| Related Parties | NOTE
10 - RELATED PARTIES:
a. On
January 16, 2016, the Board of Directors appointed a new director as a Vice Chairman of the Board, effective as of January
22, 2016, with a term expiring at the Companys 2017 annual meeting of stockholders. On April 30, 2016, in connection
with his appointment, the new director was granted an option to purchase 31,202 shares of the Companys common stock
at an exercise price equal to the fair market value of the Common Stock on the date of grant on April 30, 2016, subject to
the terms and conditions of the 2013 Plan and the 2011 Plan. Options to purchase 7,801 shares of Common Stock vest and become
exercisable immediately upon the time of grant, and, until all 31,202 options shall have vested, options to purchase 7,801
shares of common stock will vest and become exercisable each time upon (i) the Company raising at least $15 million through
an equity offering; (ii) the Companys market cap becoming equal to or greater than $25 million; (iii) the Company receiving
research coverage by three new analysts at a leading investment bank; or (iv) the tripling of the Companys market cap
from the date of appointment. Any of the foregoing conditions, if achieved following the directors appointment but prior
to April 30, 2016, would have been deemed satisfied on the date of grant. However, in the event (i) of the directors
death or permanent disability, (ii) a change in control (as defined in the Plan) or (iii) if the director is asked to resign
for any reason other than cause (as defined in the Companys form of Nonqualified Stock Option Agreement under its Plan),
the options shall vest immediately in full. The options have a term of 10 years from the date of grant and the exercise price
may be paid in either cash or on a cashless basis. The
fair value of options with market cap related conditions reflect the probability of achieving the respective condition, and are
recognized through the date in which it is expected to be met. The fair value of such options was determined using the Monte-Carlo
option-pricing model with the following primary assumptions: the probability to achieve various gross proceeds in future offerings,
dividend yield of 0%; expected term of 10 years; expected volatility of 85.73%; and risk-free interest rate of 1.81%. The
remaining tranches would vest upon achievment of performance conditions. Accordingly, the fair value of such options would be
recognized based upon the number of options expected to vest and when the occurrence of the condition is considered probable. In
calculating the fair value of the above options with performance conditions the Company used the following assumptions: dividend
yield of 0%; expected term of 5 years; expected volatility of 85.81%; and risk-free interest rate of 1.25%.
b. During
the nine month period ended September 30, 2016, the Company granted to its directors stock options to purchase a total of
30,530 shares of common stock at exercise prices ranging from $3.25-$8.25, in addition to the 31,202 options that were granted
to the new director (see also note 5e). Of the 30,530 options above, 20,530 options were in lieu of cash compensation that
was owed to them and already accrued for their services as directors for the fourth quarter of 2015 and the first quarter
of 2016 and also for their services as directors during the second quarter of 2016. See Note 5g.
c. On
January 26, 2016 the Company entered into an option cancellation and release agreement with certain directors, the former
CEO and the CFO (the Optionholders), pursuant to which the parties agreed to cancel options to purchase an aggregate
of 16,910 shares of common stock of the Company previously granted to each of the Optionholders. For accounting purposes,
the cancellation was treated as a settlement for no consideration and accordingly all remaining unrecognized compensation
cost amounting to approximately $800,000 was recognized.
d. On
January 21, 2016, the Company and the Companys former CEO entered into a fourth amendment to the former CEOs Employment
Agreement by and between the Company and the former CEO, in order to, among other things, (i) modify the term of the former
CEOs employment to end on the earlier of June 30, 2016 or the date upon which a new president and/or CEO (or executive
performing a similar role) commences employment with the Company (or, if such individual is promoted internally, the date
such individual is promoted to the position of president and/or chief executive officer); and (ii) provide that, during the
remaining term of his employment, the former CEO will receive (A) 50% of his base salary in cash payments, for all days that
the CEO works during the remaining term of his employment, at the monthly rate of $18,750, payable in accordance with the
Companys regular payroll practices, and (B) a lump-sum payment equivalent to 50% of the former CEOs base salary
through June 30, 2016, at the monthly rate of $18,750, payable within 20 business days from the earlier of (x) the Company
raising an aggregate of $5 million from investors, or (y) June 30, 2016.
On
June 6, 2016, the former CEO resigned from all officer and director positions with the Company, and a new president and CEO
commenced employment with the Company.
e. On
June 6, 2016, the Company appointed a new CEO, who was then the Companys executive vice president and chief operating
officer. In connection with his appointment, the Company and the CEO entered into a fourth amendment (the Fourth Amendment)
to the employment agreement by and between the Company and the CEO, in order to, among other things, (i) change the title
of his position to president and chief executive officer; (ii) modify the term of the CEOs employment to (a) continue
until May 31, 2017, with the CEO resigning as a member of the Board of Directors at the end of such term if requested by the
Company and (b) provide that in the event that the term is not extended beyond May 31, 2017 by mutual agreement of the parties
and the Company does not offer the CEO a position as CEO and/or chief operating officer on the same or more favorable terms
with a base salary that is at least 10% greater than his current base salary, the CEOs termination will be deemed a
termination without cause; and (iii) amend the terms and conditions of the CEOs compensation, as described below. Pursuant
to the Fourth Amendment, for the period beginning on June 1, 2016 and ending on the earlier of (i) the closing of a transaction
with investors where the Company raises an aggregate of $5 million (the Financing) and (ii) March 15, 2017, the CEO
will receive 50% of his base salary in cash payments, payable in accordance with the Companys regular payroll practices,
with the remaining 50% of his base salary paid in a lump-sum payment on the first to occur of (a) the first payroll period that
is on or after the 20th business day following the Financing or (b) March 15, 2017 (such earlier date, the Reduction Amount
Payment Date). The Fourth Amendment also amends the terms of the CEOs bonus compensation to provide that (i) the CEO
is eligible to receive annual bonus compensation in an amount equal to 100% of his base salary upon the achievement of reasonable
target objectives and performance goals as may be determined by the Board in consultation with the CEO and (ii) on the Reduction
Amount Payment Date, the CEO will receive a lump-sum retention bonus in an amount equal to $106,458, subject to the CEOs
continued employment through such date. The
Fourth Amendment further provides that on or within 20 business days of the closing of the Financing, the CEO will be granted,
subject to approval of the Board of Directors and the CEOs continued employment by the Company through the applicable grant
date, (i) a nonqualified stock option relating to the number of shares of the Companys common stock equal to 2% of the Companys
outstanding common stock on the date of the closing of the Financing (the Financing Option) and (ii) an award of a
number of restricted shares of the Companys common stock equal to 2% of the Companys outstanding common stock on the
date of the closing of the Financing (the Financing Restricted Stock Award), in each case, subject to the terms and
conditions of the Companys 2013 Long-Term Incentive Plan and a nonqualified stock option agreement and a restricted stock
award agreement to be entered into by the Company and the CEO. From the July 2016 Offering, the Company received more than an
aggregate of $5 million, and, as such, on July 25, 2016, the CEO was granted the Financing Option to purchase 70,500 shares of
the Companys common stock at an exercise price of $4.75, which is equal to the fair market value of common stock on the
date of grant, vesting on the first anniversary of the date of the grant, and on August 1, 2016, the CEO was granted the Financing
Restricted Stock Award of 70,500 restricted shares of the Companys common stock, vesting on the first anniversary of the
date of the grant. In
calculating the fair value of the above options the Company used the following assumptions: dividend yield of 0%; expected term
of 5.5 years; expected volatility of 87.29%; and risk-free interest rate of 1.22%. The
fair value of the above options, using the Black-Scholes option-pricing model, was approximately $0.2 million. The
fair value of the above restricted shares of common stock, using the Black-Scholes option-pricing model, was approximately $0.3
million. |
