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
June 6, 2006
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. 17
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 27
FURTHER INFORMATION 27
2
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 2006 Annual Meeting of Shareholders ("Annual
Meeting"). Distribution of this Proxy Statement and proxy form is scheduled to
begin on or about June 9, 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 63,644,440 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;
3
o Approve an amendment to the Company's 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.
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
4
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.
5
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.
6
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 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 is being provided to our shareholders in
connection with this proxy statement. Hansen Barnett 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 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 Hansen Barnett for fiscal years 2005 and
2004 totaled approximately $55,200 and $0, respectively.
Tax Fees, Audit Related Fees, and All Other Fees
Hansen Barnett has not provided any consulting services to the Company
in fiscal years 2004 and 2005, including tax consultation and related services,
nor did Hansen Barnett perform any financial information systems design and
implementation services for the Company in either period.
7
The Audit Committee of the Board of Directors considered and authorized
all services provided by Hansen Barnett.
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. Assuming
adoption of Proposal No. 3 without the adoption of Proposal No. 4, 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 63,644,440 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
8
convertible debentures payable in February 25th, March 3rd, March 12th, April
21st, and September 10th, 2004 convertible into 575,789 shares of common stock
(assuming a $0.45 conversion price). Thus, as of the Record Date, assuming full
exercise of all outstanding options and warrants, conversion of all outstanding
preferred stock, and conversion of outstanding convertible debentures, the
Company would have 99,382,981 shares of common stock or 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 votes cast on the matter. 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
9
Proxy Statement, which increases the number of shares of preferred
stock but does not increase the number of shares of common stock.
- 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 PREFERRED 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.
Assuming adoption of Proposal No. 4, without the adoption of Proposal No. 3,
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 amendment to Article III proposed in
this Proposal No. 4, is attached to this Proxy Statement as Appendix B 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.
10
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
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 votes cast on the matter. 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
11
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
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
12
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
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
13
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.
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
14
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
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.
15
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.
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
16
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.
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 $60,000 per year 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
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
17
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.
Directors are encouraged by the Company to attend the Annual Meeting of
Shareholders if their schedules permit. 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 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.
In 1997 Mr. McCall founded McCall Partners LLC. McCall Partners is an investment
19
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 (formerly 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.
Name and Address Percent of
Title of Class of Beneficial Owner (1) Amount Owned Class
Common David G. Derrick (2) 9,100,245 14.47%
Common James Dalton (3) 8,905,913 14.15%
J. Lee Barton (4)
196 No. Forest Ave.
Common 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 Address Percent of
Title of Class of Beneficial Owner Amount Owned 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
2005 $240,000 300,000(4) $ 0 2,500,000/0 $ 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 2,500,000/0 $ 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 $240,000. The consulting fees and
salary owed to Dalton have historically been accrued as part of
the ADP Management financing arrangements. Other amounts have been
paid or accrued during 2005. See "Certain Relationships and
Related Transactions."
(3) Mr. Acton has served as an executive officer since March 2001.
(4) These payments were made by issuing restricted common stock.
Employment Agreements
We have no employment agreements with any executive officers at this
time.
Stock Option Grants in Fiscal Year 2005
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options or warrants made
during the fiscal year ended September 30, 2005 to the Named Executive Officers.
Potential realizable value at
assumed annual rates of stock price
Individual Grants appreciation for option term
----------------------------------------------------------- --------------------------------------
Number of % of total
securities options
underlying granted to Exercise or
Options employees in base price Expiration
Name granted (#) fiscal year ($/S h) date 5% ($) 10% ($)
- ----------------------- ------------- ------------- ------------- ------------- ------------------ ------------------
David Derrick 2,500,000 36.76% $ 0.54 5/16/2010 1,012,500 1,125,000
James Dalton 2,500,000 36.76% $ 0.54 5/16/2010 1,012,500 1,125,000
Michael Acton 200,000 2.94% $ 0.70 8/24/2010 49,000 58,000
Bruce Derrick 250,000 3.68% $ 0.70 8/24/2010 61,250 72,500
Randy Olshen 450,000 6.62% $ 0.70 8/24/2010 110,250 130,500
During fiscal year 2005, the Company granted 2,500,000 warrants to each
of Mr. Derrick and Mr. Dalton with an exercise price of $0.54 per share, of
which (A) 1,250,000 vested on issuance; (B) 625,000 vested on May 17, 2006, and
(C) the remaining 625,000 will vest on May 17, 2007, subject to certain
adjustments. All of these warrants are five-year warrants and expire in 2010.
Stock Options Outstanding and Options Exercised in Fiscal Year 2005
The following table sets forth certain information, including the
fiscal year-end value of unexercised stock options held by the Named Executive
Officers, as of September 30, 2005. We have not granted any stock appreciation
rights ("SAR's").
23
Aggregated Option Excercises in Last Fiscal Year
And Fiscal Year-End Option Values
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options/
Shares At 9/30/2005 SARs at 9/30/2005 ($)
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.
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.
24
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.
25
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 5,000 holders of record of
the common stock and approximately 63,644,440 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
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
26
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 in turn 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.
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
27
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: June 6, 2006
28
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
29
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.
30
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.
31
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.
32
APPENDIX D
FORM OF REMOTE MDX, INC. 2006 EQUITY INCENTIVE AWARD PLAN
33
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.
34
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)
35