SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material under Rule 14a-12
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)
Samaritan Pharmaceuticals Inc.
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(Name of Registrant as Specified in Charter)
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(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Samaritan Pharmaceuticals, Inc.
101 Convention Center Drive, Suite 310
Las Vegas, Nevada 89109
NOTICE OF ANNUAL MEETING OF STOCKHOLDERSTO BE HELD JUNE 10, 2005
The Annual Meeting of Stockholders of Samaritan Pharmaceuticals Inc., a Nevada
corporation (the "Company"), will be held on Friday, June 10th, 2005 at 10:00
a.m., local time, at the Stirling Club, 2827 Paradise Road, Las Vegas, NV, for
the following purposes:
1. To elect three directors to serve on the Company's board of
directors until their successors are elected and duly qualified;
2. To amend the Articles of Incorporation to increase the number of
authorized shares of common stock;
3. To approve of the adoption of the Samaritan Pharmaceuticals, Inc.
2005 Stock Incentive Plan;
4. To consider, approve and ratify the appointment of Sherb & Co., LLP,
as our independent auditors for the fiscal year ending December 31, 2005; and
5. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing matters are described in more detail in the enclosed proxy
statement. The board of directors has fixed the close of business on April 20,
2005, as the record date for the determination of the stockholders entitled to
notice of, and to vote at, the Annual Meeting or any postponement or adjournment
thereof. Only those stockholders of record of the Company as of the close of
business on that date will be entitled to vote at the Annual Meeting or any
postponement or adjournment thereof.
All stockholders entitled to vote are cordially invited to attend the Annual
Meeting in person. Whether or not you plan to attend, please sign and return the
enclosed proxy as promptly as possible in the envelope enclosed for your
convenience. Should you receive more than one proxy because your shares are
registered in different names and addresses, each proxy should be signed and
returned to ensure that all your shares will be voted. You may revoke your proxy
at any time prior to the Annual Meeting. If you attend the Annual Meeting and
vote by ballot, your proxy will be revoked automatically and only your vote at
the Annual Meeting will be counted.
By Order of the Board of Directors,
/s/ Janet Greeson, Ph.D.
Janet Greeson, Ph.D.
Chairman of the Board
Chief Executive Officer
Las Vegas, Nevada
April 20, 2005
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, AND COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
PROXY STATEMENTTABLE OF CONTENTS
PAGE
PROXY STATEMENT............................................................. 4
GENERAL INFORMATION ABOUT VOTING............................................ 4
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING................ 5
PROPOSAL NO. 1: ELECTION OF DIRECTORS..................................... 5
PROPOSAL NO. 2: TO AMEND THE ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK................. 6
PROPOSAL NO. 3: APPROVAL OF THE ADOPTION OF THE SAMARITAN
PHARMACEUTICALS, INC. 2005 STOCK INCENTIVE PLAN............................. 8
PROPOSAL NO. 4: RATIFICATION OF APPOINTMENT OF AUDITORS.................. 12
STOCKHOLDER PROPOSALS...................................................... 14
OTHER MATTERS.............................................................. 14
Samaritan Pharmaceuticals Inc.
101 Convention Center Drive, Suite 310
Las Vegas, Nevada 89109
PROXY STATEMENT
Your vote at the Annual Meeting is important to us. Please vote your shares of
common stock by completing the enclosed proxy card and returning it to us in the
enclosed envelope. This proxy statement has information about the Annual Meeting
and was prepared by our management for the Board of Directors. This proxy
statement and the accompanying proxy card are being mailed to you on or about
April 30, 2005.
GENERAL INFORMATION ABOUT VOTING
Who can vote?
You can vote your shares of common stock if our records show that you owned the
shares on April 20, 2005. A total of 133,282,603 shares of common stock can vote
at the Annual Meeting. You get one vote for each share of common stock. The
enclosed proxy card shows the number of shares you can vote.
How do I vote by proxy?
Follow the instructions on the enclosed proxy card to vote on each proposal to
be considered at the Annual Meeting. Sign and date the proxy card and mail it
back to us in the enclosed envelope. The proxy holders named on the proxy card
will vote your shares as you instruct. If you sign and return the proxy card but
do not vote on a proposal, the proxy holders will vote for you on that proposal.
Unless you instruct otherwise, the proxy holders will vote for each of the
director nominees and for each of the other proposals to be considered at the
meeting.
What if other matters come up at the Annual Meeting?
The matters described in this proxy statement are the only matters we know will
be voted on at the Annual Meeting. If other matters are properly presented at
the meeting, the proxy holders will vote your shares as they see fit.
Can I change my vote after I return my proxy card?
Yes. At any time before the vote on a proposal, you can change your vote either
by giving our Secretary a written notice revoking your proxy card or by signing,
dating, and returning to us a new proxy card. We will honor the proxy card with
the latest date.
Can I vote in person at the Annual Meeting rather than by completing the proxy
card?
Although we encourage you to complete and return the proxy card to ensure that
your vote is counted, you can attend the Annual Meeting and vote your shares in
person.
What do I do if my shares are held in "street name"?
If your shares are held in the name of your broker, a bank, or other nominee,
that party should give you instructions for voting your shares.
How are votes counted?
We will hold the Annual Meeting if holders of a majority of the shares of common
stock entitled to vote either sign and return their proxy cards or attend the
meeting. If you sign and return your proxy card, your shares will be counted to
determine whether we have a quorum even if you abstain or fail to vote on any of
the proposals listed on the proxy card.
If your shares are held in the name of a nominee, and you do not tell the
nominee by June 1, 2004 how to vote your shares (so-called "broker non-votes"),
the nominee can vote them as it sees fit only on matters that are determined to
be routine, and not on any other proposal. Broker non-votes will be counted as
present to determine if a quorum exists but will not be counted as present and
entitled to vote on any non-routine proposal.
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Who pays for this proxy solicitation?
We do. The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional solicitation materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. In addition to
sending you these materials, some of our employees may contact you by telephone,
by mail, or in person. None of these employees will receive any extra
compensation for doing this. The Company has also engaged Securities Transfer
Corp. ("STC") to provide routine advice and services for proxy solicitation. STC
will receive a fee of approximately $5,000 for such advice and services which
will be paid by the Company.
Stockholder Proposals to be presented at next annual meeting.
In order for stockholder business to be included in the Company's proxy
statement for a meeting or properly brought before that meeting by a
stockholder, the stockholder must have given timely notice in writing to the
Secretary of the Company. A stockholder proposal for the 2006 Annual Meeting
must be received at the Company's principal executive offices at 101 Convention
Center Drive, Suite 301, Las Vegas, NV 89109 no later than February 28, 2006 to
be considered timely. Inclusion of stockholder proposals in the Company's proxy
statement for a meeting also requires satisfaction of certain conditions
established by the Securities and Exchange Commission.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
General
The Company's Bylaws provide that our Board of Directors shall consist of eight
(8) directors that shall be divided into three classes. A single class of
directors shall be elected each year at the annual meeting, and each director
shall be elected to serve for a term ending on the date of the third annual
meeting of stockholders after his election and until his successor has been
elected and duly qualified, subject to any transition periods.
Three directors in total are to be elected at this Annual Meeting. These three
directors shall be elected to Class III and shall be elected to serve until the
2008 Annual Meeting. Each director elected shall serve until his successor is
elected and duly qualified. The board has nominated three members to Class III,
and in the event any nominee is unable or unwilling to serve as a nominee, the
proxies may be voted for any substitute nominee designated by the present board
of directors or the proxy holders to fill such vacancy. Our board of directors
has no reason to believe that the persons named will be unable or unwilling to
serve as nominees or as directors if elected.
Nominees as Class III Directors -- Terms Expire 2008
Mr. Doug Bessert, as a Director since 2001 and member of the Audit Committee,
has shown an enormous ability to raise private capital with an extensive network
of contacts. Mr. Bessert has over 20 years of financial and investor
relationship experience, with an emphasis in small entrepreneurial companies. In
the past, he served as a Branch Manager at a stock brokerage firm in charge of
nine other brokers, handling all compliance and investor problems for the
office. Mr. Bessert was the Founder and CFO of Thorofare Resources Inc., a
regional Oil and Gas company with production and employees in 8 states. He also
was a Financial Consultant that managed portfolios for over 230 clients managing
in excess of $43 million in assets. During his tenure as a financial consultant,
he was heavily involved in leveraged buyouts, raising private capital, and
acquisitions of many entities. Mr. Bessert received his BS in Marketing from the
University of Wyoming.
Mr. H. Thomas Winn has served as a Lead Independent Director to Samaritan since
1999 and heads Samaritan's Audit Committee. Mr. Winn has been Chairman,
President, and CEO of Nevada Gold & Casinos, Incorporated (AMEX: UWN) since
1994. Under Mr. Winn's leadership, UWN has successfully concentrated on
acquisition and development of premier gaming and entertainment ventures and is
currently involved in seven gaming projects in Colorado, California, New Mexico
and Arizona. Since 1983, Mr. Winn has served as President of Aaminex Capital
Corporation, a financial consulting and venture capital firm involved in food
and beverage, real estate, mining, and environmental activities. Mr. Winn has
formed numerous investment limited partnership and capital formation ventures,
ranging from motion pictures to commercial real estate and mining projects.
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Dr. Laurent Lecanu, D. Pharm., Ph.D., Dr. Lecanu received his D.Pharm. in
pharmaceutical chemistry and his Ph.D. in neuropharmacology from the School of
Pharmaceutical and Biological Sciences at University of Paris (V), Paris,
France. Dr. Lecanu is also a former Intern of Paris Hospitals, France, where he
demonstrated excellence in the management and performance of clinical trials for
new medications. Dr Lecanu's contribution to Samaritan Research Laboratories
brings more than seven years experience in biomedical research. He is a highly
skilled specialist of "in vivo" experimental research (preclinical research),
mainly in the development of animal models for neurodegenerative diseases. He
also has several years of experience in biomedical research including the
development of novel therapeutic entities targeted to Alzheimer's disease. Dr
Lecanu's experience includes being a Research Associate Professor at the
Departments of Pharmacodynamics and Pharmaceutical Physiology at the School of
Pharmacy and Medicine of the University of Burgundy, France. In 2001, the French
National Academy of Pharmacy awarded him the Prize of the French Association for
Experimental Therapeutics. Dr. Lecanu manages the day-to-day operations of
Samaritan Laboratories at Georgetown University and is co-inventor on numerous
patents that Samaritan has licensed from Georgetown University.
No Director or executive officer of the Company has any family relationships
with any other director or executive officer of the Company, except that Mr.
Boyle is the son of Dr. Greeson. The Company has formed, by determination of the
Board of Directors, an Audit Committee with Lead Independent Director Winn as
Chairman, who is independent and a qualified financial expert as used in Item
7(d)(3)(iv) of Schedule 14 A (240.14a-101 of this chapter) under the Exchange
Act. The Company has also formed a Compensation Committee, with Independent
Director Thompson, as Chairman; a Nomination Committee, with Independent
Director Holden, as Chairman; and a Science and Technology Advisory Committee,
with Dr. Papadopoulos, as Chief Scientist (Consultant) to the Board of
Directors. Dr. Papadopoulos served as Director until 2005 and has been recently
promoted into a more prestigious position at Georgetown University, which has
conflicted him out of holding any position on boards of public Companies. His
position as a consultant has resolved any conflict issues and he will remain as
chief scientist of the Science and Technology Advisory Committee, which serves
as an advisor to the board.
Required Vote
Unless otherwise instructed, the proxy holders will vote the proxies received by
them FOR the nominees named above. The three candidates receiving the highest
number of affirmative votes of the shares represented and voting on this
particular matter at the Annual Meeting will be elected directors of the
Company, to serve their respective terms and until their successors have been
elected and duly qualified.
Recommendation of the board of directors
Our board of directors recommends that the stockholders vote "FOR" the election
of the nominees above.
PROPOSAL NO. 2: AMEND THE ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Nevada law permits the Company to issue shares of common stock only to the
extent such shares have been authorized for issuance under its Articles of
Incorporation. Increasing the amount of authorized common stock will ensure that
sufficient shares will be available to raise additional capital through the sale
of equity securities, to acquire another company or its assets, to establish
strategic relationships, to provide equity incentives to employees, or for such
other corporate purposes that our board of directors determines are in the best
interests of the Company and its stockholders.
The Company currently has two hundred million authorized shares of common stock,
of which 133,282,603 common shares issued and outstanding as of April 20, 2005
and five million authorized shares of preferred stock, of which none are
outstanding.
6
From time to time, the Company is approached to license complimentary technology
or acquire small Companies with similar technologies. While the Company has no
immediate plans or proposals at this time, the board of directors has determined
that it is in the best interest of our stockholders to pursue strategic
acquisitions and alliances to acquire critical mass and would like to take
advantage of opportunities as they are presented. Given the Company's present
financial position, the Company believes it should reserve all authorized shares
to keep the Company liquid with reserves of cash to execute its core business
activities such as expensive clinical trials. Therefore, the Company believes it
must be able to issue shares of our common stock in order to accomplish any
value added significant strategic acquisition or licensing of complimentary
technology. The board of directors believes that increasing the number of our
authorized shares of common stock to 250,000,000 will provide a sufficient
number of authorized shares of common stock for the foreseeable future.
In addition, the board of directors believes that it is prudent to increase the
authorized number of shares of common stock to the proposed level in order to
have a sufficient number of shares of common stock to provide a reserve of
shares available for issuance to meet business needs as they may arise in the
future. Such business needs may include, without limitation, financings,
acquisitions, establishing strategic relationships with corporate partners,
providing equity incentive to employees, officers or directors, forward stock
splits or similar transactions.
Accordingly, our board of directors is requesting that the stockholders approve
an amendment to its Articles of Incorporation, under Section 78.390 of the
Nevada General Corporations Code, to increase of the number of authorized shares
of common stock to 250,000,000. Other than as set forth below, the board has no
present agreement or arrangement to issue any of the shares for which approval
is sought. If the amendment is approved by the stockholders, the board of
directors does not intend to solicit further stockholder approval prior to the
issuance of any additional shares of common stock, except as may be required by
applicable law.
Purpose and Effect of the Amendment
The increase in authorized common stock will not have any immediate effect on
the rights of existing stockholders. The board of directors, however, will have
the authority to issue authorized common stock without further stockholder
approval, except as may be required by applicable law or the rules or
regulations of any exchange or market on which our class of common stock may
trade. To the extent that additional authorized shares are issued in the future,
including the rescinded shares discussed below, they may decrease your existing
percentage equity ownership of the Company.
The increase in the authorized number of shares of common stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company such as a hostile takeover without
further action by the stockholders. Shares of authorized and unissued common
stock could, within the limits imposed by applicable law, be issued in one or
more transactions which would make a change in control of the Company more
difficult, and therefore a hostile takeover less likely. Any such issuance of
additional stock could have the effect of diluting the earnings per share and
book value per share of outstanding shares of common stock and such additional
shares could be used to dilute the stock ownership or voting rights of a person
seeking to obtain control of the Company.
The board of directors is not currently aware of any attempt to take over or
acquire the Company. While it may be deemed to have potential anti-takeover
effects, the proposed amendment to increase the authorized common stock is not
prompted by any specific effort or takeover threat currently perceived by
management.
Article Subject to Amendment
If the proposed amendment is approved by the stockholders, the first paragraph
of Article FOURTH of the Company's Articles of Incorporation will be amended to
read as follows:
7
"FOURTH: The corporation is authorized to issue 250,000,000 shares, of
"common stock," $0.001 par value. The board of directors is hereby authorized to
fix or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any series of common stock, and the number of shares constituting
any such series and the designation thereof, or any of them. The board of
directors is also authorized to increase or decrease the number of shares of any
series, prior or subsequent to the issue of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series."
Required Vote
The affirmative vote of a majority of the shares of outstanding Common Stock is
required for approval of this proposal. Abstentions and broker non-votes will be
counted as present for purposes of determining if a quorum is present.
Abstentions and broker non-votes will have the same effect as a negative vote on
this proposal.
Recommendation of the Board of Directors
Our board of directors unanimously recommends that the stockholders vote "FOR"
the proposal to amend the Articles of Incorporation to increase the number of
authorized shares of common stock to 250,000,000 shares.
PROPOSAL NO. 3: APPROVAL OF THE ADOPTION OF THE SAMARITAN
PHARMACEUTICALS, INC., 2005 STOCK INCENTIVE PLAN
The Company's shareholders are also being asked to approve the Samaritan
Pharmaceuticals, Inc. 2005 Stock Incentive Plan (the "Plan"), effective as of
its receipt of Board approval on April 18, 2005, but subject to shareholder
approval at the Annual Meeting. The affirmative vote of the holders of a
majority of the shares present in person, or represented by proxy and voted at
the Annual Meeting, will be required to approve the 2005 Plan. Below is a
summary of the principal provisions of the Plan and its operation. A copy of the
Plan is set forth in full in Appendix A to this Proxy Statement, and the
following description of the Plan is qualified in its entirety by reference to
that Exhibit.
Equity incentives continually have been a significant component of compensation
for many of our directors, officers and employees. We believe that this practice
has enabled the Company to attract and retain the highly qualified and
experienced individuals that it continues to require. By linking directors,
officers and employees' compensation to corporate performance, their reward is
related directly to the Company's success. We believe the use of equity
incentives increases motivation to improve shareholder value.
The 2005 Stock Incentive Plan is being proposed for approval as an additional
plan to the Company's 2001 Stock Incentive Plan (the "2001 Plan"), principally
because the Plan expands the Company's flexibility (e.g., by allowing awards of
deferred share units). If the 2005 Stock Incentive Plan receives shareholder
approval at the Annual Meeting, awards will continue to occur under the 2001
Plan. In the absence of such approval, the 2001 Plan will remain in effect and
available as a source for future awards.
Description of the 2005 Stock Incentive Plan
Directors, officers and employees of the Company and its Affiliates, as well as
advisors, sales representatives, other individuals performing bona fide services
to or for the Company and its Affiliates, and other individuals in connection
with their hiring, retention, or otherwise may be granted common stock options
to purchase shares of Common Stock (both incentive stock options, or "ISOs," and
non-ISOs, though only employees may receive ISOs), stock appreciation rights
("SARs"), restricted shares or units, unrestricted shares, deferred share units,
performance units, phantom stock and other stock-based awards under the Plan. In
the discussion below, the term "Awards" refers to all forms of award that the
Plan authorizes. Following the Annual Meeting, if all nominees for director are
elected, the Company will have 6 non-employee directors, 2 employee directors,
and approximately 6 employees, and no other individuals expected to be eligible
to receive Awards under the Plan.
8
On a calendar year basis, Awards under the Plan may be made for a maximum of ten
percent (10%) of the total shares of Common Stock outstanding on a fully diluted
basis (without taking into account outstanding Awards at the end of the prior
calendar year), less Awards outstanding at the end of the prior calendar year.
Notwithstanding this limit, not more than three percent (3%) of the total shares
of within the plan may be subject to ISO Awards during the term of the Plan, and
not more than seven percent (7%) of the total shares within the plan may be
subject to Awards in a form other than options and SARs. No director, officer,
or employee may be granted options with respect to the total awards available
under the plan to more than half of the awards within the Plan, nor more than
5,000,000 shares per fiscal year, subject to a limit of 2,500,000 shares per
fiscal year for individuals first hired that year. The number of shares subject
to these limits will be adjusted in the event of certain changes in the
capitalization of the Company. The closing bid price of Common Stock as reported
on the American Stock Exchange on March 31, 2005, was $.51 per share.
The Board will administer the Plan or a committee appointed by the Board
(referred to as the "Administrator"). The Administrator will have authority,
subject to the terms of the Plan, to determine when and to whom to make grants
under the plan, the type of Award and the number of shares to be covered by the
grants, the fair market value of shares, the terms of the grants, which includes
the exercise price of the shares of Common Stock covered by options, any
applicable vesting provisions, and conditions under which Awards may be
terminated, expired, cancelled, renewed or replaced, and to construe and
interpret the terms of the Plan and Awards.
Options. Options granted under the Plan provide participants with the right to
purchase shares at a predetermined exercise price. The Administrator may grant
ISOs and non-ISOs; provided that ISO treatment is not be available for options
that become first exercisable in any calendar year for shares that have a value
exceeding $100,000 (based upon the fair market value of the shares on the option
grant date).
SARs. A share appreciation right generally permits a participant who receives it
to receive, upon exercise, cash and/or shares equal in value to the excess of
(i) the fair market value, on the date of exercise, of the shares with respect
to which the SAR is being exercised, over (ii) the exercise price of the SAR for
such shares. The Administrator may grant SARs in tandem with options, or
independently of them. SARs that are independent of options may limit the value
payable on its exercise to a percentage, not exceeding 100%, of the excess
value.
Exercise Price for Options and SARs. The per share purchase price under each
option or SAR granted shall be established by the Administrator at the time the
option is granted. However, the per share purchase price for non-ISOs shall not
be less than 100% of the fair market value (generally, the current price
reflected in trading on the American Stock Exchange, which is our principal
trading market) of a share of Common Stock on the date the option is granted.
The exercise price of ISOs may not be less than 110% of the fair market value on
the grant date of the underlying shares subject to the Award for participants
who own more than ten percent of our shares on the grant date.
Exercise of Options and SARs. Each option granted pursuant to the Plan shall be
for such term as determined by the Administrator; provided, however, that no
option shall be exercisable sooner than one year nor more than ten years from
the date it was granted (five years in the case of ISOs granted to employees
who, at the time of grant, own more than 10% of the Company's outstanding
shares). To the extent exercisable in accordance with the agreement granting
them, an option or SAR may be exercised in whole or in part, and from time to
time during its term; subject to earlier termination relating to a holder's
termination of employment or service. With respect to options, the Administrator
has the discretion to accept payment of the exercise price in any of the
following forms (or combination of them): cash or check in U.S. dollars, certain
shares, and cashless exercise under a program the Administrator approves.
9
Restricted Shares, Restricted Share Units, Unrestricted Shares, Phantom Stock,
Deferred Share Units, and Other Stock-Based Awards. Under the Plan, the
Administrator may grant restricted shares and restricted share units that are
forfeitable until certain vesting requirements are met, and may grant
unrestricted shares as to which the participant's interest is immediately
vested. For restricted Awards, the Plan provides the Administrator with
discretion to determine the terms and conditions under which a participant's
interests in such Awards becomes vested. In addition, the Administrator may
grant phantom stock (Awards denominated n stock-equivalent units), deferred
share units, and other stock-based Awards. Deferred share units may only be
awarded to certain directors, consultants, or select members of management to
defer their receipt of compensation payable in cash or shares (including shares
that would otherwise be issued upon the vesting of restricted shares and
restricted share units). Deferred share units represent a future right to
receive shares.
Whenever shares are released pursuant to these Awards, the participant will be
entitled to receive additional shares that reflect any stock dividends that the
Company's shareholders received between the date of the Award and issuance or
release of the shares. Likewise, a participant will be entitled to receive a
cash payment reflecting cash dividends paid to the Company's shareholders during
the same period. Such cash dividends will accrue simple interest from their
payment date to the Company's shareholders until paid in cash when the shares to
which they relate are either released from restrictions in the case of
restricted shares or issued in the case of restricted share units.
Performance Awards. The Plan authorizes the Administrator to grant
performance-based Awards in the form of performance units that the Administrator
may, or may not, designate as "Performance Compensation Awards" that are
intended to be exempt from Code section 162(m) limitations. In either case,
performance-based Awards vest and become payable based upon the achievement,
within the specified period of time, of performance objectives applicable to the
individual, the Company, or any affiliate. Performance-based Awards are payable
in shares, cash, or some combination of the two; subject to an individual
participant limit of $2,500,000 and 5,000,000 shares per performance period. The
Administrator decides the length of performance periods, but the periods may not
be less than one fiscal year of the Company.
With respect to Performance Compensation Awards, the Plan requires that the
Administrator specify in writing the performance period to which the Award
relates, and an objective formula by which to measure whether and the extent to
which the Award is earned on the basis of the level of performance achieved with
respect to one or more performance measures. Once established for a performance
period, the performance measures and performance formula applicable to the Award
may not be amended or modified in a manner that would cause the compensation
payable under the Award to fail to constitute performance-based compensation
under Code section 162(m).
Under the Plan, the possible performance measures for Performance Compensation
Awards include basic, diluted or adjusted earnings per share; sales or revenue;
earnings before interest, taxes and other adjustments (in total or on a per
share basis); basic or adjusted net income; returns on equity, assets, capital,
revenue or similar measure; economic value added; working capital; total
shareholder return; and product development, product market share, research,
licensing, litigation, human resources, information services, mergers,
acquisitions, and sales of assets of affiliates or business units. Each measure
will be, to the extent applicable, determined in accordance with generally
accepted accounting principles as consistently applied by the Company (or such
other standard applied by the Administrator) and, if so determined by the
Administrator, and in the case of a Performance Compensation Award, to the
extent permitted under Code section 162(m), adjusted to omit the effects of
extraordinary items, gain or loss on the disposal of a business segment, unusual
or infrequently occurring events and transactions and cumulative effects of
changes in accounting principles. Performance measures may vary from performance
period to performance period, and from participant to participant, and may be
established on a stand-alone basis, in tandem or in the alternative.
Income Tax Withholding. As a condition for the issuance of shares pursuant to
Awards, the Plan requires satisfaction of any applicable federal, state, local,
or foreign withholding tax obligations that may arise in connection with the
Award or the issuance of shares.
Transferability. Awards may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of other than by will or the laws of descent and
distribution.
10
Certain Corporate Transactions. The Administrator shall equitably adjust the
number of shares covered by each outstanding Award, and the number of shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued shares resulting from a stock split, reverse stock split, stock
dividend, combination, recapitalization or reclassification of the shares, or
any other increase or decrease in the number of issued shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Administrator may provide in substitution for any or all outstanding
Awards under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Awards so replaced. In any case, such substitution of securities will not
require the consent of any person who is granted Awards pursuant to the Plan.
In addition, in the event or in anticipation of a Change in Control (as defined
in the Plan), outstanding options and SARs will terminate upon the effective
time of the Change in Control, unless provision is made in connection with the
transaction for the continuation or assumption of such Awards by, or for the
substitution and the equivalent Awards of, the surviving or successor entity or
a parent thereof. In the event of such termination, the holders of options and
SARs under the Plan will be permitted, for a period of at least twenty days
prior to the effective time of the Change in Control, to exercise all portions
of such Awards that are then exercisable or which become exercisable upon or
prior to the effective time of the Change in Control; provided, that any such
exercise of any portion of such an Award which becomes exercisable as a result
of such Change in Control shall be deemed to occur immediately prior to the
effective time of such Change in Control.
Term of the Plan; Amendments or Termination. The Board has the power to
terminate, amend or modify the Plan at any time. If the Board does not take
action to earlier terminate the Plan, it will terminate on April 30, 2015.
Certain amendments may require the approval of the Company's shareholders. No
amendment, suspension, or termination of the Plan shall materially and adversely
affect Awards that previously had been granted without the written consent of
the holders of those options unless it relates to an adjustment pursuant to
certain transactions that change the Company's capitalization or it is otherwise
mutually agreed between the participant and the Administrator. Notwithstanding
the foregoing, the Administrator may amend the Plan to eliminate provisions
which are no longer necessary as a result of changes in tax or securities laws
or regulations, or in the interpretation thereof.
Expected Federal Income Tax Consequences. The following is a general discussion
of certain U.S. federal income tax consequences relating to Awards granted under
the Plan. This discussion does not address all aspects of U.S. federal income
taxation, does not discuss state, local and foreign tax issues and does not
discuss considerations applicable to a holder who is, with respect to the United
States, a non-resident alien individual. This summary of federal income tax
consequences does not purport to be complete and is based upon interpretations
of the existing laws, regulations and rulings which could be altered materially
with enactment of any new tax legislation.
Under the United States Internal Revenue Code, the Company will generally be
entitled to a deduction for federal income tax purposes at the same time and in
the same amount as the ordinary income that participants recognize pursuant to
Awards (subject to the participant's overall compensation being reasonable, and
to the discussion below with respect to Code section 162(m)). For participants,
the expected U.S. tax consequences of Awards are as follows:
Non-ISOs. A participant will not recognize income at the time a non-ISO is
granted. At the time a non-ISO is exercised, the participant will recognize
ordinary income in an amount equal to the excess of (i) the fair market value of
the shares issued to the participant on the exercise date over (ii) the exercise
price paid for the shares. At the time of sale of shares acquired pursuant to
the exercise of a non-ISO, the appreciation (or depreciation) in value of the
shares after the date of exercise will be treated either as short-term or
long-term capital gain (or loss) depending on how long the shares have been
held.
11
ISOs. A participant will not recognize income upon the grant of an ISO. There
are generally no tax consequences to the participant upon exercise of an ISO
(except the amount by which the fair market value of the shares at the time of
exercise exceeds the option exercise price is a tax preference item possibly
giving rise to an alternative minimum tax). If the shares are not disposed of
within two years from the date the ISO was granted or within one year after the
ISO was exercised, any gain realized upon the subsequent disposition of the
shares will be characterized as long-term capital gain and any loss will be
characterized as long-term capital loss. If both of these holding period
requirements are not met, then a "disqualifying disposition" occurs and (i) the
participant recognizes gain in the amount by which the fair market value of the
shares at the time of exercise exceeded the exercise price for the ISO and (ii)
any remaining amount realized on disposition (except for certain "wash" sales,
gifts or sales to related persons) will be characterized as capital gain or
loss.
Share Appreciation Rights. A participant to whom a SAR is granted will not
recognize income at the time of grant of the SAR. Upon exercise of a SAR, the
participant must recognize taxable compensation income in an amount equal to the
value of any cash or shares that the participant receives.
Restricted Shares, Restricted Share Units, Deferred Share Units, Performance
Awards, and Unrestricted Shares. In general, a participant will not recognize
income at the time of grant of restricted shares, restricted share units,
deferred share units or performance Awards, unless the participant elects with
respect to restricted shares or restricted share units to accelerate income
taxation to the date of the Award. In this event, a participant would recognize
ordinary income equal to the excess of the market value of the restricted shares
over any amount the participant pays for them (in which case subsequent gain or
loss would be capital in nature). In the absence of an election to accelerate
income taxation to the date of an Award, a participant must recognize taxable
compensation income equal to the value of any cash or unrestricted shares that
the participant receives. The same tax consequences apply to performance Awards
and Awards of unrestricted shares.
Special Tax Provisions. Under certain circumstances, the accelerated vesting,
cash-out or accelerated lapse of restrictions on Awards in connection with a
change in control of the Company might be deemed an "excess parachute payment"
for purposes of the golden parachute tax provisions of Code section 280G, and
the participant may be subject to a 20% excise tax and the Company may be denied
a tax deduction. Furthermore, the Company may not be able to deduct the
aggregate compensation in excess of $1,000,000 attributable to Awards that are
not performance-based" within the meaning of Code section 162(m) in certain
circumstances. The Plan is designed to permit Awards that qualify as
performance-based compensation for this purpose.
Required Vote
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and voted at the Annual Meeting will be required
to approve the 2005 Plan.
Recommendation of the Board of Directors
Our board of directors unanimously recommends that the stockholders vote "FOR"
this proposal to approve the adoption of the Samaritan Pharmaceuticals, Inc.
2005 Stock Incentive Plan.
PROPOSAL NO. 4: RATIFICATION OF APPOINTMENT OF AUDITORS
Change of Independent Auditors
On May 11, 2002, the Company dismissed Feldman Sherb & Co., P.C., as its
independent auditors. This action was approved by the Board of Directors and the
Audit Committee of the Board of Directors. The audit reports of Feldman Sherb &
Co., P.C., on the consolidated financial statements of the Company and its
subsidiaries as of and for the years ended December 31, 2000 and 2001, did not
contain any adverse opinion, disclaimer of opinion or qualification as to
uncertainty, audit scope or accounting principles. During the two years ended
December 31, 2000 and 2001, and the subsequent interim period through May 20,
2002, there were no disagreements with Feldman Sherb & Co., P.C., on any matter
of accounting principle or practice, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Feldman Sherb & Co., P.C., would have caused them to make a reference to the
subject matter of the disagreement in connection with their reports; and there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K. 16
12
On May 11, 2002, the Company engaged Sherb & Co., LLP as its new independent
auditors. The decision to change accounting firms was approved by the Company's
Board of Directors and the Audit Committee of the Board of Directors. During the
years ended December 31, 2000 and 2001, and the subsequent interim period
through May 11, 2002, the Company did not consult with Sherb & Co., LLP
regarding the application of accounting principles to any specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K
16. The Company requested that Feldman Sherb & Co., P.C furnish it with a letter
addressed to the Securities and Exchange Commission stating whether or not it
agreed with the statements set forth above. A copy of such letter dated May 11,
2002 was filed as Exhibit 16.1 to the Company's Current Report on Form 8-K filed
on September 24, 2002.
Our board of directors has appointed the firm Sherb & Co., LLP independent
public auditors for the Company during fiscal year 2004, to serve in the same
capacity for the fiscal year ending December 31, 2005, and is asking the
stockholders to ratify this appointment. The affirmative vote of the holders of
a majority of the shares represented by proxy and voting at the Annual Meeting
is required to ratify the selection of Sherb & Co., LLP. In the event the
stockholders fail to ratify the appointment, the Board of Directors will
reconsider its selection. Even if the selection is ratified, our board of
directors in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if our board of directors
believes that such a change would be in the best interests of the Company and
its stockholders.
A representative of Sherb & Co., LLP is expected to be present at the Annual
Meeting, will have the opportunity to make a statement if he or she desires to
do so, and will be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast affirmatively or negatively
at the Annual Meeting of stockholders at which a quorum representing a majority
of all outstanding shares entitled to vote is present and voting, either in
person or by proxy, is required for approval of this proposal. Abstentions and
broker non-votes will each be counted as present for purposes of determining the
presence of a quorum. Neither abstentions nor broker non-votes will have any
effect on the outcome of the proposal.
Fees and Independence
Audit Fees - The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the audit of the
registrant's annual financial statements and review of financial statements
included in the review of financial statements included in the registrant's Form
10-QSB or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagement were $27,000 plus out of
pocket cost for each year.
Audit-Related Fees. The aggregate fees billed in each of the last two fiscal
years for assurance and related services by the principal accountant that are
reasonably related to the performance of the audit or review of the Company's
financial statements and not reported under the caption "Audit Fee".
Tax Fees. No fees were billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice and tax planning services. All Other Fees. Other than the services
described above, the aggregate fees billed for services rendered by the
principal accountant was $0 and $0, respectively, for the fiscal years ended
December 31, 2004 and 2003. These fees related to the review of the Company's
Registration Statement.
13
Audit Committee Policies and Procedures. The Audit Committee must pre-approve
all auditing services and permitted non-audit services (including the fees and
terms thereof) to be performed for Samaritan by its independent auditors,
subject to the de minimus exceptions for non-audit services described in Section
10A(i)(1)(B) of the Securities Exchange Act of 1934, which should be nonetheless
be approved by the Audit Committee prior to the completion of the audit. Each
year the independent auditor's retention to audit our financial statements,
including the associated fee, is approved by the committee before the filing of
the previous year's annual report on Form 10-KSB. At the beginning of the fiscal
year, the Audit Committee will evaluate other known potential engagements of the
independent auditor, including the scope of work proposed to be performed and
proposed fees, and approve or reject each service, taking into account whether
the services are permissible under applicable law and the possible impact of
each non-audit service on the independent auditor's independence from
management. At each such subsequent meeting, the auditor and management may
present subsequent services for approval. Typically, these would be services
such as due diligence for an acquisition, that would not have been known at the
beginning of the year.
Since May 6, 2003, the effective date of the Securities and Exchange Commission
rules stating that an auditor is not independent of an audit client if the
services it provides to the client are not appropriately approved, each new
engagement of Sherb & Co., LLP, had been approved in advance by the Board of
Directors, and none of those engagements made use of the de minimus exception to
the pre-approval contained in Section 10A(i)(1)(B) for the Securities Exchange
Act of 1934.
Required Vote
The affirmative vote of a majority of the votes cast in person or by proxy at
the Annual Meeting will be required to ratify the appointment of Sherb & Co.,
LLP as our independent auditors for the year ending December 31, 2005. Broker
non-votes and abstentions are not treated as votes cast for this purpose and
have no effect on the outcome of the vote.
Recommendation of the Board of Directors
Our board of directors recommends a vote "FOR" ratification of the appointment
of Sherb & Co., LLP as our independent auditors.
STOCKHOLDER PROPOSALS
To be considered for presentation to the Annual Meeting to be held in 2006, a
stockholder proposal must be received by Kristi Eads, Corporate Secretary,
Samaritan Pharmaceuticals Inc., 101 Convention Center Drive, Suite 310, Las
Vegas, Nevada 89109, no later than February 28, 2006.
OTHER MATTERS
Our board of directors knows of no other business which will be presented to the
Annual Meeting. If any other business is properly brought before the Annual
Meeting, proxies in the enclosed form will be voted in respect thereof in
accordance with the judgments of the persons voting the proxies. It is important
that the proxies be returned promptly and that your shares are represented. You
are urged to sign, date and promptly return the enclosed proxy card in the
enclosed envelope.
We have filed an Annual Report on Form 10-KSB for the year ending December 31,
2004, with the Securities and Exchange Commission. You may obtain, free of
charge, a copy of the Form 10-KSB by writing to our Corporate Secretary, Kristi
Eads, c/o Samaritan Pharmaceuticals Inc., 101 Convention Center Drive, Suite
310, Las Vegas, Nevada 89109. Our Form 10-KSB is also available through our
website at www.samaritanpharma.com
By Order of the Board of Directors,
/s/ Janet Greeson, Ph.D.
Janet Greeson, Ph.D.
Chairman of the Board of Directors
Dated: April 15, 2005 Las Vegas, Nevada
14
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth the name, age and position of our executive
officers, directors and key employees as of April 20, 2005:
Name Age Served Since Positions with Company
--------------------------------------------------------------------------------
Dr. Janet R. Greeson (3) (4) 61 10/97 CEO, President, and
Chairman of the Board
Eugene J. Boyle 39 06/00 CFO, COO, and Director
Dr. Thomas Lang 54 06/04 Chief Drug Development
Officer
George Weaver 39 07/03 Regulatory Affairs
Kristi Eads 35 11/00 Vice President, and
Corporate Secretary
Dr. Vassilios Papadopoulos (4) 44 03/01 Director
Douglas D. Bessert (1) 47 03/01 Director
Dr. Erasto R. C. Saldi (3)(4) 45 05/03 Director
Welter Budd Holden (2)(3) 74 10/97 Director
H. Thomas Winn (1) 64 03/99 Director
Cynthia C. Thompson (1)(2) 45 03/99 Director
(1) Member of the Audit and Finance Committee.
(2) Member of the Compensation and Governance Committee.
(3) Member of the Nominating Committee.
(4) Member of the Science and Technology Advisory Committee.
Dr. Janet Greeson, Chairman, President and CEO led the efforts that resulted in
the Georgetown University collaboration. Samaritan has benefited from Dr.
Greeson's strong leadership, business acumen, knowledge of public markets and
negotiation skills. Dr. Greeson is a seasoned healthcare professional with over
two decades of corporate experience focused on emerging growth, mergers and
acquisitions. She is a co-inventor with 18 patent applications, and presently
has nine peer reviewed journal publications. She is a best selling author and
renown public speaker whose guest appearances on numerous radio and TV Talk
shows has opened the door to tell the Samaritan story in a concise and
professional manner. In the past, Dr. Greeson developed "Psychiatric Hospital
Programs" for the US Navy and went on to develop a model to grow hospital units
nationwide which was later sold to Columbia/HCA (NYSE:COL). After being
acquired, Dr. Greeson went on to facilitate over 20 more hospital acquisitions
for Columbia. Dr. Greeson has an eclectic past, once working with Mother Theresa
and was privileged to be the U.S. Congressional Nominee for the State of Nevada
in 1994, winning the primary without spending a dollar to campaign. Dr. Greeson
currently serves on the Board of Restaurant Connections International, Inc., a
company with approximately 20 licensed Pizza Huts in Brazil. Dr. Greeson devotes
substantially all of her time to the affairs of Samaritan Pharmaceuticals.
Mr. Eugene J. Boyle, a Co-Founder of Samaritan, has been a Director since 2000
and serves as Chief Financial Officer and Chief Operations Officer. Mr. Boyle
attended Notre Dame and has received a BSE from Tulane University. He is a
veteran of the US Navy serving as a Lt. during the Gulf War. Upon discharge, he
then returned to graduate school earning his MBA in Entrepreneurship from Babson
College, Boston, MA and his Juris Doctor from Concord Law School, Los Angeles,
CA. He devotes his time to business development aspects of Samaritan, SEC
filings, patent prosecution and numerous other legal and business affairs.
Mr. Boyle is also a founder of the "Samaritan Innovative Science Foundation",
dedicated to provide free HIV drugs to children of the world; a BioFutureBus to
further science with children; and to develop often overlooked orphan drugs for
the benefit of the world community. In the past, Mr. Boyle was employed by
Columbia/HCA (NYSE:HCA) as its Chief Operations Officer for the southeast region
and also assisted with mergers and acquisitions of numerous hospitals. He also
has served on the Advisory Board of Nevada Gold and Casinos (AMEX:UWN). Mr.
Boyle is a Charted Financial Analyst candidate, has passed the series 7 and 63
securities brokerage registered representative exams, although he is not a
practicing representative.
15
Dr. Thomas Lang, the Chief Drug Development Officer for Samaritan since 2004,
was the C.E.O. and President of Strategic Development Consulting and the former
Vice Chairman and President of Serono Inc., (the US Company of Serono, S.A., the
world's third largest biotech company). Dr. Lang is a highly regarded senior
executive with over twenty-five years of experience in the pharmaceutical and
biotech industry. Dr. Lang holds technical degrees in Chemistry and Pharmacy, an
MBA degree, a Ph.D. degree, and is a registered pharmacist in the State of New
Jersey.
Prior to founding Strategic Development Consulting, Mr. Lang had a very
successful career with such companies as Ciba-Geigy, Janssen, Warner-Lambert,
Organon, and, most recently, Serono. After joining Serono in 1995, Dr. Lang held
increasingly senior executive level positions within Serono while successfully
guiding the company's short and long-term tactical and strategic planning for
overall product development and commercialization of its traditional and
advanced biotech products in the therapeutic areas of Fertility, Growth,
Metabolism & Immunology, and Multiple Sclerosis in the US. This has lead to the
commercialization of seven products (5 of which were recombinant products),
which currently account for more than 95% of the company's sales.
Mr. George Weaver, has worked in the area of Regulatory Affairs for Samaritan
since 2003. Mr. Weaver majored in chemistry, minored in business economics, and
was one of a select group of students to successfully petition UCLA and
participate in an accelerated Pre-Medicine/Medicine program. After working as an
environmental toxicology consultant for two years, Mr. Weaver earned a
Bachelor's of Science in Environmental Engineering and assumed an appointed
position as Chair of Industry Waste Classification and Toxicology Focus Group
under the California Department of Toxic Substances Control Regulatory Structure
Update. Mr. Weaver also worked for and under contract with the United States
Navy Public Works Center. Mr. Weaver is responsible for several environmental
and toxicological advances within the Department of Defense including a notable
contribution to the DOD Uniform National Discharge Standards (UNDS) guidelines
created jointly with the United States Environmental Protection Agency and the
US Coast Guard; development of the Navy's toxicological profile guidelines for
hazardous materials and wastes in San Diego; and significant contribution to the
development of DOD radiological, biohazardous, and infectious materials
permitting guidelines.
Ms. Kristi Eads, has served as Vice President of Investor Relations since
January of 2004 and joined Samaritan in 2000. Ms. Eads oversees all
communications with the investment community, public and private. Ms. Eads
brings with her a diverse experience in investor and corporate relations,
accounting and marketing. Prior to joining Samaritan, Ms. Eads work related
experience in advertising, banking and the political arena has enhanced her
overall ability to communicate the Samaritan story. Ms. Eads has a Bachelor of
Arts from the University of Oregon, and is a Juris Doctorate Degree candidate
with Concord University.
Dr. Vassilios Papadopoulos, D.Pharm., Ph.D., has been a Director of Samaritan
since 2001 and moves to the position of chief scientist (consultant) of the
Science and Technology Advisory Committee June 2005 due to conflict of interest
issues. Dr. Papadopoulos is Professor and Chair at the Department of
Biochemistry & Molecular Biology at Georgetown University Medical Center. Dr.
Papadopoulos and his group of scientists originally assisted Samaritan with work
on using Procaine (HCL) to control stress-induced cortisol production by the
human adrenal cells. Dr. Papadopoulos has over twenty years of experience and
over 140 peer review article publications in the Biopharmaceutical field and
numerous patents in the field of steroid biosynthesis, Alzheimer's disease and
cancer.
Mr. Douglas D. Bessert, as a Director since 2001, has shown an enormous ability
to raise private capital with an extensive network of contacts. Mr. Bessert has
over 20 years of financial and investor relationship experience, with an
emphasis in small entrepreneurial companies. In the past, he served as a Branch
Manager at a stock brokerage firm in charge of nine other brokers, handling all
compliance and investor problems for the office. Mr. Bessert was the Founder and
CFO of Thorofare Resources Inc., a regional Oil and Gas company with production
and employees in 8 states. He also was a Financial Consultant that managed
portfolios for over 230 clients managing in excess of $43 million in assets.
During his tenure as a financial consultant, he was heavily involved in
leveraged buyouts, raising private capital, and acquisitions of many entities.
Mr. Bessert received his BS in Marketing from the University of Wyoming.
16
Dr. Erasto R. C. Saldi, has been a Samaritan Director since 2003. Currently, Dr.
Saldi is and setup a network of primary clinics in Las Vegas with the intent of
establishing these clinics as research centers for clinical trials. From 1999 to
2004, Dr. Saldi was the Medical Director of Fremont Medical Clinic, Desert Lane
Care Center, and Cheyenne Care Center, where he improved physician compliance
and formulated patient care protocols. From 1996 to 1997, he was Chief Resident,
Internal Medicine and from 1997 to 1998, he served as Assistant Clinical
professor, Internal Medicine at the University of Nevada, School of Medicine,
Las Vegas, NV. Dr. Saldi has also has extensive experience as an Internist,
Principal Investigator and manager of clinical research trials.
Welter "Budd" Holden, as a Co-Founder and Director since 1997, Mr. Holden has
assisted the Company in recruiting and networking patients for clinical trials.
He is a well-known designer who has consulted with the rich and famous
throughout his whole life. He is a renowned networker and has presented
Samaritan to many of his past clients and venture capital groups, including
principals of pharmaceutical companies. Although for the past five years Mr.
Holden has been an independent consultant providing architectural and interior
design advice, he spends the majority of his time trying to further Samaritan.
Mr. Holden is the Chairman of our Business Advisory Board and acts as liaison to
the "Samaritan Innovative Science Foundation". He received his BA in
architectural and interior design from the Pratt Institute.
Mr. H. Thomas Winn, has served as a Director to Samaritan since 1999 and is
Chairman of the Audit Committee. Mr. Winn has been Chairman, President, and CEO
of Nevada Gold & Casinos, Incorporated (AMEX: UWN) since 1994. Under Mr. Winn's
leadership, UWN has successfully concentrated on acquisition and development of
premier gaming and entertainment ventures, and is currently involved in seven
gaming projects in Colorado, California, New Mexico and Arizona. Since 1983, Mr.
Winn has served as President of Aaminex Capital Corporation, a financial
consulting and venture capital firm involved in food and beverage, real estate,
mining, and environmental activities. Mr. Winn has formed numerous investment
limited partnership and capital formation ventures, ranging from motion pictures
to commercial real estate and mining projects.
Ms. Cynthia C. Thompson, has served as a Director to Samaritan since 1999 and is
Chairman of the Compensation Committee. Ms. Thompson is President/CEO and
founder of Quest Entertainment, Inc. She leads Quest's efforts in providing
technology solutions to the gaming industry focusing primarily on slot machines
and table game innovations. She began her extensive financial background in
corporate finance and institutional sales at leading Wall Street investment
firms. Ms. Thompson also serves on the board of Restaurant Connections
International, Inc. and is a founder and financial advisor to Houston-based
Nevada Gold & Casinos, Inc.
(AMEX:UWN).
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors, held in person meetings, conference calls or unanimous
consents 16 times during the year ended December 31, 2004, of which 14 were
unanimous actions adopted by the Board. All of our directors attended more than
100% of the aggregate of the total number of meetings of our board. The Company
has formed, by determination of the Board of Directors, an Audit Committee, with
Lead Independent Director Winn as Chairman, who is independent and a financial
expert as used in Item 7(d)(3)(iv) of Schedule 14 A (240.14a-101 of this
chapter) under the Exchange Act. The Audit Committee held five meetings during
the year 2004. The Compensation Committee, with Independent Director Thompson,
as Chairman held one meeting during the year 2004. The Nomination Committee,
with Independent Director Thompson, as Chairman held one meeting during the year
2004.
Class I directors shall serve until the 2007 annual meeting, Class II directors
shall be elected to serve until the 2006 annual meeting. Class III directors
shall be elected to serve until the 2008 annual meeting. Each director elected
shall serve until his successor is elected and duly qualified.
17
The board of directors currently does have a nominating committee that believes
members of the Company's Board of Directors (the "Board") must possess certain
basic personal and professional qualities in order to properly discharge their
fiduciary duties to shareholders, provide effective oversight of the management
of the Company and monitor the Company's adherence to principles of sound
corporate governance. Although there are formal procedures for you to nominate
persons to serve as directors, the board of directors will consider
recommendations from you, which should be addressed to Samaritan
Pharmaceuticals, Inc., 101 Convention Center Drive, Suite 310, Las Vegas, Nevada
89109. Our officers are elected by our board of directors and serve until the
earlier of their resignation or removal, or until their successors have been
duly elected and qualified.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information we know with respect to the
beneficial ownership of our common stock as of December 31, 2004, for each
person or group of affiliated persons, whom we know to beneficially own more
than 5% of our common stock. The table also sets forth such information for our
directors and executive officers, individually and as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, or SEC. Except as indicated by footnote, to
our knowledge, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them. Options to purchase shares of common stock that are exercisable within 60
days of April 26, 2004 are deemed to be beneficially owned by the person holding
such options for the purpose of computing ownership of such person, but are not
treated as outstanding for the purpose of computing the ownership of any other
person. Applicable percentage of beneficial ownership is based on 132,010,199
shares of common stock outstanding as of December 31, 2004.
Unless otherwise indicated in the footnotes, the address for each listed
stockholder is: c/o Samaritan Pharmaceuticals, Inc., 101 Convention Center
Drive, Suite 310, Las Vegas, Nevada 89109.
Percentage of Total
Total Number of Number of Shares
Number of Options Number of Shares Options and Shares and Options
Beneficial Owner Beneficially Owned Beneficially Owned Beneficially Owned Beneficially Owned
---------------- ------------------ ------------------ ------------------ -------------------
Dr. Janet Greeson 11,679,902 4,447,642 16,127,544 12.2%
Eugene J. Boyle 5,395,028 1,394,250 6,789,278 5.1%
Dr. Vassilios Papadopoulos 1,250,000 100,000 1,350,000 1.0%
Douglas D. Bessert 50,000 0 50,000 *
Dr. Jugan Saldi 25,000 0 25,000 *
Welter "Budd" Holden 200,000 2,509,421 2,709,421 2.1%
H. Thomas Winn 100,000 40,000 140,000 *
Cynthia C. Thompson 100,000 643,555 743,555 *
Thomas Lang 1,325,000 0 1,325,000
1.0%
George Weaver 50,000 0 50,000 *
All Executive officers and
directors as a group (ten persons) 20,174,930 9,134,868 29,309,798 21.4%
--------------------
* Less than 1%
Whereas, the officer or director had previously elected to exercise options or
deferred compensation through a program that involves the crediting of deferred
shares of the Company's common stock held in the Trust under Samaritan
Pharmaceuticals, Inc. Executive Benefit Plan for distribution to the executive
after termination of employment, the shares were excluded from the above
calculation. As of December 31, 2004, the company has issued 31,970,749 shares
into said trusts with the following credit allocation: Dr. Janet Greeson
(13,298,509), Mr. Eugene J. Boyle (10,925,186), Mr. Doug Bessert (4,855,855),
Dr. Vassilios Papadopoulos (1,497,845), George Weaver (600,117), Mr. Welter
Holden (518,237), Ms. Cynthia C. Thompson (100,000), Mr. H. Thomas Winn
(80,000), Kristi Eads (75,000) and Dr. Erasto R. C. Saldi, MD (20,000).
18
AUDIT COMMITTEE REPORT ON
DECEMBER 31, 2004 AUDITED FINANCIAL STATEMENTS
The Audit Committee of our board of directors of the Company is composed of
three independent directors. The Audit Committee operates under a written
charter adopted by our board of directors and attached as Exhibit A to Proxy
Statement filed on April 3, 2001.
The Audit Committee is responsible for overseeing the company's financial
reporting process on behalf of our board of directors. The members of the Audit
Committee consist of Independent Directors, H. Thomas Winn, Cynthia C. Thompson,
Brian Sullivan. In last part of 2004, Brian Sullivan passed away and the board
appointed Doug Bessert to serve until the next annual shareholder meeting. Each
year, the Audit Committee recommends to our board of directors, subject to
stockholder ratification, the selection of the Company's independent auditors.
Management is responsible for the Company's financial statements and the
financial reporting process, including internal controls. The independent
auditors are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and for issuing a report thereon. The Audit Committee's responsibility
is to monitor and oversee these processes.
In this context, the Audit Committee has met and held discussions with
management and Sherb & Co., LLP, the Company's independent auditors. Management
represented to the Committee that the Company's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles, and the Committee has reviewed and discussed the consolidated
financial statements with management and the independent auditors. The Audit
Committee discussed with Sherb & Co., LLP the matters required to be discussed
by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
These matters included a discussion of Sherb & Co., LLP's judgments about the
quality (not just the acceptability) of the Company's accounting principles as
applied to financial reporting.
Sherb & Co., LLP also provided the Audit Committee with the written disclosures
and letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and the Audit Committee discussed with Sherb
& Co., LLP that firm's independence. The Audit Committee further considered
whether the provision by Sherb & Co., LLP of the non-audit services described
elsewhere in this Proxy Statement is compatible with maintaining the auditors'
independence.
Based upon the Audit Committee's discussion with management and the independent
auditors and the Audit Committee's review of the representation of management
and the disclosures by the independent auditors to the Audit Committee, the
Audit Committee recommended to our board of directors that the Company's audited
consolidated financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2004, for filing with the Securities
and Exchange Commission. The Audit Committee and the Board of Directors have
also recommended the selection of Sherb & Co., LLP as the company's independent
auditors for 2005, subject to stockholder ratification.
/s/ H. Thomas Winn, /s/ Cynthia C. Thompson, /s/ Douglas D. Bessert
EXECUTIVE COMPENSATION
The Compensation Committee ("CC") of the Board of Directors administers our
executive compensation program. Each member of the CC is a non-employee
Independent Director. The CC is responsible for establishing salaries and
administering the incentive programs for our Chief Executive Officer, and other
executive officers.
Compensation Philosophy
The CC has designed Samaritan's compensation program based on the philosophy
that all of our executives are important to our success, with our executive
officers setting the direction of our business and having overall responsibility
for our results. Like other pharmaceuticals companies, we operate in a highly
competitive and difficult economic environment. Accordingly, the CC has
structured Samaritan's compensation to accomplish several goals: 1) attract and
retain very talented individuals, 2) reward creativity in maximizing business
opportunities, and 3) enhance shareholder value by achieving our short-term and
long-term business objectives.
19
Base Salary
The CC considers the peer data discussed above as well as individual performance
when approving base salaries for executive officers. The CC evaluates individual
performance based on the achievement of corporate or divisional operating goals
and subjective criteria, as well as the Chief Executive Officer's evaluation of
the other executive officers. No specific weight is assigned to any particular
factor. Dr. Greeson, Mr. Boyle, and Dr. Thomas Lang each have employment
agreements negotiated on an arm's-length basis with the CC that provide a
minimum annual base salary. In setting base salary, the Board considered the
contributions of each executive to our company, compensation paid by peer
companies and outside compensation reports.
Stock Options
The short and long-term compensation program includes stock options granted
under the Stock Incentive Plan as well as non-qualified stock options. The
Option Plan is designed to reward executives for achieving long-term financial
performance goals over a three-year to ten-year period, provide retention
incentives for executives, and tie a significant portion of an executive's total
compensation to our long-term performance. Stock options for our executive
officers and key associates are part of our incentive program and link the
enhancement of shareholder value directly to their total compensation. The CC
determines the number of stock options granted based upon several factors: 1)
level of responsibility, 2) expected contribution towards our performance, and
3) total compensation strategy for mix of base salary, short-term incentives and
long-term incentives. The following tables and notes present information
concerning compensation to the Company's Chief Executive Officer and to the
Company's most-highly compensated executive officers other than the Company's
Chief Executive Officer who were serving at December 31, 2004.
Summary Compensation Table
Annual Compensation Long Term Compensation
---------------------------- ------------------------------------- ----------------------
Name and Year Salary ($) Accrual Restricted Securities Other
Principle Position Salary ($) Stock Underlying Compensation (3)
Awards ($) Options
---------------------------- -------- ------------ ----------- -------------- ------------ -------------------
Janet Greeson 2004 $437,582 $-0- $-0- 4,253,560 $19,559
Chairman, CEO, 2003 $247,687 $-0- $169,058 2,582,238 $ 8,871
President (1) 2002 $264,983 $-0- $131,917 1,532,210 $ 9,337
Eugene J. Boyle 2004 $278,645 $13,076 $-0- 2,126,780 $600
CFO, COO (1) 2003 $156,200 $-0- $121,630 1,291,119 $1,200
2002 $97,533 $-0- $167,067 766,105 $3,667
Thomas Lang 2004 $173,538 $-0- $-0- 1,300,000 $-0-
Drug Development
(1)(2)(4)
George Weaver 2004 $89,863 $30,137 $-0- -0- $-0-
Regulatory Affairs 2003 $18,462 $-0- $51,538 50,000 $-0-
(4)
(1) The Company engaged the executive pursuant to a written agreement, Dr. Janet
Greeson and Eugene J. Boyle filed as an exhibit to 10-QSB, including any
amendments, on August 14, 2002 and incorporated herein by reference. Dr. Thomas
Lang filed as an exhibit to 10-QSB, including any amendments, on August 16,
2004.
20
(2) The Company engaged the executive pursuant to a written agreement effective
June 1, 2004. The annual salary for said Executive is $300,000 and received a
grant of 1,200,000 options. One quarter (1/4) of said Stock Options vest every
year. The price of the options was $1.08 with a term of 10 years. Upon
termination of Executive, as provided hereinafter, Executive's said 1,200,000
options (vested and non-vested) shall expire within 30 days.
(3) The amounts shown in this column cover amounts for the payment of
Medicare/Social Security taxes, life insurance premiums and life annuity
premiums for the benefit of the particular employee, and the employers matching
contribution to the particular employees 401(k).
(4) Excludes payments to Strategic Development Consulting, Inc., to which Dr.
Thomas Lang was an employee, before he was engaged pursuant to written agreement
with Samaritan Pharmaceuticals. Payments to Strategic Development Consulting,
Inc. included $50,000 and a five year option for 25,000 shares with an excise
price of .50 for work prior to June 2004. Excludes a one time grant of 75,000
restricted shares into George Weaver deferred compensation trust at the end of
2004.
Option Grants in Last Fiscal Year
Name Number of % of Total
Securities Options
Underlying Granted to Exercise Grant Date
Options Granted Employees in Base Price Expiration Present Value
(#)(1) Fiscal Year ($/Sh) Date ($)(2)
------------------------------ --------------- --------------- ------------- ------------ ------------------
Janet Greeson (1) 4,253,560 54% $0.34 01/02/2014 467,891
Eugene J. Boyle (1) 2,126,780 27% $0.34 01/02/2014 233,945
Thomas Lang (1) 1,300,000 17% $1.08 06/16/2014 507,000
Thomas Lang (1) 100,000 * $1.00 06/16/2007 28,000
George Weaver 50,000 * $0.34 01/02/2014 5,500
(1) The Company engaged the executive pursuant to a written agreement, with Dr.
Janet Greeson and Eugene J. Boyle filed as an exhibit to 10-QSB, including any
amendments, on August 14, 2002 and incorporated herein by reference, with Dr.
Thomas Lang filed as an exhibit to 10-QSB, including any amendments, on August
16, 2004 and incorporated herein by reference.
(2) The grant date present values per option share were derived using the
Black-Scholes option pricing model in accordance with the rules and regulations
of the Securities and Exchange Commission and are not intended to forecast
future appreciation of the Company's stock price. The options expiring on
January 2, 2014 had a grant date present value of $.11 per option share. The
Black-Scholes model with no dividend was used with the following assumptions:
volatility of 25% based on a historical weekly average over five years; risk
free interest of 3.72% based on a U.S. Treasury rate of five years; and a 10
year option life. The options expiring on January 16, 2014 had a grant date
present value of $ .39 per option share. The Black-Scholes model with no
dividend was used with the following assumptions: volatility of 25% based on a
historical weekly average over five years; risk free interest of 3.72% based on
a U.S. Treasury rate of five years; and a 10 year option life. The options
expiring on January 16, 2007 had a grant date present value of $ .28 per option
share. The Black-Scholes model with no dividend was used with the following
assumptions: volatility of 25% based on a historical weekly average over five
years; risk free interest of 3.72% based on a U.S. Treasury rate of five years;
and a 5 year option life.
Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
Name Shares Value Number of Number of
Acquired on Realized Securities Unexercised In
Exercised ($)(2) Underlying the Money
(#)(1) Unexercise Options at
Options at FY-End ($)(3)
FY-End(#)
-------------------------- --------------- --------------- ----------------- ------------------
Janet Greeson 4,141,941 -0- 11,679,902 5,345,785
Eugene J. Boyle 1,986,163 -0- 5,395,028 2,539,631
Thomas Lang (4) -0- -0- 1,325,000 12,000
George Weaver -0- -0- 50,000 32,000
21
(1) These options were exercised and reloaded pursuant to terms stated in the
options agreement.
(2) The Company engaged the executive pursuant to a written agreement which
allow the executive to defer compensation into a trust agreement described
below.
(3) Value of unexercised in-the-money options is calculated based on the fair
market value of the underlying securities without restriction, minus the
exercise price, and assumes sale of the underlying securities on December 31,
2004, the last trading day for 2004, at a price of .98 per share, the fair
market value of the Company's Common Stock on such date.
(4) Executive received a grant of 1,200,000 options. One quarter (1/4) of said
Stock Options vest every year. The price of the options was $1.08 with a term of
10 years. Upon termination of Executive, as provided hereinafter, Executive's
said 1,200,000 options (vested and non-vested) shall expire within 30 days.
401(k) Plan
We adopted a tax-qualified employee savings and retirement plan, or 401(k) plan,
covering our full-time employees located in the United States. The 401(k) plan
is intended to qualify under Section 401(k) of the Internal Revenue Code of
1986, as amended, so that contributions to the 401(k) plan by employees, and the
investment earnings thereon, are not taxable to employees until withdrawn from
the 401(k) plan. Under the 401(k) plan, employees may elect to reduce their
current compensation up to the statutorily prescribed annual limit and have the
amount of such contribution contributed to the 401(k) plan. The 401(k) plan does
permit additional matching contributions to the 401(k) plan by us on behalf of
participants in the 401(k).
Employment Agreements
The Company engaged the executive pursuant to a written agreement between Dr.
Janet Greeson and Eugene J. Boyle filed as an exhibit to 10-QSB, including any
amendments, on August 14, 2002 and incorporated herein by reference. In each
agreement, the executive is entitled to base salary and stock options based on a
formula not to be less 250,000 options per year. The executive is also entitled
to convert his salary into shares of the Company based on the formula for the
Company's security. See "Executive Compensation" for amounts of base salary and
stock options for each executive. The executive is also allowed to participate
in all of Samaritan Pharmaceutical's benefit programs, if the Company offers the
programs to any other employee.
If executive terminates by reason of death, disability, incapacity or
termination by Samaritan Pharmaceuticals other than for cause, the executive
will be entitled to continuation of base salary and health and similar benefits
for defined periods, payment of stock options and deferred compensation awards.
In each case, the executive agreed to a non-compete clause for the term of his
employment.
In the event of a change of control, the executive would also vest in his or her
options. The executive would also no longer be subject to non-competition
undertakings. If a change of control were followed by termination of employment
resulting from a change of control termination, in lieu of the severance
benefits described above, the executive would be entitled to receive a payment
equal to three times base salary and yearly options. For up to three years
following termination Samaritan Pharmaceuticals would also be obligated to
provide continued health and other insurance and disability benefits. We would
also be obligated to pay all legal fees and expenses reasonably incurred by the
executive in seeking enforcement of contractual rights following a change of
control. If change of control payments and benefits to any of Dr. Greeson,
and/or Mr. Boyle were sufficient to result in an excise tax under the so-called
"golden parachute" provisions of the Code, we would be obligated to pay the
executive a tax gross-up payment. All three executives are also awarded options
based on increases in market capitalization starting with the market
capitalization of $12,500,000. In addition to the salary and other benefits
described above, Mr. Bessert was awarded 100,000 options at $1.00 on restricted
stock that were vested as the signing of his employment contract.
22
Dr. Papadopoulos has an engagement agreement with Samaritan Pharmaceuticals,
Inc., which does not prohibit Dr. Papadopoulos from being employed by other
entities. Dr. Papadopoulos has disclosed that he receives payments and benefits
from other entities including Georgetown University. He is compensated on a
monthly basis, which he has the option to convert his compensation into shares
plus he receives 250,000 warrants per year for the life of the contract.
Trust Agreements
The Company has entered into trust agreements and appointed trustees that are
non directors or officers providing for the payment out of the assets of the
trusts accrued under the Company's various benefit plans, employment agreements
and other employment arrangements as the Company specify from time to time. To
the extent not already irrevocable, the trusts would become irrevocable upon a
change of control of Samaritan Pharmaceuticals. The Company may make
contributions to the trusts from time to time, and additional funding could be
required upon a change of control. To the extent funded, the trusts are to be
used, subject to their terms and to the claims of the Company's general
creditors in specified circumstances, to make payments under the terms of the
benefit plans, employment agreements and other employment arrangements from time
to time specified by the Company.
Indemnification Agreements
The Company has entered into indemnification agreements with each of its
directors and officers, indemnifying them against expenses, settlements,
judgments and fines incurred in connection with any threatened, pending or
completed action, suit, arbitration or proceeding, where the individual's
involvement is by reason of the fact that he or she is or was a director or
officer or served at our request as a director of another organization (except
that indemnification is not provided against judgments and fines in a derivative
suit unless permitted by Nevada law.) An individual may not be indemnified if he
or she is found not to have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of Samaritan
Pharmaceuticals, except to the extent Nevada law shall permit broader
contractual indemnification. The indemnification agreements provide procedures,
presumptions and remedies designed to substantially strengthen the indemnity
rights beyond those provided by Samaritan Pharmaceutical's Certificate of
Incorporation and by Nevada law.
23
SAMARITAN PHARMACEUTICALS, INC.
2005 STOCK INCENTIVE PLAN
1. Establishment, Purpose and Types of Awards
Samaritan Pharmaceuticals, Inc., a Nevada corporation (the "Company"),
hereby establishes the SAMARITAN PHARMACEUTICALS, INC. 2005 STOCK INCENTIVE PLAN
(the "Plan"). The purpose of the Plan is to promote the long-term growth and
profitability of the Company by (i) providing key people with incentives to
improve stockholder value and to contribute to the growth and financial success
of the Company, and (ii) enabling the Company to attract, retain and reward the
best-available persons.
The Plan permits the granting of stock options (including incentive
stock options qualifying under Code Section 422 and nonqualified stock options),
stock appreciation rights, restricted or unrestricted share awards, phantom
stock, deferred share units, performance awards, other stock-based awards, or
any combination of the foregoing.
2. Definitions
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter existing,
which controls, is controlled by, or is under common control with, the Company
(including, but not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power or value of all classes of stock or interests
of the entity.
(b) "Applicable Law" means the legal requirements relating to the
administration of options and share-based plans under applicable U.S. federal
and state laws, the Code, any applicable stock exchange or automated quotation
system rules or regulations, and the applicable laws of any other country or
jurisdiction where Awards are granted, as such laws, rules, regulations and
requirements shall be in place from time to time.
(c) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, performance award, or other stock-based award.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" for termination of a Participant's Continuous Service shall
either have the meaning set forth in any employment-related written agreement
between the Participant and the Company, or mean that the Participant is
terminated from employment or other service with the Company or an Affiliate for
any of the following reasons after receiving both a specific written notice of
24
the conduct that the Board considers "Cause" and a reasonable opportunity to
cure such conduct (if it is reasonably capable of being cured): (i) the
Participant's willful failure to substantially perform his or her duties and
responsibilities to the Company or deliberate violation of a material Company
policy; (ii) the Participant's commission of any material act or acts of fraud,
embezzlement, dishonesty, or other willful misconduct; (iii) the Participant's
material unauthorized use or disclosure of any proprietary information or trade
secrets of the Company or any other party to whom the Participant owes an
obligation of nondisclosure as a result of his or her relationship with the
Company; or (iv) Participant's willful and material breach of any of his or her
obligations under any written agreement or covenant with the Company. The Board
shall in its discretion determine whether or not a Participant is being
terminated for Cause. The foregoing definition does not in any way limit the
Company's ability to terminate a Participant's employment or consulting
relationship at any time, and the term "Company" will be interpreted herein to
include any Affiliate or successor thereto, if appropriate.
(f) "Change in Control" means: (i) the acquisition (other than from the
Company) by any Person, as defined in this Section 2(f), of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended) of 50% or more of (A) the then outstanding
shares of the securities of the Company; or (B) the combined voting power of the
then outstanding securities of the Company entitled to vote generally in the
election of Directors (the "Company Voting Stock"); (ii) the closing of a sale
or other conveyance of all or substantially all of the assets of the Company; or
(iii) the effective time of any merger, share exchange, consolidation, or other
business combination of the Company if immediately after such transaction
persons who hold a majority of the outstanding voting securities entitled to
vote generally in the election of directors of the surviving entity (or the
entity owning 100% of such surviving entity) are not persons who, immediately
prior to such transaction, held the Company Voting Stock. For purposes of this
Section 2(f), a "Person" means any individual, entity or group within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended, other than: employee benefit plans sponsored or maintained by the
Company and corporations controlled by the Company.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(h) "Common Stock" shall mean shares of common stock of the Company, par
value of one tenth of a cent ($0.001) per Share.
(i) "Consultant" shall mean any person, including an advisor, who is
engaged by the Company or any Affiliate to render services and is compensated
for such services.
(j) "Continuous Service" shall mean the absence of any interruption or
termination of a Participant's service as an Employee, Director, or Consultant.
Continuous Service shall not be considered interrupted in the case of: (i) sick
leave; (ii) military leave; (iii) any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than 90 days,
unless reemployment upon the expiration of such leave is guaranteed by contract
25
or statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; (iv) changes in status from Director to advisory director or
emeritus status; or (iv) in the case of transfers between locations of the
Company or between the Company, its Affiliates or their respective successors.
Changes in status between a Participant's service as an Employee, Director, and
a Consultant will not constitute an interruption of Continuous Service.
(k) "Deferred Share Units" shall mean Awards pursuant to Section 10 of the
Plan.
(l) "Director" shall mean a member of the Board, or a member of the board
of directors of an Affiliate.
(m) "Disabled" shall mean a condition under which a Participant
(i) is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for
a continuous period of not less than 12 months, or
(ii) is, by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months,
received income replacement benefits for a period of not less than 3
months under an accident or health plan covering Employees of the
Company.
(n) "Eligible Person" shall mean any Consultant, Director or Employee and
includes non-Employees to whom an offer of employment has been extended.
(o) "Employee" shall mean any person whom the Company or any Affiliate
classifies as an employee (including an officer) for employment tax purposes.
The payment by the Company of a director's fee to a Director shall not be
sufficient to constitute "employment" of such Director by the Company.
(p) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(q) "Fair Market Value" shall mean, with respect to a share of the
Company's Common Stock for any purpose on a particular date, the value
determined by the Administrator in good faith. However, if the Common Stock is
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended, and listed for trading on a national exchange or market, "Fair
Market Value" shall mean, as applicable, (i) either the closing price or the
average of the high and low sale price on the relevant date, as determined in
the Administrator's discretion, quoted on the American Stock Exchange; (ii) the
last sale price on the relevant date quoted on the Nasdaq SmallCap Market; (iii)
the average of the high bid and low asked prices on the relevant date quoted on
the Nasdaq OTC Bulletin Board Service or by the National Quotation Bureau, Inc.
or a comparable service as determined in the Administrator's discretion; or (iv)
26
if the Common Stock is not quoted by any of the above, the average of the
closing bid and asked prices on the relevant date furnished by a professional
market maker for the Common Stock, or by such other source, selected by the
Administrator. If no public trading of the Common Stock occurs on the relevant
date, then Fair Market Value shall be determined as of the next preceding date
on which trading of the Common Stock does occur. For all purposes under this
Plan, the term "relevant date" as used in this Section 2(q) shall mean either
the date as of which Fair Market Value is to be determined or the next preceding
date on which public trading of the Common Stock occurs, as determined in the
Administrator's discretion.
(r) "Grant Agreement" shall mean a written document memorializing the terms
and conditions of an Award granted pursuant to the Plan and shall incorporate
the terms of the Plan. The Committee shall determine the form or forms of
documents to be used, and may change them from time to time for any reason.
(s) "Grant Date" shall have the meaning set forth in Section 16 of the
Plan.
(t) "ISO" shall mean an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code, as designated in the
applicable Award Agreement.
(u) "Involuntary Termination" shall mean termination of a Participant's
Continuous Service under the following circumstances occurring on or after a
Change in Control: (i) termination without Cause by the Company or an Affiliate
or successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 60 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in title
alone nor reassignment to a substantially similar position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other
similarly-situated Employees, Directors or Consultants.
(v) "Nonqualified Option" shall mean an Option not intended to qualify as
an ISO, as designated in the applicable Award Agreement.
(w) "Option" shall mean any stock option granted pursuant to Section 7 of
the Plan.
(x) "Participant" shall mean any holder of one or more Awards, or the
Shares issuable or issued upon exercise of such Awards, under the Plan.
(y) "Performance Awards" shall mean Performance Units and Performance
Compensation Awards granted pursuant to Section 13 of the
Plan.
(z) "Performance Compensation Awards" shall mean Awards granted pursuant to
Section 13(b) of the Plan.
27
(aa) "Performance Unit" means Awards granted pursuant to Section 13(a) of
the Plan which may be paid in cash, in Shares, or such combination of cash and
Shares as the Committee in its sole discretion shall determine.
(bb) "Person" means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.
(cc) "Phantom Stock" shall mean Awards pursuant to Section 11 of the Plan.
(dd) "Reporting Person" shall mean an officer, Director, or greater than
ten percent shareholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.
(ee) "Restricted Shares" shall mean Shares subject to restrictions imposed
pursuant to Section 9 of the Plan.
(ff) "Restricted Share Units" shall mean Awards pursuant to Section 9 of
the Plan.
(gg) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act,
as amended from time to time, or any successor provision.
(hh) "SAR" or "Share Appreciation Right" shall mean Awards granted pursuant
to Section 8 of the Plan.
(ii) "Share" shall mean a share of Common Stock of the Company, as adjusted
in accordance with Section 15 of the Plan.
(jj) "Ten Percent Holder" shall mean a person who owns stock representing
more than ten percent (10%) of the combined voting power of all classes of stock
of the Company or any Affiliate.
(kk) "Unrestricted Shares" shall mean Shares awarded pursuant to Section 9
of the Plan.
3. Administration
(a) Administration of the Plan. The Plan shall be administered by the Board
or by such committee or committees as may be appointed by the Board from time to
time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
28
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Company; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The Administrator's determinations under
the Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated. The Administrator's prior exercise of its discretionary
authority shall not obligate it to exercise its authority in a like fashion
thereafter.
(d) Limited Liability. To the maximum extent permitted by law, no member of
the Administrator shall be liable for any action taken or decision made in good
faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Company's charter and by-laws, the members of the Administrator shall be
indemnified by the Company in respect of all their activities under the Plan.
29
(f) Effect of Administrator's Decision. The Administrator shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Grant
Agreements. All actions taken and decisions and determinations made by the
Administrator on all matters relating to the Plan pursuant to the powers vested
in it hereunder shall be in the Administrator's sole and absolute discretion and
shall be conclusive and binding on all parties concerned, including the Company,
its stockholders, any participants in the Plan and any other Employee,
Consultant, or Director of the Company, and their respective successors in
interest. The validity of any such interpretation, construction, decision or
finding of fact shall not be given de novo review if challenged in court, by
arbitration, or in any other forum, and shall be upheld unless clearly made in
bad faith or materially affected by fraud.
4. Shares Available for the Plan; Maximum Awards
(a) General. Subject to adjustments as provided in Section 15(b) of the
Plan, the number of Awards that may be granted under the Plan in each calendar
year during any part of which the Plan is in effect shall not exceed ten percent
(10%) of the total shares of Common Stock outstanding on a fully diluted basis,
without taking into account Awards outstanding under the Plan that are
exercisable for or convertible into Common Stock or that are unvested stock
Awards ("Outstanding Awards"), at the close of business on the last day of the
preceding calendar year, less the number of shares subject to Outstanding Awards
at the close of business on that date. Notwithstanding the foregoing, in no
event shall more than an aggregate of not more than three percent (3%) of the
total shares of within the plan may be subject to ISO Awards during the term of
the Plan. The Company shall reserve as of the beginning of each calendar year a
sufficient number of Shares to satisfy outstanding Awards under the Plan and the
number of additional shares available for issuance in accordance with the
formula stated above. If any Award, or portion of an Award, under the Plan
expires or terminates unexercised, becomes unexercisable or is forfeited or
otherwise terminated, surrendered or canceled as to any Shares, or if any Shares
are surrendered to the Company in connection with any Award (whether or not such
surrendered shares were acquired pursuant to any Award), or if any shares are
withheld by the Company, the shares subject to such Award and the surrendered
and withheld shares shall thereafter be available for further Awards under the
Plan; provided, however, that any such shares that are surrendered to or
withheld by the Company in connection with any Award or that are otherwise
forfeited after issuance shall not be available for purchase pursuant to ISOs.
For all Awards, the Shares of Common Stock issued pursuant to the Plan may be
authorized but unissued Shares, Shares that the Company has reacquired or
otherwise holds in treasury, or Shares held in a grantor or other trust that the
Board approves.
(b) Specific Award Limitations. Subject to the provisions of Section 15 of
the Plan, the maximum number of Shares that the Company may issue in a form
other than Options and SARs is seven percent (7%) of the total shares within the
plan.
(c) Individual Award Limits. Subject to adjustments as provided in Section
15(b) of the Plan, the maximum number of Shares of Common Stock subject to
Awards of any combination that may be granted during any one fiscal year of the
Company to any one individual under this Plan shall be limited to 5,000,000
shares; provided, however, that such maximum number shall be 2,500,000 shares
with respect to any individual during the first fiscal year that the individual
is employed with the Company or an Affiliate. In addition, during the term of
the Plan, no Participant may receive Options and SARs that relate with respect
30
to the total awards available under the plan to more than half of the awards
within the Plan. The Administrator will adjust these limitations pursuant to
Section 15(b) below. Such per-individual limits shall not be adjusted to effect
a restoration of Shares of Common Stock with respect to which the related Award
is terminated, surrendered or canceled.
5. Participation
Participation in the Plan shall be open to all Employees, Consultants,
advisors, sales representatives, officers, and Directors of, and other
individuals providing bona fide services to or for, the Company, or of any
Affiliate of the Company, as may be selected by the Administrator from time to
time. The Administrator may also grant Awards to individuals in connection with
hiring, retention or otherwise, prior to the date the individual first performs
services for the Company or an Affiliate provided that such Awards shall not
become vested or exercisable prior to the date the individual first commences
performance of such services. A Participant who has been granted an Award may be
granted an additional Award or Awards if the Administrator shall so determine,
if such person is otherwise an Eligible Person and if otherwise in accordance
with the terms of the Plan.
6. Awards
(a) General. The Administrator, in its sole discretion, establishes the
terms of all Awards granted under the Plan. Awards may be granted individually
or in tandem with other types of Awards. All Awards are subject to the terms and
conditions provided in the Grant Agreement. The Administrator may permit or
require a recipient of an Award to defer such individual's receipt of the
payment of cash or the delivery of Common Stock that would otherwise be due to
such individual by virtue of the exercise of, payment of, or lapse or waiver of
restrictions respecting, any Award. If any such payment deferral is required or
permitted, the Administrator shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
(b) Replacement Awards. Subject to Applicable Laws (including any
associated Shareholder approval requirements), the Administrator may, in its
sole discretion and upon such terms as it deems appropriate, require as a
condition of the grant of an Award to a Participant that the Participant
surrender for cancellation some or all of the Awards that have previously been
granted to the Participant under this Plan or otherwise. An Award that is
conditioned upon such surrender may or may not be the same type of Award, may
cover the same (or a lesser or greater) number of Shares as such surrendered
Award, may have other terms that are determined without regard to the terms or
conditions of such surrendered Award, and may contain any other terms that the
Administrator deems appropriate. In the case of Options and SARs, these other
terms may not involve an exercise price that is lower than the exercise price of
the surrendered Option or SARs unless the Company's shareholders approve the
grant itself or the program under which the grant is made pursuant to the Plan.
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7. Option Awards
(a) Types; Documentation. The Administrator may in its discretion grant
ISOs to any Employee and Nonqualified Options to any Eligible Person, and shall
evidence any such grants in an Grant Agreement that is delivered to the
Participant. Each Option shall be designated in the Grant Agreement as an ISO or
a Nonqualified Option, and the same Grant Agreement may grant both types of
Options, provided, however, that Awards of ISOs shall be limited to Employees of
the Company or of any current or hereafter existing "parent corporation" or
"subsidiary corporation," as defined in Code Sections 424(e) and (f),
respectively, of the Company. At the sole discretion of the Administrator, any
Option may be exercisable, in whole or in part, immediately upon the grant
thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the
Administrator shall deem advisable in its sole and absolute discretion.
(b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Nonqualified Options. For purposes of determining whether
the $100,000 limit is exceeded, the Fair Market Value of the Shares subject to
an ISO shall be determined as of the Grant Date. In reducing the number of
Options treated as ISOs to meet the $100,000 limit, the most recently granted
Options shall be reduced first. In the event that Section 422 of the Code is
amended to alter the limitation set forth therein, the limitation of this
Section 7(b) shall be automatically adjusted accordingly.
(c) Term of Options. Each Grant Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 7(e) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.
(d) Exercise Price. The exercise price of an Option shall be determined by
the Administrator in its discretion and shall be set forth in the Grant
Agreement, subject to the following special rules:
(i) ISOs. If an ISO is granted to an Employee who on the Grant Date is
a Ten Percent Holder, the per Share exercise price shall not be less than 110%
of the Fair Market Value per Share on such Grant Date. If an ISO is granted
to any other Employee, the per Share exercise price shall not be less than
100% of the Fair Market Value per Share on the Grant Date.
32
(ii) Nonqualified Options. The per Share exercise price for the Shares
to be issued pursuant to the exercise of a Nonqualified Option shall not be
less than 100% of the Fair Market Value per Share on the Grant Date.
(e) Termination of Continuous Service. The Administrator may establish and
set forth in the applicable Grant Agreement the terms and conditions on which an
Option shall remain exercisable, if at all, following termination of a
Participant's Continuous Service. The Administrator may waive or modify these
provisions at any time. To the extent that a Participant is not entitled to
exercise an Option at the date of his or her termination of Continuous Service,
or if the Participant (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Grant Agreement or below (as applicable), the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the Plan
and become available for future Awards. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Grant Agreement.
The following provisions shall apply to the extent a Grant Agreement
does not specify the terms and conditions upon which an Option shall terminate
when there is a termination of a Participant's Continuous Service:
(i) Termination other than Upon Disability or Death or for Cause. In
the event of termination of a Participant's Continuous Service (other than as a
result of Participant's death, disability, retirement or termination for
Cause), the Participant shall have the right to exercise an Option at any time
within 90 days following such termination to the extent the Participant
was entitled to exercise such Option at the date of such termination.
(ii) Disability. In the event of termination of a Participant's
Continuous Service as a result of his or her being Disabled, the
Participant shall have the right to exercise an Option at any time within one
year following such termination to the extent the Participant was entitled
to exercise such Option at the date of such termination.
(iii) Retirement. In the event of termination of a Participant's
Continuous Service as a result of Participant's retirement, the Participant
shall have the right to exercise the Option at any time within six months
following such termination to the extent the Participant was entitled to
exercise such Option at the date of such termination.
(iv) Death. In the event of the death of a Participant during the
period of Continuous Service since the Grant Date of an Option, or within
thirty days following termination of the Participant's Continuous Service, the
Option may be exercised, at any time within one year following the date of the
Participant's death, by the Participant's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent the right to exercise the Option had vested at the date of death or, if
earlier, the date the Participant's Continuous Service terminated.
33
(v) Cause. If the Administrator determines that a Participant's
Continuous Service terminated due to Cause, the Participant shall
immediately forfeit the right to exercise any Option, and it shall be
considered immediately null and void.
(f) Reverse Vesting. The Administrator in its sole and absolute discretion
may allow a Participant to exercise unvested Options, in which case the Shares
then issued shall be Restricted Shares having analogous vesting restrictions to
the unvested Options.
(g) Buyout Provisions. The Administrator may at any time offer to buy out
an Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Administrator shall establish and communicate to the
Participant at the time that such offer is made. In addition, but subject to any
shareholder approval requirement of applicable law, if the Fair Market Value for
Shares subject to an Option is more than 33% below their exercise price for more
than 30 consecutive business days, the Administrator may unilaterally terminate
and cancel the Option either (i) by paying the Participant, in cash or Shares,
an amount not less than the Black-Scholes value of the vested portion of the
Option, or (ii) subject to the approval of the shareholders of the Company, by
irrevocably committing to grant a new Option, on a designated date more than six
months after such termination and cancellation of such Option (but only if the
Participant's Continuous Service has not terminated prior to such designated
date), on substantially the same terms as the cancelled Option, provided that
the per Share exercise price for the new Option shall equal the per Share Fair
Market Value of a Share on the date the new grant occurs.
8. Stock Appreciation Rights
(a) Stock Appreciation Rights. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to the provisions of the Plan and
the Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per Share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Company of the amount receivable upon any exercise
of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in Shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be used
for such payment and the Administrator shall determine whether cash shall be
given in lieu of such fractional shares or whether such fractional shares shall
be eliminated.
(b) Termination of Employment or Consulting Relationship. The Administrator
shall establish and set forth in the applicable Grant Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
7(e) above shall apply to the extent a Grant Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.
34
(c) Buy-out. The Administrator has the same discretion to buy-out SARs as it has
to take such actions pursuant to Section 7(g) above with respect to Options.
9. Restricted Shares and Restricted Share Units; Unrestricted Shares
(a) Grants. The Administrator may in its discretion grant restricted shares
("Restricted Shares") to any Eligible Person and shall evidence such grant in an
Grant Agreement that is delivered to the Participant and that sets forth the
number of Restricted Shares, the purchase price for such Restricted Shares (if
any), and the terms upon which the Restricted Shares may become vested. In
addition, the Company may in its discretion grant the right to receive Shares
after certain vesting requirements are met ("Restricted Share Units") to any
Eligible Person and shall evidence such grant in an Grant Agreement that is
delivered to the Participant which sets forth the number of Shares (or formula,
that may be based on future performance or conditions, for determining the
number of Shares) that the Participant shall be entitled to receive upon vesting
and the terms upon which the Shares subject to a Restricted Share Unit may
become vested. The Administrator may condition any Award of Restricted Shares or
Restricted Share Units to a Participant on receiving from the Participant such
further assurances and documents as the Administrator may require to enforce the
restrictions. In addition, the Committee may grant Awards hereunder in the form
of unrestricted shares ("Unrestricted Shares"), which shall vest in full upon
the date of grant or such other date as the Committee may determine or which the
Committee may issue pursuant to any program under which one or more Eligible
Persons (selected by the Committee in its discretion) elect to receive
Unrestricted Shares in lieu of cash bonuses that would otherwise be paid.
(b) Vesting and Forfeiture. The Administrator shall set forth in a Grant
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant's interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Grant Agreement or the
Administrator otherwise determines, upon termination of a Participant's
Continuous Service for any other reason, the Participant shall forfeit his or
her Restricted Shares and Restricted Share Units; provided that if a Participant
purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set
forth in an Grant Agreement.
(c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Grant Agreement or the
Administrator otherwise determines, the Company or a third party that the
Company designates shall hold such Restricted Shares and any dividends that
accrue with respect to Restricted Shares pursuant to Section 9(e) below.
35
(d) Issuance of Shares upon Vesting. As soon as practicable after vesting
of a Participant's Restricted Shares (or Shares underlying Restricted Share
Units) and the Participant's satisfaction of applicable tax withholding
requirements, the Company shall release to the Participant, free from the
vesting restrictions, one Share for each vested Restricted Share (or issue one
Share free of the vesting restriction for each vested Restricted Share Unit),
unless an Grant Agreement provides otherwise. No fractional shares shall be
distributed, and cash shall be paid in lieu thereof. Notwithstanding the
foregoing, if the Administrator determines that an issuance of Shares at the
time of vesting is not a "permissible distribution event" within the meaning of
Section 409A of the Code, then the issuance of the Shares will be automatically
deferred until the earliest date on which issuance of the Shares in unrestricted
form will constitute a permissible distribution event pursuant to paragraphs
(i), (ii), (iii), (v), or (iv) of Section 409A(a)(2)(A) of the Code.
(e) Dividends Payable on Vesting. Whenever Shares are released to a
Participant or duly-authorized transferee pursuant to Section 9(d) above as a
result of the vesting of Restricted Shares or the Shares underlying Restricted
Share Units are issued to a Participant pursuant to Section 9(d) above, such
Participant or duly-authorized transferee shall also be entitled to receive
(unless otherwise provided in the Grant Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the
discretion of the Administrator, simple interest at a rate as the Administrator
may determine) and a number of Shares equal to any stock dividends, which were
declared and paid to the holders of Shares between the Grant Date and the date
such Share is released from the vesting restrictions in the case of Restricted
Shares or issued in the case of Restricted Share Units.
(f) Section 83(b) Elections. A Participant may make an election under
Section 83(b) of the Code (the "Section 83(b) Election") with respect to
Restricted Shares. If a Participant who has received Restricted Share Units
provides the Administrator with written notice of his or her intention to make
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Administrator may in its discretion convert the Participant's
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant's Restricted Share Unit Award. The Participant
may then make a Section 83(b) Election with respect to those Restricted Shares.
Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 10 below.
(g) Deferral Elections. At any time within the thirty-day period (or other
shorter or longer period that the Administrator selects) in which a Participant
who is a member of a select group of management or highly compensated employees
(within the meaning of the Code) receives an Award of either Restricted Shares
or Restricted Share Units, the Administrator may permit the Participant to
irrevocably elect, on a form provided by and acceptable to the Administrator, to
defer the receipt of all or a percentage of the Shares that would otherwise be
transferred to the Participant upon the vesting of such Award. If the
Participant makes this election, the Shares subject to the election, and any
associated dividends and interest, shall be credited to an account established
pursuant to Section 10 hereof on the date such Shares would otherwise have been
released or issued to the Participant pursuant to Section 9(d) above.
36
(h) The Administrator may grant Awards hereunder in the form of
unrestricted shares ("Unrestricted Shares"), which shall vest in full upon the
date of grant or such other date as the Administrator may determine or which the
Administrator may issue pursuant to any program under which one or more Eligible
Persons (selected by the Administrator in its discretion) elect to receive
Unrestricted Shares in lieu of cash bonuses that would otherwise be paid.
10. Deferred Share Units
(a) Elections to Defer. The Administrator may permit any Eligible Person
who is a Director, Consultant or member of a select group of management or
highly compensated employees (within the meaning of the Code) to irrevocably
elect, on a form provided by and acceptable to the Administrator (the "Election
Form"), to forego the receipt of cash or other compensation (including the
Shares deliverable pursuant to any Award other than Restricted Shares for which
a Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar quarter (or other period that the Administrator establishes
prospectively) during which compensation is deferred. Unless, within five
business days after the Company receives an Election Form, the Company sends the
Participant a written notice explaining why it is invalid, each Election Form
shall take effect on the first day of the next calendar year (or on the first
day of the next calendar month in the case of an initial election by a
Participant who is first eligible to defer hereunder) after its delivery to the
Company, subject to Section 9(g) regarding deferral of Restricted Shares and
Restricted Share Units and to Section 13(e) regarding deferral of Performance
Awards. Notwithstanding the foregoing sentence: (i) Election Forms shall be
ineffective with respect to any compensation that a Participant earns before the
date on which the Company receives the Election Form, and (ii) the Administrator
may unilaterally make awards in the form of Deferred Share Units, regardless of
whether or not the Participant foregoes other compensation.
(b) Vesting. Unless a Grant Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.
(c) Issuances of Shares. The Company shall provide a Participant with one
Share for each Deferred Share Unit in five substantially equal annual
installments that are issued before the last day of each of the five calendar
years that end after the date on which the Participant's Continuous Service
terminates, unless -
37
(i) the Participant has properly elected a different form of
distribution, on a form approved by the Administrator, that permits the
Participant to select any combination of a lump sum and annual installments that
are completed within ten years following termination of the Participant's
Continuous Service, and
(ii) the Company received the Participant's distribution election form
at the time the Participant elects to defer the receipt of cash or other
compensation pursuant to Section 10(a), provided that (subject to any
prospective changes that the Administrator communicates in writing to a
Participant), the Participant may change such election through any
subsequent election that (i) is delivered to the Administrator at least one year
before the date on which distributions are otherwise scheduled to commence
pursuant to the Participant's election, and (ii) defers the commencement
of distributions by at least five years from the originally scheduled
commencement date.
Fractional shares shall not be issued, and instead shall be paid out in cash.
(d) Crediting of Dividends. Whenever Shares are issued to a Participant
pursuant to Section 10(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Administrator may determine in a Grant Agreement),
and a number of Shares equal to any stock dividends which were declared and paid
to the holders of Shares between the Grant Date and the date such Share is
issued.
(e) Emergency Withdrawals. In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section 10 and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant's Deferred Share Units. The
unforeseeable emergency must result from a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent (within
the meaning of Section 152(a) of the Code) of the Participant, casualty loss of
the Participant's property, or other similar extraordinary and unforeseeable
conditions beyond the control of the Participant. Examples of purposes which are
not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made
to the extent the unforeseeable emergency could be relieved through
reimbursement or compensation by insurance or otherwise, or by liquidation of
the Participant's nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The amount of any distribution
hereunder shall be limited to the amount necessary to relieve the Participant's
unforeseeable emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution. The Administrator shall determine
whether a Participant has a qualifying unforeseeable emergency and the amount
which qualifies for distribution, if any. The Administrator may require evidence
of the purpose and amount of the need, and may establish such application or
other procedures as it deems appropriate.
(f) Unsecured Rights to Deferred Compensation. A Participant's right to
Deferred Share Units shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant or the
Participant's duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.
38
11. Phantom Stock
The Administrator may from time to time grant Awards to eligible
participants denominate in stock-equivalent units ("Phantom Stock") in such
amounts and on such terms and conditions as it shall determine. Phantom Stock
units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Company's assets. An Award of Phantom Stock may be settled in Common
Stock, in cash, or in a combination of Common Stock and cash, as determined in
the sole discretion of the Administrator. Except as otherwise provided in the
applicable Grant Agreement, the grantee shall not have the rights of a
stockholder with respect to any Shares of Common Stock represented by a Phantom
Stock unit solely as a result of the grant of a Phantom Stock unit to the
grantee.
12. Other Stock-Based Awards
The Administrator may from time to time grant other stock-based awards
to eligible participants in such amounts, on such terms and conditions, and for
such consideration, including no consideration or such minimum consideration as
may be required by law, as it shall determine. Other stock-based awards may be
denominated in cash, in Common Stock or other securities, in stock-equivalent
units, in stock appreciation units, in securities or debentures convertible into
Common Stock, or in any combination of the foregoing and may be paid in Common
Stock or other securities, in cash, or in a combination of Common Stock or other
securities and cash, all as determined in the sole discretion of the
Administrator.
13. Performance Awards
(a) Performance Units. Subject to the limitations set forth in paragraph
(c) hereof, the Administrator may in its discretion grant Performance Units to
any Eligible Person and shall evidence such grant in an Grant Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award. A Performance Unit is an Award which is based on the achievement of
specific goals with respect to the Company or any Affiliate or individual
performance of the Participant, or a combination thereof, over a specified
period of time.
(b) Performance Compensation Awards. Subject to the limitations set forth
in paragraph (c) hereof, the Administrator may, at the time of grant of a
Performance Unit, designate such Award as a "Performance Compensation Award" in
order that such Award constitutes "qualified performance-based compensation"
under Code Section 162(m), in which event the Administrator shall have the power
to grant such Performance Compensation Award upon terms and conditions that
qualify it as "qualified performance-based compensation" within the meaning of
39
Code Section 162(m). With respect to each such Performance Compensation Award,
the Administrator shall establish, in writing within the time required under
Code Section 162(m), a "Performance Period," "Performance Measure(s)", and
"Performance Formula(e)" (each such term being hereinafter defined). Once
established for a Performance Period, the Performance Measure(s) and Performance
Formula(e) shall not be amended or otherwise modified to the extent such
amendment or modification would cause the compensation payable pursuant to the
Award to fail to constitute qualified performance-based compensation under Code
Section 162(m).
A Participant shall be eligible to receive payment in respect of a
Performance Compensation Award only to the extent that the Performance
Measure(s) for such Award is achieved and the Performance Formula(e) as applied
against such Performance Measure(s) determines that all or some portion of such
Participant's Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Administrator shall
review and certify in writing whether, and to what extent, the Performance
Measure(s) for the Performance Period have been achieved and, if so, determine
and certify in writing the amount of the Performance Compensation Award to be
paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the
Participant based upon such performance.
(c) Limitations on Awards. The maximum Performance Unit Award and the
maximum Performance Compensation Award that any one Participant may receive for
any one Performance Period shall not together exceed 5,000,000 Shares and
$2,500,000 in cash. The Administrator shall have the discretion to provide in
any Grant Agreement that any amounts earned in excess of these limitations will
either be credited as Deferred Share Units, or as deferred cash compensation
under a separate plan of the Company (provided in the latter case that such
deferred compensation either bears a reasonable rate of interest or has a value
based on one or more predetermined actual investments). Any amounts for which
payment to the Participant is deferred pursuant to the preceding sentence shall
be paid to the Participant in a future year or years not earlier than, and only
to the extent that, the Participant is either not receiving compensation in
excess of these limits for a Performance Period, or is not subject to the
restrictions set forth under Section 162(b) of the Code.
(d) Definitions.
(i) "Performance Formula" means, for a Performance Period, one or more
objective formulas or standards established by the Administrator for purposes of
determining whether or the extent to which an Award has been earned based on
the level of performance attained or to be attained with respect to one or
more Performance Measure(s). Performance Formulae may vary from Performance
Period to Performance Period and from Participant to Participant and may be
established on a stand-alone basis, in tandem or in the alternative.
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(ii) "Performance Measure" means one or more of the following selected
by the Administrator to measure Company, Affiliate, and/or business unit
performance for a Performance Period, whether in absolute or relative terms
(including, without limitation, terms relative to a peer group or index): basic,
diluted, or adjusted earnings per share; sales or revenue; earnings before
interest, taxes, and other adjustments (in total or on a per share basis);
basic or adjusted net income; returns on equity, assets, capital, revenue or
similar measure; economic value added; working capital; total shareholder
return; and product development, product market share, research,
licensing, litigation, human resources, information services, mergers,
acquisitions, sales of assets of Affiliates or business units. Each such
measure shall be, to the extent applicable, determined in accordance with
generally accepted accounting principles as consistently applied by the
Company (or such other standard applied by the Administrator) and, if
so determined by the Administrator, and in the case of a Performance
Compensation Award, to the extent permitted under Code Section 162(m),
adjusted to omit the effects of extraordinary items, gain or loss on the
disposal of a business segment, unusual or infrequently occurring events and
transactions and cumulative effects of changes in accounting principles.
Performance Measures may vary from Performance Period to Performance Period
and from Participant to Participant, and may be established on a stand-alone
basis, in tandem or in the alternative.
(iii) "Performance Period" means one or more periods of time (of not
less than one fiscal year of the Company), as the Administrator may
designate, over which the attainment of one or more Performance Measure(s) will
be measured for the purpose of determining a Participant's rights in respect of
an Award.
(e) Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Administrator selects) with respect to an Award of either Performance
Units or Performance Compensation, the Administrator may permit a Participant
who is a member of a select group of management or highly compensated employees
(within the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Administrator, to defer the receipt of all or a percentage of
the cash or Shares that would otherwise be transferred to the Participant upon
the vesting of such Award. If the Participant makes this election, the cash or
Shares subject to the election, and any associated interest and dividends, shall
be credited to an account established pursuant to Section 10 hereof on the date
such cash or Shares would otherwise have been released or issued to the
Participant pursuant to Section 13(a) or Section 13(b) above.
14. Taxes
(a) General. As a condition to the issuance or distribution of Shares
pursuant to the Plan, the Participant (or in the case of the Participant's
death, the person who succeeds to the Participant's rights) shall make such
arrangements as the Company may require for the satisfaction of any applicable
federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the
Administrator allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations, the Administrator shall not allow
Shares to be withheld in an amount that exceeds the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes.
41
(b) Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.
(c) Special Rules. In the case of a Participant other than an Employee (or
in the case of an Employee where the next payroll payment is not sufficient to
satisfy such tax obligations, with respect to any remaining tax obligations), in
the absence of any other arrangement and to the extent permitted under
Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) or cash equal to the amount required to be withheld. For
purposes of this Section 14, 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 under the Applicable Law (the "Tax Date").
(d) Surrender of Shares. If permitted by the Administrator, in its
discretion, a Participant may satisfy the minimum applicable tax withholding and
employment tax obligations associated with an Award by surrendering Shares to
the Company (including Shares that would otherwise be issued pursuant to the
Award) that have a Fair Market Value determined as of the applicable Tax Date
equal to the amount required to be withheld. In the case of Shares previously
acquired from the Company that are surrendered under this Section 14, such
Shares must have been owned by the Participant for more than six months on the
date of surrender (or such longer period of time the Company may in its
discretion require).
(e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Administrator shall have the discretion to organize any deferral program, to
require deferral election forms, and to grant or to unilaterally modify any
Award in a manner that (i) conforms with the requirements of Section 409A of the
Code with respect to compensation that is deferred and that vests after December
31, 2004, (ii) that voids any Participant election to the extent it would
violate Section 409A of the Code, and (iii) for any distribution election that
would violate Section 409A of the Code, to make distributions pursuant to the
Award at the earliest to occur of a distribution event that is allowable under
Section 409A of the Code or any distribution event that is both allowable under
Section 409A of the Code and is elected by the Participant, subject to any valid
second election to defer, provided that the Administrator permits second
elections to defer in accordance with Section 409A(a)(4)(C). The Administrator
shall have the sole discretion to interpret the requirements of the Code,
including Section 409A, for purposes of the Plan and all Awards.
42
(f) Loans. The Company or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any withholding
tax obligations.
15. Transfers, Adjustments and Change in Control Transactions
(a) Transferability. Except as otherwise determined by the Administrator,
and in any event in the case of an ISO or a Stock Appreciation Right granted
with respect to an ISO, no Award granted under the Plan shall be transferable by
a grantee otherwise than by will or the laws of descent and distribution. Unless
otherwise determined by the Administrator in accord with the provisions of the
immediately preceding sentence, an Award may be exercised during the lifetime of
the grantee, only by the `grantee or, during the period the grantee is under a
legal disability, by the grantee's guardian or legal representative.
(b) Adjustments for Corporate Transactions and Other Events.
(i) Stock Dividend, Stock Split and Reverse Stock Split. In the event
of a stock dividend of, or stock split or reverse stock split affecting, the
Common Stock, (A) the maximum number of shares of such Common Stock as to which
Awards may be granted under this Plan and the maximum number of shares with
respect to which Awards may be granted during any one fiscal year of the
Company to any individual, as provided in Section 4 of the Plan, and (B)
the number of shares covered by and the exercise price and other terms of
outstanding Awards, shall, without further action of the Board, be adjusted
to reflect such event unless the Board determines, at the time it approves such
stock dividend, stock split or reverse stock split, that no such adjustment
shall be made. The Administrator may make adjustments, in its discretion, to
address the treatment of fractional shares and fractional cents that arise with
respect to outstanding Awards as a result of the stock dividend, stock split or
reverse stock split.
(ii) Non-Change in Control Transactions. Except with respect to the
transactions set forth in Section 15(b)(i), in the event of any change affecting
the Common Stock, the Company or its capitalization, by reason of a spin-off,
split-up, dividend, recapitalization, merger, consolidation or share exchange,
other than any such change that is part of a transaction resulting in a Change
in Control of the Company, the Administrator, in its discretion and without the
consent of the holders of the Awards, shall make (A) appropriate adjustments
to the maximum number and kind of shares reserved for issuance or with respect
to which Awards may be granted under the Plan, in the aggregate and with respect
to any individual during any one fiscal year of the Company, as provided in
Section 4 of the Plan; and (B) any adjustments in outstanding Awards,
including but not limited to modifying the number, kind and price of securities
subject to Awards.
(iii) Change in Control Transactions. In the event of any transaction
resulting in a Change in Control of the Company, outstanding Options and SARs
under this Plan will terminate upon the effective time of such Change in Control
unless provision is made in connection with the transaction for the continuation
or assumption of such Awards by, or for the substitution of the equivalent
43
awards of, the surviving or successor entity or a parent thereof. In the event
of such termination, the holders of Options and SARs under the Plan will be
permitted, for a period of at least twenty days prior to the effective time
of the Change in Control, to exercise all portions of such Awards that
are then exercisable or which become exercisable upon or prior to the
effective time of the Change in Control; provided, however, that any such
exercise of any portion of such an Award which becomes exercisable as a result
of such Change in Control shall be deemed to occur immediately prior to the
effective time of such Change in Control.
(iv) Pooling of Interests Transactions. In connection with any
business combination authorized by the Board, the Administrator, in its sole
discretion and without the consent of the holders of the Awards, may make any
modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards, in whole or in part,
regardless of the vested status of the Award, but solely to the extent
necessary to facilitate the compliance of such transaction with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
(v) Unusual or Nonrecurring Events. The Administrator is authorized to
make, in its discretion and without the consent of holders of Awards,
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events affecting the Company,
or the financial statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the
Administrator determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
(c) Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for awards held by
employees, officers, consultants or directors of entities who become or are
about to become employees, officers, consultants or directors of the Company or
an Affiliate as the result of a merger or consolidation of the employing entity
with the Company or an Affiliate, or the acquisition by the Company or an
Affiliate of the assets or stock of the employing entity. The terms and
conditions of any substitute Awards so granted may vary from the terms and
conditions set forth herein to the extent that the Administrator deems
appropriate at the time of grant to conform the substitute Awards to the
provisions of the awards for which they are substituted.
16. Time of Granting of Awards.
The date of grant ("Grant Date") of an Award shall be the date on which
the Administrator makes the determination granting such Award or such other date
as is determined by the Administrator, provided that in the case of an ISO, the
Grant Date shall be the later of the date on which the Administrator makes the
determination granting such ISO or the date of commencement of the Participant's
employment relationship with the Company.
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17. Modification of Awards and Substitution of Options
(a) Modification, Extension and Renewal of Awards. Within the limitations
of the Plan, the Administrator may modify an Award to accelerate the rate at
which an Option or SAR may be exercised (including without limitation permitting
an Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Grant Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards, or to accept the cancellation of outstanding Awards to the
extent not previously exercised either for the granting of new Awards or for
other consideration in substitution or replacement thereof. Notwithstanding the
foregoing provision, no modification of an outstanding Award shall materially
and adversely affect such Participant's rights thereunder, unless either the
Participant provides written consent or there is an express Plan provision
permitting the Administrator to act unilaterally to make the modification.
(b) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Administrator may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.
18. Term of Plan.
The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 22 below, unless the Plan is sooner
terminated under Section 19 below.
19. Amendment and Termination of the Plan.
(a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board
may from time to time amend, alter, suspend, discontinue, or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially and adversely affect Awards already
granted unless either it relates to an adjustment pursuant to Section 15 above,
or it is otherwise mutually agreed between the Participant and the
Administrator, which agreement must be in writing and signed by the Participant
and the Company. Notwithstanding the foregoing, the Administrator may amend the
Plan to eliminate provisions which are no longer necessary as a result of
changes in tax or securities laws or regulations, or in the interpretation
thereof.
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20. Conditions Upon Issuance of Shares.
Notwithstanding any other provision of the Plan or any agreement
entered into by the Company pursuant to the Plan, the Company shall not be
obligated, and shall have no liability for failure, to issue or deliver any
Shares under the Plan unless such issuance or delivery would comply with
Applicable Law, with such compliance determined by the Company in consultation
with its legal counsel.
21. 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.
22. Effective Date.
Effective Date; Termination Date. This Plan shall become effective on
the date of its approval by the Board; provided that this Plan shall be
submitted to the Company's shareholders for approval, and if not approved by the
shareholders in accordance with Applicable Laws (as determined by the
Administrator in its discretion) within one year from the date of approval by
the Board, this Plan and any Awards shall be null, void, and of no force and
effect. Awards granted under this Plan before approval of this Plan by the
shareholders shall be granted subject to such approval, and no Shares shall be
distributed before such approval. No Award shall be granted under the Plan after
the close of business on the day immediately preceding the tenth anniversary of
the effective date of the Plan, or if earlier, the tenth anniversary of the date
this Plan is approved by the stockholders. Subject to other applicable
provisions of the Plan, all Awards made under the Plan prior to such termination
of the Plan shall remain in effect until such Awards have been satisfied or
terminated in accordance with the Plan and the terms of such Awards.
23. Governing Law.
The validity, construction and effect of the Plan, of Grant Agreements
entered into pursuant to the Plan, and of any rules, regulations, determinations
or decisions made by the Administrator relating to the Plan or such Grant
Agreements, and the rights of any and all persons having or claiming to have any
interest therein or thereunder, shall be determined exclusively in accordance
with applicable federal laws and the laws of the State of Nevada, without regard
to its conflict of laws principles.
24. Other Applicable Laws And Regulations.
(a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise
of Options and SARs under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
46
"Act"), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.
(b) Other Jurisdictions. To facilitate the making of any grant of an Award
under this Plan, the Administrator may provide for such special terms for Awards
to Participants who are foreign nationals or who are employed by the Company or
any Affiliate outside of the United States of America as the Administrator may
consider necessary or appropriate to accommodate differences in local law, tax
policy or custom. The Company may adopt rules and procedures relating to the
operation and administration of this Plan to accommodate the specific
requirements of local laws and procedures of particular countries. Without
limiting the foregoing, the Company is specifically authorized to adopt rules
and procedures regarding the conversion of local currency, taxes, withholding
procedures and handling of stock certificates which vary with the customs and
requirements of particular countries. The Company may adopt sub-plans and
establish escrow accounts and trusts as may be appropriate or applicable to
particular locations and countries.
25. No Shareholder Rights.
Neither a Participant nor any transferee of a Participant shall have
any rights as a shareholder of the Company with respect to any Shares underlying
any Award until the date of issuance of a share certificate to a Participant or
a transferee of a Participant for such Shares in accordance with the Company's
governing instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right that is
determined based on a record date prior to the date the stock certificate is
issued, except as otherwise specifically provided for in this Plan.
26. No Employment Rights.
Nothing in the Plan or in any Grant Agreement thereunder shall confer
any right on an individual to continue in the service of the Company or shall
interfere in any way with the right of the Company to terminate such service at
any time with or without cause or notice and whether or not such termination
results in (i) the failure of any Award to vest; (ii) the forfeiture of any
unvested or vested portion of any Award; and/or (iii) any other adverse effect
on the individual's interests under the Plan.
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27. No Trust or Fund Created
Neither the Plan nor any Award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship between the
Company and a grantee or any other person. To the extent that any grantee or
other person acquires a right to receive payments from the Company pursuant to
an Award, such right shall be no greater than the right of any unsecured general
creditor of the Company.
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