuance that might require the stockholders to approve such transaction. The newly authorized shares of Common Stock would be issuable for any proper corporate purpose, including future capital-raising transactions involving Common Stock, convertible securities or other equity securities, stock dividends, establishing strategic relationships, and current or future equity compensation plans.
Mr. Gil Stiss, the Chief Technology Officer of our wholly-owned subsidiary, IDO Security Ltd., and certain other shareholders have certain preemptive rights as specified herein. For so long as each shareholder owns at least 100,000 shares of our Common Stock, such shareholder has the right to purchase his proportionate share of any new shares of Common Stock issued by the Company from treasury except for the issuance of shares (i) to employees or other service providers (in transactions with primarily non-financing purposes), (ii) to an investor that the board of directors determines to be a “strategic investor”, (iii) from the exercise of options or warrants or convertible securities or (iv) from conversion of debt. The issuance of additional shares of Common Stock will decrease the proportionate equity ownership of current shareholders and, depending upon the price paid for such additional shares, could result in dilution to current stockholders.
The Authorized Share Increase could, under certain circumstances, have an anti-takeover effect, although this is not the intention of the Board. For example, the substantial increase in the number of authorized shares could help management frustrate efforts of shareholders seeking to remove management, could have the effect of limiting shareholder participation in transactions such as merger or tender offers, regardless of whether those transactions are favored by incumbent management. In addition, the board of directors will have the ability to issue shares privately in transactions that could frustrate proposed mergers, tender offers, or other transactions, even if those transactions are at substantial market premiums and are favored by majority of independent shareholders. Such an issuance of shares of Common Stock would increase the number of outstanding shares, thereby possibly diluting the interest of a party attempting to obtain control of the Company. Except as described in this paragraph and except for the ability of the Board of Directors to fix by resolution the designations, preferences and relative, participating, optional or other special rights of any series of Preferred Stock, and any qualifications, limitations or restrictions thereof, including without limitation thereof, voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, to the full extent permitted by Delaware law, there are no anti-takeover provisions in the Company’s certificate of incorporation or bylaws and the Company has no plans or proposals to adopt any provisions to its certificate of incorporation or bylaws or enter into other arrangements that may have material anti-takeover consequences.
WHEN WOULD THE AMENDMENT BE EFFECTIVE?
Upon the filing of the Charter Amendment with the Department of State of Nevada, the Authorized Share Increase will become effective. The text of such amendment is attached hereto as APPENDIX A.
ADOPTION OFTHE EQUITY INCENTIVE PLAN AND THE
RESERVATION FOR ISSUANCE THERE UNDER OF 3,000,000 SHARES
The Board believes that equity based awards are an important incentive for attracting, retaining and motivating employees and officers through the opportunity of equity participation in the Company. The Equity Incentive Plan is intended to enable the Company to continue to have an adequate number of shares of Common Stock available for the grant of stock options to attract new employees, as well as retain current employees.
Although the Company cannot currently determine the number of options that may be granted in the future to the executive officers of the Company, each of the executive officers and key employees of the Company has an interest in the approval of the amendment to the Equity Incentive Plan in so far as they are eligible recipients of options under the plan.
SUMMARY OF THE TERMS OF THE EQUITY INCENTIVE PLAN
The summary of the Equity Incentive Plan below is qualified in its entirety by the Equity Incentive Plan attached hereto as Appendix B.
THE EQUITY INCENTIVE PLAN ADMINISTRATION
The Equity Incentive Plan is administered by the Board of Directors of the Company or, at the discretion of the Board, by a committee composed of at least two members of the Board. The Compensation Committee of the Board, and the Board itself acting in its capacity as administrator of the Equity Incentive Plan, is referred to herein as the "Committee." The Committee is authorized, among other things, to construe, interpret and implement the provisions of the Equity Incentive Plan, to select the key employees to whom awards will be granted, to determine the terms and conditions of such awards and to make all other determinations deemed necessary or advisable for the administration of the Equity Incentive Plan.
SHARES AVAILABLE
The aggregate number of shares of Common Stock available for issuance, subject to adjustment as described below, under the Equity Incentive Plan will be 3,000,000.
If any shares of Common Stock subject to an award are forfeited or an award is settled in cash or otherwise terminates for any reason whatsoever without an actual distribution of shares, the shares subject to such award will again be available for awards. If any performance units awarded under the Equity Incentive Plan are forfeited or canceled, the performance units will again be available for awards. If the Committee determines that any stock dividend, recapitalization, split, reorganization, merger, consolidation, combination, repurchase, or other similar corporate transaction or event, affects the Common Stock or the book value of the Company such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of participants, then the Committee shall adjust any or all of (i) the number and kind of shares of Common Stock which may thereafter be issued in connection with awards, (ii) the number and kind of shares of Common Stock issuable in respect of outstanding awards, (iii) the aggregate number and kind of shares of Common Stock available, (iv) the number of performance units which may thereafter be granted and the book value of the Company with respect to outstanding performance units, and (v) the exercise price, grant price, or purchase price relating to any award. If deemed appropriate, the Committee may also provide for cash payments relating to outstanding awards, provided, however, in each case that no adjustment shall be made which would cause the plan to violate Section 422(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code") with respect to ISOs (defined below) or would adversely affect the status of a Performance-Based Award (defined below) as "performance based compensation" under Section 162(m) of the Code. The Committee may also adjust performance conditions and other terms of awards in response to unusual or nonrecurring events or to changes in applicable laws, regulations, or accounting principles, except to the extent that such adjustment would adversely affect the status of any outstanding Performance-Based Awards as "performance-based compensation" under Section 162(m) of the Code.
ELIGIBILITY
Persons eligible to participate in the Equity Incentive Plan include all key employees and consultants of the Company and its subsidiaries, as determined by the Committee. While the specific individuals to whom awards will be made in the future cannot be determined at this time, it is anticipated that currently approximately nine employees presently are eligible for participation in the Equity Incentive Plan.
AWARDS
The Equity Incentive Plan is designed to give the Committee the maximum flexibility in providing incentive compensation to key employees and consultants. The Equity Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, bonus stock, awards in lieu of cash obligations, other stock-based awards and performance units. The Equity Incentive Plan also permits cash payments either as a separate award or as a supplement to a stock-based award, and for the income and employment taxes imposed on a participant in respect of any award.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Committee is authorized to grant stock options, including both incentive stock options ("ISOs"), which can result in potentially favorable tax treatment to the participant, and nonqualified stock options. The Committee can also grant stock appreciation rights ("SARs") entitling the participant to receive the excess of the fair market value of a share of Common Stock on the date of exercise over the grant price of the SAR. The exercise price per share of Common Stock subject to an option and the grant price of an SAR are determined by the Committee, provided that the exercise price of an ISO or SAR may not be less than the fair market value (110% of the fair market value in the case of an ISO granted to a 10% shareholder) of the Common Stock on the date of grant. However, the 2000 Incentive Plan also allows the Committee to grant an option, an SAR or other award allowing the purchase of Common Stock at an exercise price or grant price less than fair market value when it is granted in substitution for some other award or retroactively in tandem with an outstanding award. In those cases, the exercise or grant price may be the fair market value at that date, at the date of the earlier award or at that date reduced by the fair market value of the award required to be surrendered as a condition to the receipt of the substitute award. The terms of each option or SAR, the times at which each option or SAR will be exercisable, and provisions requiring forfeiture of unexercised options or SARs and relating to exercisability or following termination of employment will be fixed by the Committee. However, no ISO or SAR granted in tandem will have a term exceeding ten years (or shorter period applicable under Section 422 of the Code). Options may be exercised by payment of the exercise price in cash or in Common Stock, outstanding awards or other property (including notes or obligations to make payment on a deferred basis, or through "cashless exercises") having a fair market value equal to the exercise price, as the Committee may determine from time to time. The Committee also determines the methods of exercise and settlement and certain other terms of the SARs.
RESTRICTED STOCK
The Equity Incentive Plan also authorizes the Committee to grant restricted stock. Restricted stock is an award of shares of Common Stock which may not be disposed of by participants and which may be forfeited in the event of certain terminations of employment or certain other events prior to the end of a restriction period established by the Committee. Such an award entitles the participant to all of the rights of a stockholder of the Company, including the right to vote the shares and the right to receive any dividends thereon, unless otherwise determined by the Committee.
OTHER STOCK-BASED AWARDS, BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS
In order to enable the Company to respond to business and economic developments and trends in executive compensation practices, the Equity Incentive Plan authorizes the Committee to grant awards that are denominated or payable in, or valued in whole or in part by reference to the value of, Common Stock. The Committee will determine the terms and conditions of such awards, including consideration to be paid to exercise awards in the nature of purchase rights, the period during which awards will be outstanding and forfeiture conditions and restrictions on awards. In addition, the Committee is authorized to grant shares as a bonus, free of restrictions, or to grant shares or other awards in lieu of Company obligations to pay cash or deliver other property under other plans or compensatory arrangements, subject to such terms as the Committee may specify.
CASH PAYMENTS
The Committee may grant the right to receive cash payments whether as a separate award or as a supplement to any stock-based awards. Also, to encourage participants to retain awards payable in stock by providing a source of cash sufficient to pay the income and employment taxes imposed as a result of a payment pursuant to, or the exercise or vesting of, any award, the Equity Incentive Plan authorizes the Committee to grant a Tax Bonus in respect of any award.
PERFORMANCE UNITS
The Committee is also authorized to grant performance units. A performance unit is a right to receive a payment in cash equal to the increase in the book value of the Company if specified performance goals during a specified time period are met. The Committee has the discretion to establish the performance goals and the performance periods relating to each performance unit. A performance goal is a goal expressed in terms of growth in book value, earnings per share, return on equity or any other financial or other measurement selected by the Committee, in its discretion, and may relate to the operations of the Company as a whole or any subsidiary, division or department, and the performance periods may be of such length as the Committee may select. Neither the performance goals nor the performance periods need be identical for all performance units awarded at any time or from time to time.
PERFORMANCE-BASED AWARDS
The Committee may (but is not required to) grant awards pursuant to the Equity Incentive Plan to a participant who, in the year of grant, may be among the Company's Chief Executive Officer and the four other most highly compensated executive officers ("Covered Employees"), which are intended to qualify as a Performance-Based Award. If the Committee grants an award as a Performance-Based Award, the right to receive payment of such award, other than stock options and SARs granted at not less than fair market value on the date of grant, will be conditional upon the achievement of performance goals established by the Committee in writing at the time such Performance-Based Award is granted. Such performance goals may vary from participant to participant and Performance-Based Award to Performance-Based Award. The goals will be based upon (i) the attainment of specific amounts of, or increases in, one or more of the following, any of which may be measured either in absolute terms or as compared to another company or companies: revenues, earnings, cash flow, net worth, book value, stockholder's equity, financial return ratios, market performance or total stockholder return, and/or (ii) the completion of certain business or capital transactions. Before any Performance-Based Award is paid, the Committee will certify in writing that the performance goals applicable to the Performance-Based Award were in fact satisfied.
OTHER TERMS OF AWARDS
The maximum amount which may be granted as Performance-Based Awards to any participant in any calendar year shall not exceed (i) stock-based awards for 500,000 shares of Common Stock (whether payable in cash or stock), subject to adjustment as provided in the Equity Incentive Plan, (ii) 500,000 performance units, (iii) a Tax Bonus payable with respect to the stock-based awards and performance units and (iv) cash payments (other than Tax Bonuses) of $1,000,000. The Committee has the discretion to grant an award that is not a Performance-Based Award to a participant who may be a Covered Employee.
In the discretion of the Committee, awards may be settled in cash, Common Stock, other awards or other property. The Committee may require or permit participants to defer the distribution of all or part of an award in accordance with such terms and conditions as the Committee may establish, including payment of reasonable interest on any amounts deferred under the Equity Incentive Plan. Awards granted under the Equity Incentive Plan may not be pledged or otherwise encumbered. Generally, unless the Committee determines otherwise, awards are not transferable except by will or by the laws of descent and distribution, or (except in the case of an ISO) otherwise if permitted under Rule 16b-3 of the Exchange Act and by the Committee. The Equity Incentive Plan grants the Committee broad discretion in the operation and administration of the Equity Incentive Plan. This discretion includes the authority to make adjustments in the terms and conditions of, and the criteria included in performance conditions related to, any awards in recognition of unusual or nonrecurring events affecting the Company or in response to changes inapplicable laws, regulations or accounting principles. However, no such adjustment may adversely affect the status of any outstanding award as a Performance-Based Award. The Committee can waive any condition applicable to any award, and may adjust any performance condition specified in connection with any award, if such adjustment is necessary, to take account of a change in the Company's strategy, performance of comparable companies or other circumstances. However no adjustment may adversely affect the status of any outstanding award as a Performance-Based Award. Awards under the Equity Incentive Plan generally will be granted for no consideration other than services. The Committee may, however, grant awards alone, in addition to, in tandem with, or in substitution for, any other award under the Equity Incentive Plan, other awards under other Company plans, or other rights to payment from the Company. Awards granted in addition to or in tandem with other awards may be granted either at the same time or at different times. If an award is granted in substitution for another award, the participant must surrender such other award in consideration for the grant of the new award.
CHANGE OF CONTROL
In the event of a change of control of the Company, all awards granted under the Equity Incentive Plan (including Performance-Based Awards) that are outstanding and not yet vested or exercisable or which are subject to restrictions, will become immediately 100% vested in each participant or will be free of any restrictions, and will be exercisable for the remaining duration of the award. All awards that are exercisable as of the effective date of the change of control will remain exercisable for the remaining duration of the award. Under the Equity Incentive Plan, a change of control occurs upon any of the following events: (i) the acquisition, in one or more transactions, of beneficial ownership by any person or group, (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary), of any securities of the Company such that, as a result of such acquisition, such person or group, either (A) beneficially owns, directly or indirectly, more than 50% of the Company's outstanding voting securities entitled to vote on a regular basis for a majority of the members of the Board or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of the Board; (ii) a change in the composition of the Board such that a majority of the members of the Board are not Continuing Directors (as defined in the Equity Incentive Plan); or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company, in one or more transactions, of all or substantially all the Company's assets. The foregoing events will not be deemed to be a change of control if the transactions causing such change are approved in advance by the affirmative vote of at least a majority of the Continuing directors.
AMENDMENT AND TERMINATION
The Equity Incentive Plan is of indefinite duration; continuing until all shares and performance units reserved therefore have been issued or until terminated by the Board. The Board may amend, alter, suspend, discontinue, or terminate the Equity Incentive Plan or the Committee's authority to grant awards thereunder without further stockholder approval or the consent of the participants, except stockholder approval must be obtained within one year after the effectiveness of such action if required by law or regulation or under the rules of the securities exchange on which the Common Stock is then quoted or listed or as otherwise required by Rule 16b-3 under the Exchange Act. Notwithstanding the foregoing, unless approved by the stockholders, no amendment will: (i) change the class of persons eligible to receive awards; (ii) materially increase the benefits accruing to participants under the Equity Incentive Plan; or (iii) increase the number of shares of Common Stock subject to the Equity Incentive Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND THE PARTICIPANT
The following discussion is a brief summary of the principal United States Federal income tax consequences under current Federal income tax laws relating to awards under the Equity Incentive Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. A participant will not realize any income upon the award of an option (including any other stock-based award in the nature of a purchase right), an SAR or a performance unit, nor will the Company be entitled to any tax deduction. When a participant who has been granted an option which is not designated as an ISO exercises that option and receives Common Stock which is either "transferable" or not subject to a "substantial risk of forfeiture" under Section 83(c) of the Code, the participant will realize compensation income subject, in the case of an employee, to withholding taxes. The amount of that compensation income will equal the excess of the fair market value of the Common Stock (without regard to any restrictions) on the date of exercise of the option over its exercise price, and the Company will generally be entitled to a tax deduction in the same amount and at the same time as the compensation income is realized by the participant. The participant's tax basis for the Common Stock so acquired will equal the sum of the compensation income realized and the exercise price. Upon any subsequent sale or exchange of the Common Stock, the gain or loss will generally be taxed as a capital gain or loss and will be a long-term capital gain or loss if the Common Stock has been held for more than one year after the date of exercise.
If a participant exercises an option which is designated as an ISO and the participant has been an employee of the Company or its subsidiaries throughout the period from the date of grant of the ISO until three months prior to its exercise, the participant will not realize any income upon the exercise of the ISO (although alternative minimum tax liability may result), and the Company will not be entitled to any tax deduction. If the participant sells or exchanges any of the shares acquired upon the exercise of the ISO more than one year after the transfer of the shares to the participant and more than two years after the date of grant of the ISO, any gain or loss (based upon the difference between the amount realized and the exercise price of the ISO) will be treated as long-term capital gain or loss to the participant. If such sale, exchange or other disposition takes place within two years of the grant of the ISO or within one year of the transfer of shares to the participant, the sale, exchange or other disposition will generally constitute a "disqualifying disposition" of such shares. In such event, to the extent that the gain realized on the disqualifying disposition does not exceed the difference between the fair market value of the shares at the time of exercise of the ISO over the exercise price, such amount will be treated as compensation income in the year of the disqualifying disposition, and the Company will be entitled to a deduction in the same amount and at the same time as the compensation income is realized by the participant. The balance of the gain, if any, will be treated as capital gain and will not result in any deduction by the Company.
With respect to other awards (including an SAR or a performance unit) granted under the Equity Incentive Plan that may be settled either in cash or in Common Stock or other property that is either transferable or not subject to a substantial risk of forfeiture under Section 83(c) of the Code, the participant will realize compensation income (subject, in the case of employees) to withholding taxes) equal to the amount of cash or the fair market value of the Common Stock or other property received. The Company will be entitled to a deduction in the same amount and at the same time as the compensation income is realized by the participant.
With respect to awards involving Common Stock or other property that is both nontransferable and subject to a substantial risk of forfeiture, unless an election is made under Section 83(b) of the Code, as described below, the participant will realize compensation income equal to the fair market value of the Common Stock or other property received at the first time the Common Stock or other property is either transferable or not subject to a substantial risk of forfeiture. The Company will be entitled to a deduction in the same amount and at the same time as the compensation income is realized by the participant. Even though Common Stock or other property may be nontransferable and subject to a substantial risk of forfeiture, a participant may elect (within 30 days of receipt of the Common Stock or other property) to include in gross income the fair market value (determined without regard to such restrictions) of such Common Stock or other property at the time received. In that event, the participant will not realize any income at the time the Common Stock or other property either becomes transferable or is not subject to a substantial risk of forfeiture, but if the participant subsequently forfeits such Common Stock or other property, the participant's loss would be limited only to the amount actually paid for the Common Stock or other property. While such Common Stock or other property remains nontransferable and subject to a substantial risk of forfeiture, any dividends or other income will be taxable as additional compensation income. Finally, special rules may apply with respect to participants subject to Section 16(b) of the Exchange Act.
The Committee may condition the payment, exercise or vesting of any award on the payment of the withholding taxes and may provide that a portion of the Common Stock or other property to be distributed will be withheld (or previously acquired stock or other property surrendered by the participant) to satisfy such withholding and other tax obligations. Finally, amounts paid pursuant to an award which vests or becomes exercisable, or with respect to which restrictions lapse, upon a Change in Control may constitute a "parachute payment" under Section 280G of the Code. To the extent any such payment constitutes an "excess parachute payment," the Company would not be entitled to deduct such payment and the participant would be subject to a 20 percent excise tax (in addition to regular income tax).
SECTION 162(M) PROVISIONS
The Equity Incentive Plan was designed to permit the deduction by the Company of the compensation realized by certain officers in respect of long-term incentive compensation granted under the Equity Incentive Plan which is intended by the Committee to qualify as "performance-based compensation" under Section 162(m) of the Code. Section 162(m) of the Code generally disallows a deduction to the Company for compensation paid in any year in excess of $1 million to any Covered Employee. Certain compensation, including compensation that meets the specified requirements for "performance-based compensation," is not subject to this deduction limit. Among the requirements for compensation to qualify as "performance-based compensation" is that the material terms pursuant to which the compensation is to be paid be disclosed to, and approved by, the stockholders of the Company in a separate vote prior to the payment. Accordingly, because the Equity Incentive Plan has been approved by the Stockholders, the compensation payable pursuant to awards granted to officers who in the year of grant may be Covered Employees and which are intended by the Committee to qualify as "performance-based compensation" should not be subject to the deduction limit of Section 162(m) of the Code, provided the Plan continues to be administered by a Committee consisting solely of two or more "outside directors" and the other requirements of Section 162(m) of the Code are satisfied. Nonqualified stock options granted with an option price less than the fair market value at the time of grant will not qualify as performance-based compensation. Not withstanding the foregoing, the Committee may, in the exercise of its discretion, issue stock option grants that would be subject to the deductibility limit where it deems such issuance to be in the best interests of the Company and it's stockholders.
NEW PLAN BENEFITS
Because awards under the Equity Incentive Plan are discretionary, the Company cannot currently determine the number of options that may be granted under the Equity Incentive Plan, as amended.
ADOPTION OF THE 2007 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN AND THE
RESERVATION FOR ISSUANCE THERE UNDER OF 1,000,000 SHARES
The Board believes that stock options are an important incentive for attracting and retaining on the Company's Board the service of individuals who are not otherwise employed by the Company or any subsidiary. The 2007 Directors Plan is intended to enable the Company to continue to have an adequate number of shares of Common Stock available for the grant of stock options to attract and retain qualified non-employee directors.
Although the Company cannot currently determine the number of options that may be granted in the future to non-employee directors of the Company, each of the non-employee directors of the Company has an interest in the approval of the amendment to the 2007 Directors Plan in so far as they are eligible recipients of options under the plan.
SUMMARY OF THE 2007 DIRECTORS PLAN
The summary of the 2007 Directors Plan below is qualified in its entirety by the 2002 Directors Plan attached hereto as APPENDIX C.
The 2007 Directors Plan is administered by the Board or, if so determined by the Board, by a committee consisting solely of two or more non-employee directors of the Company. The body administrating the 2007 Directors Plan is referred to herein as the "Administrative Body". The Administrative Body is authorized to construe, interpret and implement the provisions of the 2007 Directors Plan, to select the non-employee directors to whom awards will be granted, to determine the amount, terms and conditions of such awards and to make all other determinations deemed necessary or advisable for the administration of the 2007 Directors Plan. The shares available for grant under the 2007 Directors Plan may be authorized and unissued shares or treasury shares. If any shares of Common Stock subject to an award are forfeited or the award otherwise terminates for any reason whatsoever without an actual distribution of shares, the shares subject to such award will again be available for awards. Only directors not employed by the Company or any of its subsidiaries are eligible to participate in the 2007 Directors Plan.
Under the 2007 Directors Plan, the Administrative Body may issue only non-qualified options. Each option granted under the 2007 Directors Plan will, unless earlier terminated as provided in the 2007 Directors Plan, expire six years from the date of grant. If a non-employee director ceases to serve as a director of the Company, options issued to such a director under the 2007 Directors Plan will:
(i) in the case of removal for cause, terminate immediately;
(ii) in the case of death or disability, terminate two years after the date on which such director ceased to serve; and
(iii) in all other the cases (including failure to be renonimated or reelected), terminate 12 months after such director ceased to serve.
The exercise price of each option will be the fair market value of the Common Stock on the date of the grant of the option. The number of options and prices at which they are exercisable are subject to adjustment in the case of certain transactions such as mergers, recapitalizations, stock splits or stock dividends. The 2007 Directors Plan continues in effect through December 31, 2013. The Board may amend, alter, suspend, discontinue, or terminate the 2007 Directors Plan. Notwithstanding the foregoing, any such amendment, alteration, suspension, discontinuation or termination shall be subject to the approval of the Company's stockholders if such approval is required by any applicable law or regulation or any applicable stock exchange rule. Additionally, without the consent of the an affected non-employee director, no amendment, alteration, suspension, discontinuation or termination of the 2007 Directors Plan may materially, adversely affect the rights of such non-employee director under any option theretofore granted.
FEDERAL TAX CONSEQUENCES
Set forth below is a description of the federal income tax consequences under the Code, of the grant and exercise of the benefits awarded under the 2007 Directors Plan. This description does not purport to be a complete description of the federal income tax aspects of the 2007 Directors Plan. The summary does not include any discussion of state, local or foreign income tax consequences or the effect of gift, estate or inheritance taxes, any of which may be significant to a particular director eligible to receive options.
A director to whom an option is granted under the 2007 Directors Plan will not recognize any taxable income upon the grant of an option. Upon the exercise of such option, an optionee will generally recognize ordinary compensation income equal to the difference between the exercise price of the option and the fair market value of the Common Stock acquired on the date of exercise. The tax basis of such Common Stock to the optionee will equal the amount includable in the optionee's income as compensation, and the optionee's holding period for such Common Stock will commence on the day on which the optionee recognizes the compensation income in respect of such Common Stock. Any additional gain or any loss recognized on the subsequent disposition of the shares of Common Stock will be a capital gain or loss and will be a long-term gain or loss if the shares are held for more than one year. Generally, the Company will be entitled to a tax deduction upon the exercise of an option under the 2007 Directors Plan at the same time and in the same amount as the ordinary income recognized by the optionee.
NEW PLAN BENEFITS
Because awards under the 2007 Directors Plan are discretionary, the Company cannot currently determine the number of options that may be granted under the 2007 Directors Plan.
We are subject to the information requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith file reports and other information, including current reports on Form 8-K and annual and quarterly reports on Form 10-KSB and Form lO-QSB, with the Securities and Exchange Commission. Reports and other information filed by us can be inspected and copied at the public reference facilities maintained at the Securities and Exchange Commission at Room 1024,450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can be obtained upon written request addressed to the Securities and Exchange Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates. The Securities and Exchange Commission also maintains a web site on the internet where reports, proxy and information statements and other information regarding issuers that file electronically with the Securities and Exchange Commission through the Electronic Data Gathering, Analysis and Retrieval System may be obtained free of charge.
| | By Order of the Board of Directors /s/ Michael Goldberg | |
| | Acting Chief Executive Officer | |
ANNEX A
CERTIFICATE OF AMENDMENT
DEAN HELLER
Secretary of State
204 North Carson Street, Suite 1
(775) 684-5708
Website: secretaryofstate.biz
| | CERTIFICATE OF AMENDMENT (PURSUANT TO NRS 78.3865 and 78.:390) |
ABOVE SPACE FOR OFFICE USE ONLY
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporation
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
1. Name of corporation:
The Medical Exchange, Inc.
2. The articles have been amended as follows (provide article numbers, if available):
1. Article 1 is amended to read that the name of the Corporation is "IDO Security Inc." 2. Article 3 is amended to read that the total number of shares that the Corporation is authorized to issue is 120,000,000 shares, par value $0.001, and no shares without par value. Of the 120,000,000 shares, par value $0.001: (a) 100,000,000 million such shares shall be shares of Common Stock; and (b) 20,000,000 million such shares shall be shares of Preferred Stock. The Board of Directors is expressly authorized to issue from time to time all or any shares of Preferred Stock in one or more series, and to fix for each such series such voting powers, full or limited, or no voting powers, and such designations, preferences (including seniority upon liquidation); relative participating, optional or other special rights, redemption rights, conversion privileges and such qualifications, limitations or restrictions thereof, as shall be adopted by the Board of Directors and set forth herein or an amendment hereto providing or the issuance of such series and to the fullest extent as now or hereafter permitted by these Amended and Restated Articles of Incorporation and the laws of the State of Nevada. Unless a vote of any shareholder is required pursuant to the rights of the holders of a series of Preferred Stock, the Board of Directors may from time to time increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of Preferred Stock subsequent to the issuance of shares of that series.
3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is: Majority
| 4. Effective date of filing (optional):______________________ | |
| | (must be no later than 90 days after the certificate is filed) |
| 5. Officer Signature (required): | /s/ Michael Goldberg |
*If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required,of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless of limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.
ANNEX B
2007 EQUITY INCENTIVE PLAN
ANNEX C
2007 NON-EMPLOYEE DIRECTORS STOCK OPTOIN PLAN
IDO SECURITY INC.
2007 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
1. Purpose. The IDO Security Inc. 2007 Non-Employee Directors Stock Option Plan (the "Plan") is designed to aid IDO Security Inc., a Nevada corporation (the "Company"), in retaining and attracting non-employee directors (directors who are not employees of the Company or of any corporation, partnership, joint venture or other business entity of which fifty percent (50%) or more of the outstanding voting power is beneficially owned, directly or indirectly, by the Company) of exceptional ability by enabling such non-employee directors to purchase a proprietary interest in the Company, thereby stimulating in such individuals an increased desire to render greater services that will contribute to the continued growth and success of the Company.
2. Amount and Source of Stock. The total number of shares of the Company's common stock, $.001 par value per share (the "Stock"), which may be the subject of options granted pursuant to the Plan shall not exceed 1,000,000, subject to adjustment as provided in paragraph 10. Such Stock may be reserved or made available from the Company's authorized and unissued Stock or from Stock reacquired and held in the Company's treasury. In the event that any option granted hereunder shall terminate prior to its exercise in full for any reason, then the Stock subject to such option shall be added to the Stock otherwise available for issuance pursuant to the exercise of options under the Plan.
3. Administration of the Plan. The Plan shall be administered by the Board of Directors of the Company (the "Board") or, if determined by the Board, a committee selected by the Board and comprised solely of two or more members of the Board, who are "Non-Employee Directors" as that term is defined in Rule 16b-3(b)(3) (or any successor provision) promulgated under the Securities Exchange Act of 1934, as amended. The corporate body administering the Plan is hereinafter referred to as the "Administrative Body." The Administrative Body shall have all the powers vested in it by the terms of the Plan. Such powers include the authority to select the participants who will receive options under the Plan, to prescribe the form of the individual option agreements, to grant options under the Plan, to fix the vesting and other terms of each option grant, to construe the Plan, to determine all questions arising thereunder, and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. Any decisions of the Administrative Body in the administration of the Plan shall be final and conclusive.
4. Option Grants.
(a) Each non-employee director shall be eligible to receive grants of options at such time or times and for such number of shares of Stock as the Board or Administrative Body, in its discretion, shall determine. The date on which an option is granted under this subparagraph to a specified individual shall constitute the date of grant of such option (the "Date of Grant").
(b) The terms relating to the vesting of the option shall be fixed by the Administrative Body or Board at the time of the grant of the option.
5. Option Price. The exercise price of the Stock purchasable under any option granted pursuant to the Plan shall be equal to the Fair Market Value of a share of Stock on the Date of Grant. For purposes of the Plan, the "Fair Market Value" of a share of Stock shall mean (i) if the Stock is traded on a national securities exchange or on the NASDAQ National Market System ("NMS"), the per share closing price of the Stock on the principal securities exchange on which they are listed or on NMS, as the case may be, on the Date of Grant (or if there is no closing price for such Date of Grant, then the last preceding business day on which there was a closing price); or (ii) if the Stock is traded on the over-the-counter market and quotations are published on the NASDAQ quotations system (but not on NMS), the per share closing bid price of the Stock on the Date of Grant as reported by NASDAQ (or if there is no closing bid price for such Date of Grant, then the last preceding business day on which there was a closing bid price); or (iii) if the Stock is traded on the over-the-counter market but bid quotations are not published on NASDAQ, the closing bid price per share for the Stock as furnished by a broker-dealer which regularly furnishes price quotations for the Stock; or (iv) if the Stock is not traded on a securities exchange or the over-the-counter market, the valuation accorded to each share of Stock by the Administrative Body.
6. Term of Option.
(a) Unless earlier terminated pursuant to the other provisions herein, the option hereby granted shall terminate at the close of business on the date six (6) years from the Date of Grant (the "Expiration Date").
(b) If the non-employee director is removed as a director of the Company for cause (as determined in accordance with applicable law) by the stockholders of the Company, the unexercised portion of the option will terminate simultaneously with the non-employee director's removal as a director.
(c) If a non-employee director ceases to be a director of the Company on account of his or her death or disability, then the option may be exercised at any time prior to the earlier of the Expiration Date and twenty four (24) months after the date that the non-employee director ceases to be a director of the Company, and any part of the option which is not so exercised within such period shall thereupon terminate.
(d) If a non-employee director ceases to be a director of the Company for any reason (other than cause, death or disability), then the option may be exercised at any time prior to the earlier of the Expiration Date and twelve (12) months after the date that the non-employee director ceases to be a director of the Company, and any part of the option which is not so exercised within such period shall thereupon terminate.
(e) No option granted hereunder shall be exercisable unless and until the non-employee director has entered into an individual option agreement with the Company that shall set forth the terms and conditions of such option. Each such agreement shall expressly incorporate by reference the provisions of this Plan (a copy of which shall be made available for inspection by the optionee during normal business hours at the principal office of the Company), and shall state that in the event of any inconsistency between the provisions hereof and the provisions of such agreement, the provisions of this Plan shall govern.
7. Exercise of Options. An option shall be exercised when written notice of such exercise, signed by the person entitled to exercise the option, has been delivered or transmitted by registered or certified mail to the Secretary (or such other officer as is specified in the individual option agreement) of the Company at its then principal office. Such notice shall specify the number of shares of Stock for which the option is being exercised and shall be accompanied by (i) such documentation, if any, as may be required by the Company as provided in subparagraph 11(b), and (ii) payment of the aggregate option price. The Administrative Body shall determine whether the exercise price for an option shall be paid in cash, by the surrender at Fair Market Value of Stock (held for at least six (6) months), by any combination of cash and shares of Stock, including, without limitation, cash, Stock or other property (including notes or other contractual obligations of non-employee directors to make payment on a deferred basis), the means or methods of payment, including through "cashless exercise" arrangements, to the extent permitted by applicable law, and the methods by which, or the time or times at which, Stock will be delivered or deemed to be delivered to non-employee directors upon the exercise of such option. Delivery of such notice shall constitute an irrevocable election to purchase the Stock specified in such notice, and the date on which the Company receives the last of such notice, documentation and the aggregate option exercise price for all of the Stock covered by the notice shall, subject to the provisions of paragraph 11 hereof, be the date as of which the Stock so purchased shall be deemed to have been issued. The person entitled to exercise the option shall not have the right or status as a holder of the Stock to which such exercise relates prior to receipt by the Company of the payment, notice and documentation expressly referred to in this paragraph 7.
8. Right of the Company to Terminate Services of a Non-Employee Director. Nothing contained herein or in any individual option agreement shall be construed to confer on any non-employee director any right to continue as a director of the Company or derogate from any right of the Company, the Board or the stockholders of the Company to remove or not renominate such non-employee director as a director of the Company, with or without cause.
9. Non-transferability of Options. No option granted under the Plan shall be pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation, or liability of such non-employee director to, any party, other than the Company, or assigned or transferred by such non-employee director otherwise than by will or the laws of descent and distribution, and such option shall be exercisable during the lifetime of the non-employee director only by the non-employee director or his or her guardian or legal representative. Notwithstanding the foregoing, the Administrative Body may, in its discretion, provide that an option of a non-employee director granted pursuant to the Plan be transferable, without consideration, to immediate family members (i.e., children, grandchildren or spouse), to trusts for the benefit of such immediate family members and to partnerships in which such family members are the only partners. The Administrative Body may attach to such transferability feature such terms and conditions as it deems advisable. In addition, a non-employee director may, in the manner established by the Administrative Body, designate a beneficiary (which may be a person or a trust) to exercise the rights of the non-employee director, and to receive any distribution, with respect to any option upon the death of the non-employee director. A beneficiary, guardian, legal representative or other person claiming any rights under the Plan from or through any non-employee director shall be subject to all terms and conditions of the Plan and any individual option agreement applicable to such non-employee director, except as otherwise determined by the Administrative Body, and to any additional restrictions deemed necessary or appropriate by the Administrative Body.
10. Adjustments Upon Certain Events. In the event that the Administrative Body shall determine that any stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of non-employee directors under the Plan, then the Administrative Body shall, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Stock that may thereafter be issued in connection with options, (ii) the number and kind of shares of Stock issuable in respect of outstanding options, (iii) the aggregate number and kind of shares of Stock available under the Plan, and (iv) the exercise price, grant price, or purchase price relating to any option or, if deemed appropriate, make provision for a cash payment with respect to any outstanding option.
11. General Restrictions.
(a) No option granted hereunder shall be exercisable if the Company shall at any time determine that (i) the listing upon any securities exchange, registration or qualification under any state or federal law of any Stock otherwise deliverable upon such exercise, or (ii) the consent or approval of any regulatory body or the satisfaction of withholding tax or other withholding liabilities, is necessary or appropriate in connection with such exercise. In any of the events referred to in clause (i) or clause (ii) above, the exercisability of such options shall be suspended and shall not be effective unless and until such withholding, listing, registration, qualifications or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its sole discretion, notwithstanding any termination of any option or any portion of any option during the period when exercisability has been suspended.
(b) The Administrative Body may require, as a condition to the right to exercise an option, that the Company receive from the non-employee director holding the option, at the time of any such exercise, representations, warranties and agreements to the effect that the Stock is being purchased by the non-employee director for investment only and without any present intention to sell or otherwise distribute such Stock and that the non-employee director will not dispose of such Stock in transactions which, in the opinion of counsel to the Company, would violate the registration provisions of the Securities Act of 1933, as then amended, and the rules and regulations thereunder. The certificates issued to evidence such Stock shall bear appropriate legends summarizing such restrictions on the disposition thereof.
12. Changes to the Plan.
(a) The Board may amend, alter, suspend, discontinue, or terminate the Plan or the Administrative Body's authority to grant options under the Plan without the consent of the Company's stockholders or non-employee directors, except that any such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Company's stockholders within one year after such Board action if such stockholder approval is required by any Federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Board may otherwise, in its discretion,
determine to submit other such changes to the Plan to the stockholders for approval; provided, however, that without the consent of an affected non-employee director, no amendment, alteration, suspension, discontinuation, or termination of the Plan may materially and adversely affect the rights of such non-employee director under any option theretofore granted and any individual option agreement relating thereto. Subject to applicable law, the Administrative Body may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate, any option theretofore granted and any individual option agreement relating thereto; provided, however, that without the consent of an affected non-employee director, no such amendment, alteration, suspension, discontinuation, or termination of any option may materially and adversely affect the rights of such non-employee director under such option.
(b) The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any option in the manner and to the extent it shall deem desirable to carry the Plan into effect.
13. Termination. Unless the Plan shall theretofore have been terminated, the Plan shall terminate on October 18, 2017, and no options under the Plan shall thereafter be granted.
14. Fractional Shares. The Company will not be required to issue any fractional shares of Stock pursuant to the Plan. The Administrative Body may provide for the elimination of fractions and for the settlement of fractions in cash.
15. Discretion. In exercising, or declining to exercise, any grant of authority or discretion hereunder, the Administrative Body may consider or ignore such factors or circumstances and may accord such weight to such factors and circumstances as the Administrative Body alone and in its sole judgment deems appropriate and without regard to the effect such exercise, or declining to exercise such grant of authority or discretion, would have upon the affected non-employee director, any other non-employee director, any employee, the Company, any stockholder or any other person.
16. Adoption of the Plan and Effective Date. The Plan shall be adopted by the requisite vote of the stockholders of the Company and shall be effective as of such date.
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