SCHEDULE 14A INFORMATION
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REMOTEMDX, INC.
.................................................................................
(Name of Registrant as Specified in Charter)
.................................................................................
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[LOGO OMITTED]
5095 West 2100 South
Salt Lake City, Utah 84120
(801) 908-7766
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 2004
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of
RemoteMDx, Inc., to be held at RemoteMDx, Inc. Sales Office, 1401 North Highway
89, Suite 220, Farmington, Utah 84025 on Wednesday, May 19, 2004 at 10:00 a.m.,
Mountain Time, for the following purposes:
o To elect four directors to serve for one year each, until the next
Annual Meeting of Shareholders and until a successor is elected and
shall qualify;
o To ratify the selection of Tanner + Co., LLP as the Company's
independent auditors;
o To approve an amendment to the Articles of Incorporation increasing
the number of shares authorized to be issued by the Company;
o To approve the adoption of the RemoteMDx 2004 Stock Incentive Plan;
and
o To consider and act upon any other matters that properly may come
before the meeting or at any postponement or adjournment thereof.
Only record holders of the common stock and the Series B Preferred
Stock of RemoteMDx at the close of business on March 29, 2004, have the right to
receive notice of, and to vote at, the Annual Meeting of Shareholders and any
adjournment thereof. A list of shareholders entitled to receive notice and to
vote at the meeting will be available for examination by a shareholder for any
purpose germane to the meeting during ordinary business hours at the offices of
RemoteMDx at 5095 West 2100 South, Salt Lake City, Utah, during the 10 days
prior to the meeting.
Your vote is important. Whether or not you are able to attend the
Annual Meeting, we urge you to sign and date the enclosed proxy card and to
return it promptly in the enclosed envelope. If you do attend the Annual
Meeting, you may withdraw your prior vote or proxy and vote personally on any
matters brought properly before the meeting. RemoteMDx will pay all expenses of
the meeting, including the cost of printing and mailing the proxy statement and
other materials and the solicitation process.
By Order of the Board of Directors,
/s/ Michael G. Acton
-----------------------------------
Michael G. Acton, Corporate Secretary
Salt Lake City, Utah
April 5, 2004
REMOTEMDx, INC.
ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT
TABLE OF CONTENTS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT 1
QUESTIONS AND ANSWERS 3
PROPOSAL #1: ELECTION OF DIRECTORS 5
PROPOSAL #2: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS 6
- --Independence 7
- --Financial Statements and Reports 7
- --Services 7
PROPOSAL #3: AMENDMENT TO ARTICLES OF INCORPORATION INCREASING
AUTHORIZED CAPITAL 7
PROPOSAL #4: ADOPTION OF REMOTEMDX 2004 STOCK INCENTIVE PLAN 9
INFORMATION CONCERNING REMOTEMDX, INC. 13
BOARD OF DIRECTORS
- --Committees of the Board of Directors 13
- --Audit Committee Financial Expert 13
- --Remuneration 13
- --Director Independence 13
- --Shareholder Communications with Directors 13
REPORT OF THE AUDIT COMMITTEE 14
EXECUTIVE OFFICERS 14
COMMON STOCK OWNERSHIP 16
COMPENSATION OF EXECUTIVE OFFICERS 18
- --Summary Compensation Table 18
- --Employment Agreements 19
- --Stock Option Grants in Fiscal Year 2003 19
- --Stock Options Outstanding and Options Exercised in Fiscal Year 2003 19
COMPENSATION PLANS 19
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 20
STOCK PERFORMANCE GRAPH 20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 21
OTHER MATTERS 22
ANNUAL REPORT 23
FURTHER INFORMATION 23
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[LOGO OMITTED]
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 2004
The Board of Directors of RemoteMDx, Inc. ("RemoteMDx") is soliciting
proxies to be used at the 2003 Annual Meeting of Shareholders ("Annual
Meeting"). Distribution of this Proxy Statement and proxy form is scheduled to
begin on or about April 5, 2004. The mailing address of RemoteMDx's principal
executive offices is 5095 West 2100 South, Salt Lake City, Utah 84120.
QUESTIONS AND ANSWERS
Why did I receive this Proxy Statement? We have sent you the Notice of
Annual Meeting of Shareholders and this Proxy Statement and the enclosed proxy
or voting instruction card because the RemoteMDx Board of Directors is
soliciting your proxy to vote at our Annual Meeting on May 19, 2004. The Proxy
Statement contains information about matters to be voted on at the Annual
Meeting.
Who is entitled to vote? You may vote if you owned common stock or
shares of Series B preferred stock as of the close of business on March 29,
2004. On March 29, 2004, there were 27,780,324 shares of our common stock and
1,835,824 shares of Series B preferred stock outstanding and entitled to vote at
the Annual Meeting.
How many votes do I have? Each share of common stock and each share of
Series B preferred stock that you own at the close of business on March 29, 2004
entitles you to one vote.
What am I voting on? You will be voting on proposals to:
o Elect four directors;
o Ratify the selection of Tanner + Co., LLP ("Tanner + Co.") as our
independent auditors;
o Approve an amendment to the Company's Articles of Incorporation (the
"Articles of Incorporation") increasing the number of shares of stock
the Company may issue;
o Approve and ratify the adoption of the RemoteMDx 2004 Stock Incentive
Plan ("2004 Stock Plan"); and o Transact any other business which may
properly come before the Annual Meeting.
How do I vote? You can vote in the following ways:
o By Mail: If you are a holder of record, you can vote by marking,
dating and signing your proxy card and returning it by mail in the
enclosed postage-paid envelope. If you hold your shares in street
name, please complete and mail the voting instruction card.
o At the Annual Meeting: If you are planning to attend the Annual
Meeting and wish to vote your shares in person, we will give you a
ballot at the meeting. If your shares are held in street name, you
need to bring an account statement or letter from your broker, bank or
other nominee indicating that you are the beneficial owner of the
shares on March 29, 2004, the record date for voting. Even if you plan
to be present at the meeting, we encourage you to complete and mail
the enclosed card to vote your shares by proxy.
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What if I return my proxy or voting instruction card but do not mark it
to show how I am voting? Your shares will be voted according to the instructions
you have indicated on your proxy or voting instruction card. You can specify
whether your shares should be voted for all, some or none of the nominees for
director. You can also specify whether you approve, disapprove or abstain from
the other proposals. If no direction is indicated, your shares will be voted FOR
the election of the nominees for director, FOR the ratification of the selection
of Tanner + Co. as our independent auditors, FOR the adoption of the 2004 Stock
Plan, and, with respect to any other matter that may properly come before the
Annual Meeting, at the discretion of the proxy holders.
May I change my vote after I return my proxy card or voting instruction
card? You may revoke your proxy or change your vote at any time before it is
exercised in one of three ways: o Notify our Corporate Secretary in writing
before the Annual Meeting that you are revoking your proxy; o Submit another
proxy card (or voting instruction card if you hold your shares in street name)
with a later date; or o Vote in person on Wednesday, May 19, 2004 at the Annual
Meeting.
What does it mean if I receive more than one proxy or voting
instruction card? It means that you have multiple accounts at the transfer agent
and/or with banks and stockbrokers. Please vote all of your shares by returning
all proxy and voting instruction cards you receive.
What constitutes a quorum? A quorum must be present to properly convene
the Annual Meeting. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares entitled to vote at the Annual Meeting
constitutes a quorum. You will be considered part of the quorum if you return a
signed and dated proxy or voting instruction card or if you attend the Annual
Meeting. Abstentions and broker non-votes are counted as shares present at the
meeting for purposes of determining whether a quorum of common stock
shareholders exists but not as shares cast for any proposal. Because abstentions
and broker non-votes are not treated as shares cast, they would have no impact
on Proposals 1 or 2. A majority of the issued and outstanding Series B preferred
stock must be present in person or by proxy in order for a quorum to be present
for purposes of Proposal 3.
What vote is required in order to approve each proposal? The required
vote is as follows:
o Election of Directors: The election of the nominees requires the
affirmative vote of a plurality of the shares cast at the Annual
Meeting. This means that a nominee receiving more "FOR" votes than
"AGAINST" votes will be approved. If you do not want to vote your
shares for a particular nominee, you may indicate that in the space
provided on the proxy card or the voting instruction card. In the
unanticipated event that any of the nominees is unable or declines to
serve, the proxy will be voted for another person as shall be
designated by the Board of Directors to replace the nominee, or in
lieu thereof, the Board may reduce the number of directors.
o Ratification of Selection of Independent Auditors: Ratification of the
selection of Tanner + Co. as our independent auditors requires the
affirmative vote of a majority of the shares cast at the Annual
Meeting. If the shareholders do not ratify the appointment of Tanner +
Co., the Audit Committee may reconsider the appointment.
o Approval of Amendment to Articles of Incorporation Increasing the
Authorized Capital of the Company (the "Amended Articles"): Amendment
of the Articles of Incorporation requires the affirmative vote of a
majority of the voting stock of the Company. The measure will not pass
unless affirmed by a vote of a majority of all outstanding voting
securities (the common stock and the Series B preferred stock)
combined. We have no current understanding, arrangement, or agreement,
written or oral, to issue stock for any purpose.
o Approval of the 2004 Stock Plan: Approval of the adoption of the plan
requires the affirmative vote of a majority of the shares cast at the
Annual Meeting.
4
How will voting on any other business be conducted? We do not know of
any business or proposals to be considered at the Annual Meeting other than
those described in this Proxy Statement. If any other business is proposed and
we decide to allow it to be presented at the Annual Meeting, the proxies
received from our shareholders give the proxy holders the authority to vote on
the matter according to their best judgment.
Who will count the votes? Representatives of RemoteMDx will act as the
inspectors of election and will tabulate the votes cast at the Annual Meeting
and received by proxy.
Who pays to prepare, mail and solicit the proxies? We will pay all of
the costs of soliciting proxies. We will ask banks, brokers and other nominees
and fiduciaries to forward the proxy materials to the beneficial owners of our
common stock and to obtain the authority of executed proxies. We will reimburse
them for their reasonable expenses.
How do I submit a shareholder proposal for next year's Annual Meeting?
Any shareholder who intends to present a proposal at the 2005 Annual Meeting of
Shareholders must deliver the proposal to the Corporate Secretary, c/o
RemoteMDx, Inc., 5095 West 2100 South, Salt Lake City, Utah 84120, not later
than February 15, 2005, if the proposal is submitted for inclusion in our proxy
materials for that meeting pursuant to Rule 14a-8 under the Securities Exchange
Act of 1934.
Who should I call if I have questions? If you have questions about the
proposals or the Annual Meeting, you may call Michael G. Acton, CFO and
Secretary, at (801) 908-7766.
PROPOSAL #1 - ELECTION OF DIRECTORS
Our Bylaws provide that the shareholders or the Board of Directors
shall determine the number of directors from time to time, but that there shall
be no less than three. The Board of Directors currently has five members. Four
of these directors will stand for re-election at the Annual Meeting. Mr. Kirton,
who has served as a member of the Board of Directors since 1998, will not stand
for election at this meeting. The remaining Board members following the Annual
Meeting will fill the vacancy created by Mr. Kirton's resignation from the
Board. It is anticipated that the newly appointed director filling the vacancy
created by Mr. Kirton's decision not to continue on the Board will be an
independent director, as that term is defined by the current rules of the
American Stock Exchange. As a result, following the appointment of a new
director a majority of the members of our Board will be independent in
compliance with recently enacted corporate governance laws and the listing
requirements of the American Stock Exchange. Mr. Kirton will continue to serve
as a full-time executive officer of the Company following the Annual Meeting.
Each director elected at the Annual Meeting will hold office until the
Annual Meeting in 2005, until a successor is elected and qualified, or until the
director resigns, is removed or becomes disqualified. The Board of Directors has
no reason to believe that any of the nominees for director will be unwilling or
unable to serve if elected. These nominees have been selected by the Board of
Directors; the Board has no nominating committee. If due to unforeseen
circumstances a nominee should become unavailable for election, the Board may
either reduce the number of directors or substitute another person for the
nominee in which event your shares will be voted for that other person.
We will vote your shares as you specify in your proxy. If you sign,
date and return your proxy but do not specify how you want your shares voted, we
will vote them FOR the election of each of the nominees listed below.
Recommendation
The Board of Directors unanimously recommends a vote FOR each director
nominee.
Director Nominees
The nominees to the Board of Directors in 2004 are Robert E. Childers,
James J. Dalton, David G. Derrick, and Peter McCall. All of the nominees
currently serve as members of the Board of Directors. The following information
is furnished with respect to these nominees as of March 1, 2004.
5
Robert E. Childers - Director
Mr. Childers joined our board in July 2001. He is Chief Executive
Officer of Structures Resources Inc. and has more than 30 years of business
experience in construction and real estate development. Mr. Childers has served
or is currently serving as General Partner in 16 Public Limited Partnerships in
the Middle Atlantic States. Partners include First Union Bank, and Fannie Mae.
In 1972, Mr. Childers founded Structures Resources Inc. a design build
construction firm, and has been president of that company for 28 years.
Structures Resources has successfully completed over 300 projects, (offices,
hotels, apartments, and shopping centers) from New York to North Carolina.
Recently Mr. Childers has been a partner for various projects in Baltimore and
Philadelphia. He is a co-founder of Life Science Group, a boutique biotech
investment-banking firm. Mr. Childers was also the founding President of
Associated Building Contractors for the State of West Virginia and served as a
director of The Twentieth Street Bank until its merger with City Holding Bank.
He is a former naval officer serving in Atlantic Fleet submarines. Mr. Childers
is a member of the Audit Committee of the board of directors.
James J. Dalton - President and Vice Chairman
Mr. Dalton joined us as a director in 2001. He was named President of
the Company in August 2003. From 1987 to 1997, Dalton was the owner and
President of Dalton Development, a real estate development company. He served as
the President and coordinated the development of The Pinnacle, an 86-unit
condominium project located at Deer Valley Resort in Park City, Utah. Mr. Dalton
also served as the President and equity owner of Club Rio Mar in Puerto Rico, a
680-acre beach front property that includes 500 condominiums, beach club,
numerous restaurants, pools and a Fazio-designed golf course. He was also a
founder and owner of the Deer Valley Club, where he oversaw the development of a
high-end, world-class ski project that includes 25 condominiums with a "ski-in
and ski-out" feature. From 1996 to 2000, Dalton served as an officer and
director of Biomune Systems, Inc. Prior to joining us and following his
resignation from Biomune Systems, Dalton managed his personal investments.
David D. Derrick - CEO and Chairman
Mr. Derrick has been our CEO and Chairman since February 2001.
Previously he served as CEO and Chairman of the Board of Directors of Biomune
Systems Inc. between 1989 and 1998. From 1996 to 1999, Derrick was Chairman of
the Board of Directors of Purizer Corporation; during 2000 he served as a
director of Purizer Corporation. From 1979 to 1982, Derrick was a faculty member
at the University of Utah College of Business. Mr. Derrick graduated from the
University of Utah with a Bachelor of Arts degree in Economics in 1975 and a
Masters in Business Administration degree with an emphasis in Finance in 1976.
Mr. Derrick has been a principal financier and driving force in many new
businesses. During the early 1980's he helped create the community of Deer
Valley, an exclusive ski resort outside of Park City, Utah. In 1985 he founded
and funded a company that pioneered the Smart Home concept - the computerized
home. The company is known as Vantage Systems and is today a leader in this
field.
Peter McCall - Director
Mr. McCall joined our board of directors in July 2001. From 1998 to
2002, Mr. McCall was Vice President for General Electric Capital Corp. where he
was responsible for whole loan mortgages and private label pass-through. From
1988 to 1998, he served as a Vice President of Financial Security Assurance, and
Managing Director of the residential mortgage purchase program for Nomura
Securities International. Mr. McCall is currently the owner of McCall Inc., a
privately held company that focuses on investments in start up companies. Mr.
McCall is a member of the Audit Committee of the board of directors.
PROPOSAL #2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected Tanner + Co.
as the independent public accountants to audit the financial statements of
RemoteMDx and its subsidiaries for the fiscal year ending September 30, 2004.
The Board is submitting the appointment of that firm for ratification of the
shareholders at the Annual Meeting.
6
Tanner + Co. has served as the Company's independent public accountants
since the fiscal year ended September 30, 2002 and audited the financial
statements of the Company for the years ended September 30, 2002 and 2003.
While ratification of the selection of accountants by the shareholders
is not required and is not binding upon the Audit Committee or the Company, in
the event of a negative vote on such ratification, the Audit Committee might
choose to reconsider its selection.
Independence
Tanner + Co. has advised us that it has no direct or indirect financial
interest in RemoteMDx or any of its subsidiaries, and that it has had, during
the last three years, no connection with RemoteMDx or any of its subsidiaries
other than as independent auditors and certain other activities as described
below.
Financial Statements and Reports
The financial statements of RemoteMDx for the year ended September 30,
2003, and report of the auditors will be presented at the Annual Meeting. Tanner
+ Co. will have a representative present at the meeting who will have an
opportunity to make a statement if he or she so desires and to respond to
appropriate questions from shareholders.
Services
For the years ended September 30, 2002 and 2003, Tanner + Co., LLP
provided audit and other services for the Company. The following summarizes
those services and the amounts paid by the Company to Tanner + Co. in connection
with the services.
Audit Services
Audit services consist of the audit of the annual consolidated
financial statements of the Company, review of the quarterly financial
statements, stand-alone audits of subsidiaries, accounting consultations and
consents and other services related to SEC filings and registration statements
filed by the Company and its subsidiaries and other pertinent matters. Audit
fees paid to Tanner + Co. for fiscal years 2003 and 2002 totaled $76,000 and
$115,000, respectively.
Tax Services
Tanner + Company did not provide any consulting services to the Company
in fiscal years 2002 and 2003, including tax consultation and related services,
nor did Tanner + Company perform any financial information systems design and
implementation services for the Company in either period. Non-audit-related
services consist primarily of tax consultation and related services.
The Audit Committee of the Board of Directors considered and authorized
all services provided by Tanner + Company and considered that the provision of
non-audit services was compatible with maintaining auditor independence.
Recommendation
The Board of Directors unanimously recommends a vote "FOR" Proposal #2.
PROPOSAL #3 - AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED CAPITAL OF THE COMPANY TO INCLUDE 100,000,000
SHARES OF COMMON STOCK, PAR VALUE $.0001 PER SHARE.
The first paragraph of Article III of the Company's Articles of
Incorporation, as amended to date, reads as follows:
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The
7
total number of shares of Common Stock authorized to be issued is fifty
million (50,000,000) and the total number of shares of Preferred Stock
authorized to be issued is ten million (10,000,000). The Common Stock
and the Preferred Stock shall each have a par value of $0.0001 per
share.
The Company's Board of Directors has approved and recommends to the
shareholders the adoption of an amendment to this paragraph of Article III of
the Articles of Incorporation that would increase the number of shares of common
stock that the Company is authorized to issue from 50,000,000 shares to
100,000,000 shares. The authorized number of shares of preferred stock would not
be changed. This paragraph of Article III, as amended, would read as follows:
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of Common Stock authorized to be issued is one
hundred million (100,000,000) and the total number of shares of
Preferred Stock authorized to be issued is ten million (10,000,000).
The Common Stock and the Preferred Stock shall each have a par value of
$0.0001 per share.
Only the number of shares of common stock issuable by the Company would
be affected by this amendment. Except for this change, the proposed amendment
would not affect any other provision of the Articles of Incorporation as
previously amended. The text of the Restated Articles of Incorporation,
containing all amendments adopted to date, including the proposed amendment to
Article III is attached to this Proxy Statement as Appendix A and is
incorporated herein by reference. We have no current understanding, arrangement
or agreement, oral or written, to issue stock for any purpose.
Background of the Proposed Amendment
As of the Record Date, there were 27,780,324 shares of the Company's
common stock issued and outstanding. As of the Record Date, there were 5,600,888
shares of common stock reserved for issuance pursuant to presently issued and
outstanding options, warrants and similar rights, including shares that have
been set aside for issuance under the Company's existing incentive stock option
plans. There were also 8,839,307 shares of common stock reserved for issuance
upon conversion of the outstanding Series A preferred stock and 1,835,824 shares
reserved for issuance upon conversion of the outstanding Series B preferred
stock. The Company has also issued convertible debentures payable in February
2006 convertible into 308,822 shares of common stock (assuming a $3.00
conversion price). Thus, as of the Record Date, assuming full exercise of all
outstanding options and warrants and the conversion of all outstanding preferred
stock, the Company had 44,365,165 shares of common stock equivalents
outstanding.
Management believes that the proposed amendment would benefit the
Company by allowing the Board of Directors to issue additional equity securities
to raise additional capital, to pursue strategic investment and technology
partners, to facilitate possible future acquisitions and to provide
stock-related employee benefits. To date, the Company's primary source of
financing has been private sales of common stock or other equity or debt
securities convertible into common stock. To facilitate such financing
transactions, the authorized capital of the Company will need to be increased
pursuant to a shareholder-approved amendment to the certificate of
incorporation.
For these reasons, the Company's Board of Directors is seeking
shareholder approval of the proposed amendment.
If the proposed amendment is approved at the Annual Meeting, generally,
no shareholder approval would be necessary for the issuance of all or any
portion of the additional shares of common stock unless required by law or any
rules or regulations to which the Company is subject.
Depending upon the consideration per share received by the Company for
any subsequent issuance of common stock, such issuance could have a dilutive
effect on those shareholders who previously paid a higher consideration per
share for their stock. Also, future issuances of common stock will increase the
number of outstanding shares, thereby decreasing the percentage ownership in the
Company (for voting, distributions and all other purposes) represented by
existing shares of common stock. The availability for issuance of the additional
shares of common stock may be viewed as having the effect of discouraging an
unsolicited attempt by another person or entity to acquire control of the
Company. Although the Board of Directors has no present intention of doing so,
the Company's authorized but unissued common stock could be issued in one or
more transactions that would make a takeover of the Company more difficult or
costly, and therefore less likely. The Company is not aware of any person or
8
entity who is seeking to acquire control of the Company. Holders of common stock
do not have any preemptive rights to acquire any additional securities issued by
the Company.
If the shareholders do not approve the proposed amendment, the Company
will be precluded from raising additional equity capital, pursuing strategic
partnership arrangements and acquisitions, or other similar transactions in
which the Company is required to issue shares of common stock. In such event,
the Company's operations and financial condition will be materially and
adversely affected because the Company presently does not have sufficient cash
reserves or revenues from operations to pay its operating expenses. Moreover,
even if the Company were to negotiate additional merger, acquisition, or other
transactions on terms acceptable to the Company, the Company likely would not be
able to complete such transactions without an increase in authorized capital.
Adoption of the proposal to approve the proposed amendment requires the
affirmative vote either by proxy or in person at the Annual Meeting of the
holders of a majority of the outstanding shares of common stock entitled to vote
thereon. If approved by the shareholders, the proposed amendment would become
effective upon the filing with the Division of Corporations and Commercial Code,
Department of Commerce, of the State of Utah of the Restated Articles of
Incorporation setting forth such increase.
Recommendation
The Board of Directors unanimously recommends a vote "FOR" Proposal #3.
PROPOSAL #4 - ADOPTION OF THE 2004 STOCK INCENTIVE PLAN
On February 17, 2004, the Board of Directors approved the 2004 Stock
Incentive Plan. The Board has proposed the approval of the plan for a vote by
our shareholders. The following is a summary of the material terms of the 2004
Stock Incentive Plan. Because this is a summary it does not contain all of the
provisions of the plan that may be of importance to you. You should read the
plan carefully. A copy of the 2004 Stock Incentive Plan is attached to this
Proxy Statement as Appendix B. We have reserved 6,000,000 shares of common stock
for issuance under the 2004 Stock Incentive Plan.
General
The 2004 Stock Incentive Plan provides for the grant of restricted
stock awards, as well as incentive stock options and nonqualified stock options
to employees, directors and consultants of RemoteMDx and its subsidiaries.
Incentive stock options granted under the 2004 Stock Incentive Plan are intended
to qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonqualified stock
options granted under the 2004 Stock Incentive Plan are not intended to qualify
as incentive stock options under the Code. See "Federal Income Tax Information"
for a discussion of the tax treatment of awards granted under the plan.
No grants have been made under the plan as of the date of this Proxy
Statement.
Purpose
The 2004 Stock Incentive Plan is intended to encourage employees and
directors of RemoteMDx to acquire equity interests in RemoteMDx and to provide a
means whereby these persons may develop a sense of proprietorship and personal
involvement in the financial success of RemoteMDx, thereby encouraging them to
devote their best efforts to the business of RemoteMDx. The 2004 Stock Incentive
Plan also is intended to enhance the ability of RemoteMDx to attract and retain
the services of individuals who are essential for the progress, growth and
profitability of RemoteMDx. All of the employees and directors of RemoteMDx and
its subsidiaries are eligible to participate in the 2004 Stock Incentive Plan,
with awards made at the discretion of the Board of Directors, which currently
administers the 2004 Stock Incentive Plan.
Administration
The Board of Directors administers the 2004 Stock Incentive Plan.
Subject to the provisions of the 2004 Stock Incentive Plan, the Board of
Directors has the power to construe and interpret the 2004 Stock Incentive Plan
and to determine the persons to whom and the dates on which awards will be
granted, the number of shares of common stock to be subject to each award, the
9
time or times during the term of each award within which all or a portion of
such award may become vested and be exercised, the exercise price, the type of
consideration allowable as payment (where there is a purchase price for the
award) and other terms of the award.
The Board of Directors may delegate administration of the 2004 Stock
Incentive Plan to a committee composed of not fewer than two members of the
Board. The committee will consist of at least two or more outside directors, as
that term is defined in Section 162(m) of the Code and the regulations
thereunder, who are also non-employee directors, as that term is defined in Rule
16b-3 of the Exchange Act. As used in this discussion of the 2004 Stock
Incentive Plan, the Board refers to any committee of the Board so appointed as
well as to the Board itself.
Stock Subject to Awards
A total of 6,000,000 shares of common stock is reserved for issuance
under the 2004 Stock Incentive Plan. If awards granted under the 2004 Stock
Incentive Plan expire or otherwise terminate without being exercised, the shares
of common stock not acquired pursuant to those awards again become available for
issuance under the 2004 Stock Incentive Plan.
Eligibility
Employees (including officers), directors and consultants of RemoteMDx
and its subsidiaries are eligible to receive awards, except that only employees
are eligible to receive incentive stock options. The 2004 Stock Incentive Plan
limits the value of incentive stock options that may be granted to a person
during any calendar year under the 2004 Stock Incentive Plan, consistent with
the requirements of the Code applicable to incentive stock options. In addition,
awards granted in connection with promotions or other incentives related to
performance of the employee under the 2004 Stock Incentive Plan are subject to
limitations imposed by Section 162(m) of the Code.
Stock Options
The exercise price of options may not be less than 100% of the fair
market value of the stock subject to the option on the date of the grant. The
exercise price of options granted must be paid either (i) in cash at the time
the option is exercised or (ii) by delivery of other common stock of RemoteMDx,
or (iii) by promissory note in form acceptable to RemoteMDx, or (iv) from the
proceeds of a sale through a broker of shares to which the exercise relates.
Options may become exercisable (vest) in cumulative increments as
determined by the Board. Typically, the outstanding options vest over periods
ranging from three to six years from the date of grant during the participant's
employment by, or service as a director or consultant to, RemoteMDx or a
subsidiary, although different vesting schedules are permitted. The Board has
the power to accelerate the time during which an option may vest or be
exercised. The maximum term of options is 10 years. Unless otherwise stated in
an option agreement, vested options will remain exercisable for 90 days after
the participant terminates service with RemoteMDx or one of its subsidiaries.
Withholding
To the extent permitted by the Board, a participant may satisfy any
federal, state or local tax withholding obligation relating to the receipt of
shares under an award by a cash payment upon exercise, by authorizing RemoteMDx
to withhold a portion of the stock otherwise issuable to the participant, by
delivering already-owned common stock or by a combination of these means.
Restrictions on Transfer
A participant may not transfer an incentive stock option other than by
will or by the laws of descent and distribution. During the lifetime of a
participant, only the named participant may exercise an incentive stock option.
The Board may grant awards, other than incentive stock options, that are
transferable to the extent provided in the award agreement. Transfers of these
awards are permitted by the participant to members of the participant's
immediate family.
10
Adjustment Provisions
If RemoteMDx is party to a transaction such as a merger, consolidation,
reorganization, combination of shares, recapitalization or other change in the
capital structure of RemoteMDx, partial or complete liquidation, stock dividend,
issuance of a warrant or writ, stock split, or any other corporate transaction
or event having an effect similar to any of the foregoing, the Board of
Directors will adjust the kind and number of shares of common stock subject to
the 2004 Stock Incentive Plan, and outstanding awards will be adjusted as to the
kind, number of shares and price per share of common stock subject to those
awards.
Duration and Amendment
The Board may suspend or terminate the 2004 Stock Incentive Plan
without shareholder approval or ratification at any time or from time to time.
The 2004 Stock Incentive Plan will continue in effect as long as any awards
under it are outstanding; provided, however, that, to the extent required by the
Code, no incentive stock options may be granted under the 2004 Stock Incentive
Plan on a date that is more than 10 years from the later of the date the 2004
Stock Incentive Plan is adopted or the date the 2004 Stock Incentive Plan is
approved by the shareholders.
The Board may also amend the 2004 Stock Incentive Plan at any time or
from time to time. The Board may submit amendments to the shareholders for their
approval if deemed necessary or appropriate in its sole discretion.
Federal Income Tax Information
The following is a brief summary of the federal income tax consequences
of certain transactions under the 2004 Stock Incentive Plan based on federal
income tax laws in effect on January 1, 2002. This summary is not intended to be
exhaustive and does not describe state or local tax consequences. Additional or
different federal income tax consequences to the employee or RemoteMDx may
result depending upon other considerations not described below.
Incentive Stock Options
Incentive stock options under the 2004 Stock Incentive Plan are
intended to be eligible for the favorable federal income tax treatment accorded
incentive stock options under the Code.
The aggregate fair market value, determined at the time of grant, of
the shares of common stock with respect to which incentive stock options are
exercisable for the first time by a participant during any calendar year (under
the 2004 Stock Incentive Plan and all other such plans of RemoteMDx and its
affiliates) may not exceed $100,000.
There generally are no federal income tax consequences to the
participant or RemoteMDx by reason of the grant or exercise of an incentive
stock option. However, the exercise of an incentive stock option may increase
the participant's alternative minimum tax liability, if any.
If a participant holds stock acquired through exercise of an incentive
stock option for more than two years from the date on which the option is
granted and more than one year from the date on which the shares are transferred
to the participant upon exercise of the option, any gain or loss on a sale of
such stock will be a long-term capital gain or loss. Generally, if the
participant sells the stock before the expiration of either of these holding
periods (a disqualifying disposition), then at the time of sale the participant
will realize taxable ordinary income equal to the lesser of (i) the excess of
the stocks fair market value on the date of exercise over the exercise price, or
(ii) the participant's actual gain, if any, on the sale. The participant's
additional gain or any loss upon the disqualifying disposition will be a capital
gain or loss, which will be long-term or short-term depending on whether the
stock was held for more than one year.
To the extent the participant recognizes ordinary income by reason of a
disqualifying disposition, RemoteMDx generally will be entitled (subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
11
Nonqualified Stock Options
Nonqualified stock options granted under the 2004 Stock Incentive Plan
generally have the following federal income tax consequences:
There are no tax consequences to the participant or RemoteMDx by reason
of the grant of a nonqualified stock option. Upon exercise of the option, the
participant normally will recognize taxable ordinary income equal to the excess,
if any, of the stocks fair market value on the acquisition date over the
exercise price. With respect to employees, RemoteMDx generally is required to
withhold from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness, the
provisions of Section 162(m) of the Code and the satisfaction of a tax reporting
obligation, RemoteMDx generally will be entitled to a business expense deduction
equal to the taxable ordinary income realized by the participant.
Upon a sale of the stock, the participant will recognize a capital gain
or loss equal to the difference between the selling price and the sum of the
amount paid for such stock plus any amount recognized as ordinary income upon
exercise of the stock option. Such gain or loss will be long-term or short-term
depending on whether the stock was held for more than one year. Different rules
may apply to participants who are subject to Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions
Section 162(m) of the Code denies a deduction to any publicly held
corporation for compensation paid to certain covered employees in a taxable year
to the extent that the compensation paid to such covered employee exceeds $1
million. It is possible that compensation attributable to awards, when combined
with all other types of compensation received by a covered employee from
RemoteMDx, may cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified performance-based
compensation, are disregarded for purposes of the deduction limitation. In
accordance with Treasury Regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation if
the award is granted by a compensation committee comprised solely of outside
directors and either (i) the plan contains a per-employee limitation on the
number of shares for which such awards may be granted during a specified period,
the per-employee limitation is approved by the stockholders, and the exercise
price of the award is no less than the fair market value of the stock on the
date of grant, or (ii) the award is granted (or exercisable) only upon the
achievement (as certified in writing by the compensation committee) of an
objective performance goal established in writing by the compensation committee
while the outcome is substantially uncertain, and the award is approved by
stockholders.
Awards to purchase restricted stock will qualify as performance-based
compensation under the Treasury Regulations only if (i) the award is granted by
a compensation committee comprised solely of outside directors, (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
or formula used to calculate the amount payable upon attainment of the
performance goal).
Recommendation of the Board
The vote of a majority of the shares cast at the Annual Meeting is
required to approve the 2004 Stock Incentive Plan. If a majority of the shares
cast do not approve the 2004 Stock Incentive Plan, then the Board of Directors
may reconsider adoption of the 2004 Stock Incentive Plan or may proceed to make
grants under the plan that do not require shareholder approval. The Board
unanimously recommends that the shareholders vote "FOR" Proposal #4, the 2004
Stock Incentive Plan.
12
INFORMATION CONCERNING REMOTEMDX, INC.
BOARD OF DIRECTORS
The Board of Directors is elected by and accountable to the
shareholders. The Board establishes policy and provides strategic direction,
oversight and control of RemoteMDx. The board of directors met three times
during fiscal year 2003. No director attended fewer than 75% of the meetings
during the fiscal year. The board also acted during fiscal year 2003 by
unanimous written consent in lieu of a meeting, as permitted by Utah law and our
bylaws.
Committees of the Board of Directors
The board has no formal Nominating Committee. The board has an Audit
Committee, currently comprised of Mr. McCall and Mr. Childers. The Audit
Committee held no separate meetings in fiscal year 2003.
The functions of the Audit Committee are (1) to review and approve the
selection of, and all services performed by, our independent auditors, (2) to
review our internal controls, and (3) to review and report to the board of
directors with respect to the scope of our audit procedures, accounting
practices and internal accounting and financial controls. Mr. Childers and Mr.
McCall are independent directors within the meaning of that term under
applicable Securities and Exchange Commission rules.
Audit Committee Financial Expert
Peter McCall, a director of the Company, is the financial expert
serving on the Audit Committee of the Board of Directors within the meaning of
that term under applicable rules promulgated by the Securities and Exchange
Commission.
Remuneration
Non-employee directors are paid $1,500 per meeting and receive a grant
of an option to acquire 30,000 shares of common stock for each completed year of
service on the board. We also reimburse the reasonable travel expenses of
members for their attendance at the meetings of the board and meetings of the
shareholders.
Director Independence
We assess director independence on an annual basis. In February 2004,
the Board assessed the independence of each director in accordance with the then
effective independence standards. The Board has determined, after careful
review, that Mr. Childers and Mr. McCall are independent under the rules of the
Securities and Exchange Commission. In addition, the Company believes that these
directors meet the independence standards applicable to independent directors,
including directors serving as members of corporate audit committees, recently
adopted by the Nasdaq Stock Market.
Shareholder Communications with Directors
The Board of Directors has not established a formal process for
shareholders to follow to send communications to the Board or its members, as
the Company's policy has been to forward to the directors any shareholder
correspondence it receives that is addressed to them. Shareholders who wish to
communicate with the directors may do so by sending their correspondence to the
Company's headquarters at 5095 West 2100 South, Salt Lake City, Utah 84120.
Directors are encouraged by the Company to attend the Annual Meeting of
Shareholders if their schedules permit. The Annual Meeting to be held pursuant
to the Notice accompanying this Proxy Statement is the first annual meeting of
the shareholders held by the Company. All of the directors are expected to be in
attendance at the meeting.
13
REPORT OF THE AUDIT COMMITTEE
[The following report of the Audit Committee shall not be deemed
incorporated by reference by any general statement incorporating this Proxy
Statement into any other filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent RemoteMDx specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under those acts.]
The Audit Committee oversees RemoteMDx's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls.
The directors who serve on the Audit Committee are all independent for
purposes of the Rule 4200(A)(15) of The National Association of Securities
Dealers' listing standards and National Market Marketplace Rules, as amended.
The Audit Committee operates under a written charter adopted by the
Board of Directors.
We have reviewed and discussed with management RemoteMDx's audited
financial statements as of and for the year ended September 30, 2003.
We have discussed with the independent auditors, Tanner + Co., the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants, which includes a
review of the findings of the independent accountant during its examination of
the Company's financial statements.
We have received and reviewed the written disclosures and the letter
from Tanner + Co., required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with the auditors the auditors independence. We have
concluded that the independent public accountants are independent from the
Company and its management.
Based on the activities referred to above, we recommended to the Board
of Directors (and the Board has approved) that the financial statements referred
to above be included in RemoteMDx's Annual Report on Form 10-KSB for the year
ended September 30, 2003.
Respectfully submitted to the Board of Directors,
Audit Committee
Peter McCall, Chairman
Robert E. Childers
EXECUTIVE OFFICERS
The following table sets forth information concerning our executive
officers and directors and their ages as at March 29, 2004:
Name Age Position
David G. Derrick 51 Chief Executive Officer and Chairman (Director)
James J. Dalton 60 President and Vice Chairman (Director)
Wilford W. Kirton, III 42 President of PAL Services
Michael G. Acton 40 Chief Financial Officer, Secretary-Treasurer
Jonathan Barnes 29 Chief Technical Officer
Peter McCall 44 Director
Robert E. Childers 57 Director
14
David Derrick - CEO and Chairman
Mr. Derrick has been our CEO and Chairman since February 2001.
Previously he served as CEO and Chairman of the Board of Directors of
Biomune Systems Inc. between 1989 and 1998. From 1996 to 1999, Derrick
was Chairman of the Board of Directors of Purizer Corporation; during
2000 he served as a director of Purizer Corporation. From 1979 to 1982,
Derrick was a faculty member at the University of Utah College of
Business. Mr. Derrick graduated from the University of Utah with a
Bachelor of Arts degree in Economics in 1975 and a Masters in Business
Administration degree with an emphasis in Finance in 1976. Mr. Derrick
has been a principal financier and driving force in many new
businesses. During the early 1980's he helped create the community of
Deer Valley, an exclusive ski resort outside of Park City, Utah. In
1985 he founded and funded a company that pioneered the Smart Home
concept - the computerized home. The company is known as Vantage
Systems and is today a leader in this field.
James Dalton - President and Vice Chairman
Mr. Dalton joined us as a director in 2001. He was named President of
the Company in August 2003. From 1987 to 1997, Dalton was the owner and
President of Dalton Development, a real estate development company. He
served as the President and coordinated the development of The
Pinnacle, an 86-unit condominium project located at Deer Valley Resort
in Park City, Utah. Mr. Dalton also served as the President and equity
owner of Club Rio Mar in Puerto Rico, a 680-acre beach front property
that includes 500 condominiums, beach club, numerous restaurants, pools
and a Fazio-designed golf course. He was also a founder and owner of
the Deer Valley Club, where he oversaw the development of a high-end,
world-class ski project that includes 25 condominiums with a "ski-in
and ski-out" feature. From 1996 to 2000, Dalton served as an officer
and director of Biomune Systems, Inc. Prior to joining us and following
his resignation from Biomune Systems, Dalton managed his personal
investments.
Wilford W. Kirton III - Vice President of PAL Services
Mr. Kirton joined us as a director and as an executive officer in
January 1998, currently serving as our Vice President of PAL Services.
He was our CEO from 1998 until 2001. Prior to joining us, Mr. Kirton
was the proprietor and President of Travel Systems Network, a travel
agency and tour operator from 1987 to 1994. From February 1994 to June
1996, Mr. Kirton was Vice President of Old Republic Title, a real
estate title company. Mr. Kirton then became an officer of Optim
Nutrition, a subsidiary of Biomune Systems, Inc. until joining us in
January 1998. Mr. Kirton is David Derrick's brother-in-law.
Michael Acton - Secretary, Treasurer and Chief Financial Officer
Mr. Acton joined us as Secretary-Treasurer in March 1999. He has also
served as our CFO since March 2001. From June 1998 until November 2000,
Mr. Acton was Chief Executive Officer of Biomune Systems, Inc., where
he also served as Principal Accounting Officer and Controller from 1994
to 1997. From 1989 through 1994, Mr. Acton was employed by Arthur
Andersen, LLP in Salt Lake City, Utah, where he performed various tax,
audit, and business advisory services. He is a Certified Public
Accountant in the State of Utah.
Jonathan Barnes - Chief Technical Officer
Mr. Barnes joined us as a part time technical advisor in October 2000,
and was hired full time as our CTO in November 2001. Previous to
working with RemoteMDx, Mr. Barnes was an independent technical
consultant for various clients in science and information technology.
Mr. Barnes is responsible for all technology coordination for the
Company. Mr. Barnes has a Masters Degree in Physics and Astronomy from
Brigham Young University. He has headed numerous research and
development projects in coordination with Brigham Young University and
NASA. Mr. Barnes has an extensive background in science, computers,
data gathering, and telematics.
15
Peter McCall - Director
Mr. McCall joined our board of directors in July 2001. From 1998 to
2002, Mr. McCall was Vice President for General Electric Capital Corp.
where he was responsible for whole loan mortgages and private label
pass-through. From 1988 to 1998, he served as a Vice President of
Financial Security Assurance, and Managing Director of the residential
mortgage purchase program for Nomura Securities International. Mr.
McCall is currently the owner of McCall Inc., a privately held company
that focuses on investments in start up companies. Mr. McCall is a
member of the Audit Committee of the board of directors.
Robert Childers - Director
Mr. Childers joined our board in July 2001. He is Chief Executive
Officer of Structures Resources Inc. and has more than 30 years of
business experience in construction and real estate development. Mr.
Childers has served or is currently serving as General Partner in 16
Public Limited Partnerships in the Middle Atlantic States. Partners
include First Union Bank, and Fannie Mae. In 1972, Mr. Childers founded
Structures Resources Inc. a design build construction firm, and has
been president of that company for 28 years. Structures Resources has
successfully completed over 300 projects, (offices, hotels, apartments,
and shopping centers) from New York to North Carolina. Recently Mr.
Childers has been a partner for various projects in Baltimore and
Philadelphia. He is a co-founder of Life Science Group, a boutique
biotech investment-banking firm. Mr. Childers was also the founding
President of Associated Building Contractors for the State of West
Virginia and served as a director of The Twentieth Street Bank until
its merger with City Holding Bank. He is a former naval officer serving
in Atlantic Fleet submarines. Mr. Childers is a member of the Audit
Committee of the board of directors.
COMMON STOCK OWNERSHIP
The following tables set forth certain information regarding the
beneficial ownership of our common stock as of March 29, 2004 by (1) each person
known to be the beneficial owner of more than 5% of the issued and outstanding
common stock, (2) the executive officers and directors of RemoteMDx
individually, and (3) the executive officers and directors as a group. Except as
indicated in the footnotes below, each of the persons listed is believed to
exercise sole voting and investment power over the shares of common stock listed
for such individual or entity in the table. Unless otherwise indicated, the
mailing address of the shareholder is the address of RemoteMDx, 5095 West 2100
South, Salt Lake City, Utah 84120.
We have determined beneficial ownership in accordance with the rules of
the Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, we
include shares of common stock subject to options, warrants, or convertible
securities held by that person that are currently exercisable or will become
exercisable within 60 days after the date of this Proxy Statement, while those
shares are not included for purposes of computing percentage ownership of any
other person.
Security Ownership of Certain Beneficial Owners
The following table sets forth information for any person (including
any "group") who is known to us to be the beneficial owner of more than 5% of
our common stock as of March 29, 2004.
Name and
Title of Class Address of Beneficial Owner Amount Percent of Class
Common David G. Derrick (1) 9,303,538 32.1%
Common James Dalton (2) 9,237,330 31.7%
Common J. Lee Barton (3)
196 No. Forest Ave.
Hartwell, GA 30643 1,552,981 5.6%
- ------------------
16
(1) Includes shares owned of record as follows: 7,377,581 shares held of
record by ADP Management, 704,924 shares owned of record by Derrick,
1,167,350 shares issuable upon conversion of Series A preferred stock
owned of record by ADP Management, 20,350 shares issuable upon
conversion of Series A preferred stock owned of record by MK
Financial, 33,333 shares issuable upon conversion of Series B
preferred stock owned of record by Derrick.
(2) Includes shares owned of record as follows: 7,377,581 shares held of
record by ADP Management (by agreement with Derrick, Dalton shares
control and beneficial ownership of the shares owned of record by ADP
Management), 458,929 shares owned of record by Dalton, 233,470 shares
issuable upon conversion of Series A preferred stock owned of record
by Dalton, 1,167,350 shares issuable upon conversion of Series A
preferred stock owned of record by ADP Management.
(3) Includes 690,667 shares owned directly by Mr. Barton, 662,313 shares
owned of record by Lintel, Inc., an entity owned and controlled by Mr.
Barton, and 200,001 shares issuable upon conversion of 200,001 shares
of Series B preferred stock owned of record by Lintel, Inc.
Security Ownership of Management
We have two classes of voting equity securities, the common stock and
the Series B preferred stock. In addition, we have a class of nonvoting
preferred stock, the Series A, that is convertible into common stock. The
following table sets forth information as of March 29, 2004, as to each class of
our equity securities beneficially owned by all directors and nominees named
therein, each of the named executive officers, and directors and executive
officers as a group.
Name and
Title of Class Address of Beneficial Owner Amount Percent of Class
Common David G. Derrick (1) 9,303,538 32.1%
James Dalton (2) 9,237,330 31.7%
Wilford W. Kirton, III (3) 150,015 *
Michael G. Acton (4) 237,401 *
Peter McCall (5) 830,360 2.9%
Robert Childers (6) 364,600 1.3%
Officers and Directors as a Group (7 persons) (7) 11,578,313 37.9%
Series B Preferred David G. Derrick 33,333 1.8%
Michael G. Acton 45,000 2.5%
Officers and Directors as a Group 78,333 4.3%
(1) Derrick's beneficial ownership of these shares is summarized in note (1) on
the preceding table.
(2) Dalton's beneficial ownership of these shares is summarized in note (2) on
the preceding table.
(3) Mr. Kirton is an executive officer. Of the shares indicated, 150,000 are
issuable upon exercise of stock options held by Mr. Kirton.
(4) Includes 146,894 shares issuable under options granted to Mr. Acton, 45,507
shares owned of record by Mr. Acton, and 45,000 shares issuable upon
conversion of the Series B preferred stock owned by Mr. Acton.
(5) Mr. McCall is a director. Includes (a) 150,000 shares of common stock owned
of record by Mr. McCall, 300,000 shares issuable upon exercise of stock
options held by Mr. McCall, and 380,360 shares issuable upon conversion of
shares of Series A preferred stock owned by Mr. McCall.
17
(6) Mr. Childers is a director. Includes (a) 50,000 shares of common stock
owned of record by the Robert E. Childers Living Trust, (b) 100,000 shares
issuable upon exercise of stock options held by Mr. Childers, and (c)
214,600 shares issuable upon conversion of Series A preferred stock.
(7) Duplicate entries eliminated.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid in each of the
past three fiscal years to all individuals serving as our chief executive
officer during the year ended September 30, 2003 as well as our other persons
who were serving as executive officers at the end of the year ended September
30, 2003, whose total annual salary and bonus for the year then ended exceeded
$100,000 (the "Named Executive Officers").
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
Securities
Other Annual Underlying All other
Name and Fiscal Bonus ($) Compensation ($) Options/SARs compensation
Principal Position Year Salary ($) (#) ($)
- -------------------------------------------------- -------- ----------- ---------- ----------------- ----------------- ------------
David G. Derrick, Chief Executive Officer 2001 $100,000 $63,000 $ 110,000 579,924/0 $ 125,000
Chairman of the Board of Directors (1) 2002 $120,000 $ 0 $ 180,000 0/0 $ 0
2003 $120,000 $ 0 $ 53,910 845,628/0 $ 0
James J. Dalton 2001 $100,000 $ 0 $ 0 579,924/0 $ 0
President and Vice Chairman (2) 2002 $120,000 $ 0 $ 0 0/0 $ 0
2003 $120,000 $ 0 $ 0 0/0 $ 0
Michael G. Acton, Chief Financial Officer (3) 2001 $62,180 $12,500 $ 100,000 240,496/0 $ 0
2002 $100,000 $28,750 $ 0 0/0 $ 0
2003 $100,000 $25,000 $ 4,092 0/0 $ 0
Wilford Kirton III 2001 $107,654 $21,500 $ 10,650 400,000/0 $ 0
Vice President PAL Services (4) 2002 $108,000 $ 0 $ 0 0/0 $ 0
2003 $108,000 $ 0 $ 0 0/0 $ 0
(1) Mr. Derrick became Chief Executive Officer in February 2001.
Amounts indicated in table do not include amounts recorded by the
Company under applicable accounting principles for non-cash
compensation paid to ADP Management in connection with financing
transactions that were entered into by the Company and ADP
Management during the years 2001, 2002 or 2003. Salary was accrued
and included in amounts owed to ADP Management under various
financing agreements. Outstanding amounts owed ADP Management
under all such agreements were converted to common stock in June
2003. Mr. Derrick is the principal owner and control person of ADP
Management. See "Certain Relationships and Related Party
Transactions."
(2) James J. Dalton who also serves as the Vice Chairman of our Board
of Directors. During 2001, 2002 and 2003, Dalton was paid $100,000
a year under a consulting agreement. His annual salary as
President is $100,000. The consulting fees and salary owed to
Dalton have historically been accrued as part of the ADP
Management financing arrangements. Outstanding amounts have been
converted to common stock as of June 2003. See "Certain
Relationships and Related Transactions."
(3) Mr. Acton has served as an executive officer since March 2001.
(4) Mr. Kirton served as Chief Executive Officer from January 1998
until February 2001. He was Chief Operating Officer from February
2001 until July 2001. He has served in the current executive
position since July 2001.
18
Employment Agreements
We have no employment agreements with any executive officers at this
time.
Stock Option Grants in Fiscal Year 2003
We did not grant stock options during the fiscal year ended September
30, 2003 to the Named Executive Officers.
Stock Options Outstanding and Options Exercised in Fiscal Year 2003
The following table sets forth certain information, including the
fiscal year-end value of unexercised stock options held by the Named Executive
Officers as of September 30, 2003. We have not granted any stock appreciation
rights ("SAR's").
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options /
Options At 9/30/2003 SARs At 9/30/2003 ($)
Shares Acquired Exercisable / Exercisable /
Name on Exercise (#) Value Realized ($) Unexercisable (1) Unexercisable
- ----------------------- ------------------- ------------------ ------------------------- -----------------------
David G. Derrick (2) 135,701 - 1,601,455 -
Michael G. Acton 5,000 - 146,894 -
Wilford W. Kirton, III - - 150,000 -
James J. Dalton - - - -
(1) Value is based on the fair market value of our common stock on September
30, 2003, estimated to be $1.00 per share. Values indicated reflect the
difference between the exercise price of the unexercised options and the
market value of shares of common stock on September 30, 2003.
(2) Options granted to ADP Management in connection with a financing
arrangement. The exercise price of these options is $.54 per share. See
"Certain Relationships and Related Transactions."
COMPENSATION PLANS
Stock Plans
The 1997 Volu-Sol, Inc. Stock Incentive Plan
Immediately prior to the divestiture in August 1997 we adopted the 1997
Volu-Sol, Inc. Stock Incentive Plan ("1997 Plan"). The 1997 Plan was approved by
our board of directors and by action of Biomune, then our sole shareholder.
Under the 1997 Plan, we may issue stock options, stock appreciation rights,
restricted stock awards, and other incentives to our employees, officers and
directors.
The 1997 Plan provides for the award of incentive stock options to our
key employees and directors and the award of nonqualified stock options, stock
appreciation rights, bonus rights, and other incentive grants to employees and
certain non-employees who have important relationships with our subsidiaries or
us. A total of 5,000,000 shares are authorized for issuance pursuant to awards
granted under the 1997 Plan. During fiscal year 2003, no options were granted to
purchase common stock under the 1997 Plan and no options were exercised. As of
September 30, 2003, options for the purchase of 1,440,000 shares of common stock
were outstanding and exercisable under the 1997 Plan.
19
The following table sets forth information as of the September 30,
2003, our most recently completed fiscal year, with respect to compensation
plans (including individual compensation arrangements) under which equity
securities are authorized for issuance, aggregated as follows:
o All compensation plans previously approved by security holders; and
o All compensation plans not previously approved by security holders.
With the adoption of the 2004 Stock Incentive Plan discussed elsewhere
in this Proxy Statement, the Company may grant awards under either of the two
plans consistent with the terms thereof.
Equity Compensation Plan Information
Number of securities to Weighted average
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available for
Plan category warrants and rights warrants and rights future issuance
Equity compensation plans approved by
security holders 1,440,000 $2.85 3,560,000
Equity compensation plans not approved
by security holders 5,779,043 $2.75 N/A
Total 7,219,043 $2.76 3,560,000
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors and persons who beneficially own more than 10% of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than 10% shareholders are required by regulation of the
Securities and Exchange Commission to furnish us with copies of all Section
16(a) forms they file.
Based solely upon its review of the copies of such forms furnished to
it, and representations made by certain persons subject to this obligation that
such filings were not required to be made, RemoteMDx believes that all reports
required to be filed by these individuals and persons under Section 16(a) were
timely filed.
STOCK PERFORMANCE GRAPH
The Company's common stock has not traded on any market.
Market. There is presently no market for the common stock and there is
no assurance that a market will ever develop. Our securities are not listed for
trading on any exchange and there can be no assurance that we will ever be able
to satisfy the listing criteria or that an application for inclusion or listing
on the Nasdaq Stock Market or any other securities exchange would be accepted.
Holders. As of March 29, 2004, there were approximately 1,150 holders
of record of the common stock and approximately 27,269,170 shares of common
stock outstanding; we also have 26,449 shares of Series A preferred stock
outstanding, convertible into a minimum of approximately 9,786,094 shares of
common stock, as well as 1,835,824 shares of Series B preferred stock
outstanding that are convertible into 1,835,824 shares of common stock. We also
have granted options and warrants for the purchase of 5,600,888 shares of common
stock.
20
Dividends. Since incorporation, we have not declared any dividend on
the common stock. We do not anticipate declaring a dividend on the common stock
for the foreseeable future. The Series A Preferred Stock accrues dividends at
the rate of 10% annually, which may be paid in cash or additional shares of
preferred stock at our option. To date all such dividends have been paid by
issuance of preferred stock. We are not required to pay and do not pay dividends
with respect to the Series B Preferred Stock.
Dilution. We have a large number of shares of common stock authorized
in comparison to the number of shares issued and outstanding. The board of
directors determines when and under what conditions and at what prices to issue
stock. In addition, a significant number of shares of common stock are reserved
for issuance upon exercise of purchase or conversion rights.
In addition to shares initially issued at the time of the spin-off of
the Company in October 1997, we agreed with the NASD to issue additional shares
of common stock in connection with the initial distribution to Biomune Systems,
Inc. shareholders of record on February 11, 1998. We have issued additional
shares of common stock under this agreement from time to time since February
1998. No shares were issued under this agreement in fiscal years 2002 or 2003.
The issuance of any shares of common stock for any reason will result
in dilution of the equity and voting interests of existing shareholders.
Transfer Agent and Registrar. The transfer agent and registrar for our
common stock is American Stock Transfer & Trust Company, 40 Wall Street, New
York City, NY 10005.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended September 30, 2003, the Audit Committee of the
board of directors approved a debt-restructuring package proposed by ADP
Management, an entity owned and controlled by David Derrick and James Dalton.
Messrs. Derrick and Dalton are directors and executive officers of the Company.
By agreement dated April 2, 2003, the Company agreed with Messrs. Derrick and
Dalton and ADP Management to the following primary terms:
o Derrick and Dalton would negotiate with significant creditors of the
Company to restructure outstanding debt
o The Company would issue 8,900,000 shares of common stock for the
purpose of restructuring debt under the agreement
o The preferred method of restructuring the debt would be the conversion
of debt into common stock at prices negotiated on behalf of the
Company by Derrick and Dalton
o If and to the extent that ADP Management, Derrick and Dalton would
assume certain debt held by creditors unwilling to convert such
obligations directly into equity, the shares otherwise issuable upon
conversion of such assumed debt would be issued to ADP Management in
consideration of the assumption of the debt by Derrick, Dalton or ADP
Management and the release of the Company from all liability for such
debt by the creditor
o ADP Management would convert to common stock all amounts owing to it
by the Company after all other creditors have either converted or
assigned their notes as described above
o The Company would compensation Derrick and Dalton for any personal
guarantees or assumptions of corporate debt or other obligations on
behalf of the Company
o Derrick would assign certificates of deposit to the Company securing a
line of credit with a bank.
During the year ended September 30, 2003, in connection with the
raising of equity funds for the Company, the Company entered into an agreement
with Derrick, Dalton, and ADP Management wherein ADP Management would continue
21
to assist the Company in its financing activities by assuming the following debt
of the Company into the ADP Management line of credit:
o $1,086,628 of short-term notes payable
o $503,387 under a bank line of credit
ADP Management also agreed to assume certain debt and contingent
obligations for which the Company has not been released by the holder of the
instrument which obligates the Company and is therefore still recorded on the
Company's books as follows:
o $600,000 note payable to a corporation and associated accrued interest
of approximately $100,000 due to an individual, both of which are
shareholders of the Company
o Redeemable common stock recorded at $725,000 with a redemption
obligation of $966,666.
After assuming the above debt and contingent liabilities and assuming
an additional $800,000 note due an individual (in the second bullet point
below), ADP Management converted its line of credit and these assumed
obligations into 8,113,999 of the Company's common stock and exchanged
subscription receivables as follows:
o Conversion of $2,373,961 of the related-party line of credit,
including $27,346 of accrued interest on notes assumed by ADP
Management
o Assumption of an $800,000 note payable due to an individual. The
Company was released as the primary obligor on the note by the
individual but remains a guarantor for the full amount.
o Assignment to ADP Management by the Company of a subscription
receivable of $338,300 due from MK Financial
o Recording a subscription receivable of $700,000 for the $600,000 note
payable, and associated accrued interest of approximately $100,000
described above that was assumed by ADP Management but from which the
Company has not been released.
As part of this conversion and exchange the Company recognized a
non-cash expense of $845,628 based on the excess of the value of the stock
issued over the debt relieved and subscription receivable recorded.
The total debt relief provided to the Company as a result of its
restructuring under the agreement with ADP Management, Derrick, and Dalton, was
approximately $3,173,961. ADP Management also committed to assume the $700,000
obligation in the last bullet point above following release of the Company by
the note holder. The total number of shares issued in connection with the
agreement was 8,113,999 for which the Company received the benefit of the
assumption of debt, guarantees, and indemnification obligations described above.
The number of shares that might ultimately be retained by ADP Management after
all agreements with creditors have been finalized is not known at this time as
ADP Management will continue to negotiate settlement of debts and obligations
assumed by it under the agreement and may designate a portion of these shares to
be issued in consideration for such settlements. All shares issued in connection
with the agreement are "restricted" shares as that term is defined by rules and
regulations promulgated under the Securities Act of 1933, as amended.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to present and has not been informed that any other person intends to
present any matter for action at the Annual Meeting other than as set forth
herein and in the Notice of Annual Meeting. If any other matter properly comes
before the meeting, it is intended that the holders of proxies will act in
accordance with their best judgment.
The accompanying proxy is solicited on behalf of the Board of
Directors. In addition to the solicitation of proxies by mail, certain of the
officers and employees of RemoteMDx, without extra compensation, may solicit
proxies personally or by telephone, and, if deemed necessary, third party
22
solicitation agents may be engaged by RemoteMDx to solicit proxies by means of
telephone, facsimile or telegram, although no such third party has been engaged
by RemoteMDx as of the date hereof.
ANNUAL REPORT
We will mail a copy of RemoteMDx's Annual Report on Form 10-KSB, as
filed with the Securities and Exchange Commission, to each shareholder of record
at March 29, 2004. The report on Form 10-KSB is not deemed a part of the proxy
soliciting material.
FURTHER INFORMATION
Additional copies of the Annual Report on Form 10-KSB for the year
ended September 30, 2003 (including financial statements and financial
statements schedules) filed with the Securities and Exchange Commission may be
obtained without charge by writing to RemoteMDx, Inc., Attention: Investor
Relations, 5095 West 2100 South, Salt Lake City, Utah 84120. The reports and
other filings of RemoteMDx, including this Proxy Statement, also may be obtained
from the SEC's on-line database, located at www.sec.gov.
By Order of the Board of Directors
/s/ Michael G. Acton
Michael G. Acton
Corporate Secretary
Date: April 5, 2004
23
PROXY
[GRAPHIC OMITTED][GRAPHIC OMITTED]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The shareholder executing and delivering this Proxy as directed above
appoints David G. Derrick and Michael G. Acton and each of them as Proxies, with
full power of substitution, and hereby authorizes them to represent and vote, as
designated below, all shares of common stock of the Company held of record by
the undersigned as of March 29, 2004, at the Annual Meeting of Shareholders of
RemoteMDx, Inc., to be held at the corporate offices located at 1401 North
Highway 89, Suite 220, Farmington, Utah 84025, on Wednesday, May 19, 2004, at
10:00 a.m., Mountain Daylight Time or at any adjournment thereof.
The Board of Directors recommends a Vote "FOR" Items 1, 2, 3, and 4.
1. To elect four directors to serve for one year each, until the next Annual
Meeting of Shareholders and until a successor is elected and shall qualify.
The nominees are:
David G. Derrick James J. Dalton
Robert E. Childers Peter McCall
FOR ALL WITHHOLD AS TO ALL FOR ALL EXCEPT
---------------------
/ / / / / /
2. To approve and ratify the selection of Tanner + Co. as the Company's
independent public accountants.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve an amendment to the Articles of Incorporation increasing the
authorized capital from 50,000,000 common shares to 100,000,000 common
shares and authorizing the filing of Amended and Restated Articles of
Incorporation.
4. To approve the adoption of the 2004 RemoteMDx, Inc. Stock Incentive Plan.
5. To consider and act upon any other matters that properly may come before
the meeting or at any postponement or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4.
PLEASE SIGN EXACTLY AS THE SHARES ARE ISSUED. WHEN CO-TENANTS HOLD SHARES, BOTH
SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. PLEASE DATE, SIGN AND
RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
DATE: ____________ _______________________________________
Signature
_______________________________________
Signature (Joint Owners)
APPENDIX A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
REMOTEMDX, INC.
Pursuant to and in accordance with the provisions of Section
16-10a-1007 and 16-10a-1003 of the Utah Revised Business Corporation Act, as
amended (the "Act"), the following are the Amended and Restated Articles of
Incorporation of RemoteMDx, Inc., a Utah corporation:
ARTICLE I
NAME
The name of this Corporation is RemoteMDx, Inc. (the "Corporation").
ARTICLE II
CORPORATE PURPOSES
The purpose of the Corporation is organized to manufacture, market and
distribute medical diagnostic stains, to conduct research and development on
medical diagnostic stains and to engage in any lawful act or activity for which
corporations may be organized under the Utah Revised Business Corporation Act.
ARTICLE III
CAPITAL STOCK
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares of Common Stock authorized to be issued is once hundred million
(100,000,000) and the total number of shares of Preferred Stock authorized to be
issued is ten million (10,000,000). The Common Stock and the Preferred Stock
shall each have a par value of $0.0001 per share.
1
The preferences, limitations and relative rights of each class of
shares (to the extent established hereby), and the express grant of authority to
the Board of Directors to amend these Articles of Incorporation to divide the
Preferred Stock into series, to establish and modify the preferences,
limitations and relative rights of each share of Preferred Stock, and to
otherwise impact the capitalization of the Corporation, subject to certain
limitations and procedures and as permitted by Section 602 of the Utah Act, are
as follows:
A. Common Stock.
1. Voting Rights. Except as otherwise expressly provided by
law or in this Article III, each outstanding share of Common Stock shall be
entitled to one (l) vote on each matter to be voted on by the shareholders of
the Corporation.
2. Liquidation Rights. Subject to any prior or superior rights
of liquidation as may be conferred upon any shares of Preferred Stock, and after
payment or provision for payment of the debts and other liabilities of the
Corporation, upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of Common Stock then
outstanding shall be entitled to receive all of the assets and funds of the
Corporation remaining and available for distribution. Such assets and funds
shall be divided among and paid to the holders of Common Stock, on a pro-rata
basis, according to the number of shares of Common Stock held by them.
3. Dividends. Dividends may be paid on the outstanding shares
of Common Stock as and when declared by the Board of Directors, out of funds
legally available therefor; provided, however, that no dividends shall be paid
with respect to the Common Stock until any preferential dividends required to be
paid or set apart for any shares of Preferred Stock have been paid or set apart.
4. Residual Rights. All rights accruing to the outstanding
shares of the Corporation not expressly provided for to the contrary herein or
in the Corporation's Bylaws or in any amendment hereto or thereto shall be
vested in the Common Stock.
B. Preferred Stock. The Board of Directors, without shareholder action,
may amend the Corporation's Articles of Incorporation, pursuant to the authority
granted to the Board of Directors by Subsection 1002(1)(e) of the Utah Act and
within the limits set forth in Section 602 of the Utah Act, to do any of the
following:
(i) designate and determine, in whole or in part, the
preferences, limitations and relative rights of the Preferred Stock before the
issuance of any shares of Preferred Stock;
(ii) create one or more series of Preferred Stock, fix the
number of shares of each such series (within the total number of authorized
shares of Preferred Stock available for designation as a part of such series),
2
and designate and determine, in whole or in part, the preferences, limitations
and relative rights of each series of Preferred Stock all before the issuance of
any shares of such series;
(iii) alter or revoke the preferences, limitations and
relative rights granted to or imposed upon the Preferred Stock (before the
issuance of any shares of Preferred Stock), or upon any wholly-unissued series
of Preferred Stock); or
(iv) increase or decrease the number of shares constituting
any series of Preferred Stock, the number of shares of which was originally
fixed by the Board of Directors, either before or after the issuance of shares
of the series, provided that the number may not be decreased below the number of
shares of such series then outstanding, or increased above the total number of
authorized shares of Preferred Stock available for designation as a part of such
series.
ARTICLE IV
LIMITATION OF LIABILITIES
To the fullest extent permitted by the Utah Act or any other applicable
law, as now in effect or as it may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
shareholders for monetary damages for any action taken or any failure to take
any action, as a director.
ARTICLE V
INDEMNIFICATION
The Corporation shall indemnify all officers and directors of the
Corporation against all liability for any action taken or any failure to take
action to the fullest extent permitted by the Utah Act, or any other applicable
law as now in effect or as it may hereafter be amended.
ARTICLE VI
REGISTERED OFFICE AND REGISTERED AGENT
The street address of the initial registered office of the Corporation
is 5095 West 2100 South, Salt Lake City, UT 84120. The name and address of the
registered agent is Durham Jones & Pinegar, PC, 111 East Broadway, Suite 900,
Salt Lake City, Utah 84111, whose signature is set forth on the signature page
of these Amended and Restated Articles of Incorporation.
3
ARTICLE VII
RESTATEMENT OF ARTICLES OF INCORPORATION
These Amended and Restated Articles of Incorporation supersede the
original Articles of Incorporation and all amendments thereto. Authority was
given to the officers of the Corporation named herein to file these Amended and
Restated Articles of Incorporation containing the increase in authorized capital
stock with the Utah State Department of Commerce, Division of Corporations and
Commercial Code pursuant to the Unanimous Written Consent of the Directors of
the Corporation dated March 10, 2004, subject to approval by a majority of the
shareholders of the Corporation, and in accordance with the requirements of the
Utah Act and the Bylaws of the Corporation. A notice of annual meeting of
shareholders and proxy statement was sent to the shareholders on or about March
29, 2004, and on May 19, 2004, the holders of a majority of the issued and
outstanding voting capital stock of the Corporation voted in favor of filing
these Amended and Restated Articles of Incorporation adopting the increase in
authorized capital, effective May 19, 2004, or as soon as practicable thereafter
upon filing of the Articles of Amendment and this Amended and Restated Articles
of Incorporation, pursuant to the voting results as indicated below:
&&&
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
TOTAL OUTSTANDING TOTAL NO. OF VOTES VOTES CAST FOR VOTES CAST AGAINST
DESIGNATION OF STOCK SHARES CAST ADOPTION ADOPTION
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Common
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Series B Voting
Preferred
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Such votes cast were sufficient for approval of the increased authorized capital
contained in the Amended and Restated Articles of Incorporation of the
Corporation.
IN WITNESS WHEREOF, the undersigned, being the Chief Executive Officer of
the Corporation, does hereby execute these Amended and Restated Articles of
Incorporation and certifies to the truth of the facts herein stated, as of the
____ day of May 2004.
RemoteMDx, Inc.
By
---------------------------------------------
David G. Derrick, Chief Executive Officer
4
ACKNOWLEDGMENT OF REGISTERED AGENT
The undersigned, Paul M. Durham, President of Durham Jones & Pinegar, PC, by
acknowledges that the firm of Durham Jones & Pinegar, PC has been appointed as
registered agent of RemoteMDx, Inc., a Utah corporation, and hereby agrees to
act as registered agent of said Corporation.
Durham Jones & Pinegar, PC
Registered Agent
By:
--------------------------------------------------
Paul M. Durham, President
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
REMOTEMDX, INC.
Pursuant to and in accordance with the provisions of Section
16-10a-1006 of the Utah Revised Business Corporation Act, as amended, (the
"Act"), the undersigned, RemoteMDx, Inc. (the "Corporation") hereby declares and
certifies as follows:
1. The name of the Corporation is RemoteMDx, Inc.
2. The text of the amendment to the Articles of Incorporation of the
Corporation adopted by Unanimous Written Consent of the Directors
of the Corporation and recommended to the shareholders of the
Corporation is as follows:
The first paragraph of "Article III, Capital Stock," is hereby
amended by substituting the following paragraph in its place:
"The Corporation is authorized to issue two classes of shares to be designated,
respectively, "Common Stock" and "Preferred Stock." The total number of shares
of Common Stock authorized to be issued is one hundred million (100,000,000) and
the total number of shares of Preferred Stock authorized to be issued is ten
million (10,000,000). The Common Stock and the Preferred Stock shall each have a
par value of $0.0001 per share."
3. The amendment specified above does not provide for an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
4. The amendment specified above was adopted as of March 10, 2004 by
Unanimous Written Consent of the Board of Directors of the
Corporation, and in accordance with the requirements of the Act
and the Bylaws of the Corporation. The Board of Directors
unanimously recommended approval of the amendment by the
shareholders of the Corporation. On May 19, 2004, such amendment
specified above was approved by a vote of shareholders owning a
majority of the issued and outstanding voting securities of the
Corporation, who also approved the adoption of the attached
Amended and Restated Articles of Incorporation as the articles of
incorporation of the Corporation effective with the filing
thereof with the Utah Division of Corporations and Commercial
Code. Approval of the amendment and the Amended and Restated
Articles of Incorporation was as follows:
1
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
VOTES CAST AGAINST
VOTES CAST FOR AMENDMENT AND
AMENDMENT AND RESTATEMENT OR
DESIGNATION OF STOCK OUTSTANDING SHARES TOTAL VOTES CAST RESTATEMENT ABSTAINING
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Common Stock
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Series B Voting
Preferred Stock
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Such votes cast were sufficient for approval of the Amendment
and adoption of the Amended and Restated Articles of
Incorporation.
IN WITNESS WHEREOF, this Amendment to the Articles of Incorporation of the
Corporation is executed as of the ____ day of May 2004.
RemoteMDx, Inc.,
a Utah corporation
By
---------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
2
APPENDIX B
REMOTEMDX, INC.
2004 REMOTEMDX, INC. STOCK OPTION PLAN
1. PURPOSES OF THE PLAN
The purposes of this 2004 RemoteMDx, Inc. Stock Option Plan are:
o To attract and retain the best available personnel for positions of
substantial responsibility,
o To provide additional incentive to Employees, Directors and
Consultants, and
o To promote the success of the Company's business.
Awards granted under the Plan may be (a) restricted stock grants, and
(b) stock options, which may be either Incentive Stock Options or
Nonqualified Stock Options, as determined by the Administrator at the
time of grant.
2. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange
or quotation system on which the Common Stock is listed or quoted and
the applicable laws of any foreign country or jurisdiction where
Options or Stock Purchase Rights are, or will be, granted under the
Plan.
(c) "AWARD" means an Option or other grant or award made pursuant to this
Plan.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CAUSE" shall have the meaning as set forth in Section 13(d)(ii) of
the Plan.
(f) "CHANGE OF CONTROL" shall have the meaning as set forth in Section
13(d)(i) of the Plan.
(g) "CODE" means the Internal Revenue Code of 1986, as amended.
(h) "COMMITTEE" means a committee of Directors appointed by the Board in
accordance with Section 4 of the Plan.
(i) "COMMON STOCK" means the common stock of the Company.
(j) "COMPANY" means REMOTEMDX, INC., a Utah corporation.
(k) "CONSULTANT" means any person (other than an Employee, Officer or
Director), including an advisor, engaged by the Company or a Parent or
Subsidiary to render services to such entity.
(l) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the absence of
any interruption or termination of the employment or consulting
relationship by the Company or any Parent or Subsidiary. Continuous
Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii)
1
any other leave of absence approved by the Board, provided that such
leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by
contract or statute, or unless provided otherwise pursuant to Company
policy adopted from time to time; or (iv) in the case of transfers
between locations of the Company or between the Company, its Parent or
Subsidiaries or its successor. If reemployment upon expiration of a
leave of absence in excess of ninety (90) days is not guaranteed, on
the 181st day of such leave any Incentive Stock Option held by the
Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonqualified Stock Option.
(m) "DIRECTOR" means a member of the Board.
(n) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(o) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i)
any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. For purposes of Incentive Stock Options,
no such leave may exceed ninety days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract. If
reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as
a Nonqualified Stock Option. Neither service as a Director nor payment
of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(p) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(q) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the average
closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the
five market trading days prior to the date of grant, as reported
in a source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the average of
the mean between the high bid and low asked prices for the Common
Stock on the last five market trading days prior to the date of
grant, as reported in a source as the Administrator deems
reliable; or
(iii)In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the
Administrator.
(iv) In no event shall the Fair Market Value be less than the par
value of the Common Stock. In the case of Incentive Stock
Options, the Fair Market Value shall not be discounted for
restrictions, lack of marketability and other such limitations on
the enjoyment of the Common Stock. In the case of Non-qualified
Options, the Fair Market Value of the Common Stock may be so
discounted at the election of the Administrator.
(r) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
2
(s) "NONQUALIFIED STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(t) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice
of Grant is part of the Option Agreement.
(u) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(v) "OPTION" means a stock option granted pursuant to the Plan.
(w) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of
the Plan.
(x) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding Options
are surrendered in exchange for Options with a lower exercise price.
(y) "OPTIONED STOCK" means the Common Stock subject to an Option.
(z) "OPTIONEE" means the holder of an outstanding Option granted under the
Plan.
(aa) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(bb) "PARTICIPANT" means an individual receiving an Award under this Plan.
(cc) "PLAN" means this RemoteMDx, Inc. 2004 Stock Option Plan.
(dd) "RETIREMENT" means the occurrence of a Participant's termination of
service after completing at least five years of service and attaining
age 60.
(ee) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(ff) "SECTION 16(b) " means Section 16(b) of the Exchange Act.
(gg) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(hh) "SHARE" means a share of the Common Stock, as adjusted in accordance
with Section 13 of the Plan.
(ii) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN
Subject to the provisions of Section 13 of the Plan, the maximum
aggregate number of Shares that may be issued pursuant to Awards
granted under the Plan is Six Million (6,000,000) Shares. The Shares
may be authorized, but unissued, or reacquired Common Stock. If an
Option or other Award expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless
the Plan has terminated); PROVIDED, however, that Shares that have
actually been issued under the Plan upon exercise of an Option under
any other Award shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if Shares
are repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
3
4. ADMINISTRATION OF THE PLAN
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees with respect
to different groups of Service Providers may administer the Plan.
(ii) Section 162(M). To the extent that the Administrator determines
it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section
162(m) of the Code, the Plan shall be administered by a Committee
of two or more "outside directors" within the meaning of Section
162(m) of the Code.
(iii)Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the
requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have
the authority, in its discretion:
(i) To determine the Fair Market Value;
(ii) To select the Service Providers to whom Options may be granted
hereunder;
(iii)To determine the number of shares of Common Stock to be covered
by each Award granted hereunder;
(iv) To approve forms of agreement for use under the Plan;
(v) To determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option granted hereunder. Such terms
and conditions include, but are not limited to, the exercise
price, the time or times when Options may be exercised (which may
be based on performance criteria), any vesting acceleration or
waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) To reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the
Option was granted;
(vii) To institute an Option Exchange Program;
(viii) To construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan;
(ix) To prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
(x) To modify or amend each Option (subject to Section 15(c) of the
Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
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(xi) To allow Participants to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a
Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is
to be determined. All elections by an Participant to have Shares
withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or
advisable;
(xii)To authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) To make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all
Participants.
5. ELIGIBILITY
Nonqualified Stock Options may be granted to Service Providers.
Incentive Stock Options may be granted only to Employees.
6. LIMITATIONS
(a) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonqualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any
calendar year (under all plans of the Company and any Parent or
Subsidiary) exceeds $100,000, such Options shall be treated as
Nonqualified Stock Options. For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in
which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is
granted.
(b) Neither the Plan nor any Option or other Award shall confer upon a
Participant any right with respect to continuing the Participant's
relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Participant's right or the Company's
right to terminate such relationship at any time, with or without
cause.
7. TERM OF PLAN
The Plan shall become effective upon its adoption by the Board, but
shall be subject to the approval of the shareholders as provided in
Section 19 of the Plan. To the extent Incentive Stock Options are
granted under the Plan prior to its approval by the shareholders, they
shall be contingent on approval of the Plan by the shareholders. The
Plan shall continue as long as any Awards under it are outstanding;
provided, however, that, to the extent required by the Code, no
Incentive Stock Options may be granted under the Plan on a date that is
more than ten years from the later of the date the Plan is adopted or
the date the Plan is approved by the shareholders.
8. RESTRICTED STOCK
(a) Award of Restricted Stock
(i) Grant. In consideration of the performance of services by the
Grantee, shares of Restricted Stock may be awarded under this
Plan by the Committee on such terms and conditions and with such
restrictions as the Committee may from time to time approve, all
of which may differ with respect to each Grantee. Such Restricted
Stock shall be awarded for no additional consideration or such
additional consideration as the Committee shall determine.
5
(ii) Immediate Transfer Without Immediate Delivery of Restricted
Stock. Each Restricted Stock Award will constitute an immediate
transfer of the record and beneficial ownership of the shares of
Restricted Stock to the Grantee in consideration of the
performance of services, entitling such Grantee to all voting and
other ownership rights, but subject to the restrictions
hereinafter referred to. Each Restricted Stock Award may limit
the Grantee's dividend rights during the Restriction Period in
which the shares of Restricted Stock are subject to a substantial
risk of forfeiture and restrictions on transfer. Shares of Common
Stock awarded pursuant to a grant of Restricted Stock will be
held by the Company, or in trust or in escrow pursuant to an
agreement satisfactory to the Committee, as determined by the
Committee, until such time as the restrictions on transfer have
expired. Any such trust or escrow shall not be insulated from the
claims of the general creditors of the Company in the event of
bankruptcy or insolvency of the Company.
(b) Restrictions
(i) Restrictive Conditions. Restricted Stock awarded to a Grantee
shall be subject to the following restrictions until the
expiration of the Restriction Period: (i) the shares of Common
Stock of the Company included in the Restricted Stock Award shall
be subject to one or more restrictions, including without
limitation, a restriction that constitutes a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code and
regulations promulgated thereunder, and to the restrictions on
transferability set forth in this Plan; (ii) unless otherwise
approved by the Committee, the shares of Common Stock included in
the Restricted Stock Award that are subject to restrictions that
are not satisfied at such time the Grantee ceases to be employed
by the Company shall be forfeited and all rights of the Grantee
to such shares shall terminate without further obligation on the
part of the Company when an Employee leaves the employ of the
Company; and (iii) any other restrictions that the Committee may
determine in advance are necessary or appropriate.
(ii) Forfeiture of Restricted Stock. If for any reason, the
restrictions imposed by the Committee upon Restricted Stock are
not satisfied at the end of the Restriction Period, any
Restricted Stock remaining subject to such restrictions shall
thereupon be forfeited by the Grantee and re-acquired by the
Company.
(iii)Removal of Restrictions. The Committee shall have the authority
to remove any or all of the restrictions on the Restricted Stock,
including the restrictions under the Restriction Period, whenever
it may determine that, by reason of changes in applicable laws or
other changes in circumstances arising after the date of the
Restricted Stock Award, such action is appropriate.
(c) Restriction Period. The Restriction Period of Restricted Stock shall
commence on the date of grant and shall be established by the
Committee in the Incentive Award Agreement setting forth the terms of
the Award of Restricted Stock.
(d) Delivery of Shares of Common Stock. Subject to Section 8(c), at the
expiration of the Restriction Period, a stock certificate evidencing
the Restricted Stock (to the nearest full share) with respect to which
the Restriction Period has expired with all restrictions thereon
having been satisfied shall be delivered without charge to the
Grantee, or his personal representative, free of all restrictions
under the Plan.
(e) Supplemental Payment on Vesting of Restricted Stock. The Committee,
either at the time of grant or at the time of vesting of Restricted
Stock, may provide for a Supplemental Payment by the Company to the
holder in an amount specified by the Committee, which shall not exceed
the amount necessary to pay the income tax payable with respect to
both the vesting of the Restricted Stock and receipt of the
Supplemental Payment, assuming the Grantee is taxed at the maximum
effective income tax rate(s) applicable thereto. The Supplemental
Payment shall be paid within 30 calendar days of each date that
Restricted Stock vests. The Committee shall have the discretion to
grant Supplemental Payments that are payable solely in cash or
6
Supplemental Payments that are payable in cash, Common Stock, or a
combination of both, as determined by the Committee at the time of
payment.
(f) Provisions Applicable to Section 162(m) Participants.
(i) Notwithstanding anything in the Plan to the contrary, the
Committee may grant Restricted Stock to a Section 162(m)
Participant the restrictions with respect to which lapse upon the
attainment of performance goals for the Company which are related
to one or more of the following business criteria: (i) pre-tax
income, (ii) operating income, (iii) cash flow, (iv) earnings per
share, (v) return on equity, (vi) return on invested capital or
assets, (vii) cost reductions or savings, (viii) funds from
operations, (ix) appreciation in the fair market value of Common
Stock and (x) earnings before any one or more of the following
items: interest, taxes, depreciation or amortization.
(ii) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code,
with respect to Restricted Stock which may be granted to one or
more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any
other designated fiscal period or period of service (or such
other time as may be required or permitted by Section 162(m) of
the Code), the Committee shall, in writing, (i) designate one or
more Section 162(m) Participants, (ii) select the performance
goal or goals applicable to the fiscal year or other designated
fiscal period of service, (iii) establish the various targets and
amounts of Restricted Stock which may be earned for such fiscal
year or other designated fiscal period or period of service and
(iv) specify the relationship between performance goals and
targets and the amounts of Restricted Stock to be earned by each
Section 162(m) Participant for such fiscal year or other
designated fiscal period or period of service. Following the
completion of each fiscal year or other designated fiscal period
or period of service, the Committee shall certify in writing
whether the applicable performance targets have been achieved for
such fiscal year or other designated fiscal period of service. In
determining the amount earned by a Section 162(m) Participant,
the Committee shall have the right to reduce (but not to
increase) the amount payable at a given level of performance to
take into account additional factors that the Committee may deem
relevant to the assessment of individual or corporate performance
for the fiscal year or other designated fiscal period or period
of service.
9. TERM OF AWARDS
The term of each Option or other Award under this Plan shall be stated
in the Option or Award Agreement. In the case of an Incentive Stock
Option, the term shall not exceed ten (10) years from the date of grant
or such shorter term as may be provided in the Option Agreement.
Moreover, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall not exceed
five (5) years from the date of grant or such shorter term as may be
provided in the Option Agreement.
10. OPTION EXERCISE PRICE AND CONSIDERATION
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) Granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of
7
the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) Granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option, the per Share
exercise price shall be determined by the Administrator. In the
case of a Nonqualified Stock Option intended to qualify as
"performance-based compensation" within the meaning of Section
162(m) of the Code, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of
grant.
(iii)Notwithstanding the foregoing, Options may be granted with a per
Share exercise price of less than 100% of the Fair Market Value
per Share on the date of grant pursuant to a merger or other
corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied
before the Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including
the method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at
the time of grant. Such consideration may consist entirely of:
(i) Cash;
(ii) Check;
(iii) Promissory note;
(iv) Other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair
Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be
exercised;
(v) Consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) A reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation
program or arrangement;
(vii) Any combination of the foregoing methods of payment; or
(viii) Such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
11. EXERCISE OF OPTION
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement. Unless the
Administrator provides otherwise, vesting of Options granted hereunder
shall be tolled during any unpaid leave of absence. An Option may not
be exercised for a fraction of a Share.
8
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and
(ii) full payment for the Shares with respect to which the Option is
exercised. Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Option
Agreement and the Plan. Shares issued upon exercise of an Option shall
be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the
Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company),
no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue
(or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued,
except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's
Retirement, death or Disability, the Optionee may exercise his or her
Option within such period of time as is specified in the Option
Agreement to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of
such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain
exercisable for ninety (90) days following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his
or her entire Option, the Shares covered by the unvested portion of
the Option shall revert to the Plan, unless otherwise provided for in
the Option Agreement. If, after termination, the Optionee does not
exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(c) Disability or Retirement of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability or
Retirement, the Optionee may exercise his or her Option within three
years of the date of termination of employment to the extent the
Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the
Option Agreement). If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall
revert to the Plan. Notwithstanding the foregoing, the tax treatment
available pursuant to Section 422 of the Code, upon the exercise of an
Incentive Stock Option will not be available to an Optionee who
exercises any Incentive Stock Option more than (i) 12 months after the
date of termination of employment due to permanent disability or (ii)
12 months after the date of termination of employment due to
retirement.
(d) Death of Optionee. If an Optionee dies while a Service Provider, the
Option may be exercised within three years of the date of death (but
in no event later than the expiration of the term of such Option as
set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the
date of death. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws
of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy out
for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
9
12. NON-TRANSFERABILITY OF OPTIONS
Unless determined otherwise by the Administrator and stated in the
Option Agreement, an Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option transferable, such Option Agreement shall
contain such additional terms and conditions, as the Administrator
deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock
covered by each outstanding Award, and the number of shares of Common
Stock which have been authorized for issuance under the Plan but as to
which no Awards have yet been granted or which have been returned to
the Plan upon cancellation or expiration of an Option or other Award,
as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration."
The Board, whose determination, shall make such adjustment in that
respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to
an Award Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide
for an Optionee to have the right to exercise his or her Option until
ten (10) days prior to such transaction as to all of the Optioned
Stock covered thereby, including Shares as to which the Option would
not otherwise be exercisable. In addition, the Administrator may
provide that any Company repurchase option applicable to any Shares
purchased upon exercise of an Option shall lapse as to all such
Shares, provided the proposed dissolution or liquidation takes place
at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option will terminate immediately prior
to the consummation of such proposed action.
(c) Change of Control. Subject to the provisions of Sections 13(a) or (b)
above, and except as otherwise provided in the Plan or in the Option
Agreement reflecting the applicable Participant's Award:
(i) Upon the occurrence of, and prior to, a Change of Control of the
Company, as defined in Section 13(d), the Administrator who was
acting as such prior to the Change in Control, in its discretion,
may provide that the Optionee shall fully vest in and have the
right to exercise the Option as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or
exercisable.
(ii) Notwithstanding the provisions of Section 13(c)(i), an Optionee
whose term as a Service Provider is Involuntarily Terminated (as
defined in Section 13(d)) at any time within twelve (12) months
of the effective date of a Change in Control, shall fully vest in
and have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which it would not
otherwise be vested or exercisable.
10
(iii)Notwithstanding the foregoing, (unless Optionee is party to a
duly authorized written agreement with the Company providing
otherwise) this Plan does not constitute a contract of employment
or impose on the Company any obligation to retain the Optionee,
or to change the Company's policies regarding termination of
employment or other provision of services. The employment of
Optionees who are Employees is and shall continue to be at-will,
as defined under applicable law, and may be terminated at any
time, with or without cause.
(d) Definitions of Certain Terms.
(i) Change of Control. For purposes of the Plan, a "Change of
Control" means the occurrence of any of the following:
(A) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding
securities;
(B) A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (I) are directors
of the Company as of the date hereof, or (II) are appointed
elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent
Directors at the time of such appointment election or
nomination (but shall not include an individual whose
election or nomination is in connection with an actual or
threatened proxy contest relating to the election of
directors to the Company);
(C) The consummation of a merger or consolidation of the Company
with any other corporation, other than a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger
or consolidation; or
(D) A tender offer (for which a filing has been made with the
SEC which purports to comply with the requirements of
Section 14(d) of the Exchange Act and the corresponding SEC
rules) is made for the stock of the Company. In the case of
a tender offer described in this paragraph (D), the Change
of Control will be deemed to have occurred upon the first to
occur of (1) any time during the offer when the person
(using the definition in (A) above) making the offer owns or
has accepted for payment stock of the Company with
twenty-five percent (25%) or more of the total voting power
of the Company's outstanding stock or (2) three business
days before the offer is to terminate unless the offer is
withdrawn first, if the person making the offer could own,
by the terms of the offer plus any shares owned by this
person, stock with fifty percent (50%) or more of the total
voting power of the Company's outstanding stock when the
offer terminates.
(E) The consummation of the sale or disposition by the Company
of all or substantially all the Company's assets.
(ii) Cause. For purposes of this Plan, "Cause" shall mean (A) any act
of personal dishonesty taken by the Participant in connection
with his responsibilities as a service provider to the Company
and intended to result in substantial personal enrichment of the
11
Participant, (B) the Participant's conviction of a felony, or (C)
a willful act by the Participant which constitutes gross
misconduct and which is injurious to the Company, or (D)
continued substantial violations by the Optionee of the
Participant's duties to the Company which are demonstrably
willful and deliberate on the Participant's part after there has
been delivered to the Participant a written demand for
performance from the Company which specifically sets forth the
factual basis for the Company's belief that the Participant has
committed continued substantial violations of his or her duties.
(iii)Involuntary Termination. For purposes of Section 13(c)(ii) of
this Plan, "Involuntary Termination" shall mean any termination
or cessation of Participant acting as a Service Provider by
reason of the discharge, firing or other affirmative act or
request by the Company or its successor-in-interest, other than
an involuntary termination "for cause," as defined in this Plan.
Involuntary Termination does not include retirement, resignation,
or expiration of the elected or agreed-upon term of service of
the Service Provider, nor does it include the assignment or
transfer of Service Provider's employment from the Company to the
Company's successor-in-interest, in the case of a merger or asset
sale which otherwise constitutes a Change in Control.
(e) Golden Parachute Excise Tax Vesting Acceleration Limitation.
Notwithstanding any other provision of this Plan, in the event that
the vesting acceleration provided for in this Plan or amounts or
benefits otherwise payable to an Optionee (i) constitute "parachute
payments" within the meaning of Section 280G of the Code, and (ii) but
for this Section, would be subject to the excise tax imposed by
Section 4999 of the Code (the "Excise Tax"), then the Optionee's
accelerated vesting hereunder shall be either
(i) Made in full, or
(ii) Made as to such lesser extent as would result in no portion of
such acceleration, amounts or benefits being subject to the
Excise Tax,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the Excise Tax, results in
the receipt by the Optionee on an after-tax basis, of the greatest
amount of severance benefits, notwithstanding that all or some portion
of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and the Optionee otherwise agree in writing,
any determination required under this Section shall be made in writing
in good faith by the accounting firm serving as the Company's
independent public accountants immediately prior to the Change of
Control (the "Accountants"). In the event of a reduction in benefits
hereunder, the Optionee shall be given the choice of which benefits to
reduce. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable,
good faith interpretations concerning the application of Sections 280G
and 4999 of the Code. The Company and the Optionee shall furnish to
the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this
Section. The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by
this Section.
14. DATE OF GRANT
The date of grant of an Award shall be, for all purposes, the date on
which the Administrator makes the determination granting such Award, or
such other later date as is determined by the Administrator. Notice of
the determination shall be provided to each Participant within a
reasonable time after the date of such grant.
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15. AMENDMENTS AND TERMINATION OF THE PLAN
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder approval of
any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by
the Optionee and the Company. Termination of the Plan shall not affect
the Administrator's ability to exercise the powers granted to it
hereunder with respect to Options granted under the Plan prior to the
date of such termination.
16. CONDITIONS UPON ISSUANCE OF SHARES
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with
respect to such compliance, not limited to but including tax
regulations and SEC regulations such as insider trading restrictions.
(b) Investment Representations. As a condition to the exercise of an
Award, the Company may require the person exercising such Award to
represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required.
17. INABILITY TO OBTAIN AUTHORITY
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the
failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. RESERVATION OF SHARES
The Company, during the term of this Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
19. SHAREHOLDER APPROVAL
The Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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