UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-12
DOBI MEDICAL INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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TABLE OF CONTENTS
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Introduction................................................................1
Outstanding Securities and Voting Rights....................................1
Item 1: Election of Directors......................................3
Legal Proceedings, Relationships, and Indebtedness..........................5
The Board of Directors and Corporate Governance.............................7
Report of Audit Committee ..................................................9
Compensation of Directors and Executive Officers............................11
Item 2: Amendment to Certificate of Incorporation
to Increase Authorized Shares of Common Stock.............15
Item 3: Amendment to 2000 Stock Incentive Plan....................16
Item 4: Ratification of the Appointment of
Independent Auditors......................................18
Form 10-KSB.................................................................19
Deadline for Future Proposals of Stockholders...............................19
Item 5: Other Matters Which May Come Before
the Annual Meeting........................................19
Solicitation of Proxies.....................................................19
Appendix A
2006 DOBI MEDICAL INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held June 29, 2006
TO THE STOCKHOLDERS OF DOBI MEDICAL INTERNATIONAL:
You are cordially invited to the 2006 Annual Meeting of Stockholders of
DOBI Medical International, Inc., which will be held at the offices of DOBI
Medical International, Inc., located at 1200 MacArthur Blvd., Mahwah, New Jersey
07430 (201-760-6464), on June 29, 2006, beginning at 10:30 p.m., eastern
daylight savings time. The Annual Meeting will be held for the following
purposes:
1. To elect six members to our Board of Directors, each to hold office
until the 2007 Annual Meeting and until his successor is elected and
qualified;
2. To consider, approve and authorize an amendment to the Certificate of
Incorporation of the Corporation to increase the number of authorized
shares of common stock from 340 million to 940 million shares;
3. To consider, approve and authorize an amendment to the 2000 Stock
Incentive Plan, as amended, be amended to permit the award of
25,000,000 shares or 15% of the issued and outstanding shares of common
stock, whichever is greater;
4. To consider, approve and ratify the appointment of Marcum & Kliegman
LLP as our independent auditors for the fiscal year ending December 31,
2006; and
5. To transact such other business as may properly come before the meeting
or any postponements or adjournments of the meeting.
Our Board of Directors has fixed May 5, 2006 as the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting and any postponements or adjournments of the meeting, and only
stockholders of record at the close of business on that date are entitled to
this notice and to vote at the Annual Meeting. A list of stockholders entitled
to vote at the Annual Meeting will be available at the meeting and at our
offices for ten days prior to the meeting.
We hope that you will use this opportunity to take an active part in
our affairs by voting on the business to come before the Annual Meeting, either
by executing and returning the enclosed Proxy Card or by casting your vote in
person at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT B. MACHINIST
Chairman of the Board of Directors
Mahwah, New Jersey
May 23, 2006
Stockholders unable to attend the annual meeting in person are requested to date
and sign the enclosed proxy card as promptly as possible. A stamped envelope is
enclosed for your convenience. If a stockholder receives more than one proxy
card because he or she owns shares registered in different names or addresses,
each proxy card should be completed and returned.
DOBI MEDICAL INTERNATIONAL, INC.
1200 MacArthur Blvd.
Mahwah, New Jersey 07430
(201) 760-6464
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
June 29, 2006
INTRODUCTION
This Proxy Statement is furnished to the stockholders by the Board of
Directors of DOBI Medical International, Inc. for solicitation of proxies for
use at the 2005 Annual Meeting of Stockholders to be held at the offices of DOBI
Medical International, Inc., 1200 MacArthur Blvd., Mahwah, New Jersey, 07430
(201-760-6464) on June 29, 2006, beginning at 10:30 a.m., eastern daylight time,
and at any and all adjournments of the meeting.
The purpose of the Annual Meeting and the matters to be acted upon are
set forth in the following Proxy Statement. As of the date of this Proxy
Statement, our Board of Directors knows of no other business which will be
presented for consideration at the Annual Meeting. A stockholder giving a proxy
pursuant to this solicitation may revoke it at any time before it is exercised
by submitting a duly executed proxy bearing a later date or by delivering to our
Secretary a written notice of revocation prior to the Annual Meeting or by
appearing at the meeting and expressing a desire to vote his or her shares in
person. Subject to such revocation, all shares represented by a properly
executed proxy received prior to or at the Annual Meeting will be voted by the
proxy holders whose names are set forth in the accompanying proxy in accordance
with the instructions on the proxy. If no instruction is specified with respect
to a matter to be acted upon, the shares represented by the proxy will be voted
"FOR" the election of the nominees for director and "FOR" each other matter set
forth in this Proxy Statement. If any other business properly comes before the
meeting, votes will be cast in accordance with the proxies in respect of any
such other business in accordance with the judgment of the persons acting under
the proxies.
It is anticipated that the mailing to stockholders of this Proxy
Statement and the enclosed proxy will commence on or about May 23, 2006.
OUTSTANDING SECURITIES AND VOTING RIGHTS
Only stockholders of record at the close of business on the record date
of May 5, 2006 are entitled to notice of and to vote at the Annual Meeting. At
that date our only outstanding voting securities were 66,410,598 outstanding
shares of our common stock, par value $.0001 per share. Holders of our series A
convertible preferred stock are not entitled to vote on any matters as to which
holders of common stock or any future shares of capital stock are entitled to
vote. At the Annual Meeting, each share of common stock will be entitled to one
vote.
The representation, in person or by properly executed proxy, of the
holders of a majority of the voting power of the shares of stock entitled to
vote at the Annual Meeting is necessary to constitute a quorum for the
transaction of business at the meeting. Abstentions and broker non-votes (shares
held by a broker or nominee which are represented at the Annual Meeting, but
with respect to which such broker or nominee is not empowered to vote on a
particular proposal) are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. In the election of
directors, holders of Common Stock are entitled to elect seven directors with
the seven candidates who receive the highest number of affirmative votes being
elected. Votes against a nominee and broker non-votes have no legal effect. In
matters other than the election of directors, abstentions have the effect of
votes against a proposal in tabulations of the votes cast on proposals presented
to stockholders, while broker non-votes do not have any effect for purposes of
determining whether a proposal has been approved.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information to our knowledge and SEC
filings regarding the number of shares of our common stock beneficially owned on
April 26, 2006 by:
o each person who is known by us to beneficially own 5% or more of
our common stock;
o each of our directors and executive officers; and
o all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Shares of our common stock which may be acquired upon exercise of
stock options or warrants which are currently exercisable or which become
exercisable within 60 days after the date indicated in the table are deemed
beneficially owned by the optionees. Subject to any applicable community
property laws, the persons or entities named in the table above have sole voting
and investment power with respect to all shares indicated as beneficially owned
by them.
Except as otherwise set forth below, the address of each of the persons
listed is c/o DOBI Medical International, Inc., 1200 MacArthur Blvd., Mahwah,
New Jersey 07430.
Percentage of
Shares
Number of Shares Beneficially
Beneficially Owned Owned (1)
------------------ ---------------
Lake Worth Ventures, Inc. 8,310,236 12.2%
c/o Mr. David H. Clarke
777 South Flagler Drive - Suite 1100
West Palm Beach, FL 33401
David H. Clarke
777 South Flagler Drive
Suite 1112
West Palm Beach, FL 33401 11,109,086 (2) 16.2%
Brad Baker 338,000 *
Steve M. Barnett 2,800,000 4.0%
William Li, M.D. 319,500 *
Robert B. Machinist 2,610,189 3.8%
Webb W. Turner
400 East 50th Street
New York, NY 10029 2,939,003 (3) 4.4%
Michael R. Jorgensen 601,875 *
Martin Solomon
1643 Brickell Ave.
Suite 4902
Miami, FL 33129 4,633,636 (4) 6.9%
Basso Private Opportunity
Holding Fund Ltd (5)
1266 S. Main Street, 4th Floor
Stamford, CT 06902 6,178,950 9.0%
All directors and executive officers as 23,967,823 35.2%
a group (8 persons)
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*Less than 1% of outstanding shares.
(1) Based upon 66,410,598 shares of common stock outstanding on April
26, 2006, as calculated in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. Unless otherwise indicated, this
includes shares owned by a spouse, minor children and any
entities owned or controlled by the named person. It also
includes shares that any named person has the right or option to
acquire common shares within 60 days of the date of this
prospectus. Unless otherwise noted, shares are owned of record
and beneficially by the named person.
(2) Includes 6,507,721 shares of common stock and warrants and series
A preferred stock convertible into 1,802,515 shares of common
stock owned by Lake Worth Ventures, Inc., 6,500 shares of common
stock owned by affiliates of Lake Worth Ventures, which are
controlled by David H. Clarke and stock options to purchase
323,750 shares of common stock granted to David H. Clarke.
(3) Includes 2,600,003 shares of common stock owned by Dynamics
Imaging, Inc. Mr. Turner is the Chairman of the Board of Dynamics
Imaging, Inc.
(4) Includes 1,745,454 shares of common stock and warrants to
purchase 486,364 shares of common stock owned by Haslemere
Partners LTDA, of which Mr. Solomon is the general partner.
(5) Basso Capital Management, L.P. or Basso, is the Investment
manager to each of Basso Multi-Strategy Holding Fund Ltd. and
Basso Private Opportunities Holding Fund Ltd. Howard I. Fischer
is a managing member of Basso GP, LLC, the General Partner of
Basso, and as such has investment power and voting control over
the securities held by each fund. The funds beneficially own a
total of 6,178,950 shares or 9.0% of the shares listed in note 1
above.
Except as otherwise set forth above, the address of each of the persons
listed is c/o DOBI Medical International, Inc., 1200 MacArthur Boulevard,
Mahwah, New Jersey 07430.
ITEM 1: ELECTION OF DIRECTORS
Pursuant to our Certificate of Incorporation, the holders of our common
stock may elect our seven directors. All nominees have advised us that they are
able and willing to serve as directors. However, if any nominee is unable to or
for good cause will not serve, the persons named in the accompanying proxy will
vote for any other person nominated by our Board of Directors.
No arrangement or understanding exists between any nominee and any
other person or persons pursuant to which any nominee was or is to be selected
as a director or nominee, except that in connection with the engagement of
Sterling Financial Investment Group, Inc. as placement agent in two private
placements of DOBI Medical securities in 2000 and 2001, we agreed to nominate
one person designated by Sterling Financial to our board of directors so long as
stockholders introduced to us by Sterling Financial own at least 10% of all our
outstanding equity securities. Mr. Baker is the current director designee of
Sterling Financial.
The Board of Directors Recommends a Vote "FOR" the Election
of the Nominees Listed Below.
The following table sets forth the names and ages of the nominees to
our Board of Directors.
Directors and Executive Officers
Each Director holds office until our next annual meeting of our
stockholders or until his death, resignation or removal, if earlier. The
following table shows the positions held by our board of directors:
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Name Age Position
- ---- --- --------
Robert B. Machinist 53 Chairman of the Board
Steve M. Barnett 64 Vice Chairman of Operations and Director
David H. Clarke 64 Co-Founder and Director
Brad Baker 46 Director
William Li, M.D. 43 Director
Webb W. Turner 68 Director
Michael R. Jorgensen 53 Interim Chief Executive Officer and
Chief Financial Officer
Robert B. Machinist became a director of our predecessor, DOBI Medical
Systems, in October 2003 and became a member of our board in December 2003. Mr.
Machinist has served as Chairman, CEO, and managing partner of MB Investment
Partners in New York since August 2004. From March 2002 through January 2006, he
was a managing partner of M Capital, LLC, a private equity investment firm based
in Rye, New York. From November 1998 to December 2001, Mr. Machinist served as
Managing Director and Head of Investment Banking for the Bank of New York and
its Capital Markets division. Mr. Machinist received a B.A. degree from Vassar
College and did graduate work at the Weizmann Institute in Rehovot, Israel. He
is the Chairman of the American Committee for the Weizmann Institute of Science
and a member of its International Board of Governors. Mr. Machinist is also a
member of the board of directors of Traffix, Inc., a Nasdaq National Market
on-line marketing and advertising company, as well as a member of the board of
directors of Deerfield Triarc Capital Corp.
Steve M. Barnett became a member of our board in April 2005. Mr.
Barnett was appointed non-executive Vice Chairman of Operations in May 2006. He
is an investor in, as well as an advisor to senior management of, marketing,
manufacturing and distribution companies on improving operations. For more than
two decades, Mr. Barnett has been President and Chairman of CDC, Inc. whose
principal activity is the acquisition and management of small- to mid-sized
manufacturing and distribution companies. Since April 2000, Mr. Barnett has
served as a Director and Chairman of the Audit Committee of UCN, Inc., a
technology-based telephone company specializing in automated call distribution
and call-center management, including a wide range of long distance, data
transmission and related communication services. In addition, since October
2004, Mr. Barnett has served as a Director of Medis Technologies Ltd., a company
specializing in advanced technology regarding unique fuel cell power packs for
portable electronic devices. Mr. Barnett has also served as an advisor to senior
management of Grayhill, Inc., a manufacturer of electrical systems, since May
1993, and Joseph A. Freed & Associates, a national real estate development
company, since June 1998. He has been a Director of Bank Leumi USA since October
2001. He has also served as Vice-Chairman of the Board and Director of Chicago's
Jewish Federation since 1997 and as a member of the Board of Governors for the
Reconstructionist Rabbinical College since 2003. Mr. Barnett received a J.D.
degree from the University of Chicago Law School and holds a bachelor's degree
in Chemistry and Biology from Carleton College.
David H. Clarke is a co-founder of DOBI Medical and became a member of
our board in December 2003. Mr. Clarke had been a director of DOBI Medical
Systems since December 1999. Mr. Clarke is the controlling stockholder of Lake
Worth Ventures, Inc., which was the largest stockholder of DOBI Medical Systems
and, as a result of the 2003 reverse merger, is our largest single stockholder.
Since 1995, Mr. Clarke has been the Chairman and Chief Executive Officer of
Jacuzzi Brands, Inc, a New York Stock Exchange-listed company. Prior to joining
Jacuzzi Brands, Mr. Clarke was Deputy Chairman and Chief Executive Officer of
Hanson Industries, Inc., as well as Vice Chairman of Hanson plc. Mr. Clarke also
serves on the Board of Fiduciary Trust Company International and serves as an
Advisory Director for Sterling Financial Group of Companies, Inc., an investment
banking firm which served as the placement agent in the private placement which
we completed in connection with the reverse merger and served DOBI Medical
Systems as placement agent in four previous private placements. Mr. Clarke also
serves
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on the board of United Pacific Industries Limited, a manufacturing company
listed on the Hong Kong stock exchange.
Brad Baker joined the DOBI Medical Systems board of directors in
October 2003 and became a member of our board in December 2003. From April 2000
to February 2002, Mr. Baker served as head of the online division of Sterling
Financial Investment Group, an investment company banking firm which served as
the placement agent in the private placement which we completed in connection
with the merger. From September 1989 to January 1990, Mr. Baker served as
Corporate Secretary and one of four members of the Executive Board of the
Resolution Trust Corporation Oversight Board, a federal agency formed to
restructure and reorganize the thrift industry. From 1988 to 1989, Mr. Baker
served as a White House Fellow.
William Li, M.D. joined the DOBI Medical Systems board of directors in
October 2003 and became a member of our board in December 2003. Dr. Li is also a
member of our Scientific Advisory Board. Dr. Li is a co-founder of the
Angiogenesis Foundation in Cambridge, Massachusetts, of which he has been the
President since April 2000 and Medical Director since December 1994. Dr. Li has
extensive expertise in the field of angiogenesis and its therapeutic development
and clinical applications. He trained with Dr. Judah Folkman, who pioneered the
field of angiogenesis research. Through the Angiogenesis Foundation, Dr. Li has
worked in association with the National Institutes of Health, and other major
governmental and academic institutions, and industry leaders on
angiogenesis-related programs. Dr. Li received his M.D. degree from University
of Pittsburgh School of Medicine. He completed his clinical training in internal
medicine at the Massachusetts General Hospital in Boston. Dr. Li has also served
on the faculties of Harvard Medical School, Tufts University School of
Veterinary Medicine and Dartmouth Medical School.
Webb W. Turner joined the DOBI Medical Systems board of directors in
June 2000 and became a member of our board in December 2003. Mr. Turner is the
Chairman of the Board of Dynamics Imaging, Inc. Since November 2003, Mr. Turner
has been self employed as a financial consultant. From July 2003 to October
2003, Mr. Turner was Senior Area Manager for International Profit Associates, a
Chicago-based management consulting firm. From September 1998 to May 2001, Mr.
Turner was a consultant with Spencer Trask & Company, an investment banking
firm. Mr. Turner has over 15 years' experience with investment banking firms,
and 17 years' as the chief executive officer and chief financial officer of
seven furniture manufacturing companies. Mr. Turner holds an A.B. degree in
economics from Duke University.
Michael R. Jorgensen became Executive Vice President and Chief
Financial Officer of DOBI Medical Systems in February 2003, and our Executive
Vice President and Chief Financial Officer in December 2003 following the
completion of the reverse merger. In May 2006 he was appointed to also serve as
Interim Chief Executive Officer. In February 1997, he joined AXS-One, Inc., a
multinational financial software company, as Executive Vice President and Chief
Financial Officer, Treasurer and Secretary and became its Executive Vice
President, North America, in March 2001 and Executive Vice President, Chief
Administrative Officer in June 2001 until February 2003.
LEGAL PROCEEDINGS, RELATIONSHIPS, AND INDEBTEDNESS
In the ordinary course of business, we may become a party to legal or
regulatory proceedings resulting from litigation, claims, or other disputes.
There can be no assurance that one or more future actions, if they occur, would
not have a material adverse effect on our business. Currently there is no
material litigation threatened or pending involving us except for the following:
On April 15, 2005, we filed suit in the Supreme Court of the State of
New York, County of New York, Index No. 601348/05, against Brian Vodicka, a
former member of our Board of Directors, alleging breach of contract and breach
of fiduciary duty and seeking specific performance and injunctive relief
preventing the disclosure and requiring the return of certain confidential and
proprietary documents. On July 11, 2005, the New York
5
Supreme Court issued an order preliminarily enjoining Mr. Vodicka from using
documents or information provided to Mr. Vodicka by us wrongfully and in
violation of the confidentiality agreement between Mr. Vodicka and us and
requiring the return of all confidential and proprietary documents held by Mr.
Vodicka. On March 29, 2006, the New York Supreme Court issued an order and
judgment permanently enjoining Mr. Vodicka from using documents or information
provided to him by us wrongfully and in violation of his confidentiality
agreement and requiring the return of all confidential and proprietary documents
still in his possession.
On July 13, 2005, Mr. Vodicka filed a complaint with the U.S.
Occupational Safety and Health Administration of the Department of Labor
("OSHA") under the employee protection provisions of Title VIII of the
Sarbanes-Oxley Act of 2002 ("SOX") alleging that we had harassed him by filing
the above-referenced New York lawsuit against him. On September 9, 2005, the
Secretary of Labor, acting through her agent, the Region VI Regional
Administrator of OSHA, announced that she had investigated the complaint and
determined that it had no merit, that it should be dismissed, and that there was
no reasonable cause to believe that we had violated SOX. Mr. Vodicka filed an
appeal of these findings in the US Department of Labor's Office of
Administrative Law Judges. On December 23, 2005, a Labor Department
administrative law judge granted DOBI's motion for summary judgment dismissing
Vodicka's OSHA complaint. In doing so, the administrative law judge held that
Vodicka's argument that we had violated SOX by filing the New York lawsuit was
"conclusory and unpersuasive." Mr. Vodicka has, in turn, appealed the
administrative law judge's decision to the Administrative Review Board of the
Labor Department. We share the views of the regional administrator and the
administrative law judge that Mr. Vodicka's allegations are without merit and
intend to continue to vigorously defend against the Vodicka claims.
On July 15, 2005, we were served with a complaint that had been filed
in the United States District Court for the Western District of Texas on July 5,
2005 by Steve Aubrey and a group of other stockholders, many of whom are
associated with Mr. Vodicka, alleging, among other things, that our company and
certain of its officers and directors, as well as two of its previous advisors,
had violated federal and state securities laws and seeking damages, interest,
and attorneys' fees and costs. On July 28, 2005 Mr. Vodicka himself filed a
complaint against the same defendants in the same court containing substantially
the same allegations and claims. On September 24, 2005, we received an Amended
Complaint consolidating the Aubrey and Vodicka suits. On October 6, 2005
plaintiffs filed self-executing papers in the Western District of Texas
voluntarily dismissing their claims without prejudice. Shortly thereafter,
several plaintiffs moved to withdraw or vacate their voluntary dismissals. In
addition, plaintiffs' counsel petitioned the court to withdraw from the case.
Plaintiffs' motions to withdraw or vacate their voluntary dismissals were denied
and plaintiffs' counsel's motion to withdraw was dismissed as moot on November
28, 2005. Vodicka's counsel in the Western District of Texas thereupon withdrew
from representing Vodicka and the other plaintiffs. On December 27, 2005,
Vodicka and several other plaintiffs represented by new counsel re-initiated
litigation in the Western District of Texas alleging substantially the same
allegations as to DOBI and certain officers and directors as those contained in
the prior complaint which had been dismissed without prejudice. Defendants filed
motions to dismiss the complaint in its entirety. In response to the defendants'
motions the Court granted plaintiffs permission to file one last amended
complaint wherein plaintiffs could address the deficiencies detailed in
defendants' motions to dismiss. On March 29, 2006, plaintiffs filed their
amended complaint against DOBI and some but not all of the individual officers
and directors named in the December, 2005 complaint. (The other DOBI officers
and directors were voluntarily dropped from the litigation, as was one of DOBI's
previous advisors.) The plaintiffs have claimed that our company and certain of
its officers and directors made material omissions and/or misrepresentations and
that this caused plaintiffs to privately purchase shares of our stock at
allegedly artificially inflated prices. On April 12, 2006 the United States
District Court for the Western District of Texas ruled that the March 29, 2006
version of the complaint now contained sufficient allegations to allow the case
to proceed to the discovery phase. We believe that the allegations are without
merit and that they stem from plaintiffs' dissatisfaction with the current
market price of our stock. We intend to continue to vigorously defend against
plaintiffs' claims. However, we are unable to predict the outcome of the claims
and accordingly, no amounts have been provided for in the financial statements.
6
A dispute has arisen between us and one of our insurance carriers,
North River Insurance Company ("North River"), concerning the carrier's duty to
defend and indemnify us and our officers and directors in connection with
litigation matters. Due to conflicting positions taken by North River regarding
the scope of its contractual coverage obligations, we have initiated an action
in the Superior Court of the State of New Jersey to compel North River to defend
and indemnify us and our officers and directors in accordance with its insurance
policy. The action against North River is in its early stages, and we are,
accordingly, unable to predict the outcome of the matter.
There are no family relationships among our directors, executive
officers, and significant employees. There are no directors, executive officers,
significant employees, or any member of these individuals' immediate families or
any corporation or organization with whom any of these individuals is an
affiliate, that is or has been indebted to us since the beginning of our last
fiscal year. No director, executive officer or significant employee has been a
director or executive officer of any business which has filed a bankruptcy
petition or had a bankruptcy petition filed against it. No director, executive
officer or significant employee has been convicted of a criminal offense or is
the subject of a pending criminal proceeding. No director, executive officer or
significant employee has been the subject of any order, judgment or decree of
any court permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities. No director, executive officer or significant employee has been
found by a court to have violated a federal or state securities or commodities
law.
In connection with the engagement of Sterling Financial Investment
Group, Inc. as placement agent in two private placements of DOBI Medical
securities in 2000 and 2001, we agreed to nominate one person designated by
Sterling Financial to our board of directors so long as stockholders introduced
to us by Sterling Financial own at least 10% of all our outstanding equity
securities. Mr. Baker is the current director designee of Sterling Financial.
THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Our Board of Directors is responsible for establishing broad corporate
policies and for overseeing our overall management. In addition to considering
various matters which require Board approval, the Board provides advice and
counsel to, and ultimately monitors the performance of, our senior management.
The Board, its committees and our management strive to perform and
fulfill their respective duties and obligations in a responsible and ethical
manner. We have adopted a comprehensive Code of Business Ethics for all
directors, officers and employees, which is available at our website,
www.dobimedical.com.
During 2005, the Board of Directors met thirteen times. Each incumbent
director attended no less than 75% of the board of directors meetings and the
meetings of board committees on which he served. The board has determined that
the following directors are independent directors as defined by the American
Stock Exchange Company Guide: Steven M. Barnett, Brad Baker, Robert B.
Machinist, William Li, M.D., and Webb W. Turner.
We believe that it is important for, and we encourage, the members of
the Board of Directors to attend annual meetings of stockholders. To facilitate
this, and to the extent reasonably practicable, we endeavor to schedule a
regular meeting of the Board of Directors on the same date as the annual meeting
of stockholders.
We have established an Audit Committee, a Compensation Committee and a
Nominations and Corporate Governance Committee. The charter for each committee
is available at our website, www.dobimedical.com.
Committees of the Board
Audit Committee. The Audit Committee of our board of directors consists
of Brad Baker, Chairman, and Robert Machinist and Steve Barnett as committee
members. The board determined that Mr. Baker and Mr. Barnett each are
"financially sophisticated" and an "audit committee financial expert," as those
terms are defined by the American Stock Exchange ("Amex") in Section 121 of its
Company Guide and by Regulation S-B promulgated by the SEC, respectively. Our
Audit Committee is composed of directors who are, in the opinion of our board of
7
directors, free from any relationship which would interfere with the exercise of
independent judgment and who possess an understanding of financial statements
and generally accepted accounting principles. Thus, each member is an
"independent" director, as that term is defined by Amex and by the regulations
of the Securities Exchange Act of 1934. Our Audit Committee Charter, which is
filed as Exhibit 1 to our 2005 Proxy Statement, specifies the scope of the Audit
Committee's responsibilities and the means by which it carries out those
responsibilities; the outside auditor's accountability to the board and the
Audit Committee; and the Audit Committee's responsibility to ensure the
independence of the outside auditors, including their recommendations to improve
the system of accounting and internal controls. During the last fiscal year, the
Audit Committee held seven meetings.
Compensation Committee. The Compensation Committee of the board of
directors consists of Webb Turner, Chairman, William Li, M.D. and Steve Barnett.
Pursuant to our Compensation Committee Charter, which is filed as Exhibit 99.2
to the 2003 Annual Report, the Compensation Committee is responsible for
reviewing and approving the salary and benefits policies, including compensation
of our Chief Executive Officer and the other executive officers. Our
Compensation Committee also administers the 2000 Stock Incentive Plan as adopted
and assumed by us, and recommends and approves grants of stock options under
that plan. Mr. Turner, Dr. Li and Mr. Barnett are, in the opinion of our board
of directors, "independent" directors, as that term is defined under Amex rules
and by the regulations of the Securities Exchange Act of 1934. During the last
fiscal year, the Compensation Committee held two meetings.
Nominations and Corporate Governance Committee. The Nominations and
Corporate Governance Committee was formed in October 2004 and consists of Brad
Baker, Chairman, and Robert Machinist. Pursuant to the Nominations and Corporate
Governance Committee Charter, which is filed as Exhibit 99.1 to our 2004 Annual
Report, the Nominations and Corporate Governance Committee is responsible for
board member qualification and nomination to the full board as well as matters
relating to corporate governance. Both Mr. Baker and Mr. Machinist are, in the
opinion of our Board of Directors, "independent" directors, as that term is
defined under Amex rules and by the regulations of the Securities Exchange Act
of 1934. During the last fiscal year, the Nominations and Corporate Governance
Committee held one meeting.
Selection of Nominees for the Board of Directors
Our Board of Directors is responsible for evaluating potential
candidates to serve on our Board of Directors, and for selecting nominees to be
presented for election to the Board at our Annual Meeting of Stockholders. In
evaluating potential director candidates, the Board considers the skills and
characteristics possessed by each candidate in the context of the perceived
needs of the Board at that point in time. Among the factors considered by the
Board in considering a potential nominee are the following: independence;
diversity, age, background, skills, and experience; personal qualities and
characteristics, accomplishments and reputation in the business community;
knowledge and contacts in the communities in which we conduct business and our
business industry or other industries relevant to our business; ability and
willingness to devote sufficient time to serve on the Board and committees of
the Board; knowledge and expertise in various activities deemed appropriate by
the Board, such as marketing, production, distribution, technology, accounting,
finance, and law; fit of the individual's skills, experience, and personality
with those of other directors in maintaining an effective, collegial, and
responsive Board.
Nominees for directors will be made or recommended by any member of the
Board in accordance with the policies and principles in its charter and as
determined by the Board of Directors. Such nominee shall be selected as the
recommended nominee to the full Board by a majority of the independent
directors. In addition, any contractual obligation we may enter into which is
intended to include our obligation to exercise best efforts to nominate a
designate to serve on the Board must be approved by the Board, and such
designate nominee must thereafter be approved by the Board in accordance with
the qualifications set forth in this document, except that the selection and
8
nomination of such directors is not subject to approval by the Nominating
Committee or a majority of independent directors.
In identifying potential candidates for the Board, the Board relies on
recommendations from a number of possible sources, including current directors.
The Board may also retain outside consultants or search firms to help in
identifying potential candidates for membership on the Board.
The Board will consider any written suggestions of stockholders for
director nominations. The recommendation must include the name and address of
the candidate, a brief biographical description and a description of the
person's qualifications. Recommendations should be mailed to DOBI Medical
International, Inc., 1200 MacArthur Blvd., Mahwah, New Jersey 07430 Attn:
Secretary. The Board will evaluate in the same manner candidates suggested in
accordance with this policy and those recommended by other sources. The
Committee has full discretion in considering all nominations to the Board of
Directors. Stockholders who would like to nominate a candidate for director must
comply with the requirements described in our Proxy Statement. See "Deadline for
Future Proposals of Stockholders" below.
REPORT OF THE AUDIT COMMITTEE
The following report of the Audit Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any of our other filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended.
In accordance with its written charter adopted by our Board of
Directors, the Audit Committee's role is to act on behalf of the Board of
Directors in the oversight of our accounting, auditing and financial reporting
practices. The Audit Committee presently consists of three members: Messrs. Brad
Baker, Robert Machinist, and Steve Barnett, each of whom meets the definition of
an "independent director" under SEC rules and as that term is currently defined
in the American Stock Exchange's listing standards as affirmatively determined
by our Board of Directors. Further, at least one of the members of the Audit
Committee meet the definition of an "Audit Committee financial expert" as that
term is currently defined in the American Stock Exchange's listing standards.
Although our common stock is not listed on the American Stock Exchange, we have
chosen the independence standard currently defined in the American Stock
Exchange listing standards. A copy of the each Committee's written charter
appears on our website at dobimedical.com.
Management is responsible for our financial reporting process,
including our system of internal controls, and for the preparation of our
financial statements in accordance with generally accepted accounting
principles. Our independent auditors are responsible for auditing those
financial statements. It is the Audit Committee's responsibility to monitor and
review these processes. It is not the Audit Committee's duty or responsibility
to conduct auditing or accounting reviews or procedures. The Audit Committee
does not consist of our employees and it may not be, and may not represent
itself to be or serve as accountants or auditors by profession or experts in the
fields of accounting or auditing. Therefore, the Audit Committee has relied,
without independent verification, on management's representation that the
financial statements have been prepared with integrity and objectivity and in
conformity with accounting principles generally accepted in the United States
and on the representations of the independent auditors included in their report
on our financial statements. The Audit Committee's oversight does not provide it
with an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or policies, or
appropriate internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions with management and the independent
auditors do not assure that our financial statements are presented in accordance
with generally accepted accounting principles, that the audit of our financial
statements has been carried out in accordance with generally accepted auditing
standards or that our independent accountants are in fact "independent."
9
In fulfilling its oversight responsibilities, the Audit Committee
reviewed the audited financial statements for fiscal 2005 with management,
including a discussion of the quality of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the
financial statements. The Audit Committee reviewed the financial statements for
fiscal 2004 with the independent auditors and discussed with them all of the
matters required to be discussed by Statement of Auditing Standards No. 61
(Communications with Audit Committees), as amended, including the auditors'
judgments as to the quality, not just the acceptability, of our accounting
principles. In addition, the Audit Committee has received the written
disclosures and the letter from the independent auditors required by
Independence Standard No. 1 (Independence Discussions with Audit Committees) and
has discussed with the independent auditors their independence from our
management and us. Finally, the Audit Committee has considered whether the
provision by the independent auditors of non-audit services to us is compatible
with maintaining the auditors' independence. The Audit Committee discussed with
the independent accountants any relationships that may have an impact on their
objectivity and independence and satisfied itself as to the accountants'
independence.
The Audit Committee also discussed with management the process used to
support certifications by our chief executive officer and director of finance
and administration that are required by the Securities and Exchange Commission
and the Sarbanes-Oxley Act of 2002 to accompany our periodic filings with the
Securities and Exchange Commission.
Consistent with the Securities and Exchange Commission's policies
regarding auditor independence, our Audit Committee has established a policy to
pre-approve all audit and permissible non-audit services provided by the
independent auditor.
Based on its review and discussions with management and the independent
accountants, and subject to the limitations on its role and responsibilities
described above, the Audit Committee recommended to our Board of Directors, and
the Board of Directors has approved, that the audited financial statements be
included in our Annual Report on Form 10-KSB for the year ended December 31,
2005. The undersigned members of the Audit Committee have submitted this report
to us.
The Audit Committee
Brad Baker, Chairman
Robert B. Machinist
Steve M. Barnett
10
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors
Directors are expected to timely and fully participate in all regular
and special board meetings, and all meetings of committees that they serve on.
We pay each non-employee director a retainer fee of $1,000 per quarter, plus a
participation fee of $500 for each regular and/or special meeting of the board
of directors. We also pay a committee participation fee of $250 for each meeting
of a committee of the board. In addition, Mr. Machinist receives $3,500 per
month as Chairman of the Board. We will also reimburse each director for
reasonable accommodations, coach travel and other miscellaneous expenses
relating to each director's attendance at board meetings and committee meetings
promptly upon submission of actual receipts to the Chief Financial Officer and
approval by the Chairman of the Board and/or the Chief Executive Officer.
Non-employee directors new to the board are awarded an incentive grant
of an option to purchase 250,000 shares of our common stock. Thereafter, upon
appointment each new committee chair will receive an initial grant of 50,000
shares. Upon each subsequent annual stockholders' meeting in which a director
has been reelected, each non-employee director will be awarded an option to
purchase 25,000 shares. Upon reappointment, each committee chairman will be
awarded an option to purchase 25,000 shares, and the Chairman of the Board will
be granted an option to purchase 75,000 shares. In March 2006, Mr. Barnett was
awarded an option to purchase 2.5 million shares and Mr. Machinist was awarded
an option for 1.5 million shares , vesting immediately. In May 1, 2006, all
director and employee options were repriced as follows: 50 per cent at $.08 per
share; 25 per cent at $.14 per share; and 25 per cent at $.20 per share. All
option awards are non-qualified. All stock options, except those noted above,
vest on the first anniversary date of the grant if the director has continued to
serve until that date, and have a term of five years from the date of award.
Other terms and conditions of the option grants are on the standard terms and
conditions as option grants to employees.
Compensation of Executives
The following table sets forth, for the years indicated, all cash
compensation paid, distributed or accrued for services, including salary and
bonus amounts, rendered to us by our Chief Executive Officer and all other
executive officers in such years who received or are entitled to receive
remuneration in excess of $100,000 during the stated periods.
Summary Compensation Table
During 2005, we granted stock options under the DOBI Medical 2000 Stock
Incentive Plan to purchase 2,606,500 shares of common stock, including the
options described in the table below.
Other Annual Long Term Awards
Compensation Securities
($) Underlying
Name and Principal Position Year Salary($) Bonus($) (1) Options/SARs
- --------------------------- ---- --------- -------- ------------ ------------
Phillip C. Thomas (2) 2005 260,000 - 125,000 75,000
Chief Executive Officer 2004 248,462 - - -
2003 210,888 12,231 - 75,000
Michael R. Jorgensen (3) 2005 200,000 48,325 - -
Interim Chief Executive Officer 2004 200,000 - - 250,000
and Chief Financial Officer 2003 179,428 10,962 - 387,500
11
Other Annual Long Term Awards
Compensation Securities
($) Underlying
Name and Principal Position Year Salary($) Bonus($) (1) Options/SARs
- --------------------------- ---- --------- -------- ------------ ------------
Robert Sohval (4) 2005 200,000 - - -
Vice President 2004 186,539 50,000 - 500,000
Research and Development 2003 - - - -
(1) Other compensation does not include the cost for health and welfare
benefits received by the above-named officers. The aggregate amounts of
such personal benefits did not exceed the lesser of $50,000 of 10% of the
total annual compensation of such officer, other than Mr. Thomas who was
paid $125,000 after the completion of the March 30, 2005 financing, per his
employment agreement as amended.
(2) Mr. Thomas resigned as CEO and Director effective April 28, 2006.
(3) Mr. Jorgensen joined us as a consultant in November 2002 and became an
employee in February 2003. In May 2006 he was appointed Interim Chief
Executive Officer.
(4) Mr. Sohval joined us in March 2004.
Options/SAR Grants in Fiscal Year Ended December 31, 2005
During 2005, we granted stock options under the DOBI Medical 2000 Stock
Incentive Plan to purchase 2,606,500 shares of common stock, including the
options described in the table below.
Number of Percent of total
Securities Options / SARs
Underlying Granted
options /SARs to employees Exercise or base
Name granted in fiscal year price ($/Sh) Expiration
- ---- ------------- -------------- ----------------- ----------
Phillip C. Thomas 75,000 2.9 0.66 5/28/06
Chief Executive Officer
Michael R. Jorgensen 0 0 0 -
Executive Vice President and
Chief Financial Officer
Robert Sohval 0 0 0 -
Vice President
Research and Development
12
Aggregated Option / SAR Exercises in Fiscal Year Ended December 31, 2005 and
Fiscal Year End Option / SAR Values
Number of Value of
Securities unexercised
underlying in-the-money
unexercised options/
Shares options / SARs at SARs at
Acquired FY-end (#) FY-end ($)
on Value Exercisable / Exercisable /
Name exercise (#) realized ($) Unexercisable Unexercisable
- ---- ------------ ------------- ------------- -------------
Phillip C. Thomas 0 0 323,333 / 54,167 0 / 0
Chief Executive Officer
Michael R. Jorgensen 0 0 296,875 / 340,625 0 / 0
Executive Vice President
and
Chief Financial Officer
Robert Sohval 0 0 187,500 / 312,500 0 / 0
Vice President
Research and
Development
Equity Compensation Plan Information
Our 2000 Stock Incentive Plan, as amended December 10, 2003, was
approved by a written consent of the holders of a majority of our outstanding
common stock. In connection with our reverse merger transaction, Lions Gate
adopted and assumed all of DOBI Medical Systems' obligations under its 2000
Stock Incentive Plan and increased the number of shares reserved for stock
option grants to 15 % of our common stock outstanding. Based on our common stock
outstanding as of December 31, 2005, stock options to purchase 9,958,727 shares
of common stock are authorized for issuance under our 2000 Stock Incentive Plan.
As of April 28, 2006, we have granted stock options to purchase 11,075,000
shares of our common stock.
The following table provides information as of December 31, 2005 with
respect to the shares of common stock that may be issued under our existing
equity compensation plan.
Equity Compensation Plan Information
Number of securities
remaining available for
Number of shares of future issuance under
common stock to be Weighted-average equity compensation
issued upon exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
- ---------------------------- -------------------------- -------------------------- --------------------------
Equity compensation plans 6,739,250 $1.16 3,219,477
approved by security
holders
Equity compensation plans
not approved by security -- -- --
holders
Total 6,739,250 $1.16 3,219,477
13
Employment Agreements
On April 18, 2006, Phillip C. Thomas entered into a Separation
Agreement with us pursuant to which he has agreed to voluntarily resign as our
President and Chief Executive Officer and a member of our Board of Directors,
effective as the date we close the first tranche of approximately $2.0 million
in new private financing. Mr. Thomas' decision to resign his positions was based
on personal reasons.
Pursuant to the Separation Agreement, we have agreed to pay Mr. Thomas,
following the effective date of his resignation, a total amount of $260,000, at
the rate of $13,333 per month, and to continue to pay health insurance premiums
for Mr. Thomas and his spouse until the $260,000 is paid in full. We will
additionally honor all his vested stock options. The Separation Agreement also
includes mutual releases by Mr. Thomas and us, and Mr. Thomas' agreement that he
will not compete with us or solicit our clients for two years or our employees
for one year after his resignation, or disclose proprietary information. Mr.
Thomas' previous employment agreement with us was terminated upon his
resignation. Our Current Report on Form 8-K filed with the SEC on May 3, 2006,
contains more detailed information regarding the registration.
All our employees are employees at will under law, most of whom would
receive separation pay if terminated without cause ranging from one month to 12
months. Separation pay would not be deemed to be material. In November 2004, our
board of directors approved a resolution providing that upon a Change of Control
Event of the Company (as defined our 2000 Stock Incentive Plan, as amended), all
stock options issued pursuant to that Plan will immediately vest.
Stock Incentive Plan
As of April 28, 2006, stock options to purchase up to 9,961,590 shares
of common stock were authorized for issuance under the 2000 Stock Incentive
Plan, as amended December 10, 2003. As of April 28, 2006, the Board of Directors
has granted stock options to purchase 11,075,500 shares of our common stock.
Those stock options granted in excess of the amount authorized by the plan will
be issued as stock options become available in the future.
Certain Relationships and Related Transactions
We have no policy with respect to entering into transactions with
members of management or affiliated companies. Any non-arm's length transaction
we consider will be reviewed and voted on by disinterested members of our board
of directors and be in accordance with our certificate of incorporation, by-laws
and Delaware law.
Indemnification of Directors and Officers
Under the General Corporation Law of the State of Delaware, we can
indemnify our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Our amended and restated certificate of incorporation
provides that, pursuant to Delaware law, our directors shall not be liable for
monetary damages for breach of the directors' fiduciary duty of care to us and
our stockholders. This provision in the amended and restated certificate of
incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to us or our stockholders, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for any
transaction from which the director directly or indirectly derived an improper
personal benefit, and for payment of dividends or approval of stock repurchases
or redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
14
Our by-laws provide for the indemnification of our directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law. We are not, however, required to indemnify any director or officer in
connection with any (a) willful misconduct, (b) willful neglect, or (c) gross
negligence toward or on behalf of us in the performance of his or her duties as
a director or officer. We are required to advance, prior to the final
disposition of any proceeding, promptly on request, all expenses incurred by any
director or officer in connection with that proceeding on receipt of any
undertaking by or on behalf of that director or officer to repay those amounts
if it should be determined ultimately that he or she is not entitled to be
indemnified under our bylaws or otherwise.
We have been advised that, in the opinion of the SEC, any
indemnification for liabilities arising under the Securities Act of 1933 is
against public policy, as expressed in the Securities Act, and is, therefore,
unenforceable.
ITEM 2: AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED SHARES
OF COMMON STOCK
Our Board of Directors has approved an amendment to our Certificate of
Incorporation to increase the aggregate number of authorized shares of our
common stock from 340 million to 940 million. Our Board of Directors and the
holders of a majority of our outstanding shares of common stock had previously
approved an amendment to our Certificate of Incorporation to increase the
aggregate number of authorized shares of our common stock from 140 million to
340 million. That initial increase will become effective upon the filing of an
amendment to our Certificate of Incorporation with the Secretary of State of
Delaware on or about May 8, 2006, which is the date on which we expect to have
complied with certain requirements and waiting periods under Section 14 of the
Securities Exchange Act of 1934. The Certificate of Incorporation as amended
presently authorizes the issuance of 340 million shares of common stock and 10
million shares of preferred stock. No change is proposed in the number of
authorized shares of preferred stock.
Text of Amendment
The amendment would result in the text of the first paragraph of
Article 4, Section 1 of our Certificate of Incorporation reading in its entirety
as follows:
Section 1. Authorized Shares. The Corporation shall have authority to
issue two classes of shares to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares of capital stock which the
Corporation shall have authority to issue is NINE HUNDRED FIFTY MILLION
(950,000,000) shares, of which NINE HUNDRED FORTY MILLION (940,000,000) shares
shall be Common Stock, and TEN MILLION (10,000,000) shares shall be Preferred
Stock. Each share of Common Stock shall have a par value of $0.000l, and each
share of Preferred Stock shall have a par value of $0.000l.
General Effect of the Proposed Amendment and Reasons for Approval
Our Board of Directors unanimously recommended that we approve the
amendment for the following reasons:
Availability. Of our 340 million authorized shares of common stock as
of the record date, May 5, 2006, 76,899,721 were issued and outstanding. As of
the record date, after taking into account shares of Common Stock reserved for
issuance under compensation plans and outstanding warrants, and the Series A
convertible preferred stock and the secured convertible debentures, a deficiency
exists of approximately 73,089,000 shares over the 340 million shares currently
authorized in our Certificate of Incorporation. In connection with the recent
private placement described below, we are required to amend our Certificate of
Incorporation to have at least 900 million authorized shares of common stock for
potential issuance to the private placement investors. If we fail to obtain
stockholder approval of this amendment, we will be deemed to have defaulted
under the convertible debentures described below.
15
Recent Private Placement. We executed a Securities Purchase Agreement
with institutional investors for the private placement (the "Private Placement")
of $6,000,000 in aggregate or principal amount of secured convertible debentures
maturing on August 28, 2007 and convertible initially into 75,000,000 shares of
our common stock. In addition to the convertible debentures, discounted to
$5,250,000, we issued eight-month warrants at an exercise price of $.08 per
share to purchase up to 75,000,000 shares of common stock and three-year
warrants at an exercise price of $.15 per share to purchase up to 75,000,000
shares of common stock, both callable by us if certain conditions are met. We
also issued three-year warrants to purchase up to 37,500,000 shares of common
stock at an exercise price of $.50 per share.
The transaction resulted in aggregate gross cash subscription proceeds
of approximately $5,250,000 in two equal installments. The first installment was
on April 28, 2006 and the second will be immediately after the effectiveness of
the first registration statement filed on behalf of the investors. Our Current
Report on Form 8-K relating to the financing, filed with the SEC on May 2, 2006,
contains more detailed information regarding the private placement.
Simultaneously with this financing, we closed a warrant reset offered
to all of our current warrant holders. Participating warrant holders were
allowed to exercise their warrants at an exercise price of $.08 per share. We
issued 10,489,123 shares of registered common stock to participating warrant
holders, and issued three-year warrants to purchase 10,489,123 shares of common
stock at an exercise price $.15 per share, as well as three-year warrants to
purchase 5,244,561 shares of common stock at an exercise price $.50 per share.
We realized net cash proceeds of approximately $839,000 in the transaction.
Future Issuances. Adoption of the amendment would enable our Board of
Directors from time to time to issue additional shares of our common stock
authorized by the amendment for such purposes and such consideration as our
Board of Directors may approve without further approval of our stockholders,
except as may be required by law or the rules of any national securities
exchange on which our shares of common stock are at the time listed, though we
are constrained in our ability to issue any additional shares other than to
holders of our recently-issued convertible debentures and warrants. As is true
for shares presently authorized, common stock authorized by the amendment may,
when issued, have a dilutive effect on the equity and voting power of existing
holders of common stock.
There are no preemptive rights with respect to our common stock. The
additional authorized shares of common stock would have the identical powers,
preferences and rights as the shares now authorized. Under Delaware law,
stockholders will not have any dissenters' or appraisal rights in connection
with the amendment. The amendment will become effective upon the filing,
promptly after the approval of this Item at our annual meeting of stockholders,
of the Certificate of Amendment required by the General Corporation Law of
Delaware.
The Board recommends a vote FOR the amendment to our Certificate of
Incorporation to increase our authorized shares of common stock.
ITEM 3 - AMENDMENT TO 2000 STOCK INCENTIVE PLAN
Our stockholders are being asked to approve an amendment to our 2000
Stock Incentive Plan as amended through December 10, 2003, or the Amended 2000
Plan, which will increase the number of shares of our common stock reserved for
issuance under the Amended 2000 Plan by 12,370,000 shares to an aggregate of
25,000,000 shares of our common stock or 15% of the total issued and outstanding
shares, whichever is greater. As of April 28, 2006, we have granted stock
options to purchase 11,075,500 shares of common stock under the Amended 2000
Plan, which is in excess of the 9,961,590 shares currently reserved for issuance
under the Amended 2000 Plan.
Our Board of Directors adopted the amendment described above on May 1,
2006, subject to stockholder approval at the annual meeting.
16
Our Board believes that increasing the number of shares of our common
stock reserved for issuance under the Amended 2000 Plan is necessary to allow us
to continue to utilize our stock to attract and retain the services of employees
essential to our long-term growth and financial success. We believe that such
equity incentives are necessary for us to remain competitive with regard to
attracting and retaining qualified individuals and to more closely tie their
interests to those of our stockholders.
In furtherance of these objectives, our Board of Directors, upon the
recommendation of the Nominations and Corporate Governance Committee, has
approved the amendment to the Amended 2000 Plan to provide for additional shares
of our common stock to be reserved for issuance under the Amended 2000 Plan,
subject to approval by the stockholders at the annual meeting. A summary of the
Amended 2000 Plan is set forth below. This summary is, however, qualified by and
subject to the more complete information set forth in the Amended 2000 Plan, as
proposed to be amended, a copy of which is attached as Appendix A.
Purpose of the Amended 2000 Plan. The purpose of the Amended 2000 Plan
is to provide a means through which we may attract able persons to enter and
remain in our employ and to provide a means whereby eligible persons can acquire
and maintain ownership of our common stock, or be paid incentive compensation
measured by reference to the value of the common stock, thereby strengthening
their commitment to our welfare and promoting an identity of interest between
our stockholders and these eligible persons.
Type of Awards. We may award nonqualified stock options, restricted
stock awards and/or stock bonuses under the Amended 2000 Plan.
Term, Termination and Amendment of the Amended 2000 Plan. The Amended
2000 Plan became effective on December 18, 2002 and will continue in effect
until December 18, 2012, or until our Board of Directors, in its sole
discretion, amends or terminates the Amended 2000 Plan. The Amended 2000 Plan
may be terminated or amended, at any time, by a majority vote of all of the
members of the Board of Directors.
Eligibility. Awards may be granted to employees, officers, managers,
consultants, independent contractors and advisors of our company or any of our
subsidiaries; provided such consultants, contractors and advisors render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction.
Number of Shares That May Be Awarded. An aggregate of 25,000,000 shares
of our common stock or 15% of the total issued and outstanding shares, whichever
is greater, assuming the Amended 2000 Plan is approved by our stockholders.
Plan Benefits
The table below shows the total number of stock options and shares of
restricted stock that have been received by the following individuals and groups
under the Amended 2000 Plan as of April 26, 2006:
Name and Position Number of Units
----------------- ---------------
Michael R. Jorgensen 637,500
Robert Sohval 500,000
All Executive Officers as a Group 1,137,500
All Non-Employee Directors as a Group 6,157,250
All Non-Executive Officer Employees as a Group 200,000
The Board recommends a vote FOR the amendment to the Amended 2000 Plan.
17
ITEM 4: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee expects to appoint Marcum & Kliegman LLP to serve
as our independent auditors for the year ending December 31, 2006. Marcum &
Kliegman LLP has served as our independent auditors since 2004, and is
considered by our management to be well qualified.
The Board recommends a vote FOR the appointment of Marcum & Kliegman
LLP as independent auditors for the fiscal year ending December 31, 2006.
The following table sets forth the aggregate fees billed or to be
billed to us by Marcum & Kliegman LLP for the fiscal years ended December 31,
2004 and 2005:
Marcum & Kliegman LLP
---------------------
2004 2005
---- ----
Audit Fees $98,000 $86,200
Audit-Related Fees 10,000 --
Tax Fees 29,000 6,000
All Other Fees -- 4,000
All services performed by Marcum & Kliegman LLP were pre-approved by
the Audit Committee in accordance with its pre-approval policy adopted in 2005.
The policy describes the audit, audit-related, tax, and other services permitted
to be performed by the independent auditors, subject to the Audit Committee's
prior approval of the services and fees. On an annual basis, the Audit Committee
will review and provide pre-approval for certain types of services that may be
provided by the independent auditors without obtaining specific pre-approval
from the Audit Committee. If a type of service to be provided has not received
pre-approval during this annual process, it will require specific pre-approval
by the Audit Committee. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require separate pre-approval by the committee.
FORM 10-KSB
UPON WRITTEN REQUEST OF ANY PERSON ENTITLED TO VOTE AT THE MEETING,
ADDRESSED TO US, ATTENTION: SECRETARY, DOBI MEDICAL INTERNATIONAL, INC., 1200
MACARTHUR BLVD., MAHWAH, NEW JERSEY, 07430, WE WILL PROVIDE WITHOUT CHARGE, A
COPY OF OUR ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
2005, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
COMMUNICATIONS WITH STOCKHOLDERS
Anyone who has a concern about our conduct, including accounting,
internal accounting controls or audit matters, may communicate directly with our
Chief Executive Officer, our non-management directors or the audit committee.
Such communications may be confidential or anonymous, and may be submitted in
writing addressed care of Robert Machinist, Chairman of the Board of Directors,
DOBI Medical International, Inc., 1200 MacArthur Blvd., Mahwah, New Jersey
07430. All such concerns will be forwarded to the appropriate directors for
their review, and will be simultaneously reviewed and addressed by the proper
executive officers in the same way that other concerns are addressed by us.
18
DEADLINE FOR FUTURE PROPOSALS OF STOCKHOLDERS
Proposals that a stockholder desires to have included in our proxy
materials for our 2007 Annual Meeting of Stockholders must comply with the
applicable rules and regulations of the Commission, including that any such
proposal must be received by our Secretary at our principal office no later than
April 1, 2007. It is suggested that such proposals be sent by Certified Mail,
Return Receipt Requested. Any required written notices should be sent to DOBI
Medical International, Inc., 1200 MacArthur Blvd., Mahwah, New Jersey, 07430;
Attn: Secretary.
ITEM 5. OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING
We know of no other matters to be presented at the Annual Meeting, but
if any other matters should properly come before the meeting, it is intended
that the persons named in the accompanying form of proxy will vote the same in
accordance with their best judgment and their discretion, and authority to do so
is included in the proxy.
SOLICITATION OF PROXIES
The expense of this solicitation of proxies will be borne by us.
Solicitations will be made only by use of the mail except that, if deemed
desirable, our officers and regular employees may solicit proxies by telephone,
telegraph or personal calls. Brokerage houses, custodians, nominees and
fiduciaries will be requested to forward the proxy soliciting material to the
beneficial owners of the stock held of record by such persons and we will
reimburse them for their reasonable expenses incurred in this effort.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT B. MACHINIST
Chairman of the Board of Directors
19
Appendix A
DOBI MEDICAL INTERNATIONAL, INC.
2000 STOCK INCENTIVE PLAN, AS AMENDED
1. Purpose. The purpose of the DOBI Medical International, Inc., 2000
Stock Incentive Plan, as amended (the "Plan") is to provide a means through
which the Company and its Subsidiaries and Affiliates may attract able persons
to enter and remain in the employ of the Company and its Subsidiaries and
Affiliates and to provide a means whereby eligible persons can acquire and
maintain ownership of Stock, or be paid incentive compensation measured by
reference to the value of the Stock, thereby strengthening their commitment to
the welfare of the Company and its Subsidiaries and Affiliates and promoting an
identity of interest between the shareholders of the Company and these eligible
persons.
So that the appropriate incentive can be provided, the Plan provides
for granting Nonqualified Stock Options, Restricted Stock Awards and Stock
Bonuses, or any combination of the foregoing. This Plan also provides for
granting Incentive Stock Options to the extent that Section 422 of the Code or
such other applicable Section becomes available to give favorable or preferred
tax treatment to the grant of Stock. Capitalized terms not defined in the text
are defined in Section 24.
2. Stock Subject to The Plan. Subject to Section 18, the total number
of Stock reserved and available for grant and issuance pursuant to this Plan
will be the greater of (i) 15% of Common Stock outstanding (determined on a
fully diluted basis exclusive of Common Stock issued or issuable pursuant to
options and other awards granted under the Plan) or (ii) 25,000,000 shares of
Common Stock. At all times the Company shall reserve and keep available a
sufficient number of Stock as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan. Stock that have been (a) reserved for
issuance under Options which have expired or otherwise terminated without
issuance of the underlying Stock; (b) reserved for issuance or issued under an
Award granted hereunder but have been forfeited or repurchased by the Company at
the original issue price; or (c) reserved for issuance or issued under an Award
that otherwise terminates without Stock being issued, shall again be available
for issuance.
3. Eligibility. Awards may be granted to employees, officers, managers,
consultants, independent contractors and advisors of the Company or any Parent,
Affiliate or Subsidiary of the Company; provided such consultants, contractors
and advisors render bona fide services not in connection with the offer and sale
of securities in a capital-raising transaction.
4. Administration.
4.1. Committee Authority. This Plan will be administered by the
Committee or by the Board. Any power, authority or discretion granted to the
Committee may also be taken by the Board. Subject to the general purposes, terms
and conditions of this Plan, and to the direction of the Board, the Committee
will have full power to implement and carry out this Plan. Without limitation,
the Committee will have the authority to:
(a) select persons to receive Awards;
(b) determine the nature, extent, form and terms of Awards and the
number of Stock or other consideration subject to Awards;
(c) subject to the provisions of Section 4.3, determine the vesting,
exercisability and payment of Awards;
(d) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
1
(e) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(f) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(g) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(h) grant waivers of Plan or Award conditions;
(i) determine whether an Award has been earned;
(j) accelerate the vesting of any Award; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
The Committee shall have the authority, subject to the provisions of
the Plan, to establish, adopt, or revise such rules and regulations and to make
all such determinations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee's interpretation of
the Plan or any documents evidencing Awards granted pursuant thereto and all
decisions and determinations by the Committee with respect to the Plan shall be
final, binding, and conclusive on all parties unless otherwise determined by the
Board.
4.2. Committee Discretion. Any determination made by the Committee with
respect to any Award will be made in its sole discretion at the time of grant of
the Award or, unless in contravention of any express term of this Plan or Award,
at any later time, and such determination will be final and binding on the
Company and on all persons having an interest in any Award under this Plan.
4.3. Vesting of Options. Unless an alternative vesting period is
provided by the Committee with respect to any particular Award of Options under
this Plan, 25% of each Award of Options shall vest upon the first anniversary of
each Award, and a like amount shall vest on each subsequent anniversary.
5. Options. The Committee may grant Options to eligible persons and
will determine whether such Options will be intended to be "incentive Stock
options" which may give favorable or preferred tax treatment to the Grantee to
the extent that Section 422 of the Code or such other applicable section becomes
available ("ISO's") or Nonqualified Stock Options ("NQSO's"), the number of
shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1. Form of Option Grant. Each Option granted under this Plan will be
evidenced by an Award Agreement ("Stock Option Agreement"), which will expressly
identify the Option as an ISO or an NQSO, and will be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2. Exercise Period. Options may be exercisable to the extent vested
within the times or upon the events determined by the Committee as set forth in
the Stock Option Agreement governing such Option; provided, however, that no
Option will be exercisable after the expiration of ten (10) years from the date
the Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of Stockholders of the Company or of any
Parent or Subsidiary of the Company ("Ten Percent Stockholder") will be
exercisable after the expiration of five (5) years from the date the ISO is
granted. The Committee also may provide for Options to become exercisable at one
time or from time to time, periodically or otherwise, in such number of shares
or percentage of shares as the Committee determines.
5.3. Exercise Price. The Exercise Price of an Option will be determined
by the Committee when the Option is granted and may be not less than 75% of the
Fair Market Value of the Stock on the date of grant; provided
2
that: (i) the Exercise Price of an ISO will be not less than 100% of the Fair
Market Value of the Stock on the date of grant; and (ii) the Exercise Price of
any ISO granted to a Ten Percent Stockholder will not be less than 110% of the
Fair Market Value of the Stock on the date of grant. Payment for the Stock
purchased shall be made in accordance with Section 8 of this Plan.
5.4. Date of Grant. The date of grant of an Option will be the date on
which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.5. Method of Exercise. Options may be exercised only by delivery to
the Company of a written option exercise agreement (the "Exercise Agreement") in
a form approved by the Committee (which need not be the same for each
Participant), stating the number of Stock being purchased, the restrictions
imposed on the Stock purchased under such Exercise Agreement, if any, and such
representations and agreements regarding Participant's investment intent and
access to information and other matters, if any, as may be required or desirable
by the Company to comply with applicable securities laws, together with payment
in full of the Exercise Price for the number of Stock being purchased.
5.6. Termination. Notwithstanding the exercise periods set forth in the
Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is an employee, a manager or a director at the
time an Award is made and is Terminated for any reason except
death, Disability, Retirement, for Cause, or Voluntary Termination
(as defined below), then the Participant may exercise such
Participant's Options only to the extent that such Options have
vested on or prior to the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later
than the expiration date of the Options.
(b) If the Participant is an employee, a manager or a director at the
time an Award is made and such Participant voluntarily terminates
employment with the Company (a "Voluntary Termination"), then the
Participant may exercise such Participant's Options only to the
extent that such Options have vested on or prior to the Termination
Date no later than one (1) month after the Termination Date (or
such shorter or longer time period not exceeding five (5) years as
may be determined by the Committee, with any exercise beyond three
(3) months after the Termination Date deemed to be an NQSO), but in
any event, no later than the expiration date of the Options.
(c) If the Participant is an employee, a manager or a director at the
time an Award is made and is Terminated because of Participant's
death or Disability, then Participant's Options shall vest in full,
notwithstanding such Participant's then applicable vesting
schedule, and must be exercised by Participant (or Participant's
legal representative or authorized assignee) no later than twelve
(12) months after the Termination Date (or such shorter or longer
time period not exceeding five (5) years as may be determined by
the Committee, with any such exercise beyond twelve (12) months
after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
(d) If the Participant is an employee, a manager or a director at the
time an Award is made and Termination occurs because of
Participant's Retirement, then the Participant may exercise such
Participant's Options only to the extent that such Options have
vested on or prior to the Termination Date, together with such
number of Options as are scheduled to vest at the next regularly
scheduled vesting date in accordance with the specific provisions
of the vesting schedule contained in such Participant's Award
Agreement, provided that such regularly scheduled vesting date
would have occurred not later than twelve (12) months after the
Termination Date, no later than twelve (12) months after the
Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee,
with any exercise beyond three (3) months after the Termination
Date deemed to be an NQSO), but in any event, no later than the
expiration date of the Options.
3
(e) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is an employee and is terminated for Cause, neither the
Participant, the Participant's estate nor such other person who may
then hold the Option shall be entitled to exercise any Option with
respect to any Stock whatsoever, after termination of service,
whether or not after termination of service the Participant may
receive payment from the Company or Subsidiary for vacation pay,
for services rendered prior to termination, for services rendered
for the day on which termination occurs, for salary in lieu of
notice, or for any other benefits. In making such determination,
the Board shall give the Participant an opportunity to present to
the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on the
date when the Company dispatches notice or advice to the
Participant that his service is terminated.
(f) If the Participant is not an employee or a director, the Award
Agreement shall specify treatment of the Award upon Termination.
5.7. Limitations on ISO. The aggregate Fair Market Value (determined as
of the date of grant) of Stock with respect to which ISO's are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Stock on
the date of grant with respect to which ISO's are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Stock to become exercisable in such calendar year
will be ISO's and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSO's. In the event that the Code or
the regulations promulgated hereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Stock
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.8. Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefore, provided that, except as expressly provided for in this
Plan or an Award Agreement, any such action may not, without the written consent
of a Participant, impair any of such Participant's rights under any Option
previously granted. Any outstanding ISO that is modified, extended, renewed or
otherwise altered will be treated in accordance with Section 424(h) of the Code.
The Committee may, by a written notice to affected Participants, reduce the
Exercise Price of outstanding Options without the consent of such Participants;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.3 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.9. Limitations on Exercise. The Committee may specify a reasonable
minimum number of Stock that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Stock for which it is then exercisable.
6. Restricted Stock Award. A Restricted Stock Award is an offer by the
Company to sell to an eligible person (a "Participant-Offeree") Stock that are
subject to restrictions. The Committee will determine to whom an offer will be
made, the number of Stock the Participant-Offeree may purchase, the price to be
paid (the "Purchase Price"), the restrictions to which the Stock will be
subject, and all other terms and conditions of the Restricted Stock Award,
subject to the following:
6.1. Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("Restricted Stock Purchase Agreement") that will be in such form (which need
not be the same for each Participant-Offeree) as the Committee will from time to
time approve, and will comply with and be subject to the terms and conditions of
this Plan. A Participant-Offeree shall evidence his or her acceptance of the
offer of Restricted Stock by executing and delivering the Restricted Stock
Purchase Agreement and full payment for the Stock to the Company not later than
thirty (30) days from the date the Restricted Stock Purchase Agreement is
delivered to the Participant-Offeree. If the Participant-Offeree does not
execute and deliver the Restricted Stock Purchase Agreement and tender full
payment for the Stock to the Company within said thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
6.2. Purchase Price. The Purchase Price of Stock sold pursuant to a
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted.
4
6.3. Terms of Restricted Stock Awards. Restricted Stock Awards shall be
subject to such restrictions as the Committee may impose. These restrictions may
be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in the
Participant's individual Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Stock that may be awarded to the Participant. Prior to the payment of
any Restricted Stock Award, the Committee shall determine the extent to which
such Restricted Stock Award has been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Restricted Stock
Awards that are subject to different Performance Periods and have different
performance goals and other criteria.
6.4. Stock Restrictions. Each certificate representing Restricted Stock
awarded under the Plan shall bear the following legend until the lapse of all
restrictions with respect to such Stock:
"Transfer of this certificate and the Stock represented hereby is
restricted pursuant to the terms of a Restricted Stock Purchase Agreement, dated
as of _______, between the Company and ____________, and the Certificate of
Incorporation and the Bylaws of the Company, as amended from time to time. A
copy of the Certificate of Incorporation and Bylaws are on file at the principal
executive offices of the Company."
Appropriate stop-transfer orders with respect to Restricted Stock shall
be entered on the Company's Stockholder records and/or with the Company's
transfer agent and registrar; provided, however, that the failure or refusal to
enter any stop-transfer order shall not be construed as a modification or waiver
of any provision of the Plan, the Award Agreement, or otherwise.
6.5. Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Stock, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. Stock Bonuses.
7.1. Awards of Stock Bonuses. A Stock Bonus is an award of Stock (which
may consist, in whole or in part, of Restricted Stock) for services rendered to
the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be
awarded for past services already rendered to the Company, or any Parent or
Subsidiary of the Company pursuant to an Award Agreement (the "Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. A Stock Bonus may
be awarded upon satisfaction of such performance goals as are set out in advance
in the Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement by the Company, Parent or Subsidiary and/or
individual of Performance Factors or such other criteria as the Committee may
determine.
7.2. Terms of Stock Bonuses. The Committee will determine the number of
Stock to be awarded to the Participant. If the Stock Bonus is being earned upon
the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will: (a) determine the nature, length and
starting date of any Performance Period for each Stock Bonus; (b) select from
among the Performance Factors to be used to measure the performance, if any; and
(c) determine the number of Stock that may be awarded to the Participant. Prior
to the payment of any Stock Bonus, the Committee shall determine the extent to
which such Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals and
other criteria. The number of Stock may be fixed or may vary in accordance with
such performance goals and criteria as may be determined by the Committee. The
Committee may adjust the Performance Factors applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the
5
Committee deems necessary or appropriate to reflect the impact of extraordinary
or unusual items, events or circumstances to avoid windfalls or hardships.
7.3. Form of Payment. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash or
whole Stock or a combination thereof, either in a lump sum payment or in
installments, all as the Committee may determine.
8. Payment For Stock Purchases.
8.1. Payment. Payment for Stock purchased pursuant to this Plan may be
made in cash (by check) or, where expressly approved for the Participant by the
Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of Stock that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such Stock were
purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such Stock); or (2)
were obtained by Participant in the public market;
(c) by tender of a promissory note having such terms as may be
approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
not employees or directors of the Company will not be entitled
to purchase Stock with a promissory note unless the note is
adequately secured by collateral other than the Stock;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's Stock exists:
(f) through a "same day sale" commitment from the Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD Dealer") whereby the Participant
irrevocably elects to exercise the Option and sell a portion of
the Stock so purchased to pay for the Exercise Price, and
whereby the NASD Dealer irrevocably commits upon receipt of such
Stock to forward the Exercise Price directly to the Company; or
(g) through a "margin" commitment from the Participant and an NASD
Dealer whereby the Participant irrevocably elects to exercise
the Option and to pledge the Stock so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Stock to forward
the Exercise Price directly to the Company; or
(h) by any combination of the foregoing.
9. Withholding Taxes.
9.1. Withholding Generally. Whenever Stock are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Stock. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2. Stock Withholding. When, under applicable tax laws, a Participant
incurs tax liability in connection with the exercise or vesting of any Award
that is subject to tax withholding and the Participant is obligated to pay
6
the Company the amount required to be withheld, the Committee may in its sole
discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Stock to be issued
that number of Stock having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Stock
withheld for this purpose will be made in accordance with the requirements
established by the Committee and shall be in writing in a form acceptable to the
Committee.
10. Privileges of Stock Ownership. No Participant will have any of the
rights of a Stockholder with respect to any Stock Option until the Participant
has exercised his Stock Option, paid for the Stock, and the Stock has been
issued to the Participant. Thereafter, the Participant will be a Stockholder and
have all the rights of Stockholder with respect to such Stock, including the
right to vote and receive all dividends or other distributions made or paid with
respect to such Stock; provided, that if such Stock are Restricted Stock, then
any new, additional or different securities the Participant may become entitled
to receive with respect to such Stock by virtue of a dividend of Stock, split of
Stock or any other change in the legal or capital structure of the Company will
be subject to the same restrictions as the Restricted Stock; provided, further,
that the Participant will have no right to retain such stock dividends or stock
distributions with respect to Stock that are repurchased at the Participant's
Purchase Price or Exercise Price pursuant to Section 12 hereof.
11. Transferability. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by any Participant, and may not
be made subject to execution, attachment or similar process, otherwise than by
will or by the laws of descent and distribution, except as determined by the
Committee and expressly set forth in the Award Agreement.
12. Restrictions on Stock. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Stock held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases Stock
under this Plan, for cash and/or cancellation of purchase money indebtedness, at
the Participant's Exercise Price or Purchase Price, as the case may be.
13. Certificates. All certificates for Stock or other securities
delivered under this Plan will be subject to such stop-transfer orders, legends
and other restrictions consistent with the terms of the Awards as the Committee
may deem necessary or advisable, including restrictions under any applicable
federal, state or foreign securities law, or any rules, regulations and other
requirements of the SEC or any stock exchange or automated quotation system upon
which the Stock may be listed or quoted.
14. Escrow; Pledge of Stock. To enforce any restrictions on a
Participant's Stock, the Committee may require the Participant to deposit all
certificates representing Stock, together with powers of attorney or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Stock under this Plan will be
required to pledge and deposit with the Company all or part of the Stock so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Stock or other collateral. In connection with any pledge of
the Stock, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. In the
discretion of the Committee, the pledge agreement may provide that the Stock
purchased with the promissory note may be released from the pledge on a pro rata
basis as the promissory note is paid.
15. Exchange And Buyout of Awards. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Stock (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
7
16. Securities Law And Other Regulatory Compliance. An Award will not
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Stock may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. However, in the
event that an Award is not effective as discussed in the preceding sentence, the
Company will use reasonable efforts to modify, revise or renew such Award in a
manner so as to make the Award effective. Notwithstanding any other provision in
this Plan, the Company will have no obligation to issue or deliver certificates
for Stock under this Plan prior to: (a) obtaining any approvals from
governmental agencies that the Company determines are necessary or advisable;
and/or (b) completion of any registration or other qualification of such Stock
under any state or federal law or ruling of any governmental body that the
Company determines to be necessary or advisable. The Company will be under no
obligation to register the Stock with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system, and the Company will have no
liability for any inability or failure to do so.
17. No Obligation to Employ. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship with the Company at any time,
with or without cause.
18. Corporate Transactions.
18.1. Assumption or Replacement of Awards by Successor. If a
Change-of-Control Event occurs:
(i) the successor company in any Change-of-Control Event may, if
approved in writing by the Committee prior to any
Change-of-Control Event:
(1) substitute equivalent Options or Awards or provide
substantially similar consideration to Participants as
was provided to Stockholders (after taking into account
the existing provisions of the Awards), or
(2) issue, in place of outstanding Stock of the Company held
by the Participant, substantially similar Stock or other
property subject to repurchase restrictions no less
favorable to the Participant.
(ii) Notwithstanding anything in this Plan to the contrary, the
Committee may, in its sole discretion, provide that the
vesting of any or all Options and Awards granted pursuant to
this Plan will accelerate immediately prior to the
consummation of a Change-of-Control Event. If the Committee
exercises such discretion with respect to Options, such
Options will become exercisable in full prior to the
consummation of such event at such time and on such
conditions as the Committee determines, and if such Options
are not exercised prior to the consummation of such event,
they shall terminate at such time as determined by the
Committee.
18.2. Other Treatment of Awards. Subject to any greater rights granted
to Participants under Section 18.1, if a Change-of-Control Event occurs or has
occurred, any outstanding Awards will be treated as provided in the applicable
agreement or plan of merger, consolidation, dissolution, liquidation, or sale of
assets constituting the Change-of-Control Event.
18.3. Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the
8
other company had applied the rules of this Plan to such grant. If the Company
assumes an award granted by another company, the terms and conditions of such
award will remain unchanged (except that the exercise price and the number and
nature of Stock issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). If the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
18.4. Adjustment of Stock in Certain Capital Changes.
(a) Upon the occurrence of a Change-of-Control Event, an
extraordinary transaction or other event or circumstance
affecting the Stock shall occur, including, but not limited
to, any distribution (whether in the form of cash, Stock or
other property), reorganization or conversion into a
corporation, recapitalization, Stock split, reverse Stock
split, reorganization, merger, consolidation, spin-off,
combination, repurchase, Stock exchange, sale of assets or
other similar transaction or event, and the Committee
determines that a change or adjustment in the terms of any
Award is appropriate, then the Committee may, in its sole
discretion, make such equitable changes or adjustments or
take any other actions that it deems necessary or appropriate
(which shall be effective at such time as the Committee in
its sole discretion determines), including, but not limited
to (A) causing changes or adjustments to any or all of (i)
the number and kind of Stock or other securities or property
which may thereafter be issued in connection with Awards;
(ii) the number and kind of Stock or other securities or
property issued or issuable in respect of outstanding Awards;
(iii) the exercise price relating to any Award; and (iv) the
number and kind of Stock or other securities reserved for
issuance under this Plan; and (B) canceling outstanding
Awards in exchange for replacement awards or cash, in such
amounts or for such price as the Committee may determine as
fair, in its sole discretion, it being understood that the
Committee shall have the authority to cause different changes
or adjustments to be made to any Awards held by Participants
even if such Awards are identical and such Participants are
similarly situated; further, provided, however, that with
respect to Options which are intended by the Committee to
remain ISOs' subsequent to any such adjustment, such
adjustment shall be made in accordance with Section 424 of
the Code.
(b) If the Company engages in a transaction the principal purpose
of which is to change the Company from a "pass-through"
entity for federal income tax purpose to an entity taxed as a
corporation, the Options and Awards outstanding immediately
prior to the consummation of transaction shall be treated by
the surviving company in such transaction in the same manner
as specified in Section 18.1(b)(i)(1).
19. Adoption and Stockholder Approval. This Plan became effective on
December 18, 2002, the date that this Plan was approved by the Stockholders of
the Company, consistent with applicable laws (the "Effective Date").
20. Term of Plan. Unless earlier terminated as provided herein, this
Plan will terminate ten (10) years from the date this Plan is adopted by the
Board or, if earlier, the date of Stockholder approval.
21. Amendment or Termination of Plan. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the Stockholders of the Company, amend this Plan in any manner that requires
such Stockholder approval.
22. Effect of Section 162(m) of the Code. The Plan and all Awards
issued there under are intended to be exempt from the application of Section
162(m) of the Code, which restricts under certain circumstances the Federal
income tax deduction for compensation paid by a public company to named
executives in excess of $1 million per year. The exemption is based on Treasury
Regulation Section 1.162-27(f) as in effect on the effective date of the Plan,
with the understanding that such regulation generally exempts from the
application of Section 162(m) of the Code compensation paid pursuant to a plan
that existed before a company becomes publicly held. The Committee may, without
Stockholder approval (unless otherwise required to comply with Rule 16b-3 under
the Exchange Act),
9
amend the Plan retroactively and/or prospectively to the extent it determines
necessary in order to comply with any subsequent clarification of Section 162(m)
of the Code required to preserve the Company's Federal income tax deduction for
compensation paid pursuant to the Plan. To the extent that the Committee
determines as of the Date of Grant of an Award that (i) the Award is intended to
comply with Section 162(m) of the Code and (ii) the exemption described above is
no longer available with respect to such Award, such Award shall not be
effective until any Stockholder approval required under Section 162(m) of the
Code has been obtained.
23. General.
23.1. Additional Provisions of an Award. Awards under the Plan also may
be subject to such other provisions (whether or not applicable to the benefit
awarded to any other Participant) as the Committee determines appropriate
including, without limitation, provisions to assist the Participant in financing
the purchase of Stock upon the exercise of Options, provisions for the
forfeiture of or restrictions on resale or other disposition of Stock acquired
under any Award, provisions giving the Company the right to repurchase Stock
acquired under any Award in the event the Participant elects to dispose of such
Stock, and provisions to comply with Federal and state securities laws and
Federal and state tax withholding requirements. Any such provisions shall be
reflected in the applicable Award Agreement.
23.2. Claim to Awards and Employment Rights. Unless otherwise expressly
agreed in writing by the Company, no employee or other person shall have any
claim or right to be granted an Award under the Plan or, having been selected
for the grant of an Award, to be selected for a grant of any other Award.
Neither the Plan nor any action taken hereunder shall be construed as giving any
Participant any right to be retained in the employ or service of the Company, a
Subsidiary or an Affiliate.
23.3. Designation and Change of Beneficiary. Each Participant shall
file with the Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the amounts payable with respect to
an Award of Restricted Stock, if any, due under the Plan upon his death. A
Participant may, from time to time, revoke or change his beneficiary designation
without the consent of any prior beneficiary by filing a new designation with
the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt. If no beneficiary designation is filed by the Participant, the
beneficiary shall be deemed to be his or her spouse or, if the Participant is
unmarried at the time of death, his or her estate.
23.4. Payments to Persons Other Than Participants. If the Committee
shall find that any person to whom any amount is payable under the Plan is
unable to care for his or her affairs because of illness or accident, or is a
minor or is otherwise legally incompetent or incapacitated, or has died, then
any payment due to such person or such person's estate (unless a prior claim
therefore has been made by a duly appointed legal representative) may, if the
Committee so directs the Company, be paid to such person's spouse, child,
relative, an institution maintaining or having custody of such person, or any
other person deemed by the Committee, in its absolute discretion, to be a proper
recipient on behalf of such person otherwise entitled to payment. Any such
payment shall be a complete discharge of the liability of the Committee and the
Company therefore.
23.5. No Liability of Committee Members. No member of the Committee
shall be personally liable by reason of any contract or other instrument
executed by such Committee member or on his or her behalf in his or her capacity
as a of the Committee nor for any mistake of judgment made in good faith, and
the Company shall indemnify and hold harmless each member of the Committee and
each other employee, officer or Manager of the Company to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or willful bad faith; provided, however, that approval of the Board
shall be required for the payment of any amount in settlement of a claim against
any such person. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's Operating Agreement or other governing or charter documents,
or as a matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
10
23.6. Governing law. The Plan and all agreements hereunder shall be
governed by and construed in accordance with the internal laws of the State of
Delaware without regard to the principles of conflicts of law thereof.
23.7. Funding. No provision of the Plan shall require the Company, for
the purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Participants shall
have no rights under the Plan other than as general unsecured creditors of the
Company, except that insofar as they may have become entitled to payment of
additional compensation by performance of services, they shall have the same
rights as other employees under general law.
23.8. Reliance on Reports. Each member of the Committee and each member
of the Board shall be fully justified in relying, acting or failing or refusing
to act, and shall not be liable for having so relied, acted or failed or refused
to act in good faith, upon any report made by the independent public accountant
of the Company and its Subsidiaries and Affiliates and upon any other
information furnished in connection with the Plan by any person or persons other
than himself.
23.9. Relationship to Other Benefits. No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement,
profit sharing, group insurance or other benefit plan of the Company or any
Subsidiary except as otherwise specifically provided in such other plan.
23.10. Expenses. The expenses of administering the Plan shall be borne
by the Company and its Subsidiaries and Affiliates.
23.11. Pronouns. Masculine pronouns and other words of masculine gender
shall refer to both men and women.
23.12. Titles and Headings. The titles and headings of the sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings shall
control.
23.13. Termination of Employment. For all purposes herein, a person who
transfers from employment or service with the Company to employment or service
with a Subsidiary or Affiliate or vice versa shall not be deemed to have
terminated employment or service with the Company, a Subsidiary or Affiliate.
23.14. Nonexclusively of The Plan. Neither the adoption of this Plan by
the Board, the submission of this Plan to the Stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such incentive arrangements as it
may deem desirable, including, without limitation, the granting of Stock options
and bonuses otherwise than under this Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.
24. Definitions. As used in this Plan, the following terms will have
the following meanings:
"Affiliate" means any affiliate of the Company within the meaning of 17
CFR ss. 230.405.
"Award" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.
"Board" means the Board of Directors of the Company.
"Cause" means the Company, a Subsidiary or Affiliate having cause to
terminate a Participant's employment or service under any existing employment,
consulting or any other agreement between the Participant and the Company or a
Subsidiary or Affiliate or, in the absence of such an employment, consulting or
other agreement, upon (i) the determination by the Committee that the
Participant has ceased to perform his duties to the Company, a Subsidiary or
Affiliate (other than as a result of his incapacity due to physical or mental
illness or
11
injury), which failure amounts to an intentional and extended neglect of his
duties to such party; (ii) the Committee's determination that the Participant
has engaged or is about to engage in conduct materially injurious to the
Company, a Subsidiary or Affiliate; or (iii) the Participant having been
convicted of a felony or a misdemeanor carrying a jail sentence of six (6)
months or more.
"Change-of-Control Event" means any one or more of the following:
(i) a dissolution or liquidation of the Company,
(ii) a merger or consolidation in which the Company is not
the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, are in
corporation of the Company in a different jurisdiction,
or other transaction in which there is no substantial
change in the Stockholders of the Company or their
relative Stock holdings and the Awards granted under
this Plan are assumed, converted or replaced by the
successor corporation, which assumption will be binding
on all Participants),
(iii) a merger in which the Company is the surviving
corporation but after which the Stockholders of the
Company immediately prior to such merger (other than any
Stockholder that merges, or which owns or controls
another corporation that merges, with the Company in
such merger) cease to own their Stock or other equity
interest in the Company,
(iv) the sale of substantially all of the assets of the
Company, or
(v) the acquisition, sale, or transfer of more than 50% of
the outstanding Stock of the Company by tender offer or
similar transaction.
Notwithstanding the foregoing, a transaction the principal purpose of
which is to change the Company from a "pass-through" entity for federal income
tax purpose to an entity taxed as a corporation shall not, by itself, constitute
a Change-of-Control Event.
"Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations under such section.
"Committee" means (i) the Stock Option Committee or such other
committee appointed by the Board consisting of two or more Outside Directors or
(ii) the Board. If no Committee has been appointed, or if no Committee is
serving as such, any reference to the Committee shall include the Board.
"Company" means DOBI Medical Systems, Inc., a Delaware corporation, and
any successor thereto.
"Director" means a person who is a director of the Board of Directors
of the Company.
"Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means the price at which a holder of an Option may
purchase the Stock issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a Stock
determined as follows:
(a) if such Stock are then quoted on the NASDAQ National
Market, the closing price on the NASDAQ National Market on
the date of determination as reported in The Wall Street
Journal;
12
(b) if such Stock are publicly traded and are then listed on a
national securities exchange, the closing price on the
date of determination on the principal national securities
exchange on which the Stock are listed or admitted to
trading as reported in The Wall Street Journal;
(c) if such Stock are publicly traded but is not quoted on the
NASDAQ National Market nor listed or admitted to trading
on a national securities exchange, the average of the
closing bid and asked prices on the date of determination
as reported in The Wall Street Journal or, if not reported
in The Wall Street Journal, as reported by any reputable
publisher or quotation service, as determined by the
Committee in good faith;
(d) if none of the foregoing is applicable, by the Committee
in good faith based upon factors available at the time of
the determination, including, but not limited to, capital
raising activities of the Company.
"ISO" has the meaning set forth in Section 5.
"Insider" means an officer or Manager of the Company or any other
person whose transactions in the Company's securities would be subject to
Section 16 of the Exchange Act if the Company were subject to the reporting
requirements of the Exchange Act.
"NQSO" has the meaning set forth in Section 5.
"Option" means an award of an option to purchase Stock pursuant to
Section 5.
"Outside Director" means a person who is (i) a member of the Board of
Directors of the Company; (ii) a "non employee director" within the meaning of
Rule 16b-3 under the Exchange Act, or any successor rule or regulation; and
(iii) an "outside director" within the meaning of Section 162(m) of the Code.
"Parent" means any corporation or other legal entity (other than the
Company) in an unbroken chain of corporations and/or other legal entities ending
with the Company if each of such corporations and other legal entities other
than the Company owns stock, other equity securities or other equity interests
possessing 50% or more of the total combined voting power of all classes of
stock, equity securities or other equity interests in one of the other
corporations or other entities in such chain.
"Participant" means a person who receives an Award under this Plan.
"Performance Factors" means the factors selected by the Committee from
time to time, including, but not limited, the following measures to determine
whether the performance goals established by the Committee and applicable to
Awards have been satisfied:
(e) Net revenue and/or net revenue growth;
(f) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(g) Operating income and/or operating income growth;
(h) Net income and/or net income growth;
(i) Earnings per share and/or earnings per share growth;
(j) Total Stockholder return and/or total Stockholder return
growth;
(k) Return on equity;
13
(l) Operating cash flow return on income;
(m) Adjusted operating cash flow return on income;
(n) Economic value added;
(o) Individual confidential business objectives;
(p) Successful capital raises;
(q) Obtaining standard FDA approvals;
(r) Completion of product development;
(s) Recruiting key employees;
(t) Actual shipments expressed in Stock or dollars;
(u) Successful completion of an audit;
(v) Sales levels; and
(w) Other factors deemed reasonable and appropriate by the
Committee.
"Performance Period" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"Plan" means this DOBI Medical Systems, Inc., 2000 Stock Incentive
Plan, as amended from time to time.
"Restricted Stock Award" means an award of Stock pursuant to Section 6.
"Retirement" shall mean retirement pursuant to the retirement policy
developed by the Committee, if any, as may be applicable at the time that a
Participant in question voluntarily ceases to be an employee, manager or
director of the Company following attaining retirement age, which retirement age
shall initially be set at age 65, unless and until the Committee in its
discretion determines otherwise.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholder" means any holder of the Company's Blank Check Preferred
Stock, its Class A Preferred Shares, or its Common Stock, as defined in the
Company's Certificate of Incorporation, as it may be amended from time to time,
which stock has been duly authorized and validly issued.
"Subsidiary" means any corporation or other legal entity (other than
the Company) in an unbroken chain of corporations and/or other legal entities
beginning with the Company if each of the corporations and entities other than
the last corporation or entity in the unbroken chain owns stock, other equity
securities or other equity interests possessing 50% or more of the total
combined voting power of all classes of stock, other equity securities or other
equity interests in one of the other corporations or entities in such chain.
"Ten Percent Stockholder" has the meaning set forth in Section 5.2.
"Termination" or "Terminated" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director Manager, consultant,
independent contractor, or advisor to the Company or a Parent or Subsidiary of
the Company. An employee will not
14
be deemed to have ceased to provide services in the case of (i) sick leave, (ii)
military leave, or (iii) any other leave of absence approved by the Committee,
provided, that such leave is for a period of not more than 90 days, unless
re-employment upon the expiration of such leave is guaranteed by contract or
statute or unless provided otherwise pursuant to formal policy adopted from time
to time by the Company and issued and promulgated to employees in writing. In
the case of any employee on an approved leave of absence, the Committee may make
such provisions respecting suspension of vesting of the Award while on leave
from the employ of the Company or a Subsidiary as it may deem appropriate,
except that in no event may an Option be exercised after the expiration of the
term set forth in the Option agreement. The Committee will have sole discretion
to determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the
"Termination Date").
"Stock" means the common stock of the Company having a par value of
$0.001 per share, and as defined in the Company's Certificate of Incorporation,
as it maybe amended from time to time, which Stock has been or is hereafter
reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18
hereof, and any successor security.
"Stock Bonus" means an award of Stock, or cash in lieu of Stock,
pursuant to Section 7.
"Unvested Stock" means "Unvested Stock" as defined in the Award
Agreement.
"Vested Stock" means "Vested Stock" as defined in the Award Agreement.