REMOTEMDx, INC.
150 West Civic Center Drive, Suite 400
Sandy, UT 84070
(801) 563-7171
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 10, 2006
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of
RemoteMDx, Inc., to be held at RemoteMDx, Inc. 150 West Civic Center Drive,
Suite 400, Sandy, Utah , 84070, on Monday, July 10, 2006, at 10:00 a.m.,
Mountain Daylight Time, for the following purposes:
1. To elect four directors to serve for one year each, until the next
Annual Meeting of Shareholders and until a successor is elected
and shall qualify;
2. To ratify the selection of Hansen Barnett & Maxwell, as the
Company's independent auditors;
3. To approve an amendment to the Articles of Incorporation
increasing the number of shares of common stock authorized to be
issued by the Company;
4. To approve an amendment to the Articles of Incorporation
increasing the number of shares of preferred stock authorized to
be issued by the Company;
5. To approve the 2006 Equity Incentive Award Plan; and
6. To consider and act upon any other matters that properly may come
before the meeting or at any postponement or adjournment thereof.
Only record holders of shares of the common stock and the Series B
Preferred Stock and Series C Preferred Stock of RemoteMDx at the close of
business on May 19, 2006, have the right to receive notice of, and to vote at,
the Annual Meeting of Shareholders and any adjournment thereof. A list of
shareholders entitled to receive notice and to vote at the meeting will be
available for examination by a shareholder for any purpose germane to the
meeting during ordinary business hours at the offices of RemoteMDx at 150 West
Civic Center Drive, Suite 400, Sandy, Utah, during the 10 days prior to the
meeting.
Your vote is important. Whether or not you are able to attend the
Annual Meeting, we urge you to sign and date the enclosed proxy card and to
return it promptly in the enclosed envelope. If you do attend the Annual
Meeting, you may withdraw your prior vote or proxy and vote personally on any
matters brought properly before the meeting. RemoteMDx will pay all expenses of
the meeting, including the cost of printing and mailing the proxy statement and
other materials and the solicitation process.
By Order of the Board of Directors,
/s/ Michael G. Acton
--------------------
Michael G. Acton, Corporate Secretary
Salt Lake City, Utah
May 18, 2006
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REMOTEMDx, INC.
ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT
TABLE OF CONTENTS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 1
QUESTIONS AND ANSWERS 3
PROPOSAL #1: ELECTION OF DIRECTORS 5
PROPOSAL #2: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS 7
- -- Independence 7
- -- Financial Statements and Reports 7
- -- Services 7
PROPOSAL #3: AMENDMENT TO ARTICLES OF INCORPORATION INCREASING
AUTHORIZED SHARES OF COMMON STOCK 8
PROPOSAL #4: AMENDMENT TO ARTICLES OF INCORPORATION INCREASING
AUTHORIZED SHARES OF PREFERRED STOCK 10
PROPOSAL #5: APPROVAL OF 2006 EQUITY INCENTIVE AWARD PLAN 11
INFORMATION CONCERNING REMOTEMDX, INC. 11
BOARD OF DIRECTORS
- -- Committees of the Board of Directors 17
- -- Audit Committee Financial Expert 17
- -- Remuneration 17
- -- Director Independence 17
- -- Shareholder Communications with Directors 17
REPORT OF THE AUDIT COMMITTEE 18
EXECUTIVE OFFICERS 18
COMMON STOCK OWNERSHIP 20
COMPENSATION OF EXECUTIVE OFFICERS 22
- -- Summary Compensation Table 22
- -- Employment Agreements 23
- -- Stock Option Grants in Fiscal Year 2005 23
- -- Stock Options Outstanding and Options Exercised in Fiscal
Year 2005 23
COMPENSATION PLANS 23
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 24
STOCK PERFORMANCE GRAPH 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26
OTHER MATTERS 26
ANNUAL REPORT 26
FURTHER INFORMATION 27
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REMOTEMDx, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD July 10, 2006
The Board of Directors of RemoteMDx, Inc. ("RemoteMDx") is soliciting
proxies to be used at the 2005 Annual Meeting of Shareholders ("Annual
Meeting"). Distribution of this Proxy Statement and proxy form is scheduled to
begin on or about June 1, 2006. The mailing address of RemoteMDx's principal
executive offices is 150 West Civic Center Drive, Suite 400, Sandy, Utah 84070.
QUESTIONS AND ANSWERS
Why did I receive this Proxy Statement? We have sent you the Notice of
Annual Meeting of Shareholders and this Proxy Statement and the enclosed proxy
or voting instruction card because the RemoteMDx Board of Directors is
soliciting your proxy to vote at our Annual Meeting on July 10, 2006. The Proxy
Statement contains information about matters to be voted on at the Annual
Meeting.
Who is entitled to vote? You may vote if you owned common stock or
shares of Series B preferred stock OR Series C Preferred Stock as of the close
of business on May 19, 2006. On May 19, 2006, there were ______________ shares
of our common stock outstanding and entitled to vote at the Annual Meeting.
Additionally, as of May 19, 2006, there were outstanding a total of 20,431
shares of Series A Preferred Stock; 268,332 shares of Series B Preferred Stock;
and 3,271,067 shares of Series C Preferred Stock outstanding, convertible at any
time at the option of the holders thereof into approximately 9,813,201 shares of
common stock. The Series A Preferred Stock does not grant separate voting
rights; in other words, the holders of Series A Preferred Stock are not entitled
to vote simply because they hold Series A Preferred Stock. The Series B and
Series C Preferred Stock do have voting rights. Each holder of Series B
Preferred Stock is entitled to one vote per share of Series B Preferred Stock
held as of the Record Date, on a one-for-one basis. Each holder of Series C
Preferred Stock is entitled to one vote for each share of common stock into
which the shares of Series C Preferred Stock held are convertible, which was
three shares of common stock as of the Record Date. In other words, if a
shareholder owns 10 shares of Series C Preferred Stock, he or she would be
entitled to vote 30 shares of common stock.
Further, the holders of the Series C Preferred Stock have the right to
elect, voting as a class, two directors to our Board of Directors. As of May 19,
2006, the holders of the Series C Preferred Stock had not exercised the right to
elect two directors. Please note that when the holders of the Series C Preferred
Stock exercise that right, the number of directors serving on the board will
increase.
How many votes do I have? Each share of common stock and each share of
Series B preferred stock that you own at the close of business on May 19, 2006,
entitles you to one vote. Additionally, each share of Series C Preferred Stock
that you own at the close of business on May 19, 2006, entitles you to three
votes.
What am I voting on? You will be voting on proposals to:
o Elect four directors;
o Ratify the selection of Hansen Barnett & Maxwell, LLP, ("Hansen
Barnett") as our independent auditors;
o Approve an amendment to the Company's Articles of Incorporation
(the "Articles of Incorporation") increasing the number of shares
of common stock the Company may issue;
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o Approve an amendment to the Company's Articles of Incorporation
(the "Articles of Incorporation") increasing the number of shares
of preferred stock the Company may issue;
o Approve the 2006 Equity Incentive Award Plan; and
o Transact any other business which may properly come before the
Annual Meeting.
How do I vote? You can vote in the following ways:
o By Mail: If you are a holder of record, you can vote by marking,
dating and signing your proxy card and returning it by mail in the
enclosed postage-paid envelope. If you hold your shares in street
name, please complete and mail the voting instruction card.
o At the Annual Meeting: If you are planning to attend the Annual
Meeting and wish to vote your shares in person, we will give you a
ballot at the meeting. If your shares are held in street name, you
need to bring an account statement or letter from your broker,
bank or other nominee indicating that you are the beneficial owner
of the shares on May 19, 2006, the record date for voting. Even if
you plan to be present at the meeting, we encourage you to
complete and mail the enclosed card to vote your shares by proxy.
What if I return my proxy or voting instruction card but do not mark it
to show how I am voting? Your shares will be voted according to the instructions
you have indicated on your proxy or voting instruction card. You can specify
whether your shares should be voted for all, some or none of the nominees for
director. You can also specify whether you approve, disapprove or abstain from
the other proposals. If no direction is indicated, your shares will be voted FOR
the election of the nominees for director, FOR the ratification of the selection
of Hansen Barnett as our independent auditors, FOR the amendment to the articles
of incorporation to increase the number of shares of common stock authorized,
FOR the amendment to the articles of incorporation to increase the number of
shares of preferred stock authorized, FOR the 2006 Equity Incentive Award Plan
and, with respect to any other matter that may properly come before the Annual
Meeting, at the discretion of the proxy holders.
May I change my vote after I return my proxy card or voting instruction
card? You may revoke your proxy or change your vote at any time before it is
exercised in one of three ways:
o Notify our Corporate Secretary in writing before the Annual
Meeting that you are revoking your proxy;
o Submit another proxy card (or voting instruction card if you hold
your shares in street name) with a later date; or
o Vote in person on Monday, July 10, 2006, at the Annual Meeting.
What does it mean if I receive more than one proxy or voting
instruction card? It means that you have multiple accounts at the transfer agent
and/or with banks and stockbrokers. Please vote all of your shares by returning
all proxy and voting instruction cards you receive.
What constitutes a quorum? A quorum must be present to properly convene
the Annual Meeting. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares entitled to vote at the Annual Meeting
constitutes a quorum. You will be considered part of the quorum if you return a
signed and dated proxy or voting instruction card or if you attend the Annual
Meeting. Abstentions and broker non-votes are counted as shares present at the
meeting for purposes of determining whether a quorum of common stock
shareholders exists but not as shares cast for any proposal. Because abstentions
and broker non-votes are not treated as shares cast, they would have no impact
on any of the Proposals 1 or 2.
What vote is required in order to approve each proposal? The required
vote is as follows:
o Election of Directors: The election of the nominees requires the
affirmative vote of a plurality of the shares cast at the Annual
Meeting. This means that a nominee receiving more "FOR" votes than
"AGAINST" votes will be approved. If you do not want to vote your
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shares for a particular nominee, you may indicate that in the
space provided on the proxy card or the voting instruction card.
In the unanticipated event that any of the nominees is unable or
declines to serve, the proxy will be voted for another person as
shall be designated by the Board of Directors to replace the
nominee, or in lieu thereof, the Board may reduce the number of
directors.
o Ratification of Selection of Independent Auditors: Ratification of
the selection of Hansen Barnett & Maxwell, LLP ("Hansen Barnett"),
as our independent auditors requires the affirmative vote of a
majority of the shares cast at the Annual Meeting. If the
shareholders do not ratify the appointment of Hansen Barnett, the
Audit Committee may reconsider the appointment.
o Approval of Amendment to Articles of Incorporation Increasing the
Authorized Common Stock of the Company (the "Common Stock
Amendment"): The affirmative vote of a majority of the votes cast
on the matter is required to approve the Common Stock Amendment.
o Approval of Amendment to Articles of Incorporation Increasing the
Authorized Preferred Stock of the Company (the "Preferred Stock
Amendment"): The affirmative vote of a majority of the votes cast
on the matter is required to approve the Preferred Stock
Amendment.
o Approval of the Company's 2006 Equity Incentive Award Plan: The
affirmative vote of a majority of the votes cast on the matter is
required to approve the Company's 2006 Equity Incentive Award
Plan.
How will voting on any other business be conducted? We do not know of
any business or proposals to be considered at the Annual Meeting other than
those described in this Proxy Statement. If any other business is proposed and
we decide to allow it to be presented at the Annual Meeting, the proxies
received from our shareholders give the proxy holders the authority to vote on
the matter according to their best judgment.
Who will count the votes? Representatives of RemoteMDx will act as the
inspectors of election and will tabulate the votes cast at the Annual Meeting
and received by proxy.
Who pays to prepare, mail and solicit the proxies? We will pay all of
the costs of soliciting proxies. We will ask banks, brokers and other nominees
and fiduciaries to forward the proxy materials to the beneficial owners of our
common stock and to obtain the authority of executed proxies. We will reimburse
them for their reasonable expenses.
How do I submit a shareholder proposal for next year's Annual Meeting?
Any shareholder who intends to present a proposal at the 2007 Annual Meeting of
Shareholders must deliver the proposal to the Corporate Secretary, c/o
RemoteMDx, Inc., 150 West Civic Center Drive, Suite 400, Sandy, Utah, 84070, not
later than December 31, 2006, if the proposal is submitted for inclusion in our
proxy materials for that meeting pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934.
Who should I call if I have questions? If you have questions about the
proposals or the Annual Meeting, you may call Michael G. Acton, CFO and
Secretary, at (801) 563-7171.
PROPOSAL #1 - ELECTION OF DIRECTORS
Our Bylaws provide that the shareholders or the Board of Directors
shall determine the number of directors from time to time, but that there shall
be no less than three. The Board of Directors currently has four members. All
four of these directors will stand for re-election at the Annual Meeting.
Each director elected at the Annual Meeting will hold office until the
Annual Meeting in 2007, until a successor is elected and qualified, or until the
director resigns, is removed or becomes disqualified. The Board of Directors has
no reason to believe that any of the nominees for director will be unwilling or
unable to serve if elected. These nominees have been selected by the Board of
Directors; the Board has no nominating committee. If due to unforeseen
circumstances a nominee should become unavailable for election, the Board may
either reduce the number of directors or substitute another person for the
nominee in which event your shares will be voted for that other person.
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We will vote your shares as you specify in your proxy. If you sign,
date and return your proxy but do not specify how you want your shares voted, we
will vote them FOR the election of each of the nominees listed below.
Director Nominees
The nominees to the Board of Directors in 2006 are Robert E. Childers,
James J. Dalton, David G. Derrick, and Peter McCall. All of the nominees
currently serve as members of the Board of Directors. The following information
is furnished with respect to these nominees as of May 17, 2006.
Robert Childers
Mr. Childers joined our board in July 2001. Since 1977, he has served as the
Chief Executive Officer of Structures Resources Inc., a firm which he founded in
1972, and has more than 30 years of business experience in construction and real
estate development. Mr. Childers has served or is currently serving as General
Partner in 16 Public Limited Partnerships in the Middle Atlantic States.
Partners include First Union Bank and Fannie Mae. Structures Resources has
successfully completed over 300 projects (offices, hotels, apartments, and
shopping centers) from New York to North Carolina. Recently Mr. Childers has
been a partner for various projects in Baltimore and Philadelphia. He is a
co-founder of Life Science Group, a boutique biotech investment-banking firm.
Mr. Childers was also the founding President of Associated Building Contractors
for the State of West Virginia and served as a director of The Twentieth Street
Bank until its merger with City Holding Bank. He is a former naval officer
serving in Atlantic fleet submarines. Mr. Childers is a member of the Audit
Committee and Compensation Committee of the board of directors.
James Dalton
Mr. Dalton joined us as a director in 2001. He was named President of the
Company in August 2003. From 1987 to 1997, Mr. Dalton was the owner and
President of Dalton Development, a real estate development company. He served as
the President and coordinated the development of The Pinnacle, an 86-unit
condominium project located at Deer Valley Resort in Park City, Utah. Mr. Dalton
also served as the President and equity owner of Club Rio Mar in Puerto Rico, a
680-acre beach front property that includes 500 condominiums, beach club,
numerous restaurants, pools and a Fazio-designed golf course. He was also a
founder and owner of the Deer Valley Club, where he oversaw the development of a
high-end, world-class ski project that includes 25 condominiums with a "ski-in
and ski-out" feature. From 1996 to 2000, Mr. Dalton served as an officer and
director of Biomune Systems, Inc. Prior to joining us and following his
resignation from Biomune Systems, Mr. Dalton managed his personal investments.
David Derrick
Mr. Derrick has been our CEO and Chairman since February 2001. Previously he
served as CEO and Chairman of the Board of Directors of Biomune Systems Inc.
between 1989 and 1998. Biomune was a biotechnology company and was the former
parent corporation of RemoteMDx, Inc. From 1996 to 1999, Mr. Derrick was
Chairman of the Board of Directors of Purizer Corporation; during 2000 he served
as a director of Purizer Corporation. From 1979 to 1982, Mr. Derrick was a
faculty member at the University of Utah College of Business. Mr. Derrick
graduated from the University of Utah with a Bachelor of Arts degree in
Economics in 1975 and a Masters in Business Administration degree with an
emphasis in Finance in 1976. Mr. Derrick has been a principal financier and
driving force in many new businesses. During the early 1980's he helped create
the community of Deer Valley, an exclusive ski resort outside of Park City,
Utah. In 1985 he founded and funded a company that pioneered the Smart Home
concept - the computerized home. The company is known as Vantage Systems and is
today a leader in this field.
Peter McCall
Mr. McCall joined our board of directors in July 2001. Mr. McCall began his
career in the mortgage finance business in 1982. As a Vice President of GE
Mortgage Securities, he oversaw the first mortgage securities transactions
between GE Capital Corporation and Salomon Brothers. For fifteen years, Mr.
McCall structured and sold both mortgage and asset backed security transactions.
In 1997 Mr. McCall founded McCall Partners LLC. McCall Partners is an investment
vehicle for listed and non-listed equity securities. Mr. McCall is also a member
of the Board of Directors of Premium Power Corporation of North Andover, MA. Mr.
McCall is a member of the Audit Committee and the Compensation Committee of the
board of directors.
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Pursuant to the Designation of Rights and Preferences (the
"Designation") of the Series C Preferred Stock (the "Series C Preferred"), the
holders of the outstanding Series C Preferred have the right, as a class, to
elect two additional directors to our Board of Directors. Pursuant to a voting
agreement between the holders of the Series C Preferred, the holders of the
Series C Preferred have the right to designate two directors for election by the
holders of the Series C Preferred. Accordingly, the holders of our common stock
and shares of Series B and Series C Preferred will vote, as a group, on the
election of four directors, and the holders of the Series C Preferred will vote
separately as a class on the election of two additional directors. We do not
anticipate that such separate election by the holders of the Series C Preferred
will take place at the Annual Meeting. If such election has taken place prior to
the Annual Meeting, we will announce the results of such election.
Recommendation
The Board of Directors unanimously recommends a vote FOR each director nominee.
PROPOSAL #2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected Hansen,
Barnett & Maxwell ("Hansen Barnett") as the independent public accountants to
audit the financial statements of RemoteMDx and its subsidiaries for the fiscal
year ending September 30, 2006. The Board is submitting the appointment of that
firm for ratification of the shareholders at the Annual Meeting.
On November 3, 2005, upon the authorization and approval of the audit
committee of its board of directors, the Company engaged Hansen Barnett as its
independent registered public accounting firm.
While ratification of the selection of accountants by the shareholders
is not required and is not binding upon the Audit Committee or the Company, in
the event of a negative vote on such ratification, the Audit Committee might
choose to reconsider its selection.
Independence
Hansen Barnett and Maxwell has advised us that it has no direct or
indirect financial interest in RemoteMDx or any of its subsidiaries, and that it
has had, during the last three years, no connection with RemoteMDx or any of its
subsidiaries other than as independent auditors and certain other activities as
described below.
Financial Statements and Reports
The financial statements of RemoteMDx for the year ended September 30,
2005, and report of Hansen Barnett and Maxwell is being provided to our
shareholders in connection with this proxy statement. Hansen Barnett and Maxwell
will have a representative present at the meeting who will have an opportunity
to make a statement if he or she so desires and to respond to appropriate
questions from shareholders.
Services
For the years ended September 30, 2005, Hansen, Barnett and Maxwell
(HBM) provided audit services for the Company.
Audit Fees
Audit services consist of the audit of the annual consolidated
financial statements of the Company, and other services related to SEC filings
and registration statements filed by the Company and its subsidiaries and other
pertinent matters. Audit fees paid to HBM for fiscal years 2005 and 2004 totaled
approximately $55,200 and $0, respectively.
Tax Fees, Audit Related Fees, and All Other Fees
HBM has not provided any consulting services to the Company in fiscal
years 2004 and 2005, including tax consultation and related services, nor did
HBM perform any financial information systems design and implementation services
for the Company in either period.
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The Audit Committee of the Board of Directors considered and authorized
all services provided by HBM and considered that the provision of non-audit
services was compatible with maintaining auditor independence.
Audit services consist of the audit of the annual consolidated
financial statements of the Company, review of the quarterly financial
statements, stand-alone audits of subsidiaries, accounting consultations and
consents and other services related to SEC filings and registration statements
filed by the Company and its subsidiaries and other pertinent matters. Audit
fees paid to Tanner LC for fiscal years 2005 and 2004 totaled $61,628 and
$92,600, respectively.
Recommendation
The Board of Directors unanimously recommends a vote "FOR" Proposal #2.
PROPOSAL #3 - AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED COMMON STOCK OF THE COMPANY
TO INCLUDE 175,000,000 SHARES OF COMMON STOCK,
PAR VALUE $.0001 PER SHARE.
The first paragraph of Article III of the Company's Articles of
Incorporation, as amended to date, reads as follows:
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of Common Stock authorized to be issued is one
hundred million (100,000,000) and the total number of shares of
Preferred Stock authorized to be issued is ten million (10,000,000).
The Common Stock and the Preferred Stock shall each have a par value of
$0.0001 per share.
The Company's Board of Directors has approved and recommends to the
shareholders the adoption of an amendment to this paragraph of Article III of
the Articles of Incorporation that would increase the number of shares of common
stock that the Company is authorized to issue from 100,000,000 shares to
175,000,000 shares. The authorized number of shares of preferred stock would not
be changed, unless the shareholders also approve Proposal No. 4 below. This
paragraph of Article III, as amended, would read as follows:
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of Common Stock authorized to be issued is One
Hundred Seventy Five Million (175,000,000) and the total number of
shares of Preferred Stock authorized to be issued is ten million
(10,000,000). The Common Stock and the Preferred Stock shall each have
a par value of $0.0001 per share.
Only the number of shares of common stock issuable by the Company would
be affected by this amendment, (unless the shareholders also approve Proposal
No. 4 below). Except for this change, the proposed amendment would not affect
any other provision of the Articles of Incorporation as previously amended. The
text of the Restated Articles of Incorporation, containing all amendments
adopted to date, including the proposed amendment to Article III is attached to
this Proxy Statement as Appendix A and is incorporated herein by reference. We
have no current understanding, arrangement or agreement, oral or written, to
issue stock for any purpose.
Background of the Proposed Amendment
As of the Record Date, there were _____________ shares of the Company's
common stock issued and outstanding. As of the Record Date, there were
17,099,299 shares of common stock reserved for issuance pursuant to presently
issued and outstanding options, warrants and similar rights, including shares
that have been set aside for issuance under the Company's existing incentive
stock option plans. There were also 7,559,470 shares of common stock reserved
for issuance upon conversion of the outstanding Series A preferred stock;
789,212 shares reserved for issuance upon conversion of the outstanding Series B
preferred stock; and 9,714,771 shares reserved for issuance upon conversion of
the outstanding Series C preferred stock. The Company has also issued
convertible debentures payable in February 25th, March 3rd, March 12th, April
21st, and September 10th, 2004 convertible into 575,789 shares of common stock
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(assuming a $0.45 conversion price). Thus, as of the Record Date, assuming full
exercise of all outstanding options and warrants and the conversion of all
outstanding preferred stock, the Company would have 17,099,299 shares of common
stock equivalents outstanding.
Management believes that the proposed amendment would benefit the
Company by allowing the Board of Directors to issue additional equity securities
to raise additional capital, to pursue strategic investment and technology
partners, to facilitate possible future acquisitions and to provide
stock-related employee benefits. To date, the Company's primary source of
financing has been private sales of common stock or other equity or debt
securities convertible into common stock. To facilitate such financing
transactions, the authorized capital of the Company will need to be increased
pursuant to a shareholder-approved amendment to the certificate of
incorporation.
For these reasons, the Company's Board of Directors is seeking
shareholder approval of the proposed amendment.
If the proposed amendment is approved at the Annual Meeting, generally,
no shareholder approval would be necessary for the issuance of all or any
portion of the additional shares of common stock unless required by law or any
rules or regulations to which the Company is subject.
Depending upon the consideration per share received by the Company for
any subsequent issuance of common stock, such issuance could have a dilutive
effect on those shareholders who previously paid a higher consideration per
share for their stock. Also, future issuances of common stock will increase the
number of outstanding shares, thereby decreasing the percentage ownership in the
Company (for voting, distributions and all other purposes) represented by
existing shares of common stock. The availability for issuance of the additional
shares of common stock may be viewed as having the effect of discouraging an
unsolicited attempt by another person or entity to acquire control of the
Company. Although the Board of Directors has no present intention of doing so,
the Company's authorized but unissued common stock could be issued in one or
more transactions that would make a takeover of the Company more difficult or
costly, and therefore less likely. The Company is not aware of any person or
entity who is seeking to acquire control of the Company. Holders of common stock
do not have any preemptive rights to acquire any additional securities issued by
the Company.
If the shareholders do not approve the proposed amendment, the Company
will be precluded from raising additional equity capital, pursuing strategic
partnership arrangements and acquisitions, or other similar transactions in
which the Company is required to issue shares of common stock. In such event,
the Company's operations and financial condition will be materially and
adversely affected because the Company presently does not have sufficient cash
reserves or revenues from operations to pay its operating expenses. Moreover,
even if the Company were to negotiate additional merger, acquisition, or other
transactions on terms acceptable to the Company, the Company likely would not be
able to complete such transactions without an increase in authorized capital.
Adoption of the proposal to approve the proposed amendment requires the
affirmative vote either by proxy or in person at the Annual Meeting of the
holders of a majority of the outstanding shares of common stock entitled to vote
thereon. If approved by the shareholders, the proposed amendment would become
effective upon the filing with the Division of Corporations and Commercial Code,
Department of Commerce, of the State of Utah (the "Utah Division of
Corporations") of the Restated Articles of Incorporation setting forth such
increase.
PLEASE NOTE: Proposal No. 4 (below) seeks shareholder approval for an
amendment to our Articles of Incorporation to increase the number of shares of
preferred stock that we are authorized to issue.
- If Proposal No. 3 is approved and Proposal No. 4 is not approved
by the shareholders, we will file with the Utah Division of
Corporations the form of amendment found in Appendix A to this
Proxy Statement, which increases the number of shares of common
stock but does not increase the number of shares of preferred
stock.
- If Proposal No. 3 is not approved and Proposal No. 4 is approved
by the shareholders, we will file with the Utah Division of
Corporations the form of amendment found in Appendix B to this
Proxy Statement, which increases the number of shares of preferred
stock but does not increase the number of shares of common stock.
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- If both Proposal No. 3 and Proposal No. 4 are approved by the
shareholders, we will file with the Utah Division of Corporations
the form of amendment found in Appendix C to this Proxy Statement,
which increases both the number of shares of preferred stock and
the number of shares of common stock.
- If neither Proposal No. 3 nor Proposal No. 4 is approved by the
shareholders, Article III of the Company's Articles of
Incorporation will not be amended as a result of this shareholder
meeting.
Recommendation
The Board of Directors unanimously recommends a vote "FOR" Proposal #3.
PROPSAL # 4 - AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED PREFERRED STOCK OF THE
COMPANY TO INCLUDE TWENTY MILLION SHARES OF
COMMON STOCK, PAR VALUE $.0001 PER SHARE.
The first paragraph of Article III of the Company's Articles of
Incorporation, as amended to date, reads as follows:
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of Common Stock authorized to be issued is one
hundred million (100,000,000) and the total number of shares of
Preferred Stock authorized to be issued is ten million (10,000,000).
The Common Stock and the Preferred Stock shall each have a par value of
$0.0001 per share.
The Company's Board of Directors has approved and recommends to the
shareholders the adoption of an amendment to this paragraph of Article III of
the Articles of Incorporation that would increase the number of shares of
preferred stock that the Company is authorized to issue from ten million shares
to twenty million shares. The authorized number of shares of common stock would
not be changed, unless the shareholders also approve Proposal No. 3 above. This
paragraph of Article III, as amended, would read as follows:
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of Common Stock authorized to be issued is one
hundred million (100,000,000) and the total number of shares of
Preferred Stock authorized to be issued is twenty million (20,000,000).
The Common Stock and the Preferred Stock shall each have a par value of
$0.0001 per share.
Only the number of shares of preferred stock issuable by the Company
would be affected by this amendment (unless the shareholders also approve
Proposal No. 3 above). Except for this change, the proposed amendment would not
affect any other provision of the Articles of Incorporation as previously
amended. The text of the Restated Articles of Incorporation, containing all
amendments adopted to date, including the proposed amendment to Article III is
attached to this Proxy Statement as Appendix A and is incorporated herein by
reference. We have no current understanding, arrangement or agreement, oral or
written, to issue stock for any purpose.
Background of the Proposed Amendment
As of the Record Date, we had issued a total of 3,559,830 shares of
preferred stock outstanding in the following series:
- Series A Preferred Stock: 40,000 shares authorized, 20,431 issued
and outstanding;
- Series B Preferred Stock: 2,000,000 shares authorized, 268,332
issued and outstanding; and
- Series C Preferred Stock; 7,357,144 shares authorized, 3,271,067
issued and outstanding.
Management believes that the proposed amendment would benefit the
Company by allowing the Board of Directors to issue additional series of
preferred stock to raise additional capital, to pursue strategic investment and
10
technology partners, to facilitate possible future acquisitions and to provide
stock-related employee benefits. To date, the Company's primary source of
financing has been private sales of common stock or other equity or debt
securities convertible into common stock. To facilitate such financing
transactions, the number of shares of preferred stock authorized for issuance by
the Company will need to be increased pursuant to a shareholder-approved
amendment to the certificate of incorporation.
For these reasons, the Company's Board of Directors is seeking
shareholder approval of the proposed amendment.
If the proposed amendment is approved at the Annual Meeting, generally,
no shareholder approval would be necessary for the designation by the Board of
Directors of additional series of preferred stock unless required by law or any
rules or regulations to which the Company is subject. To the extent that
additional series of preferred stock have rights senior to or on parity with any
of the series of preferred stock currently outstanding, the Company likely would
need to obtain approval of the holders of those shares of preferred stock.
Adoption of the proposal to approve the proposed amendment requires the
affirmative vote either by proxy or in person at the Annual Meeting of the
holders of a majority of the outstanding shares of common stock entitled to vote
thereon. If approved by the shareholders, the proposed amendment would become
effective upon the filing with the Division of Corporations and Commercial Code,
Department of Commerce, of the State of Utah (the "Utah Division of
Corporations") of the Restated Articles of Incorporation setting forth such
increase.
PLEASE NOTE: As discussed above at the end of Proposal No. 3, we are
seeking to increase both the number of shares of common stock and the number of
shares of preferred stock we are authorized to issue. The form of amendment that
we will file (either as set forth in Appendix A, Appendix B, or Appendix C
below) will depend on whether the shareholders approve only Proposal No. 3, only
Proposal No. 4, or both.
PROPOSAL #5 - APPROVAL OF THE REMOTE MDX, INC., 2006
EQUITY INCENTIVE AWARD PLAN
Shareholders are requested in this Proposal to consider and approve the
Remote MDx, Inc., 2006 Equity Incentive Award Plan (the "2006 Plan") as a
replacement for the 1997 Volu-Sol, Inc., Stock Incentive Plan (the "1997 Plan")
and the 2004 RemoteMDx, Inc., Stock Incentive Plan (the "2004 Plan" and together
with the 1997 Plan, the "Old Plans"). The Board of Directors adopted, subject to
shareholder approval, the 2006 Plan for non-employee directors, consultants and
employees of the Company and its subsidiaries on May 19, 2006. The 2006 Plan
will become effective upon shareholder approval at the 2006 Annual Meeting of
Shareholders. Upon approval of the 2006 Plan by the shareholders, no further
awards will be made under the Old Plans.
The Board believes that the 2006 Plan will promote the success and
enhance the value of the Company by:
o closely associating the interests of management, employees and
consultants of the Company, with the shareholders of the Company
by reinforcing the relationship between participants' rewards and
shareholder gains;
o providing management and employees with an equity ownership in the
Company commensurate with Company performance, as reflected in
increased shareholder value;
o maintaining competitive compensation levels;
o providing an incentive to management and employees to remain in
continuing employment with the Company and to put forth maximum
efforts for the success of its business; and
o discontinuing the grant of awards under the Company's Old Plans,
and providing, among other things, for issuance of nonstatutory
stock options, incentive stock options, restricted stock awards,
stock appreciation rights, and other types of awards.
The 2006 Plan permits the Compensation Committee to grant various types
of equity awards, including incentive stock options, nonqualified stock options,
restricted stock, stock appreciation rights, performance shares, performance
11
stock units, stock payments, deferred stock, restricted stock units, other
stock-based awards, and performance-based awards to eligible individuals. A
summary of the principal provisions of the 2006 Plan is set forth below. The
summary is qualified by reference to the full text of the 2006 Plan, which is
attached as Appendix D to this Proxy Statement.
Administration
The Compensation Committee of the Board of Directors will administer
the 2006 Plan. The Compensation Committee may delegate to a committee of one or
more members of the Board the authority to grant or amend awards to participants
other than senior executives of the Company who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or employees
who are "covered employees" within the meaning of Section 162(m) ("Section
162(m)") of the Internal Revenue Code (the "Code"). The Compensation Committee
includes at least two directors, each of whom qualifies as a non-employee
director pursuant to Rule 16b-3 of the Exchange Act, and an "outside director"
pursuant to Section 162(m).
The Compensation Committee will have the exclusive authority to
administer the 2006 Plan, including the power to determine eligibility, the
types and sizes of awards, the price and timing of awards and the acceleration
or waiver of any vesting restriction, provided that the Compensation Committee
will not have the authority to accelerate vesting or waive the forfeiture of any
performance-based awards.
Eligibility
Persons eligible to participate in the 2006 Plan include non-employee
members of the Board, consultants to the Company, and all of the employees of
the Company and its subsidiaries, as determined by the Compensation Committee.
Limitation on Awards and Shares Available
The maximum number of shares of common stock available for issuance
under the 2006 Plan is 10,000,000. To the extent that an award terminates,
expires or lapses for any reason, any shares subject to the award may be used
again for new grants under the 2006 Plan. In addition, shares tendered or
withheld to satisfy the grant or exercise price or any tax withholding
obligation may be used for grants under the 2006 Plan. Shares issued in
assumption of, or in substitution for, any outstanding awards of any entity
acquired in any form of combination by the Company or any of its subsidiaries
will not be counted against the shares available for issuance under the 2006
Plan. Notwithstanding the foregoing, no shares will become available (a) upon
the cancellation of existing awards or any similar transactions following the
tenth anniversary of shareholder approval of the 2006 Plan or (b) if the return
of shares would require additional shareholder approval of the 2006 Plan
pursuant to applicable rules of the exchange or trading facility where our
shares are publicly traded. The shares of common stock covered by the 2006 Plan
may be treasury shares, authorized but unissued shares, or shares purchased in
the open market.
Awards
The 2006 Plan provides for the grant of incentive stock options and
nonqualified stock options, restricted stock, stock appreciation rights,
performance shares, performance stock units, dividend equivalents, stock
payments, deferred stock, restricted stock units, other stock-based awards and
performance-based awards. No determination has been made as to the types or
amounts of awards that will be granted to specific individuals pursuant to the
2006 Plan.
Stock options, including incentive stock options, as defined under
Section 422 of the Code, and nonqualified stock options may be granted pursuant
to the 2006 Plan. The option exercise price of all stock options granted
pursuant to the 2006 Plan will be at least 100% of the fair market value of the
common stock on the date of grant. Stock options may be exercised as determined
by the Compensation Committee, but in no event after the tenth anniversary of
the date of grant. The aggregate fair market value of the shares with respect to
which options intended to be incentive stock options are exercisable for the
first time by an employee in any calendar year may not exceed $100,000, or such
other amount as the Code provides.
Upon the exercise of a stock option, the purchase price must be paid in
full in either cash or its equivalent, by delivering a promissory note bearing
interest at no less than such rate as shall then preclude the imputation of
12
interest under the Code, or by tendering previously acquired shares of common
stock with a fair market value at the time of exercise equal to the exercise
price or other property acceptable to the Compensation Committee (including
through the delivery of a notice that the participant has placed a market sell
order with a broker with respect to shares then issuable upon exercise of the
option, and that the broker has been directed to pay a sufficient portion of the
net proceeds of the sale to the Company in satisfaction of the option exercise
price, provided that payment of such proceeds is then made to the Company upon
settlement of such sale). However, no participant who is a member of the Board
or an executive officer of the Company will be permitted to pay the exercise
price of an option in any method in violation of Section 13(k) of the Exchange
Act.
Restricted stock may be granted pursuant to the 2006 Plan. A restricted
stock award is the grant of shares of common stock that is nontransferable and
may be subject to substantial risk of forfeiture until specific conditions are
met. Conditions may be based on continuing employment or achieving performance
goals. During the period of restriction, participants holding shares of
restricted stock may have full voting and dividend rights with respect to such
shares. The restrictions will lapse in accordance with a schedule or other
conditions determined by the Compensation Committee.
A stock appreciation right (an "SAR") is the right to receive payment
of an amount equal to the excess of the fair market value of a share of common
stock on the date of exercise of the SAR over the fair market value of a share
of common stock on the date of grant of the SAR. Payments will be made by the
Company in cash or common stock.
The other types of awards that may be granted under the 2006 Plan
include performance shares, performance stock units, deferred stock, restricted
stock units, and other stock-based awards.
Changes in Capital Structure
In the event of a stock dividend, stock split, combination or exchange
of shares, merger, consolidation, spin-off, recapitalization, distribution of
assets or any other corporate event affecting the common stock or the share
price of the common stock in a manner that causes dilution or enlargement of
benefits or potential benefits under the 2006 Plan, then the Compensation
Committee may make proportionate adjustments to: (i) the aggregate number of,
and types of, shares of stock subject to the 2006 Plan, (ii) the terms and
conditions of any outstanding awards (including any applicable performance
targets) and (iii) the grant or exercise price for any outstanding awards. In
addition, in such a case or in the event of any unusual or nonrecurring
transactions or events affecting the Company or of changes in applicable laws,
the Compensation Committee, may, subject to the terms of the 2006 Plan, take any
of the following actions if it determines that such action is appropriate in
order to prevent the dilution or enlargement of benefits or potential benefits
intended to be made available under the 2006 Plan or with respect to any award:
(i) provide for either the termination, purchase or replacement of the awards,
(ii) provide that the awards shall be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be substituted for by
similar awards covering the stock of the successor or survivor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices, (iii) make adjustments in the number and type of
shares of stock (or other securities or property) subject to outstanding awards
and/or in the terms and conditions of (including the exercise price), and the
criteria included in, outstanding awards which may be granted in the future,
(iv) provide for the acceleration of vesting or exercisability of the awards and
(v) provide that the awards cannot vest or be exercised after the event that
triggers the action.
Amendment and Termination
The Compensation Committee, subject to approval of the Board, may
terminate, amend, or modify the 2006 Plan at any time; provided, however, that
shareholder approval must be obtained for any amendment to the extent necessary
or desirable to comply with any applicable law, regulation or stock exchange
rule, to increase the number of shares available under the 2006 Plan, to extend
the exercise period for an option beyond ten years from the date of grant or to
allow a material increase in the benefits or change the eligibility requirements
under the 2006 Plan. In addition, without approval of the Company's
shareholders, no option may be amended to reduce the per share exercise price of
the shares subject to such option below the per share exercise price as of the
date the option was granted and, except to the extent permitted by the 2006 Plan
in connection with changes in the Company's capital structure, no option may be
granted in exchange for, or in connection with, the cancellation or surrender of
an option having a higher per share exercise price.
13
In no event may an award be granted pursuant to the 2006 Plan on or
after the tenth anniversary of the effectiveness of the Plan.
Securities Law
The 2006 Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act, and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. The 2006 Plan will be
administered, and options will be granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the 2006 Plan and options and other Awards granted
thereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
Federal Income Tax Consequences
The tax consequences of the 2006 Plan under current federal law are
summarized in the following discussion which deals with the general tax
principles applicable to the 2006 Plan, and is intended for general information
only. Alternative minimum tax and state and local income taxes are not
discussed. Tax laws are complex and subject to change and may vary depending on
individual circumstances and from locality to locality. The tax information
summarized is not tax advice.
Nonqualified Stock Options. For federal income tax purposes, an
optionee generally will not recognize taxable income on the grant of a
nonqualified stock option (an "NQSO") under the 2006 Plan, but upon the exercise
of an NQSO will recognize ordinary income, and the Company generally will be
entitled to a deduction. The amount of income recognized (and the amount
generally deductible by the Company) generally will be equal to the excess, if
any, of the fair market value of the shares at the time of exercise over the
aggregate exercise price paid for the shares, regardless of whether the exercise
price is paid in cash or in shares or other property. An optionee's basis for
the stock for purposes of determining his or her gain or loss upon a subsequent
disposition of the shares generally will be the fair market value of the stock
on the date of exercise of the NQSO, and any subsequent gain or loss will
generally be taxable as capital gains or losses.
Incentive Stock Options. An optionee generally will not recognize
taxable income upon either the grant or exercise of an Incentive Stock Option
(an "ISO"); however, the amount by which the fair market value of the shares at
the time of exercise exceeds the exercise price will be an "item of tax
preference" for the optionee for purposes of the alternative minimum tax.
Generally, upon the sale or other taxable disposition of the shares of the
common stock acquired upon exercise of an ISO, the optionee will recognize
income taxable as capital gains in an amount equal to the excess, if any, of the
amount realized in such disposition over the option exercise price, provided
that no disposition of the shares has taken place within either (a) two years
from the date of grant of the ISO or (b) one year from the date of exercise. If
the shares of common stock are sold or otherwise disposed of before the end of
the one-year and two-year periods specified above, the difference between the
ISO exercise price and the fair market value of the shares on the date of
exercise generally will be taxable as ordinary income; the balance of the amount
realized from such disposition, if any, generally will be taxed as capital gain.
If the shares of common stock are disposed of before the expiration of the
one-year and two-year periods and the amount realized is less than the fair
market value of the shares at the date of exercise, the optionee's ordinary
income generally is limited to excess, if any, of the amount realized in such
disposition over the option exercise price paid. The Company (or other employer
corporation) generally will be entitled to a tax deduction with respect to an
ISO only to the extent the optionee has ordinary income upon sale or other
disposition of the shares of common stock.
Stock Appreciation Rights. No taxable income is generally recognized
upon the receipt of an SAR, but upon exercise of the SAR the fair market value
of the shares (or cash in lieu of shares) received generally will be taxable as
ordinary income to the recipient in the year of such exercise. The Company
generally will be entitled to a compensation deduction for the amount the
recipient recognizes as ordinary income.
Restricted Stock and Deferred Stock. A participant to whom restricted
or deferred stock is issued generally will not recognize taxable income upon
such issuance and the Company generally will not then be entitled to a
deduction, unless, in the case of restricted stock, an election is made under
14
Section 83(b) of the Code. However, when restrictions on shares of restricted
stock lapse, such that the shares are no longer subject to a substantial risk of
forfeiture, the employee generally will recognize ordinary income and the
Company generally will be entitled to a deduction for an amount equal to the
excess of the fair market value of the shares at the date such restrictions
lapse over the purchase price therefore. Similarly, when deferred stock vests
and is issued to the employee, the employee generally will recognize ordinary
income and the Company generally will be entitled to a deduction for the amount
equal to the fair market value of the shares at the date of issuance. If an
election is made under Section 83(b) with respect to restricted stock, the
employee generally will recognize ordinary income at the date of issuance equal
to the excess, if any, of the fair market value of the shares at that date over
the purchase price therefore and the Company will be entitled to a deduction for
the same amount. The Code does not permit a Section 83(b) election to be made
with respect to deferred stock.
Dividend Equivalents. A recipient of a dividend equivalent award
generally will not recognize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time. When a dividend
equivalent is paid, the participant generally will recognize ordinary income,
and the Company will be entitled to a corresponding deduction.
Performance Awards. A participant who has been granted a performance
award generally will not recognize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time. When an award is paid,
whether in cash or common stock, the participant generally will recognize
ordinary income, and the Company will be entitled to a corresponding deduction.
Stock Payments. A participant who receives a stock payment in lieu of a
cash payment that would otherwise have been made will generally be taxed as if
the cash payment has been received, and the Company generally will be entitled
to a deduction for the same amount.
Section 162(m) Limitation. In general, under Section 162(m), income tax
deductions of publicly held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises,
transfers of property and benefits paid under nonqualified retirement plans) for
certain executive officers exceeds $1 million (less the amount of any "excess
parachute payments" as defined in Section 280G of the Code) in any one year.
However, under Section 162(m), the deduction limit does not apply to certain
"performance-based compensation." Under Section 162(m), stock options and SARs
will satisfy the "performance-based compensation" exception if the awards of the
options or SARs are made by a committee of the Board of Directors consisting
solely of two or more "outside directors," the plan sets the maximum number of
shares that can be granted to any person within a specified period, and the
compensation is based solely on an increase in the stock price after the grant
date (i.e., the option or SAR exercise price is equal to or greater than the
fair market value of the stock subject to the award on the grant date). Other
types of awards may only qualify as "performance-based compensation" if such
awards are granted or payable only to the recipients based upon the attainment
of objectively determinable and pre-established performance targets established
by a qualifying committee of the Board and related to performance goals approved
by the Company's shareholders.
The 2006 Plan has been designed in order to permit the Compensation
Committee to grant stock options and SARs that will qualify as
"performance-based compensation" under Section 162(m). In addition, in order to
permit Awards other than stock options and SARs to qualify as "performance-based
compensation," the 2006 Plan allows the Compensation Committee to designate as
"Section 162(m) Participants" employees whose compensation for a given fiscal
year may be subject to the limit on deductible compensation imposed by Section
162(m). The Compensation Committee may grant awards to Section 162(m)
Participants that vest or become exercisable upon the attainment of specific
performance targets that are related to one or more of the performance goals set
forth in the 2006 Plan. The Company's shareholders are also being asked in this
proposal to approve the performance goals established in the 2006 Plan.
Performance Goals Under the 2006 Plan
General. As described above, the 2006 Plan contains performance goals
that govern the grant of certain awards under the 2006 Plan. The Company is
requesting that the shareholders approve the performance goals for the grant of
certain awards under the 2006 Plan to comply with the requirements of Section
162(m) and regulations promulgated thereunder, as discussed above.
15
Eligible Employees. Restricted stock awards, deferred stock awards,
performance awards, dividend equivalents and stock payments under the 2006 Plan
are limited to Section 162(m) Participants who are selected by the Compensation
Committee to participate. However, only such awards granted to such Section
162(m) Participants can qualify as performance-based compensation under Section
162(m).
Administration of Performance Goals. The Compensation Committee has
discretion to determine if awards under the 2006 Plan are intended to qualify as
performance-based compensation under Section 162(m) or not. If any awards other
than options or SARs are so intended to qualify, then, within 90 days of the
start of each performance period, the Compensation Committee (i) designates one
or more Section 162(m) Participants, (ii) selects the performance goal or goals
applicable to the designated performance period, (iii) establishes the various
targets and bonus amounts which may be earned for such performance period and
(iv) specifies the relationship between performance goals and targets and the
amounts to be earned by each Section 162(m) Participant for such performance
period. The Compensation Committee may designate, as the performance period for
awards intended to be qualified performance-based compensation under the 2006
Plan, the Company's fiscal year or any other fiscal period or period of service
(or such other time as may be required or permitted by Section 162(m)).
The performance goals used to determine the terms and conditions of
awards intended to be qualified performance-based compensation under the 2006
Plan are based on any or all of the following business criteria with respect to
the Company, any subsidiary or any division or operating unit: net earnings
(either before or after interest, taxes, depreciation and amortization),
economic value-added (as determined by the Compensation Committee), sales or
revenue, net income (either before or after taxes), cash flow (including, but
not limited to, operating cash flow and free cash flow), cash flow return on
capital, return on net assets, return on shareholders' equity, return on assets,
return on capital, shareholder returns, return on sales, gross or net profit
margin, productivity, expense, margins, operating efficiency, customer
satisfaction, working capital, earnings per share, price per share of the common
stock, and market share, any of which may be measured either in absolute terms
or as compared to any incremental increase or as compared to results of a peer
group.
Each business criterion will be determined in accordance with generally
accepted accounting principles, or will be subject to such adjustments as the
Compensation Committee may specify at the beginning of the performance period
with respect to an award (other than an option or SAR) that is intended to
qualify as qualified performance-based compensation.
The Compensation Committee must certify the attainment of the
applicable performance target before a Section 162(m) award is paid under the
2006 Plan. In determining the amounts paid to any Section 162(m) Participant,
the Compensation Committee has the right to reduce (but not to increase) the
amount payable at a given level of performance to take into account additional
factors that it may deem relevant to the assessment of individual or corporate
performance for the designated performance period.
New Plan Benefits
No awards will be granted under the 2006 Plan until it is approved by
the Company's shareholders. In addition, awards granted under the 2006 Plan are
subject to the discretion of the Compensation Committee. Therefore, it is not
possible to determine the benefits that will be received in the future by
participants in the 2006 Plan or the benefits that would have been received by
such participants if the 2006 Plan had been in effect in the year ended
September 30, 2005.
Vote Required
The affirmative vote of a majority of the votes cast on the matter is
required to approve the 2006 Plan. Because abstentions and broker non-votes are
not treated as shares cast, they will not have the effect of a negative vote
with respect to approval of the 2006 Plan.
16
RECOMMENDATION
The Board of Directors unanimously recommends a vote FOR the approval
of the REMOTE MDX, INC., 2006 Equity Incentive Award Plan.
INFORMATION CONCERNING REMOTEMDX, INC.
BOARD OF DIRECTORS
Directors hold office until the next annual meeting of the shareholders
and until their successors have been elected or appointed and duly qualified.
Executive officers are elected by the board of directors and hold office until
their successors are elected or appointed and duly qualified. Vacancies on the
board which are created by the retirement, resignation or removal of a director
may be filled by the vote of the remaining members of the board, with such new
director serving the remainder of the term or until his successor shall be
elected and qualify.
Meetings and Committees
The board of directors met two times during fiscal year 2005. No
director attended fewer than 75% of the meetings during the fiscal year. The
board also acted eight times during fiscal year 2005 by unanimous written
consent in lieu of a meeting, as permitted by Utah law and our bylaws. The board
has an Audit Committee, currently comprised of Mr. McCall and Mr. Childers.
The functions of the Audit Committee are (1) to review and approve the
selection of, and all services performed by, our independent auditors, (2) to
review our internal controls, and (3) to review and report to the board of
directors with respect to the scope of our audit procedures, accounting
practices and internal accounting and financial controls. Mr. Childers and Mr.
McCall are independent directors within the meaning of that term under
applicable Securities and Exchange Commission rules.
Audit Committee Financial Expert
Peter McCall, a director of the Company, is the financial expert
serving on the Audit Committee of the Board of Directors within the meaning of
that term under applicable rules promulgated by the Securities and Exchange
Commission.
Compensation Committee
Bob Childers, a director of the Company, is serving as the head of the
Company's compensation committee. Peter McCall is also a member of the
Compensation Committee.
Remuneration
Non-employee directors are entitled to receive $5,000 per month and
receive a grant of an option to acquire 30,000 shares of common stock for each
completed year of service on the board. We also reimburse the reasonable travel
expenses of members for their attendance at the meetings of the board and
meetings of the shareholders.
Director Independence
We assess director independence on an annual basis. In February 2004,
the Board assessed the independence of each director in accordance with the then
effective independence standards. The Board has determined, after careful
review, that Mr. Childers and Mr. McCall are independent under the rules of the
Securities and Exchange Commission. In addition, the Company believes that these
directors meet the independence standards applicable to independent directors,
including directors serving as members of corporate audit committees, recently
adopted by the Nasdaq Stock Market.
Shareholder Communications with Directors
The Board of Directors has not established a formal process for
shareholders to follow to send communications to the Board or its members, as
the Company's policy has been to forward to the directors any shareholder
correspondence it receives that is addressed to them. Shareholders who wish to
communicate with the directors may do so by sending their correspondence to the
Company's headquarters at 150 West Civic Center Drive, Suite 400, Sandy, Utah,
84070.
17
Directors are encouraged by the Company to attend the Annual Meeting of
Shareholders if their schedules permit. The Annual Meeting to be held pursuant
to the Notice accompanying this Proxy Statement is the first annual meeting of
the shareholders held by the Company. All of the directors are expected to be in
attendance at the meeting.
REPORT OF THE AUDIT COMMITTEE
[The following report of the Audit Committee shall not be deemed
incorporated by reference by any general statement incorporating this Proxy
Statement into any other filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent RemoteMDx specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under those acts.]
The Audit Committee oversees RemoteMDx's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls.
The directors who serve on the Audit Committee are all independent for
purposes of the Rule 4200(A)(15) of The National Association of Securities
Dealers' listing standards and National Market Marketplace Rules, as amended.
The Audit Committee operates under a written charter adopted by the
Board of Directors.
We have reviewed and discussed with management RemoteMDx's audited
financial statements as of and for the year ended September 30, 2005.
We have discussed with the independent auditors, Hansen, Barnett, and
Maxwell the matters required to be discussed by Statement on Auditing Standards
No. 61, Communication with Audit Committees, as amended, by the Auditing
Standards Board of the American Institute of Certified Public Accountants, which
includes a review of the findings of the independent accountant during its
examination of the Company's financial statements.
We have received and reviewed the written disclosures and the letter
from Hansen, Barnett, and Maxwell, required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the Independence
Standards Board, and have discussed with the auditors the auditors independence.
We have concluded that the independent public accountants are independent from
the Company and its management.
Based on the activities referred to above, we recommended to the Board
of Directors (and the Board has approved) that the financial statements referred
to above be included in RemoteMDx's Annual Report on Form 10-KSB for the year
ended September 30, 2005.
Respectfully submitted to the Board of Directors,
Audit Committee
Peter McCall, Chairman
Robert E. Childers
EXECUTIVE OFFICERS
The following table sets forth information concerning our executive
officers and directors and their ages as at September 30, 2005:
Name Age Position
- ---------------- ---- ------------------------------------------------
David G. Derrick 53 Chief Executive Officer and Chairman (Director)
James J. Dalton 63 President and Vice Chairman (Director)
Michael G. Acton 42 Chief Financial Officer, Secretary-Treasurer
Bruce G. Derrick 48 Chief Technology Officer
Randy E. Olshen 42 President of SecureAlert, Inc.
Peter McCall 48 Director
Robert E. Childers 61 Director
18
David Derrick - CEO and Chairman
Mr. Derrick has been our CEO and Chairman since February 2001. Previously he
served as CEO and Chairman of the Board of Directors of Biomune Systems Inc.
between 1989 and 1998. Biomune was a biotechnology company and was the former
parent corporation of RemoteMDx, Inc. From 1996 to 1999, Mr. Derrick was
Chairman of the Board of Directors of Purizer Corporation; during 2000 he served
as a director of Purizer Corporation. From 1979 to 1982, Mr. Derrick was a
faculty member at the University of Utah College of Business. Mr. Derrick
graduated from the University of Utah with a Bachelor of Arts degree in
Economics in 1975 and a Masters in Business Administration degree with an
emphasis in Finance in 1976. Mr. Derrick has been a principal financier and
driving force in many new businesses. During the early 1980's he helped create
the community of Deer Valley, an exclusive ski resort outside of Park City,
Utah. In 1985 he founded and funded a company that pioneered the Smart Home
concept - the computerized home. The company is known as Vantage Systems and is
today a leader in this field.
James Dalton - President and Vice Chairman
Mr. Dalton joined us as a director in 2001. He was named President of the
Company in August 2003. From 1987 to 1997, Mr. Dalton was the owner and
President of Dalton Development, a real estate development company. He served as
the President and coordinated the development of The Pinnacle, an 86-unit
condominium project located at Deer Valley Resort in Park City, Utah. Mr. Dalton
also served as the President and equity owner of Club Rio Mar in Puerto Rico, a
680-acre beach front property that includes 500 condominiums, beach club,
numerous restaurants, pools and a Fazio-designed golf course. He was also a
founder and owner of the Deer Valley Club, where he oversaw the development of a
high-end, world-class ski project that includes 25 condominiums with a "ski-in
and ski-out" feature. From 1996 to 2000, Mr. Dalton served as an officer and
director of Biomune Systems, Inc. Prior to joining us and following his
resignation from Biomune Systems, Mr. Dalton managed his personal investments.
Michael Acton - Secretary, Treasurer and Chief Financial Officer
Mr. Acton joined us as Secretary-Treasurer in March 1999. He has also served as
our CFO since March 2001. From June 1998 until November 2000, Mr. Acton was
Chief Executive Officer of Biomune Systems, Inc., where he also served as
Principal Accounting Officer and Controller from 1994 to 1997. From 1989 through
1994, Mr. Acton was employed by Arthur Andersen, LLP in Salt Lake City, Utah,
where he performed various tax, audit, and business advisory services. He is a
Certified Public Accountant in the State of Utah.
Bruce G. Derrick - Chief Technology Officer
Mr. Derrick has extensive experience in management of custom solutions
development and customer management in the wireless telecom marketplace. From
2001 to 2004 was a senior product development manager for WatchMark Corporation.
WatchMark collects cellular network performance data for quality assurance and
capacity planning. From 1997 to 2001, Mr. Derrick was responsible for forming
and managing the Professional Services team for Marconi's MSI division. From
1996 to 1997, Mr. Derrick provided technical project management of application
scalability testing and quality control at Boeing and Western Wireless. From
1989 to 1996, Mr. Derrick built and managed the Corporate Computer and Network
Operations department for Avaya's Mosaix division. From 1983 to 1989, he served
as Senior Programmer in applied research at the University of Utah's Department
of Medical Informatics where he developed and implemented medical informatics
and physiological monitoring services for ICU care. He also participated in
development of IEEE standards for automated physiological monitoring for Nasa's
Space Station program. Mr. Derrick holds a Bachelor's Degree in Computer Science
from the University of Utah. Bruce Derrick is the brother of David Derrick, the
Chairman and CEO of the Company.
Peter McCall - Director
Mr. McCall joined our board of directors in July 2001. Mr. McCall began his
career in the mortgage finance business in 1982. As a Vice President of GE
Mortgage Securities, he oversaw the first mortgage securities transactions
between GE Capital Corporation and Salomon Brothers. For fifteen years, Mr.
McCall structured and sold both mortgage and asset backed security transactions.
19
In 1997 Mr. McCall founded McCall Partners LLC. McCall Partners is an investment
vehicle for listed and non-listed equity securities. Mr. McCall is also a member
of the Board of Directors of Premium Power Corporation of North Andover, MA. Mr.
McCall is a member of the Audit Committee and the Compensation Committee of the
board of directors.
Robert Childers - Director
Mr. Childers joined our board in July 2001. Since 1977, he has served as the
Chief Executive Officer of Structures Resources Inc., a firm which he founded in
1972, and has more than 30 years of business experience in construction and real
estate development. Mr. Childers has served or is currently serving as General
Partner in 16 Public Limited Partnerships in the Middle Atlantic States.
Partners include First Union Bank and Fannie Mae. Structures Resources has
successfully completed over 300 projects (offices, hotels, apartments, and
shopping centers) from New York to North Carolina. Recently Mr. Childers has
been a partner for various projects in Baltimore and Philadelphia. He is a
co-founder of Life Science Group, a boutique biotech investment-banking firm.
Mr. Childers was also the founding President of Associated Building Contractors
for the State of West Virginia and served as a director of The Twentieth Street
Bank until its merger with City Holding Bank. He is a former naval officer
serving in Atlantic fleet submarines. Mr. Childers is a member of the Audit
Committee and Compensation Committee of the board of directors.
Randy E. Olshen - President SecureAlert, Inc.
Prior to joining SecureAlert, Inc., Mr. Olshen was the Executive Vice President
for Elan Nutrition from 2001 to 2004. From 1998 to 2001, Mr. Olshen was the
President of Optim Nutrition, a wholly-owned subsidiary of Biomune Systems
(NASDAQ: BIME). From 1992 to 1998, Mr. Olshen was the Executive Vice President
of Sales, Marketing and Operations at Nellson Nutraceutical. From 1987 to 1992
Mr. Olshen was the General Manager of the specialty products division of a $500
million pharmaceutical company, McGaw, Inc. He currently serves as a director
and a member of the compensation committee for two companies, Helios Nutrition
and Dr. Soy Nutrition. Mr. Olshen earned his Bachelor's degree from Chapman
College.
BENEFICIAL OWNERSHIP
This section sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 31, 2006. We have
determined beneficial ownership in accordance with the rules of the Securities
and Exchange Commission. In computing the number of shares beneficially owned by
a person and the percentage ownership of that person, we include shares of
common stock subject to options, warrants, or convertible securities held by
that person that are currently exercisable or will become exercisable within 60
days after March 31, 2006, while those shares are not included for purposes of
computing percentage ownership of any other person. Unless otherwise indicated,
the persons and entities named in the table have sole voting and investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable.
Security Ownership of Certain Beneficial Owners
The following table sets forth information for any person (including
any "group") who is known to us to be the beneficial owner of more than 5% of
our common stock.
Title of Class Name and Address of Beneficial Owner (1) Amount Owned Percent of Class
Common David G. Derrick (2) 9,100,245 14.47%
Common James Dalton (3) 8,905,913 14.15%
Common J. Lee Barton (4)
196 No. Forest Ave.
Hartwell, GA 30643 4,031,508 6.55%
Common ADP Management Corp.(5) 6,409,691 10.17%
20
__________________
(1) Unless otherwise indicated, the business address of the
shareholder is the address of the Company, 150 West Civic Center
Drive, Suite 400, Sandy, Utah 84070.
(2) Includes shares owned of record as follows: 3,428,527 shares held
of record by ADP Management, 1,190,556 shares owned of record by
Mr. Derrick, 1,345,009 shares issuable upon conversion of Series A
preferred stock owned of record by ADP Management, 249,998 shares
issuable upon conversion of Series B preferred stock owned of
record by Mr. Derrick, 1,636,155 shares issuable upon exercise of
stock options held by ADP Management, and 1,250,000 shares
issuable upon exercise of stock options held by Mr. Derrick. Mr.
Derrick is the secretary and treasurer of ADP Management and the
managing member of MK Financial.
(3) Includes shares owned of record as follows: 3,428,527 shares held
of record by ADP Management (by agreement with Mr. Derrick, Mr.
Dalton shares control and beneficial ownership of the shares owned
of record by ADP Management), 951,273 shares owned of record by
Mr. Dalton, 294,949 shares issuable upon conversion of Series A
preferred stock owned of record by Mr. Dalton, 1,345,009 shares
issuable upon conversion of Series A preferred stock owned of
record by ADP Management, 1,636,155 shares issuable upon exercise
of stock options held by ADP Management, and 1,250,000 shares
issuable upon exercise of stock options held by Mr. Dalton.
(4) Includes 2,377,056 shares owned directly by Mr. Barton, 154,444
shares owned of record by Lintel, Inc., an entity owned and
controlled by Mr. Barton, and 1,500,008 shares issuable upon
conversion of Series B preferred stock owned of record by Lintel,
Inc.
(5) Includes 3,428,527 shares owned of record, 1,345,009 shares
issuable upon conversion of Series A preferred stock, and
1,636,155 shares issuable upon exercise of stock options held by
ADP Management.
Security Ownership of Management
As of March 31, 2006, we had two classes of voting equity securities, the common
stock and the Series B preferred stock. In March 2006, our Board of Directors
approved the designation of the Series C Preferred Stock. In addition, we have a
class of nonvoting preferred stock, the Series A Preferred Stock, that is
convertible into common stock. The following table sets forth information as of
March 31, 2006, as to the voting securities beneficially owned by all directors
and nominees named therein, each of the named executive officers, and directors
and executive officers as a group.
Name and
Title of Class Address of Beneficial Owner Amount Owned Percent of Class
Common David G. Derrick (1) 9,100,245 14.47%
James Dalton (2) 8,905,913 14.15%
Michael G. Acton (4) 345,507 *
Peter McCall (5) 1,285,148 2.10%
Robert Childers (6) 703,446 1.16%
Officers and Directors as a Group (6 persons) (7) 13,930,568 21.08%
(1) Mr. Derrick's beneficial ownership of these shares is summarized
in note (2) above.
(2) Mr. Dalton's beneficial ownership of these shares is summarized in
note (3) above.
(3) ADP's beneficial ownership of these shares is summarized in note
(5) above.
21
(4) Mr. Acton is the Chief Financial Officer of the Company. Includes
100,000 shares issuable under options granted to Mr. Acton, and
245,507 shares owned of record by Mr. Acton.
(5) Mr. McCall is a director. Includes (a) 250,000 shares of common
stock owned of record by Mr. McCall, 580,000 shares issuable upon
exercise of stock options held by Mr. McCall, and 455,148 shares
issuable upon conversion of shares of Series A preferred stock
owned by Mr. McCall.
(6) Mr. Childers is a director. Includes (a) 50,000 shares of common
stock owned of record by the Robert E. Childers Living Trust, (b)
230,000 shares issuable upon exercise of stock options held by Mr.
Childers, (c) 267,932 shares issuable upon conversion of Series A
preferred stock, and (d) 155,514 shares held directly by Mr.
Childers.
(7) Duplicate entries eliminated.
*Less than 1% ownership percentage.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid in each of the
past three fiscal years to all individuals serving as our chief executive
officer during the year ended September 30, 2005 as well as our three most
highly compensated executive officers other than the CEO who were serving as
executive officers at the end of the year ended September 30, 2005, whose total
annual salary and bonus for the year then ended exceeded $100,000 (the "Named
Executive Officers").
Summary Compensation Table
- ---------------------------
Annual Compensation
------------------- Long Term
Compensation
Awards
Securities
Other Annual Underlying All other
Name and Fiscal Bonus Compensation Options/SARs compensation
Principal Position Year Salary ($) ($) ($) (#) ($)
- -------------------------------------------------- -------- ----------- ---------- ----------------- ----------------- -------------
David G. Derrick, Chief Executive Officer 2003 $120,000 $ 0 $ 53,910 845,628/0 $ 0
Chairman of the Board of Directors (1) 2004 $120,000 0 $ 0 0/0 $ 0
2005 $240,000 300,000(4) $ 0 0/0 $ 0
James J. Dalton 2003 $120,000 $ 0 $ 0 0/0 $ 0
President and Vice Chairman (2) 2004 $120,000 0 $ 0 0/0 $ 0
2005 $240,000 300,000(4) $ 0 0/0 $ 0
Michael G. Acton, Chief Financial Officer (3) 2003 $100,000 $ 25,000 $ 4,192 0/0 $ 0
2004 $100,000 $ 25,000 $ 0 0/0 $ 0
2005 $100,000 $ 54,000 $ 25,000 0/0 $ 35,000
(1) Mr. Derrick became Chief Executive Officer in February 2001.
Amounts reported in the table do not include amounts recorded by
the Company under applicable accounting principles for non-cash
compensation paid to ADP Management, a company controlled by Mr.
Derrick, in connection with financing transactions that were
entered into by the Company and ADP Management during the years
2003, 2004 or 2005. Salary was accrued and included in amounts
owed to ADP Management under various financing agreements.
Outstanding amounts owed ADP Management under all such agreements
were converted to common stock in June 2003. Mr. Derrick is the
principal owner and control person of ADP Management. See "Certain
Relationships and Related Party Transactions."
22
(2) During 2003, 2004 and 2005, Mr. Dalton was paid $120,000, $120,000
and $240,000 a year under a consulting agreement. Mr. Dalton's
annual salary as President is $240,000. The consulting fees and
salary owed to Dalton have historically been accrued as part of
the ADP Management financing arrangements. Other amounts have been
paid or accrued during 2005. See "Certain Relationships and
Related Transactions."
(3) Mr. Acton has served as an executive officer since March 2001.
(4) These payments were made by issuing restricted common stock.
Employment Agreements
We have no employment agreements with any executive officers at this
time.
Stock Option Grants in Fiscal Year 2005
During fiscal year 2005, the Company granted 2,500,000 warrants to each
of Mr. Derrick and Mr. Dalton with an exercise price of $0.54 per
share, of which (A) 1,250,000 vested on issuance; (B) 625,000 vested on
May 17, 2006, and (C) the remaining 625,000 will vest on May 17, 2007,
subject to certain adjustments. All of these warrants are five-year
warrants and expire in 2010.
Stock Options Outstanding and Options Exercised in Fiscal Year 2005
The following table sets forth certain information, including the
fiscal year-end value of unexercised stock options held by the Named
Executive Officers, as of September 30, 2005. We have not granted any
stock appreciation rights ("SAR's").
Aggregated Option Excercises in Last Fiscal Year
And Fiscal Year-End Option Values
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options/
Shares At 9/30/2005 SARs at 9/30/2005 ($)
Acquired on Value Realized Exercisable / Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable (1)
- -------------------- ------------ --------------- ---------------------- -----------------------
David G. Derrick (2) - 2,886,155/1,250,000 $1,275,132/$575,000
James J. Dalton (2) - - 2,886,155/1,250,000 $1,275,132/$575,000
Michael G. Acton (3) - - 246,894/200,000 $113,571/$60,000
(1) Value is based on the fair market value of our common stock on
December 15, 2005, estimated to be $1.00 per share. Values
indicated reflect the difference between the exercise price of the
unexercised options and the market value of shares of common stock
on November 30, 2005.
(2) The exercise price of 2,636,155 options is $.54 per share. The
exercise price of 250,000 options is $0.75 per share.
The exercise prices of these options are 146,894 at $1.00 and 100,000 at $0.54
per share.
23
COMPENSATION PLANS
Stock Plans
The 1997 Volu-Sol, Inc. Stock Incentive Plan
Immediately prior to the spin-off in August 1997, the Company adopted the 1997
Volu-Sol, Inc. Stock Incentive Plan ("1997 Plan"). The 1997 Plan was approved by
our board of directors and by action of Biomune, then our sole shareholder.
Under the 1997 Plan, we may issue stock options, stock appreciation rights,
restricted stock awards, and other incentives to our employees, officers and
directors.
The 1997 Plan provides for the award of incentive stock options to our key
employees and directors and the award of nonqualified stock options, stock
appreciation rights, bonus rights, and other incentive grants to employees and
certain non-employees who have important relationships with us or our
subsidiaries. A total of 5,000,000 shares are authorized for issuance pursuant
to awards granted under the 1997 Plan. During fiscal year 2005, options were
granted to purchase common stock under the 1997 Plan and no options were
exercised. As of September 30, 2005, options for the purchase of 1,465,000
shares of common stock were outstanding and exercisable under the 1997 Plan.
The 2004 RemoteMDx, Inc. Stock Incentive Plan
On February 17, 2004 the Board of Directors approved the 2004 RemoteMDx, Inc
Stock Incentive Plan ("2004 Plan"). The shareholders approved this plan on May
19, 2004. Under the 2004 Plan, the Company may issue stock options, stock
appreciation right, restricted stock awards and other incentives to our
employees, officers and directors. The 2004 Plan provides for the award of
incentive stock options to our key employees and directors and the award of
nonqualified stock options, stock appreciation rights, bonus rights, and other
incentive grants to employees and certain non-employees who have important
relationships with us or our subsidiaries. A total of 6,000,000 shares are
authorized for issuance pursuant to awards granted under the 2004 Plan. During
fiscal year 2005 5,000,000 options were awarded under this plan.
Equity Compensation Plan Information
Number of securities to Weighted average
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available for
Plan category warrants and rights warrants and rights future issuance
- -------------
Equity compensation plans approved by
security holders 6,465,000 $0.73 4,535,000
Equity compensation plans not approved
by security holders 3,376,043 $1.41 N/A
Total 9,841,043 $0.74 4,535,000
PLEASE NOTE: This table does not include the 2006 Equity Incentive Award Plan
proposed for shareholder vote in this Proxy Statement.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors and persons who beneficially own more than 10% of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than 10% shareholders are required by regulation of the
Securities and Exchange Commission to furnish us with copies of all Section
16(a) forms they file.
Based solely upon its review of the copies of such forms furnished to
it, and representations made by certain persons subject to this obligation that
such filings were not required to be made, RemoteMDx believes that all reports
required to be filed by these individuals and persons under Section 16(a) were
timely filed, except as follows: Mr. Derrick and Mr. Dalton filed late Forms 4
but all transactions we disclosed in the filing of a Form 5.
24
STOCK PERFORMANCE GRAPH
The stock graph is a comparison of cumulative total return among
RemoteMDx, Incorporated, Nasdaq Market Index and SIC Code Index. The table below
explains if a person invested $100 on August 11, 2005 how much the investment
would be worth at the fiscal year ended September 30, 2005.
- --------------------------- -------------------------- ------------------------
Date August 11, 2005 September 30, 2005
- --------------------------- -------------------------- ------------------------
RemoteMDx, Incorporated $100.00 $353.33
- --------------------------- -------------------------- ------------------------
SIC Code Index $100.00 $102.67
- --------------------------- -------------------------- ------------------------
Nasdaq Market Index $100.00 $ 98.35
- --------------------------- -------------------------- ------------------------
Our common stock is traded on the OTC Bulletin Board of the National Association
of Securities Dealers, Inc., under the symbol "RMDX.OB." The following table
sets forth, for the fiscal periods indicated, the range of high and low sales
bid prices for our common stock. Bid prices reflect inter-dealer prices and may
not represent actual transactions. The sales information is available online at
http://otcbb.com.
High Low
2005
- ----
January 1 to March 31 N/A * N/A *
April 1 to June 30 N/A * N/A *
July 1 to September 30 $1.55 $0.27
October 1 to December 31 $1.16 $0.75
2006
- ----
January 1 to March 31 $1.03 $0.48
* The Company's common stock began trading on August 25, 2005.
Holders. As of May 19, 2006, there were approximately _______holders of record
of the common stock and approximately ______________ shares of common stock
outstanding. We also have 20,431 shares of Series A preferred stock outstanding,
held by 39 shareholders, convertible into a minimum of approximately 7,559,470
25
shares of common stock, 268,332 shares of Series B preferred stock outstanding
held by 18 shareholders, that at present are convertible into approximately
789,212 shares of common stock, and 3,238,257 shares of Series C Preferred Stock
outstanding held by 41 shareholders, that at present are convertible into
approximately 9,714,771 shares of common stock. We also have granted options and
warrants for the purchase of approximately 17,099,299 shares of common stock. As
discussed elsewhere in this report, we may be required to issue additional
shares of common stock or preferred stock to pay accrued dividends, or to comply
with anti-dilution adjustments to the conversion rights of present or former
preferred shareholders.
Dividends. Since incorporation, we have not declared any dividends on our common
stock. We do not anticipate declaring a dividend on the common stock for the
foreseeable future. The Series A Preferred Stock accrues dividends at the rate
of 10% annually, which may be paid in cash or additional shares of preferred or
common stock, at our option. To date all such dividends have been paid by
issuance of preferred stock, valued at $200 per share of preferred. We are not
required to pay and do not pay dividends with respect to the Series B Preferred
Stock.
Dilution. We have a large number of shares of common stock authorized in
comparison to the number of shares issued and outstanding. The board of
directors determines when and under what conditions and at what prices to issue
stock. In addition, a significant number of shares of common stock are reserved
for issuance upon exercise of purchase or conversion rights.
The issuance of any shares of common stock for any reason will result in
dilution of the equity and voting interests of existing shareholders.
Transfer Agent and Registrar. The transfer agent and registrar for our common
stock is American Stock Transfer & Trust Company, 40 Wall Street, New York City,
NY 10005.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of March 31, 2006, the Company owed to ADP Management, an entity owned and
controlled by two of the Company's officers and directors $22,509 under a line
of credit agreement. Outstanding amounts on the line of credit accrue interest
at 5.0% and are due in July 2006. During the six months ended March 31, 2006,
the net increase in the related party line of credit was $4,894. The net
increase consisted of net cash repayments during the quarter of $333,313 and net
increases of $338,207 related to a monthly management fee owed to ADP
Management, and expenses incurred by ADP Management that are reimbursable by the
Company. Mr. Derrick's and Mr. Dalton's respective salaries are paid to ADP
Management who intern pays Derrick and Dalton. If the Company is unable to pay
the management fee and the reimbursable expenses in cash, the related party line
of credit is increased for the amount owed to ADP Management.
The Company entered into a loan with an entity controlled by an employee of the
Company. The loan bears interest at 17%. An origination fee of $10,000 was added
to the principal balance owed under the note. Principal and interest were due
November 13, 2005. The first four months are interest only and the last three
months are interest and principal. This loan is secured by the stock and assets
of Volu-Sol Reagents Corporation, a wholly-owned subsidiary of RemoteMDx, Inc.
As of March 31, 2006, the balance, net of the debt discount, was $251,000. The
note has been extended for cash payments of $10,000 per month.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to present and has not been informed that any other person intends to
present any matter for action at the Annual Meeting other than as set forth
herein and in the Notice of Annual Meeting. If any other matter properly comes
before the meeting, it is intended that the holders of proxies will act in
accordance with their best judgment.
The accompanying proxy is solicited on behalf of the Board of
Directors. In addition to the solicitation of proxies by mail, certain of the
officers and employees of RemoteMDx, without extra compensation, may solicit
proxies personally or by telephone, and, if deemed necessary, third party
solicitation agents may be engaged by RemoteMDx to solicit proxies by means of
telephone, facsimile or telegram, although no such third party has been engaged
by RemoteMDx as of the date hereof.
26
ANNUAL REPORT
We will mail a copy of RemoteMDx's Annual Report on Form 10-KSB for the
year ended September 30, 2005, as filed with the Securities and Exchange
Commission, to each shareholder of record at May 19, 2006. The report on Form
10-KSB is not deemed a part of the proxy soliciting material.
FURTHER INFORMATION
Additional copies of the Annual Report on Form 10-KSB for the year
ended September 30, 2005 (including financial statements and financial
statements schedules) filed with the Securities and Exchange Commission may be
obtained without charge by writing to RemoteMDx, Inc., Attention: Investor
Relations, 150 West Civic Center Drive, Suite 400, Sandy, Utah, 84070. The
reports and other filings of RemoteMDx, including this Proxy Statement, also may
be obtained from the SEC's on-line database, located at www.sec.gov.
By Order of the Board of Directors
/s/ Michael G. Acton
----------------------
Michael G. Acton
Corporate Secretary
Date: May 19, 2006
--------------
27
List of Appendices
Appendix A: Articles of Amendment to the Company's Articles of Incorporation
to Increase the Number of Shares of Common Stock Authorized
Appendix B: Articles of Amendment to the Company's Articles of Incorporation
to Increase the Number of Shares of Preferred Stock Authorized
Appendix C: Articles of Amendment to the Company's Articles of Incorporation
to Increase the Number of Shares of Common Stock and the Number
of Shares of Preferred Stock Authorized
Appendix D: RemoteMDx, Inc., 2006 Equity Incentive Award Plan
Appendix E: Form of Proxy
28
APPENDIX A
PLEASE NOTE: IF THE SHAREHOLDERS APPROVE PROPOSAL NO. 3 AND DO NOT APPROVE
PROPOSAL NO. 4, THE COMPANY WILL FILE THE AMENDMENT AS SET FORTH IN APPENDIX A.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
REMOTEMDX, INC.
Pursuant to and in accordance with the provisions of Section
16-10a-1006 of the Utah Revised Business Corporation Act, as amended, (the
"Act"), the undersigned, RemoteMDx, Inc. (the "Corporation") hereby declares and
certifies as follows:
1. The name of the Corporation is RemoteMDx, Inc.
2. The text of the amendment to the Articles of Incorporation of the
Corporation adopted by Unanimous Written Consent of the Directors of the
Corporation and recommended to the shareholders of the Corporation is as
follows:
The first paragraph of "Article III, Capital Stock," is hereby amended
by substituting the following paragraph in its place:
"The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of Common Stock authorized to be issued is one
hundred seventy-five million (175,000,000) and the total number of
shares of Preferred Stock authorized to be issued is ten million
(10,000,000). The Common Stock and the Preferred Stock shall each have
a par value of $0.0001 per share."
3. The amendment specified above does not provide for an exchange,
reclassification, or cancellation of issued shares of the Corporation.
4. The amendment specified above was adopted as of __________________,
2006, by Unanimous Written Consent of the Board of Directors of the Corporation,
and in accordance with the requirements of the Act and the Bylaws of the
Corporation. The Board of Directors unanimously recommended approval of the
amendment by the shareholders of the Corporation. On July 19, 2006, such
amendment specified above was approved by a vote of shareholders owning a
majority of the issued and outstanding voting securities of the Corporation, who
also approved the adoption of the attached Amended and Restated Articles of
Incorporation as the articles of incorporation of the Corporation effective with
the filing thereof with the Utah Division of Corporations and Commercial Code.
Approval of the amendment and the Amended and Restated Articles of Incorporation
was as follows:
- ----------------------- --------------------- -------------------- --------------------- --------------------
Designation of Stock Outstanding Shares Total Votes Cast Votes Cast for Votes Cast Against
Amended and Amended and
Restated Articles Restated Articles
or Abstaining
- ----------------------- --------------------- -------------------- --------------------- --------------------
Common Stock
- ----------------------- --------------------- -------------------- --------------------- --------------------
Series B Preferred
Stock
- ----------------------- --------------------- -------------------- --------------------- --------------------
Series C Preferred
Stock
- ----------------------- --------------------- -------------------- --------------------- --------------------
Such votes cast were sufficient for approval of the Amendment and adoption of
the Amended and Restated Articles of Incorporation.
IN WITNESS WHEREOF, this Amendment to the Articles of Incorporation of
the Corporation is executed as of the ____ day of July, 2006.
RemoteMDx, Inc.,
a Utah corporation
By
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
1
APPENDIX B
PLEASE NOTE: IF THE SHAREHOLDERS APPROVE PROPOSAL NO. 4 AND DO NOT APPROVE
PROPOSAL NO. 3, THE COMPANY WILL FILE THE AMENDMENT AS SET FORTH IN APPENDIX B.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
REMOTEMDX, INC.
Pursuant to and in accordance with the provisions of Section
16-10a-1006 of the Utah Revised Business Corporation Act, as amended, (the
"Act"), the undersigned, RemoteMDx, Inc. (the "Corporation") hereby declares and
certifies as follows:
1. The name of the Corporation is RemoteMDx, Inc.
2. The text of the amendment to the Articles of Incorporation of the
Corporation adopted by Unanimous Written Consent of the Directors of the
Corporation and recommended to the shareholders of the Corporation is as
follows:
The first paragraph of "Article III, Capital Stock," is hereby amended
by substituting the following paragraph in its place:
"The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of Common Stock authorized to be issued is one
hundred million (100,000,000) and the total number of shares of
Preferred Stock authorized to be issued is twenty million (20,000,000).
The Common Stock and the Preferred Stock shall each have a par value of
$0.0001 per share."
3. The amendment specified above does not provide for an exchange,
reclassification, or cancellation of issued shares of the Corporation.
4. The amendment specified above was adopted as of __________________,
2006, by Unanimous Written Consent of the Board of Directors of the Corporation,
and in accordance with the requirements of the Act and the Bylaws of the
Corporation. The Board of Directors unanimously recommended approval of the
amendment by the shareholders of the Corporation. On July 19, 2006, such
amendment specified above was approved by a vote of shareholders owning a
majority of the issued and outstanding voting securities of the Corporation, who
also approved the adoption of the attached Amended and Restated Articles of
Incorporation as the articles of incorporation of the Corporation effective with
the filing thereof with the Utah Division of Corporations and Commercial Code.
Approval of the amendment and the Amended and Restated Articles of Incorporation
was as follows:
- ----------------------- --------------------- -------------------- --------------------- --------------------
Designation of Stock Outstanding Shares Total Votes Cast Votes Cast for Votes Cast Against
Amended and Amended and
Restated Articles Restated Articles
or Abstaining
- ----------------------- --------------------- -------------------- --------------------- --------------------
Common Stock
- ----------------------- --------------------- -------------------- --------------------- --------------------
Series B Preferred
Stock
- ----------------------- --------------------- -------------------- --------------------- --------------------
Series C Preferred
Stock
- ----------------------- --------------------- -------------------- --------------------- --------------------
Such votes cast were sufficient for approval of the Amendment and adoption of
the Amended and Restated Articles of Incorporation.
IN WITNESS WHEREOF, this Amendment to the Articles of Incorporation of
the Corporation is executed as of the ____ day of July, 2006.
RemoteMDx, Inc.,
a Utah corporation
By
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
1
APPENDIX C
PLEASE NOTE: IF THE SHAREHOLDERS APPROVE BOTH PROPOSAL NO. 3 AND PROPOSAL NO. 4,
THE COMPANY WILL FILE THE AMENDMENT AS SET FORTH IN APPENDIX C.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
REMOTEMDX, INC.
Pursuant to and in accordance with the provisions of Section
16-10a-1006 of the Utah Revised Business Corporation Act, as amended, (the
"Act"), the undersigned, RemoteMDx, Inc. (the "Corporation") hereby declares and
certifies as follows:
1. The name of the Corporation is RemoteMDx, Inc.
2. The text of the amendment to the Articles of Incorporation of the
Corporation adopted by Unanimous Written Consent of the Directors of the
Corporation and recommended to the shareholders of the Corporation is as
follows:
The first paragraph of "Article III, Capital Stock," is hereby amended
by substituting the following paragraph in its place:
"The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of Common Stock authorized to be issued is one
hundred seventy-five million (175,000,000) and the total number of
shares of Preferred Stock authorized to be issued is twenty million
(20,000,000). The Common Stock and the Preferred Stock shall each have
a par value of $0.0001 per share."
3. The amendment specified above does not provide for an exchange,
reclassification, or cancellation of issued shares of the Corporation.
4. The amendment specified above was adopted as of __________________,
2006, by Unanimous Written Consent of the Board of Directors of the Corporation,
and in accordance with the requirements of the Act and the Bylaws of the
Corporation. The Board of Directors unanimously recommended approval of the
amendment by the shareholders of the Corporation. On July 19, 2006, such
amendment specified above was approved by a vote of shareholders owning a
majority of the issued and outstanding voting securities of the Corporation, who
also approved the adoption of the attached Amended and Restated Articles of
Incorporation as the articles of incorporation of the Corporation effective with
the filing thereof with the Utah Division of Corporations and Commercial Code.
Approval of the amendment and the Amended and Restated Articles of Incorporation
was as follows:
- ----------------------- --------------------- -------------------- --------------------- --------------------
Designation of Stock Outstanding Shares Total Votes Cast Votes Cast for Votes Cast Against
Amended and Amended and
Restated Articles Restated Articles
or Abstaining
- ----------------------- --------------------- -------------------- --------------------- --------------------
Common Stock
- ----------------------- --------------------- -------------------- --------------------- --------------------
Series B Preferred
Stock
- ----------------------- --------------------- -------------------- --------------------- --------------------
Series C Preferred
Stock
- ----------------------- --------------------- -------------------- --------------------- --------------------
Such votes cast were sufficient for approval of the Amendment and adoption of
the Amended and Restated Articles of Incorporation.
IN WITNESS WHEREOF, this Amendment to the Articles of Incorporation of
the Corporation is executed as of the ____ day of July, 2006.
RemoteMDx, Inc.,
a Utah corporation
By
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
1
APPENDIX D
FORM OF REMOTE MDX, INC., 2006 EQUITY INCENTIVE AWARD PLAN
REMOTE MDX, INC.
2006 EQUITY INCENTIVE AWARD PLAN
ARTICLE 1
PURPOSE
The purposes of the RemoteMDx, Inc., 2006 Equity Incentive Award Plan
(the "Plan") are to:
(1) Closely associate the interests of management, employees,
directors and consultants of RemoteMDx, Inc., a Utah corporation (the
"Company"), with the shareholders of the Company by reinforcing the
relationship between participants' rewards and shareholder gains;
(2) Provide management and employees with an equity ownership in
the Company commensurate with Company performance, as reflected in
increased shareholder value;
(3) Maintain competitive compensation levels; and
(4) Provide an incentive to management and employees to remain in
continuing employment with the Company and to put forth maximum efforts
for the success of its business.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of members of the
Board, Employees and Consultants upon whose judgment, interest, and special
effort the successful conduct of the Company's operation is largely dependent.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise. The
singular pronoun shall include the plural where the context so indicates.
2.1 "Award" means an Option, a Restricted Stock award, a Stock
Appreciation Right award, a Performance Share award, a Performance Unit award, a
Dividend Equivalents award, a Stock Payment award, a Deferred Stock award, a
Restricted Stock Unit award, an Other Stock-Based Award, or a Performance-Based
Award granted to a Participant pursuant to the Plan.
2.2 "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
2.3 "Board" means the Board of Directors of the Company.
1
2.4 "Change in Control" means the occurrence of any of the following in
one or a series of related transactions: (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) under the Exchange Act) of more than thirty percent (30%) of the
voting rights or equity interests in the Company; (ii) a replacement, during a
24-month period, of more than one-half of the members of the Board that is not
approved by those individuals who are members of the Board on the date hereof
(or other directors previously approved by such individuals); (iii) consummation
of a merger or consolidation of the Company or any Subsidiary or a sale of more
than one-half of the assets of the Company in one or a series of related
transactions, unless following such transaction or series of transactions, the
holders of the Company's securities prior to the first such transaction continue
to hold at least one-half of the voting rights and equity interests of the
surviving entity or acquirer of such assets; (iv) a recapitalization,
reorganization or other transaction involving the Company or any Subsidiary that
constitutes or results in a transfer of more than one-half of the voting rights
or equity interests in the Company; or (v) consummation of a "Rule 13e-3
transaction" as defined in Rule 13e-3 under the Exchange Act with respect to the
Company.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Committee" means the committee of the Board described in Article
12.
2.7 "Consultant" means any consultant or adviser if:
(a) The consultant or adviser renders bona fide services to the
Company;
(b) The services rendered by the consultant or adviser are not in
connection with the offer or sale of securities in a capital-raising transaction
and do not directly or indirectly promote or maintain a market for the Company's
securities; and
(c) The consultant or adviser is a natural person who has contracted
directly with the Company to render such services.
2.8 "Covered Employee" means an Employee who is, or may be, as
determined by the Committee, a "covered employee" within the meaning of Section
162(m) of the Code.
2.9 "Deferred Stock" means a right to receive a specified number of
shares of Stock during specified time periods pursuant to Article 8.
2.10 "Disability" means that the Participant qualifies to receive
long-term disability payments under the Company's long-term disability insurance
program, as it may be amended from time to time.
2.11 "Dividend Equivalents" means a right granted to a Participant
pursuant to Article 8 to receive the equivalent value (in cash or Stock) of
dividends paid on Stock.
2.12 "Effective Date" shall have the meaning set forth in Section 13.1.
2.13 "Eligible Individual" means any person who is an Employee, a
Consultant or a member of the Board, as determined by the Committee.
2
2.14 "Employee" means any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company or any Subsidiary.
2.15 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.16 "Fair Market Value" means, as of any given date, the fair market
value of a share of Stock on the date determined by such methods or procedures
as may be established from time to time by the Committee. Unless otherwise
determined by the Committee, the Fair Market Value of a share of Stock as of any
date shall be (i) the mean between the highest and lowest selling price of a
share of Common Stock on the principal exchange on which shares of Common Stock
are then trading, if any, on such date, or if shares were not traded on such
date, then on the closest preceding date on which a trade occurred; or (ii) if
Common Stock is not traded on an exchange, the mean between the closing
representative bid and asked prices for the Common Stock on such date as
reported by NASDAQ or, if NASDAQ is not then in existence, by its successor
quotation system; or (iii) if Common Stock is not publicly traded, the Fair
Market Value of a share of Common Stock as established by the Committee acting
in good faith.
2.17 "Incentive Stock Option" means an Option that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
2.18 "Independent Director" means a member of the Board who is not an
Employee of the Company.
2.19 "Non-Employee Director" means a member of the Board who qualifies
as a "Non-Employee Director" as defined in Rule 16b-3(b)(3) of the Exchange Act,
or any successor definition adopted by the Board.
2.20 "Non-Qualified Stock Option" means an Option that is not intended
to be an Incentive Stock Option.
2.21 "Option" means a right granted to a Participant pursuant to
Article 5 of the Plan to purchase a specified number of shares of Stock at a
specified price during specified time periods. An Option may be either an
Incentive Stock Option or a Non-Qualified Stock Option.
2.22 "Other Stock-Based Award" means an Award granted or denominated in
Stock or units of Stock pursuant to Section 8.7 of the Plan.
2.23 "Participant" means any Eligible Individual who, as a member of
the Board or Employee or Consultant, has been granted an Award pursuant to the
Plan.
2.24 "Performance-Based Award" means an Award granted to selected
Covered Employees pursuant to Articles 6 and 8, but which is subject to the
terms and conditions set forth in Article 9. All Performance-Based Awards are
intended to qualify as Qualified Performance-Based Compensation.
2.25 "Performance Criteria" means the criteria that the Committee
selects for purposes of establishing the Performance Goal or Performance Goals
for a Participant for a Performance Period. The Performance Criteria that will
be used to establish Performance Goals are limited to the following: net
3
earnings (either before or after interest, taxes, depreciation and
amortization), economic value-added (as determined by the Committee), sales or
revenue, net income (either before or after taxes), operating earnings, cash
flow (including, but not limited to, operating cash flow and free cash flow),
cash flow return on capital, return on net assets, return on stockholders'
equity, return on assets, return on capital, stockholder returns, return on
sales, gross or net profit margin, productivity, expense, margins, operating
efficiency, customer satisfaction, working capital, earnings per share, price
per share of Stock, and market share, any of which may be measured either in
absolute terms or as compared to any incremental increase or as compared to
results of a peer group. The Committee shall, within the time prescribed by
Section 162(m) of the Code, define in an objective fashion the manner of
calculating the Performance Criteria it selects to use for such Performance
Period for such Participant.
2.26 "Performance Goals" means, for a Performance Period, the goals
established in writing by the Committee for the Performance Period based upon
the Performance Criteria. Depending on the Performance Criteria used to
establish such Performance Goals, the Performance Goals may be expressed in
terms of overall Company performance or the performance of a division, business
unit, or an individual. The Committee, in its discretion, may, adjust or modify
the calculation of Performance Goals for such Performance Period in order to
prevent the dilution or enlargement of the rights of Participants (a) in the
event of, or in anticipation of, any unusual or extraordinary corporate item,
transaction, event, or development, or (b) in recognition of, or in anticipation
of, any other unusual or nonrecurring events affecting the Company, or the
financial statements of the Company, or in response to, or in anticipation of,
changes in applicable laws, regulations, accounting principles, or business
conditions.
2.27 "Performance Period" means the one or more periods of time, which
may be of varying and overlapping durations, as the Committee may select, over
which the attainment of one or more Performance Goals will be measured for the
purpose of determining a Participant's right to, and the payment of, a
Performance-Based Award.
2.28 "Performance Share" means a right granted to a Participant
pursuant to Article 8, to receive Stock, the payment of which is contingent upon
achieving certain Performance Goals or other performance-based targets
established by the Committee.
2.29 "Performance Unit" means a right granted to a Participant pursuant
to Article 8, to receive units of value, including dollar value of shares of
Stock, the payment of which is contingent upon achieving certain Performance
Goals or other performance-based targets established by the Committee.
2.30 "Plan" means this RemoteMDx, Inc., 2006 Equity Incentive Award
Plan, as it may be amended from time to time.
2.31 "Qualified Performance-Based Compensation" means any compensation
that is intended to qualify as "qualified performance-based compensation" as
described in Section 162(m)(4)(C) of the Code.
2.32 "Restricted Stock" means Stock awarded to a Participant pursuant
to Article 6 that is subject to certain restrictions and may be subject to risk
of forfeiture.
4
2.33 "Restricted Stock Unit" means an Award granted pursuant to Section
8.6.
2.34 "Section 409A Award" shall have the meaning set forth in Section
15.1.
2.35 "Securities Act" shall mean the Securities Act of 1933, as
amended.
2.36 "Stock" means the common stock of the Company, par value $.001 per
share, and such other securities of the Company that may be substituted for
Stock pursuant to Article 11.
2.37 "Stock Appreciation Right" or "SAR" means a right granted pursuant
to Article 7 to receive a payment equal to the excess of the Fair Market Value
of a specified number of shares of Stock on the date the SAR is exercised over
the Fair Market Value on the date the SAR was granted as set forth in the
applicable Award Agreement.
2.38 "Stock Payment" means (a) a payment in the form of shares of
Stock, or (b) an option or other right to purchase shares of Stock, as part of
any bonus, deferred compensation or other arrangement, made in lieu of all or
any portion of the compensation, granted pursuant to Article 8.
2.39 "Subsidiary" means any "subsidiary corporation" as defined in
Section 424(f) of the Code and any applicable regulations promulgated thereunder
or any other entity of which a majority of the outstanding voting stock or
voting power is beneficially owned directly or indirectly by the Company.
ARTICLE 3
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares.
(a) Subject to Article 11 and Section 3.1(b), the aggregate number of
shares of Stock which may be issued, transferred or reserved for issuance
pursuant to Awards under the Plan shall be ten million (10,000,000) shares. In
order that the applicable regulations under the Code relating to Incentive Stock
Options be satisfied, the maximum number of shares of Stock that may be
delivered upon exercise of Incentive Stock Options shall be the number specified
in this Section 3.1(a). Shares of stock that may be issued upon exercise of
Options under the Plan shall be authorized and unissued shares of Common Stock,
par value $.001 per share, of the Company ("Common Stock"). In the absence of an
effective registration statement under the Securities Act of 1933 (the "Act"),
all Options granted and shares of Common Stock subject to their exercise will be
restricted as to subsequent resale or transfer, pursuant to the provisions of
Rule 144, promulgated under the Act.
(b) To the extent that an Award terminates, expires, or lapses for any
reason, any shares of Stock subject to the Award shall again be available for
the grant of an Award pursuant to the Plan. Additionally, any shares of Stock
tendered or withheld to satisfy the grant or exercise price or tax withholding
obligation pursuant to any Award shall again be available for the grant of an
Award pursuant to the Plan. To the extent permitted by applicable law or any
exchange rule, shares of Stock issued in assumption of, or in substitution for,
5
any outstanding awards of any entity acquired in any form of combination by the
Company or any Subsidiary shall not be counted against shares of Stock available
for grant pursuant to this Plan. The payment of Dividend Equivalents in
conjunction with any outstanding Awards shall not be counted against the shares
available for issuance under the Plan.
3.2 Stock Distributed. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
3.3 Limitation on Number of Shares Subject to Awards. Notwithstanding
any provision in the Plan to the contrary, and subject to Article 11, (a) the
maximum number of shares of Stock with respect to one or more Awards that may be
granted to any one Participant during a one-year period (measured from the date
of any grant) shall be 1,000,000, and (b) the maximum dollar value payable to
any one Participant during a one-year period with respect to awards of
Performance Units shall be $500,000.
ARTICLE 4
ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. Each Eligible Individual shall be eligible to be
granted one or more Awards pursuant to the Plan.
4.2 Participation. Subject to the provisions of the Plan, the Committee
may, from time to time, select from among all Eligible Individuals, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award. No Eligible Individual shall have any right to be granted an Award
pursuant to this Plan.
4.3 Foreign Participants. In order to assure the viability of Awards
granted to Participants employed in foreign countries, the Committee may provide
for such special terms as it may consider necessary or appropriate to
accommodate differences in local law, tax policy, or custom. Moreover, the
Committee may approve such supplements to, or amendments, restatements, or
alternative versions of, the Plan as it may consider necessary or appropriate
for such purposes without thereby affecting the terms of the Plan as in effect
for any other purpose; provided, however, that no such supplements, amendments,
restatements, or alternative versions shall increase the share limitations
contained in Sections 3.1 and 3.3 [see comment above regarding Section 3.3] of
the Plan.
ARTICLE 5
STOCK OPTIONS
5.1 General. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock subject to an
Option shall be not less than 100% of the Fair Market Value of a share of Stock
on the date of the grant.
6
(b) Time and Conditions of Exercise. Each Option shall be fully
exercisable at any time within the period beginning not earlier than six months
after the date of the option grant and ending not later than ten years after the
date of such grant (the "Option Term"), unless the Committee specifies
otherwise. In no event, however, shall the Option Term extend beyond ten years
after the date of the grant. No Option shall be exercisable after the expiration
of the Option Term. The Committee shall also determine the performance or other
conditions, if any, that must be satisfied before all or part of an Option may
be exercised.
(c) Payment The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including, without
limitation: (i) cash, (ii) promissory note bearing interest at no less than such
rate as shall preclude the imputation of interest under the Code, (iii) shares
of Stock having a Fair Market Value on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof, or (iv)
other property acceptable to the Committee (including through the delivery of a
notice that the Participant has placed a market sell order with a broker with
respect to shares of Stock then issuable upon exercise of the Option, and that
the broker has been directed to pay a sufficient portion of the net proceeds of
the sale to the Company in satisfaction of the Option exercise price; provided
that payment of such proceeds is then made to the Company upon settlement of
such sale), and the methods by which shares of Stock shall be delivered or
deemed to be delivered to Participants. Notwithstanding any other provision of
the Plan to the contrary, no Participant who is a member of the Board or an
"executive officer" of the Company within the meaning of Section 13(k) of the
Exchange Act shall be permitted to pay the exercise price of an Option by means
of a personal loan or other credit extended by the Company or in any other
method which would violate Section 13(k) of the Exchange Act.
(d) Evidence of Grant. All Options shall be evidenced by a written
Award Agreement between the Company and the Participant. The Award Agreement
shall include the number of shares of Common Stock subject to the Option, the
exercise date, the Option Term, and such additional provisions as may be
specified by the Committee.
5.2 Incentive Stock Options. The terms of any Incentive Stock Options
granted pursuant to the Plan must comply with the conditions and limitations
contained Section 13.2 and this Section 5.2.
(a) Eligibility. The Committee may grant one or more Incentive Stock
Options to employees of the Company or any "subsidiary corporation" thereof
(within the meaning of Section 424(f) of the Code and the applicable regulations
promulgated thereunder). The date an Incentive Stock Option is granted shall
mean the date selected by the Committee as of which the Committee shall allot a
specific number of shares to a participant pursuant to the Plan.
(b) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the time the Option is granted) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by a Participant
in any calendar year may not exceed $100,000 or such other limitation as imposed
by Section 422(d) of the Code, or any successor provision. Multiple Incentive
Stock Options may be granted to an Optionee in any calendar year.
7
(c) Ten Percent Owners. The Committee may determine to grant an
Incentive Stock Option to an employee who is also an individual who owns, at the
date of grant, directly or indirectly according to the stock ownership
attribution rules of Section 424(d) of the Code, stock possessing more than ten
percent of the total combined voting power of all classes of Stock of the
Company. However, the exercise price of such Option granted shall not be less
than 110% of Fair Market Value on the date of grant. Furthermore, the Option may
be exercisable for no more than five years from the date of grant.
(d) Notice of Disposition. The Participant shall give the Company
prompt notice of any disposition of shares of Stock acquired by exercise of an
Incentive Stock Option within (i) two years from the date of grant of such
Incentive Stock Option or (ii) one year after the transfer of such shares of
Stock to the Participant. In order to obtain the favorable tax treatment
available for Incentive Stock Options under Section 422 of the Code, the
Optionee is prohibited from the sale, exchange, transfer, pledge, hypothecation,
gift or other disposition of the shares of Common Stock underlying the Incentive
Stock Options until the later of either two (2) years after the date of grant of
the Incentive Stock Option, or one (1) year after the transfer to the Optionee
of such underlying Common Stock after the Optionee's exercise of such Incentive
Stock Option. Should Optionee choose to make a premature disposition of such
underlying Common Stock contrary to such restrictions, the Options related to
such Common Stock shall be treated as Non-qualified Stock Options pursuant to
the terms of the Plan.
(e) Right to Exercise. During a Participant's lifetime, an Incentive
Stock Option may be exercised only by the Participant.
5.3 Substitution of Stock Appreciation Rights. The Committee may
provide in the Award Agreement evidencing the grant of an Option that the
Committee, in its sole discretion, shall have the right to substitute a Stock
Appreciation Right for such Option at any time prior to or upon exercise of such
Option, subject to the provisions of Section 7.2 hereof; provided that such
Stock Appreciation Right shall be exercisable with respect to the same number of
shares of Stock for which such substituted Option would have been exercisable.
5.4 Paperless Exercise. In the event that the Company establishes, for
itself or using the services of a third party, an automated system for the
exercise of Options, such as a system using an internet website or interactive
voice response, then the paperless exercise of Options by a Participant may be
permitted through the use of such an automated system.
5.5 Granting of Options to Independent Directors. The Board may from
time to time, in its sole discretion, and subject to the limitations of the
Plan:
(a) Select from among the Independent Directors (including Independent
Directors who have previously been granted Options under the Plan) such of them
as in its opinion should be granted Options;
(b) Subject to Section 3.3, determine the number of shares of Stock
that may be purchased upon exercise of the Options granted to such selected
Independent Directors; and
(c) Subject to the provisions of this Article 5, determine the terms
and conditions of such Options, consistent with the Plan.
8
Options granted to Independent Directors shall be Non-Qualified Stock
Options.
ARTICLE 6
RESTRICTED STOCK AWARDS
6.1 Grant of Restricted Stock. The Committee is authorized to make
Awards of Restricted Stock to any Participant selected by the Committee in such
amounts and subject to such terms and conditions as determined by the Committee.
All Awards of Restricted Stock shall be evidenced by a written Restricted Stock
Award Agreement.
6.2 Issuance and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times,
pursuant to such circumstances, in such installments, or otherwise, as the
Committee determines at the time of the grant of the Award or thereafter.
6.3 Forfeiture. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of employment or
service during the applicable restriction period, Restricted Stock that is at
that time subject to restrictions shall be forfeited; provided, however, that
the Committee may (a) provide in any Restricted Stock Award Agreement that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from specified
causes, and (b) in other cases waive in whole or in part restrictions or
forfeiture conditions relating to Restricted Stock.
6.4 Certificates for Restricted Stock. Restricted Stock granted
pursuant to the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing shares of Restricted Stock are
registered in the name of the Participant, certificates must bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, and the Company may, at its discretion, retain physical
possession of the certificate until such time as all applicable restrictions
lapse.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may
be granted to any Participant selected by the Committee. A Stock Appreciation
Right may be granted (a) in connection and simultaneously with the grant of an
Option, (b) with respect to a previously granted Option, or (c) independent of
an Option. A Stock Appreciation Right shall be subject to such terms and
conditions not inconsistent with the Plan as the Committee shall impose and
shall be evidenced by an Award Agreement.
7.2 Coupled Stock Appreciation Rights.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
9
related Option is exercisable, provided, however, that the exercise price for
any CSAR shall not be less than 100% of the Fair Market Value on the date of
grant; and provided, further, that, the Committee in its sole and absolute
discretion may provide that the CSAR may be exercised subsequent to a
termination of employment or service, as applicable, or following a Change in
Control of the Company, or because of the Participant's retirement, death or
disability, or otherwise.
(b) A CSAR may be granted to a Participant for no more than the number
of shares subject to the simultaneously or previously granted Option to which it
is coupled.
(c) A CSAR shall entitle the Participant (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company the
unexercised portion of the Option to which the CSAR relates (to the extent then
exercisable pursuant to its terms) and to receive from the Company in exchange
therefor an amount determined by multiplying the difference obtained by
subtracting the Option exercise price from the Fair Market Value of a share of
Stock on the date of exercise of the CSAR by the number of shares of Stock with
respect to which the CSAR shall have been exercised, subject to any limitations
the Committee may impose.
7.3 Independent Stock Appreciation Rights.
(a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated
to any Option and shall have a term set by the Committee. An ISAR shall be
exercisable in such installments as the Committee may determine. An ISAR shall
cover such number of shares of Stock as the Committee may determine. The
exercise price per share of Stock subject to each ISAR shall be set by the
Committee; provided, however, that the exercise price for any ISAR shall not be
less than 100% of the Fair Market Value on the date of grant; and provided,
further, that, the Committee in its sole and absolute discretion may provide
that the ISAR may be exercised subsequent to a termination of employment or
service, as applicable, or following a Change in Control of the Company, or
because of the Participant's retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Participant (or other person entitled to
exercise the ISAR pursuant to the Plan) to exercise all or a specified portion
of the ISAR (to the extent then exercisable pursuant to its terms) and to
receive from the Company an amount determined by multiplying the difference
obtained by subtracting the exercise price per share of the ISAR from the Fair
Market Value of a share of Stock on the date of exercise of the ISAR by the
number of shares of Stock with respect to which the ISAR shall have been
exercised, subject to any limitations the Committee may impose.
7.4 Payment and Limitations on Exercise.
(a) Subject to Section 7.4(b) and (c), payment of the amounts
determined under Sections 7.2(c) and 7.3(b) above shall be in cash, in Stock
(based on its Fair Market Value as of the date the Stock Appreciation Right is
exercised) or a combination of both, as determined by the Committee.
(b) To the extent payment for a Stock Appreciation Right is to be made
in cash, the Award Agreement shall, to the extent necessary to comply with the
requirements of Section 409A of the Code, specify the date of payment, which may
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be different than the date of exercise of the Stock Appreciation Right. If the
date of payment for a Stock Appreciation Right is later than the date of
exercise, the Award Agreement may specify that the Participant be entitled to
earnings on such amount until paid.
(c) To the extent any payment under Section 7.2(c) or 7.3(b) is
effected in Stock it shall be made subject to satisfaction of any applicable
provisions of Article 5 above pertaining to Options.
ARTICLE 8
OTHER TYPES OF AWARDS
8.1 Performance Share Awards. Any Participant selected by the Committee
may be granted one or more Performance Share awards which shall be denominated
in a number of shares of Stock and which may be linked to any one or more of the
Performance Criteria or other specific performance criteria determined
appropriate by the Committee, in each case on a specified date or dates or over
any period or periods determined by the Committee. In making such
determinations, the Committee shall consider (among such other factors as it
deems relevant in light of the specific type of award) the contributions,
responsibilities and other compensation of the particular Participant.
8.2 Performance Units. Any Participant selected by the Committee may be
granted one or more Performance Unit awards which shall be denominated in units
of value, including dollar value of shares of Stock, and which may be linked to
any one or more of the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, in each case on a specified
date or dates or over any period or periods determined by the Committee. In
making such determinations, the Committee shall consider (among such other
factors as it deems relevant in light of the specific type of award) the
contributions, responsibilities and other compensation of the particular
Participant.
8.3 Dividend Equivalents.
(a) Any Participant selected by the Committee may be granted Dividend
Equivalents based on the dividends declared on the shares of Stock that are
subject to any Award, to be credited as of dividend payment dates, during the
period between the date the Award is granted and the date the Award is
exercised, vests or expires, as determined by the Committee. Such Dividend
Equivalents shall be converted to cash or additional shares of Stock by such
formula and at such time and subject to such limitations as may be determined by
the Committee. Note that paying dividend equivalents on exercise of Options or
SARs may result in the treatment of the Option or SAR as deferred compensation
under IRC 409A.
(b) Dividend Equivalents granted with respect to Options or SARs that
are intended to be Qualified Performance-Based Compensation shall be payable,
with respect to pre-exercise periods, regardless of whether such Option or SAR
is subsequently exercised.
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8.4 Stock Payments. Any Participant selected by the Committee may
receive Stock Payments in the manner determined from time to time by the
Committee. The number of shares shall be determined by the Committee and may be
based upon the Performance Criteria or other specific performance criteria
determined appropriate by the Committee, determined on the date such Stock
Payment is made or on any date thereafter.
8.5 Deferred Stock. Any Participant selected by the Committee may be
granted an award of Deferred Stock in the manner determined from time to time by
the Committee. The number of shares of Deferred Stock shall be determined by the
Committee and may be linked to the Performance Criteria or other specific
performance criteria determined to be appropriate by the Committee, in each case
on a specified date or dates or over any period or periods determined by the
Committee. Stock underlying a Deferred Stock award will not be issued until the
Deferred Stock award has vested, pursuant to a vesting schedule or performance
criteria set by the Committee. Unless otherwise provided by the Committee, a
Participant awarded Deferred Stock shall have no rights as a Company stockholder
with respect to such Deferred Stock until such time as the Deferred Stock Award
has vested and the Stock underlying the Deferred Stock Award has been issued.
8.6 Restricted Stock Units. The Committee is authorized to make Awards
of Restricted Stock Units to any Participant selected by the Committee in such
amounts and subject to such terms and conditions as determined by the Committee.
At the time of grant, the Committee shall specify the date or dates on which the
Restricted Stock Units shall become fully vested and nonforfeitable, and may
specify such conditions to vesting as it deems appropriate. At the time of
grant, the Committee shall specify the maturity date applicable to each grant of
Restricted Stock Units which shall be no earlier than the vesting date or dates
of the Award and may be determined at the election of the grantee. On the
maturity date, the Company shall, subject to Section 10.5(b), transfer to the
Participant one unrestricted, fully transferable share of Stock for each
Restricted Stock Unit scheduled to be paid out on such date and not previously
forfeited. The Committee shall specify the purchase price, if any, to be paid by
the grantee to the Company for such shares of Stock.
8.7 Other Stock-Based Awards. Any Participant selected by the Committee
may be granted one or more Awards that provide Participants with shares of Stock
or the right to purchase shares of Stock or that have a value derived from the
value of, or an exercise or conversion privilege at a price related to, or that
are otherwise payable in shares of Stock and which may be linked to any one or
more of the Performance Criteria or other specific performance criteria
determined appropriate by the Committee, in each case on a specified date or
dates or over any period or periods determined by the Committee. In making such
determinations, the Committee shall consider (among such other factors as it
deems relevant in light of the specific type of Award) the contributions,
responsibilities and other compensation of the particular Participant.
8.8 Term. Except as otherwise provided herein, the term of any Award of
Performance Shares, Performance Units, Dividend Equivalents, Stock Payments,
Deferred Stock, Restricted Stock Units or Other Stock-Based Award shall be set
by the Committee in its discretion.
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8.9 Exercise or Purchase Price. The Committee may establish the
exercise or purchase price, if any, of any Award of Performance Shares,
Performance Units, Deferred Stock, Stock Payments, Restricted Stock Units or
Other Stock-Based Award; provided, however, that such price shall not be less
than the par value of a share of Stock on the date of grant, unless otherwise
permitted by applicable state law.
8.10 Exercise Upon Termination of Employment or Service. An Award of
Performance Shares, Performance Units, Dividend Equivalents, Deferred Stock,
Stock Payments, Restricted Stock Units and Other Stock-Based Award shall only be
exercisable or payable while the Participant is an Employee, a Consultant, or a
member of the Board, as applicable; provided, however, that the Committee in its
sole and absolute discretion may provide that an Award of Performance Shares,
Performance Units, Dividend Equivalents, Stock Payments, Deferred Stock,
Restricted Stock Units or Other Stock-Based Award may be exercised or paid
subsequent to a termination of employment or service, as applicable, or
following a Change in Control of the Company, or because of the Participant's
retirement, death or disability, or otherwise; provided, however, that any such
provision with respect to Performance Shares or Performance Units shall be
subject to the requirements of Section 162(m) of the Code that apply to
Qualified Performance-Based Compensation.
8.11 Form of Payment. Payments with respect to any Awards granted under
this Article 8 shall be made in cash, in Stock or a combination of both, as
determined by the Committee.
8.12 Award Agreement. All Awards under this Article 8 shall be subject
to such additional terms and conditions as determined by the Committee and shall
be evidenced by a written Award Agreement.
ARTICLE 9
PERFORMANCE-BASED AWARDS
9.1 Purpose. The purpose of this Article 9 is to provide the Committee
the ability to qualify Awards other than Options and SARs and that are granted
pursuant to Articles 6 and 8 as Qualified Performance-Based Compensation. If the
Committee, in its discretion, decides to grant a Performance-Based Award to a
Covered Employee, the provisions of this Article 9 shall control over any
contrary provision contained in Articles 6 or 8; provided, however, that the
Committee may in its discretion grant Awards to Covered Employees that are based
on Performance Criteria or Performance Goals but that do not satisfy the
requirements of this Article 9.
9.2 Applicability. This Article 9 shall apply only to those Covered
Employees selected by the Committee to receive Performance-Based Awards. The
designation of a Covered Employee as a Participant for a Performance Period
shall not in any manner entitle the Participant to receive an Award for the
period. Moreover, designation of a Covered Employee as a Participant for a
particular Performance Period shall not require designation of such Covered
Employee as a Participant in any subsequent Performance Period and designation
of one Covered Employee as a Participant shall not require designation of any
other Covered Employees as a Participant in such period or in any other period.
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9.3 Procedures with Respect to Performance-Based Awards. To the extent
necessary to comply with the Qualified Performance-Based Compensation
requirements of Section 162(m)(4)(C) of the Code, with respect to any Award
granted under Articles 6 and 8 which may be granted to one or more Covered
Employees, no later than ninety (90) days following the commencement of any
fiscal year in question or any other designated fiscal period or period of
service (or such other time as may be required or permitted by Section 162(m) of
the Code), the Committee shall, in writing, (a) designate one or more Covered
Employees, (b) select the Performance Criteria applicable to the Performance
Period, (c) establish the Performance Goals, and amounts of such Awards, as
applicable, which may be earned for such Performance Period, and (d) specify the
relationship between Performance Criteria and the Performance Goals and the
amounts of such Awards, as applicable, to be earned by each Covered Employee for
such Performance Period. Following the completion of each Performance Period,
the Committee shall certify in writing whether the applicable Performance Goals
have been achieved for such Performance Period. In determining the amount earned
by a Covered Employee, the Committee shall have the right to reduce or eliminate
(but not to increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the Performance Period.
9.4 Payment of Performance-Based Awards. Unless otherwise provided in
the applicable Award Agreement, a Participant must be employed by the Company or
a Subsidiary on the day a Performance-Based Award for such Performance Period is
paid to the Participant. Furthermore, a Participant shall be eligible to receive
payment pursuant to a Performance-Based Award for a Performance Period only if
the Performance Goals for such period are achieved.
9.5 Additional Limitations. Notwithstanding any other provision of the
Plan, any Award which is granted to a Covered Employee and is intended to
constitute Qualified Performance-Based Compensation shall be subject to any
additional limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings issued
thereunder that are requirements for qualification as qualified
performance-based compensation as described in Section 162(m)(4)(C) of the Code,
and the Plan shall be deemed amended to the extent necessary to conform to such
requirements.
ARTICLE 10
PROVISIONS APPLICABLE TO AWARDS
10.1 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan
may, in the discretion of the Committee, be granted either alone, in addition
to, or in tandem with, any other Award granted pursuant to the Plan. Awards
granted in addition to or in tandem with other Awards may be granted either at
the same time as or at a different time from the grant of such other Awards.
10.2 Award Agreement. Awards under the Plan shall be evidenced by
written Award Agreements that shall set forth the terms, conditions, limitations
14
and award type for each Award which may include the term of an Award, the
provisions applicable in the event the Participant's employment or service
terminates, and the Company's authority to unilaterally or bilaterally amend,
modify, suspend, cancel or rescind an Award.
10.3 Limits on Transfer. Except as otherwise provided by the Committee,
no right or interest of a Participant in any Award may be pledged, encumbered,
or hypothecated to or in favor of any party other than the Company or a
Subsidiary, or shall be subject to any lien, obligation, or liability of such
Participant to any other party other than the Company or a Subsidiary. Except as
otherwise provided by the Committee, during the life of the recipient, such
award shall be exercisable only by such person or by such person's guardian or
legal representative.
10.4 Death of Optionee.
(a) Options. Notwithstanding Section 10.3, upon the death of the
Optionee while either in the Company's employ or within six months after
termination of Optionee's employment, any rights to the extent exercisable on
the date of death may be exercised by the Optionee's estate, or by a person who
acquires the right to exercise such Option by bequest or inheritance or by
reason of the death of the Optionee, provided that such exercise occurs within
both the remaining effective term of the Option and one year after the
Optionee's death. A beneficiary, legal guardian, legal representative, or other
person claiming any rights pursuant to the Plan is subject to all terms and
conditions of the Plan and any Award Agreement applicable to the Participant,
except to the extent the Plan and Award Agreement otherwise provide, and to any
additional restrictions deemed necessary or appropriate by the Committee. If no
beneficiary has been designated or survives the Participant, payment shall be
made to the person entitled thereto pursuant to the Participant's will or the
laws of descent and distribution. Subject to the foregoing, a beneficiary
designation may be changed or revoked by a Participant at any time provided the
change or revocation is filed with the Committee.
(b) Incentive Stock Options. Upon the death of the Optionee while in
the Company's employ or within not more than 90 days after termination of
Optionee's employment, any Incentive Stock Option exercisable on the date of
death may be exercised by the Optionee's estate or by a person who acquires the
right to exercise such Incentive Stock Option by bequest or inheritance or by
reason of the death of the Optionee, provided that such exercise occurs within
both the remaining Option Term of the Incentive Stock Option and one year after
the Optionee's death.
10.5 Retirement or Disability.
(a) Options. Upon termination of the Optionee's employment by reason of
retirement or permanent disability, the Optionee may, within 36 months from the
date of termination, exercise any Options to the extent such Options are
exercisable during such 36-month period.
(b) Incentive Stock Options. Upon termination of the Optionee's
employment by reason of retirement or permanent disability, the Optionee may,
within 36 months from the date of termination, exercise any Incentive Stock
15
Options to the extent such Incentive Stock Options are exercisable during such
36-month period. However, the tax treatment available pursuant to Section 422 of
the Code will not be available to an Optionee who exercises any Incentive Stock
Option more than (i) 12 months after the date of termination of employment due
to permanent disability, or (ii) three months after the date of termination of
employment due to retirement.
10.6 Termination for Other Reasons. Except as provided herein or except
as otherwise determined by the Committee, all Options shall terminate ninety
(90) days after the termination of the Optionee's employment with the Company.
10.7 Leaves of Absence and Performance Targets. The Committee shall be
entitled to make such rules, regulations and determinations as it deems
appropriate under the Plan in respect of any leave of absence taken by the
recipient of any award. Without limiting the generality of the foregoing, the
Committee shall be entitled to determine (i) whether or not any such leave of
absence shall constitute a termination of employment within the meaning of the
Plan and (ii) the impact, if any, of such leave of absence on awards under the
Plan theretofore made to any recipient who takes such leave of absence. The
Committee shall also be entitled to make such determination of performance
targets, if any, as it deems appropriate.
10.8 Newly Eligible Employees. The Committee shall be entitled to make
such rules, regulations, determinations and awards as it deems appropriate in
respect of any employee who becomes eligible to participate in the Plan or any
portion thereof, after the commencement of an award or incentive period.
10.9 Stock Certificates; Book Entry Procedures. As soon as practicable
after receipt of payment, the Company shall deliver to the Optionee a
certificate(s) for such shares of Common Stock. Upon receipt of such
certificate(s), the Optionee shall become a shareholder of the Company with
respect to Common Stock represented by share certificates so issued and as such
shall be fully entitled to receive dividends, to vote and to exercise all other
rights of a shareholder. All Stock certificates delivered pursuant to the Plan
are subject to any stop-transfer orders and other restrictions as the Committee
deems necessary or advisable to comply with federal, state, or foreign
jurisdiction, securities or other laws, rules and regulations and the rules of
any national securities exchange or automated quotation system on which the
Stock is listed, quoted, or traded. The Committee may place legends on any Stock
certificate to reference restrictions applicable to the Stock. In addition to
the terms and conditions provided herein, the Board may require that a
Participant make such reasonable covenants, agreements, and representations as
the Board, in its discretion, deems advisable in order to comply with any such
laws, regulations, or requirements. The Committee shall have the right to
require any Participant to comply with any timing or other restrictions with
respect to the settlement or exercise of any Award, including a window-period
limitation, as may be imposed in the discretion of the Committee.
16
ARTICLE 11
CHANGES IN CAPITAL STRUCTURE
11.1 Adjustments.
(a) In the event of any stock dividend, stock split, combination or
exchange of shares, merger, consolidation, spin-off, recapitalization,
distribution of Company assets to stockholders (other than normal cash
dividends), or any other corporate event affecting the Stock or the share price
of the Stock, the Committee may make such proportionate adjustments, if any, as
the Committee in its discretion may deem appropriate to reflect such changes
with respect to (i) the aggregate number and type of shares that may be issued
under the Plan (including, but not limited to, adjustments of the limitations in
Sections 3.1 and 3.3); (ii) the terms and conditions of any outstanding Awards
(including, without limitation, any applicable performance targets or criteria
with respect thereto); and (iii) the grant or exercise price per share for any
outstanding Awards under the Plan. Any adjustment affecting an Award intended as
Qualified Performance-Based Compensation shall be made consistent with the
requirements of Section 162(m) of the Code.
(b) In the event of any transaction or event described in Section
11.1(a) or any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of the
Company or any affiliate (including without limitation any Change in Control),
or of changes in applicable laws, regulations or accounting principles, and
whenever the Committee determines that action is appropriate in order to prevent
the dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to any Award under the Plan, to
facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles, the Committee, in its sole discretion and on
such terms and conditions as it deems appropriate, either by amendment of the
terms of any outstanding Awards or by action taken prior to the occurrence of
such transaction or event and either automatically or upon the Participant's
request, is hereby authorized to take any one or more of the following actions:
(i) To provide for either (A) termination of any such Award in
exchange for an amount of cash and/or other property, if any, equal to the
amount that would have been attained upon the exercise of such Award or
realization of the Participant's rights (and, for the avoidance of doubt, if as
of the date of the occurrence of the transaction or event described in this
Section 11.1(b) the Committee determines in good faith that no amount would have
been attained upon the exercise of such Award or realization of the
Participant's rights, then such Award may be terminated by the Company without
payment) or (B) the replacement of such Award with other rights or property
selected by the Committee in its sole discretion;
(ii) To provide that such Award be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be substituted
for by similar options, rights or awards covering the stock of the successor or
survivor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and
17
(iii) To make adjustments in the number and type of shares of
Stock (or other securities or property) subject to outstanding Awards, and in
the number and kind of outstanding Restricted Stock or Deferred Stock and/or in
the terms and conditions of (including the grant or exercise price), and the
criteria included in, outstanding options, rights and awards and options, rights
and awards which may be granted in the future;
(iv) To provide that such Award shall be exercisable or payable or
fully vested with respect to all shares covered thereby, notwithstanding
anything to the contrary in the Plan or the applicable Award Agreement; and
(v) To provide that the Award cannot vest, be exercised or become
payable after such event.
11.2 Outstanding Awards - Other Changes. In the event of any other
change in the capitalization of the Company or corporate change other than those
specifically referred to in this Article 11, the Committee may, in its absolute
discretion, make such adjustments in the number and kind of shares or other
securities subject to Awards outstanding on the date on which such change occurs
and in the per share grant or exercise price of each Award as the Committee may
consider appropriate to prevent dilution or enlargement of rights.
11.3 No Other Rights. Except as expressly provided in the Plan, no
Participant shall have any rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any dividend, any increase or
decrease in the number of shares of stock of any class or any dissolution,
liquidation, merger, or consolidation of the Company or any other corporation.
Except as expressly provided in the Plan or pursuant to action of the Committee
under the Plan, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number of shares
of Stock subject to an Award or the grant or exercise price of any Award.
ARTICLE 12
ADMINISTRATION
12.1 Committee. Pursuant to Utah Code Annotated Section 16-10a-624, and
consistent with the provisions of Section 12.3 below, the Board may appoint a
Committee consisting of two or more Non-Employee Directors to administer the
Plan, as constituted from time to time.
12.2 Committee Appointee Duration. Once appointed, the Committee shall
continue to serve until otherwise directed by the Board. From time to time, the
Board may increase or change the size of the Committee, and appoint new members
thereof, remove members (with or without cause) and appoint new members in
substitution, fill vacancies, however caused, or remove all members of the
Committee; provided, however, that at no time shall any person administer the
Plan who is not otherwise a Non-Employee Director.
12.3 Action by the Board. Unless and until the Board delegates
administration of the Plan to a Committee as set forth below, the Plan shall be
administered by the full Board, and for such purposes the term "Committee" as
used in this Plan shall be deemed to refer to the Board. The Board, at its
discretion or as otherwise necessary to comply with the requirements of Section
18
162(m) of the Code, Rule 16b-3 promulgated under the Exchange Act or to the
extent required by any other applicable rule or regulation, shall delegate
administration of the Plan to a Committee. The Committee shall consist solely of
two or more members of the Board each of whom is both an "outside director,"
within the meaning of Section 162(m) of the Code and any other applicable rules
and regulations, and a Non-Employee Director. Notwithstanding the foregoing: (a)
the full Board, acting by a majority of its members in office, shall conduct the
general administration of the Plan with respect to all Awards granted to
Independent Directors and, for purposes of such Awards, the term "Committee" as
used in this Plan shall be deemed to refer to the Board and (b) the Committee
may delegate its authority hereunder to the extent permitted by Section 12.5.
Appointment of Committee members shall be effective upon acceptance of
appointment. The Board may abolish the Committee at any time and revest in the
Board the administration of the Plan. Committee members may resign at any time
by delivering written notice to the Board. Vacancies in the Committee may only
be filled by the Board.
12.4 Action by the Committee. A majority of the Committee shall
constitute a quorum. The acts of a majority of the members present at any
meeting at which a quorum is present, and acts approved in writing by a majority
of the Committee in lieu of a meeting, shall be deemed the acts of the
Committee. Each member of the Committee is entitled to, in good faith, rely or
act upon any report or other information furnished to that member by any officer
or other employee of the Company or any Subsidiary, the Company's independent
certified public accountants, or any executive compensation consultant or other
professional retained by the Company to assist in the administration of the
Plan.
12.5 Authority of Committee. Subject to any specific designation in the
Plan, the Committee has the exclusive power, authority and discretion to:
(a) Designate Participants to receive Awards;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted pursuant to
the Plan, including, but not limited to, the exercise price, grant price, or
purchase price, any reload provision, any restrictions or limitations on the
Award, any schedule for lapse of forfeiture restrictions or restrictions on the
exercisability of an Award, and accelerations or waivers thereof, any provisions
related to non-competition and recapture of gain on an Award, based in each case
on such considerations as the Committee in its sole discretion determines;
(e) Determine whether, to what extent, and pursuant to what
circumstances an Award may be settled in, or the exercise price of an Award may
be paid in, cash, Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
19
(g) Decide all other matters that must be determined in connection with
an Award;
(h) Establish, adopt, or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan;
(i) Interpret the terms of, and any matter arising pursuant to, the
Plan or any Award Agreement; and
(j) Make all other decisions and determinations that may be required
pursuant to the Plan or as the Committee deems necessary or advisable to
administer the Plan.
The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable.
12.6 Decisions Binding. The Committee's interpretation of the Plan, any
Awards granted pursuant to the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
12.7 Delegation of Authority. To the extent permitted by applicable
law, the Committee may from time to time delegate to a committee of one or more
members of the Committee or the Board or one or more officers of the Company the
authority to grant or amend Awards to Participants other than (a) senior
executives of the Company who are subject to Section 16 of the Exchange Act, (b)
Covered Employees, or (c) officers of the Company (or members of the Board) to
whom authority to grant or amend Awards has been delegated hereunder. Any
delegation hereunder shall be subject to the restrictions and limits that the
Committee specifies at the time of such delegation, and the Committee may at any
time rescind the authority so delegated or appoint a new delegatee. At all
times, the delegatee appointed under this Section 12.5 shall serve in such
capacity at the pleasure of the Committee.
12.8 Committee Administration. One member of the Committee shall be
elected by the Board as chairman. The Committee shall hold its meetings at such
times and places as it shall deem advisable. The Committee may appoint a
secretary and make such rules and regulations for the conduct of its business as
it shall deem advisable, and shall keep minutes of its meetings.
12.9 Liability. No member of the Board or Committee shall be liable for
any action taken or decision or determination made in good faith with respect to
any Option, the Plan, or any award thereunder.
ARTICLE 13
EFFECTIVE AND EXPIRATION DATE
13.1 Effective Date. The Plan is effective as of the date the Plan is
approved by a majority of the Board (the "Effective Date"). The Plan, however,
shall be subject to approval by the stockholders. The Plan will be deemed to be
approved by the stockholders if it receives the affirmative vote of the holders
of a majority of the shares of stock of the Company present or represented and
entitled to vote at a meeting duly held in accordance with the applicable
20
provisions of the Company's Bylaws, but, in any event, held no later than 12
months after adoption on the Effective Date.
13.2 Expiration Date. The Plan will expire on, and no Incentive Stock
Option or other Award may be granted pursuant to the Plan after, the tenth
anniversary of the Effective Date. Any Awards that are outstanding on the tenth
anniversary of the Effective Date shall remain in force according to the terms
of the Plan and the applicable Award Agreement.
ARTICLE 14
AMENDMENT, MODIFICATION, AND TERMINATION
14.1 Amendment, Modification, And Termination. The Committee may at any
time and from time to time terminate or modify or amend the Plan in any respect,
except that (a) to the extent necessary and desirable to comply with any
applicable law, regulation, or stock exchange rule, the Company shall obtain
shareholder approval of any Plan amendment or any modification of any Options
that would be deemed a re-pricing under applicable rules, in such a manner and
to such a degree as required, and (b) without shareholder approval the Committee
may not (i) increase the maximum number of shares of Common Stock which may be
issued under the Plan (other than increases pursuant to Section 4.10), (ii)
extend the period during which any Award may be granted or exercised, (iii)
amend to the Plan to permit the Committee to grant Options with an exercise
price that is below Fair Market Value on the date of grant, or (iv) extend the
term of the Plan. The termination or any modification or amendment of the Plan,
except as provided in subsection (a), shall not without the consent of a
participant, affect his or her other rights under an award previously granted to
him or her.
14.2 Awards Previously Granted. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted pursuant to the Plan without the prior written consent of the
Participant.
ARTICLE 15
COMPLIANCE WITH SECTION 409A OF THE CODE
15.1 Awards subject to Code Section 409A. Any Award that constitutes,
or provides for, a deferral of compensation subject to Section 409A of the Code
(a "Section 409A Award") shall satisfy the requirements of Section 409A of the
Code and this Article 15, to the extent applicable. The Award Agreement with
respect to a Section 409A Award shall incorporate the terms and conditions
required by Section 409A of the Code and this Article 15.
15.2 Distributions under a Section 409A Award.
(a) Subject to subsection (b), any shares of Stock or other property or
amounts to be paid or distributed upon the grant, issuance, vesting, exercise or
payment of a Section 409A Award shall be distributed in accordance with the
requirements of Section 409A(a)(2) of the Code, and shall not be distributed
earlier than:
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(i) the Participant's separation from service, as determined by
the Secretary of the Treasury;
(ii) the date the Participant becomes disabled;
(iii) the Participant's death;
(iv) a specified time (or pursuant to a fixed schedule) specified
under the Award Agreement at the date of the deferral compensation;
(v) to the extent provided by the Secretary of the Treasury, a
change in the ownership or effective control of the Company or a Parent or
Subsidiary, or in the ownership of a substantial portion of the assets of the
Company or a Parent or Subsidiary; or
(vi) the occurrence of an unforeseeable emergency with respect to
the Participant.
(b) In the case of a Participant who is a "specified employee," the
requirement of paragraph (a)(i) shall be met only if the distributions with
respect to the Section 409A Award may not be made before the date which is six
months after the Participant's separation from service (or, if earlier, the date
of the Participant's death). For purposes of this subsection (b), a Participant
shall be a "specified employee" if such Participant is a key employee (as
defined in Section 416(i) of the Code without regard to paragraph (5) thereof)
of a corporation any stock of which is publicly traded on an established
securities market or otherwise, as determined under Section 409A(a)(2)(B)(i) of
the Code and the Treasury Regulations thereunder.
(c) The requirement of paragraph (a)(vi) shall be met only if, as
determined under Treasury Regulations under Section 409A(a)(2)(B)(ii) of the
Code, the amounts distributed with respect to the unforeseeable emergency do not
exceed the amounts necessary to satisfy such unforeseeable emergency plus
amounts necessary to pay taxes reasonably anticipated as a result of the
distribution, after taking into account the extent to which such unforeseeable
emergency is or may be relieved through reimbursement or compensation by
insurance or otherwise or by liquidation of the Participant's assets (to the
extent the liquidation of such assets would not itself cause severe financial
hardship).
(d) For purposes of this Section, the terms specified therein shall
have the respective meanings ascribed thereto under Section 409A of the Code and
the Treasury Regulations thereunder.
15.3 Prohibition on Acceleration of Benefits. The time or schedule of
any distribution or payment of any shares of Stock or other property or amounts
under a Section 409A Award shall not be accelerated, except as otherwise
permitted under Section 409A(a)(3) of the Code and the Treasury Regulations
thereunder.
15.4 Elections under Section 409A Awards.
(a) Any deferral election provided under or with respect to an Award to
any Eligible Individual, or to the Participant holding a Section 409A Award,
shall satisfy the requirements of Section 409A(a)(4)(B) of the Code, to the
22
extent applicable, and, except as otherwise permitted under paragraph (i) or
(ii) below, any such deferral election with respect to compensation for services
performed during a taxable year shall be made not later than the close of the
preceding taxable year, or at such other time as provided in Treasury
Regulations.
(i) In the case of the first year in which an Eligible Individual
or a Participant holding a Section 409A Award, becomes eligible to participate
in the Plan, any such deferral election may be made with respect to services to
be performed subsequent to the election with thirty days after the date the
Eligible Individual, or the Participant holding a Section 409A Award, becomes
eligible to participate in the Plan, as provided under Section 409A(a)(4)(B)(ii)
of the Code.
(ii) In the case of any performance-based compensation based on
services performed by an Eligible Individual, or the Participant holding a
Section 409A Award, over a period of at least twelve months, any such deferral
election may be made no later than six months before the end of the period, as
provided under Section 409A(a)(4)(B)(iii) of the Code.
(b) In the event that a Section 409A Award permits, under a subsequent
election by the Participant holding such Section 409A Award, a delay in a
distribution or payment of any shares of Stock or other property or amounts
under such Section 409A Award, or a change in the form of distribution or
payment, such subsequent election shall satisfy the requirements of Section
409A(a)(4)(C) of the Code, and:
(i) such subsequent election may not take effect until at least
twelve months after the date on which the election is made,
(ii) in the case such subsequent election relates to a
distribution or payment not described in Section 10.2(a)(ii), (iii) or (vi), the
first payment with respect to such election may be deferred for a period of not
less than five years from the date such distribution or payment otherwise would
have been made, and
(iii) in the case such subsequent election relates to a
distribution or payment described in Section 10.2(a)(iv), such election may not
be made less than twelve months prior to the date of the first scheduled
distribution or payment under Section 10.2(a)(iv).
15.5 Compliance in Form and Operation. A Section 409A Award, and any
election under or with respect to such Section 409A Award, shall comply in form
and operation with the requirements of Section 409A of the Code and the Treasury
Regulations thereunder.
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ARTICLE 16
GENERAL PROVISIONS
16.1 No Rights to Awards. No Eligible Individual or other person shall
have any claim to be granted any Award pursuant to the Plan, and neither the
Company nor the Committee is obligated to treat Eligible Individuals,
Participants or any other persons uniformly.
16.2 No Stockholders Rights. The recipient of any award under the Plan
shall have no rights as a shareholder with respect thereto unless and until
certificates for shares of Common Stock are issued to him or her.
16.3 Withholding. The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy federal, state, local and
foreign taxes (including the Participant's FICA obligation) required by law to
be withheld with respect to any taxable event concerning a Participant arising
as a result of this Plan. The Committee may in its discretion and in
satisfaction of the foregoing requirement allow a Participant to elect to have
the Company withhold shares of Stock otherwise issuable under an Award (or allow
the return of shares of Stock) having a Fair Market Value equal to the sums
required to be withheld. Notwithstanding any other provision of the Plan, the
number of shares of Stock which may be withheld with respect to the issuance,
vesting, exercise or payment of any Award (or which may be repurchased from the
Participant of such Award within six months (or such other period as may be
determined by the Committee) after such shares of Stock were acquired by the
Participant from the Company) in order to satisfy the Participant's federal,
state, local and foreign income and payroll tax liabilities with respect to the
issuance, vesting, exercise or payment of the Award shall be limited to the
number of shares which have a Fair Market Value on the date of withholding or
repurchase equal to the aggregate amount of such liabilities based on the
minimum statutory withholding rates for federal, state, local and foreign income
tax and payroll tax purposes that are applicable to such supplemental taxable
income.
16.4 No Right to Employment or Services. Nothing in the Plan or any
Award Agreement shall interfere with or limit in any way the right of the
Company or any Subsidiary to terminate any Participant's employment or services
at any time, nor confer upon any Participant any right to continue in the employ
or service of the Company or any Subsidiary.
16.5 Unfunded Status of Awards. The Plan is intended to be an
"unfunded" plan for incentive compensation. With respect to any payments not yet
made to a Participant pursuant to an Award, nothing contained in the Plan or any
Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Company or any Subsidiary.
16.6 Indemnification. To the extent allowable pursuant to applicable
law, each member of the Committee or of the Board shall be indemnified and held
harmless by the Company from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such member in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure
to act pursuant to the Plan and against and from any and all amounts paid by him
or her in satisfaction of judgment in such action, suit, or proceeding against
him or her; provided he or she gives the Company an opportunity, at its own
24
expense, to handle and defend the same before he or she undertakes to handle and
defend it on his or her own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled pursuant to the Company's Certificate of Incorporation or
Bylaws, as a matter of law, or otherwise, or any power that the Company may have
to indemnify them or hold them harmless.
16.7 Relationship to other Benefits. No payment pursuant to the Plan
shall be taken into account in determining any benefits pursuant to any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary except to the extent otherwise expressly
provided in writing in such other plan or an agreement thereunder.
16.8 Expenses. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.
16.9 Titles and Headings. The titles and headings of the Sections in
the Plan are for convenience of reference only and, in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
16.10 Fractional Shares. No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up or down as appropriate.
16.11 Limitations Applicable to Section 16 Persons. Notwithstanding any
other provision of the Plan, the Plan, and any Award granted or awarded to any
Participant who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan and Awards granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.
16.12 Government and Other Regulations. The obligation of the Company
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Company shall be under no obligation to
register pursuant to the Securities Act of 1933, as amended, any of the shares
of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may
in certain circumstances be exempt from registration pursuant to the Securities
Act of 1933, as amended, the Company may restrict the transfer of such shares in
such manner as it deems advisable to ensure the availability of any such
exemption.
16.13 Governing Law. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Utah.
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* * * * *
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of RemoteMDx, Inc., on _______________, 2006.
* * * * * I hereby certify that the foregoing Plan was approved by the
stockholders of RemoteMDx, Inc., on _______________, 2006.
Executed on this ____ day of _______________, 2006.
________________________________________
Corporate Secretary
26
APPENDIX E
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The shareholder executing and delivering this Proxy as directed above
appoints David G. Derrick and Michael G. Acton and each of them as Proxies, with
full power of substitution, and hereby authorizes them to represent and vote, as
designated below, all shares of common stock of the Company held of record by
the undersigned as of May 19, 2006, at the Annual Meeting of Shareholders of
RemoteMDx, Inc., to be held at the corporate offices located at 150 West Civic
Center Drive, Suite 400, Sandy, UT 84070, on Monday, July 10, 2006, at 10:00
a.m., Mountain Daylight Time or at any adjournment thereof.
The Board of Directors recommends a Vote "FOR" Items 1, 2, 3, 4, and 5.
1. To elect four directors to serve for one year each, until the next Annual
Meeting of Shareholders and until a successor is elected and shall qualify.
The nominees are:
David G. Derrick James J. Dalton
Robert E. Childers Peter McCall
FOR ALL WITHHOLD AS TO ALL FOR ALL EXCEPT ______________________
/ / / / / /
2. To approve and ratify the selection of Hansen, Barnett, and Maxwell as the
Company's independent public accountants.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve an amendment to the Articles of Incorporation increasing the
number of shares of common stock authorized for issuance from 100,000,000 common
shares to 175,000,000 common shares and authorizing the filing of Amended and
Restated Articles of Incorporation.
FOR AGAINST ABSTAIN
/ / / / / /
4. To approve an amendment to the Articles of Incorporation increasing the
number of shares of preferred stock authorized for issuance from 10,000,000
preferred shares to 20,000,000 preferred shares and authorizing the filing of
Amended and Restated Articles of Incorporation.
FOR AGAINST ABSTAIN
/ / / / / /
5. To approve the adoption of the RemoteMDx, Inc., 2006 Equity Incentive Award
Plan.
FOR AGAINST ABSTAIN
/ / / / / /
6. To consider and act upon any other matters that properly may come before the
meeting or at any postponement or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3, 4, and 5.
PLEASE SIGN EXACTLY AS THE SHARES ARE ISSUED. WHEN CO-TENANTS HOLD SHARES, BOTH
SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. PLEASE DATE, SIGN AND
RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
DATE: ____________ _______________________________________
Signature
_______________________________________
Signature (Joint Owners)
1