UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
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[X]
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Filed by a Party other than the Registrant
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Check the appropriate
box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)
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[X]
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to § 240.14a-12
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INTERPACE
DIAGNOSTICS GROUP, INC.
(Name
of Registrant as Specified in Its Charter)
Not
applicable
Name
of Person(s) Filing Proxy Statement, if other than the registrant)
Payment
of Filing Fee (Check the appropriate box):
[X]
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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of each class of securities to which transaction applies:
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Aggregate
number of securities to which transaction applies:
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unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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Proposed
maximum aggregate value of transaction:
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Total
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Fee
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fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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August
14, 2017
Dear
Stockholder:
It
is my pleasure to invite you to attend Interpace Diagnostics Group, Inc.’s (“Interpace”) Annual Meeting of Stockholders
to be held on September 14, 2017, at 9:00 a.m., Eastern Time. The Annual Meeting will be held at the Company’s offices at
2515 Liberty Avenue, Pittsburgh, PA 15222. During our Annual Meeting, we will discuss each item of business described in the accompanying
Notice of Annual Meeting and Proxy Statement and I will present an update on our business operations. There also will be time
for questions.
The
accompanying Notice of Annual Meeting, Proxy Statement and WHITE proxy card provide information about Interpace in addition to
describing the business we will conduct at the Annual Meeting. We urge you to read this information carefully.
Your
vote is important. You may vote on the Internet, as described in the instructions you receive; by mail, using the WHITE proxy
card you receive; or in person at the Annual Meeting. Whether or not you plan to attend the Annual Meeting in person, it is important
that your shares are represented.
We
are delighted to have you as a stockholder of Interpace and thank you for your ongoing support.
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Sincerely,
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/s/
Jack E. Stover
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Jack
E. Stover
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Chief
Executive Officer
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Morris
Corporate Center 1, Building C, 300 Interpace Parkway, Parsippany, New Jersey 07054
Phone:
862.207.7800 · Toll Free: 844.405.9655 · http://www.interpacediagnostics.com
NOTICE
OF THE 2017 ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD SEPTEMBER 14, 2017
To
the Stockholders of Interpace Diagnostics Group, Inc.:
NOTICE
IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Interpace Diagnostics Group, Inc.
(“Interpace” or the “Company”) will be held at the Company’s offices at 2515 Liberty Avenue, Pittsburgh,
PA 15222 on September 14, 2017 at 9:00 a.m., Eastern Time. At the Annual Meeting, you will be asked:
1.
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To
elect two Class III directors of the Company, who will serve for a term of three years;
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2.
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To
conduct a non-binding advisory vote on a resolution approving the compensation of our named executive officers;
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3.
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To
conduct a non-binding advisory vote on the frequency of future stockholder votes on named executive officer compensation;
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4.
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To
approve an amendment to the Company’s Amended and Restated 2004 Stock Award and Incentive Plan (the “Incentive
Plan”) to increase the maximum number of shares available for sale thereunder by 3,700,000 shares and to approve certain
recent option awards;
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5.
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To
ratify the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm for the fiscal
year ending December 31, 2017; and
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6.
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To
transact such other business as may properly come before the meeting or any adjournments or postponements thereof.
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Only
the stockholders of record at the close of business on August 9, 2017 are entitled to notice of and to vote at the Annual Meeting
and any adjournment or postponement thereof. A complete list of these stockholders will be available during the Annual Meeting
and at the Company’s corporate headquarters located at Morris Corporate Center 1, Building C, 300 Interpace Parkway, Parsippany,
NJ 07054 for at least ten days prior to the Annual Meeting. If you would like to inspect the list, please call Jim Early, the
Company’s Chief Financial Officer, at (412) 224-6665 to arrange a visit to our offices for the inspection. All stockholders
are cordially invited to attend the Annual Meeting.
Your
vote is important regardless of the number of shares you own. Whether or not you expect to attend the Annual Meeting, we hope
you will take the time to vote your shares.
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By
order of the Board of Directors,
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/s/
Jack E. Stover
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Jack
E. Stover
Chief Executive Officer
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Dated:
August 14, 2017
Important
Notice Regarding the Availability of Proxy
Materials for the Annual Meeting of Stockholders to be Held
on September14, 2017
The
Company’s Proxy Statement for the 2017 Annual Meeting of Stockholders and
Annual Report on Form 10-K, including an amendment on Form 10-K/A, are available on the Internet
at
http://www.astproxyportal.com/ast/21231/
table
of contents
PROXY
STATEMENT
General
Information About the Annual Meeting and Voting
Why
are you receiving these proxy materials?
This
Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the “Board”) of Interpace
Diagnostics Group, Inc., a Delaware corporation (the “Company”, “Interpace”, “we”, “us”
or “our”), of proxies in the form enclosed for the Annual Meeting of Stockholders to be held at the Company’s
offices at 2515 Liberty Avenue, Pittsburgh, PA 15222 on September 14, 2017 at 9:00 a.m., Eastern Time, and for any adjournment
or postponement thereof (the “Annual Meeting”), for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders. Our Board knows of no other business which will come before the Annual Meeting. On or about August 14, 2017,
we expect to send to our stockholders (other than those who previously requested electronic or paper delivery) a Notice of Internet
Availability of Proxy Materials containing instructions on how to access our proxy materials, including this Proxy Statement and
our Annual Report on Form 10-K, including an amendment on Form 10-K/A and to vote through the Internet or by telephone.
Who
is entitled to vote at the Annual Meeting?
Only
stockholders of record at the close of business on the record date, August 9, 2017, may vote at the Annual Meeting. There were
22,163,604 shares of our common stock outstanding on July 31, 2017. During the 10 days before the Annual Meeting, you may inspect
a list of stockholders eligible to vote at our corporate headquarters located at Morris Corporate Center 1, Building C, 300 Interpace
Parkway, Parsippany, NJ 07054. If you would like to inspect the list, please call Jim Early, the Company’s Chief
Financial Officer, at (412) 224-6665 to arrange a visit to our offices for the inspection. All stockholders are cordially invited
to attend the Annual Meeting.
What
are the voting rights of the holders of our common stock?
Each
outstanding share of our common stock will be entitled to one vote on each matter considered at the Annual Meeting.
How
can you vote?
Record
Owners
If
you are a record holder, meaning your shares are registered in your name, you may vote or submit a proxy:
1.
Over the Internet – If you have Internet access, you may authorize the voting of your shares by accessing www.voteproxy.com
and following the instructions set forth on the enclosed WHITE proxy card. You must specify how you want your shares voted or
your vote will not be completed and you will receive an error message. Your shares will be voted according to your instructions.
2.
By Telephone – You may call toll-free 1-800-PROXIES (1-800-776-9437) in the United States, or 1-718-921-8500 from foreign
countries from any touch-tone telephone and follow the instructions. You must have your WHITE proxy card available when you call
and use the Company Number and Account Number that are shown on your WHITE proxy card. Your shares will be voted according to
your instructions.
3.
By Mail – Complete and sign the enclosed WHITE proxy card and mail it in the enclosed postage prepaid envelope. Your shares
will be voted according to your instructions. If you sign your WHITE proxy card but do not specify how you want your shares voted,
they will be voted as recommended by our Board. Unsigned proxy cards will not be voted.
4.
In Person at the Meeting – If you attend the Annual Meeting, you may deliver a completed and signed WHITE proxy card in
person or you may vote by completing a ballot, which we will provide to you at the Annual Meeting.
Beneficial
Owners and Broker Non-Votes
A
significant portion of our stockholders hold their shares in “street name” through a stockbroker, bank, or other nominee,
rather than directly in their own names. If you hold your shares in one of these ways, you are considered the beneficial owner
of shares held in street name, and these proxy materials are being forwarded to you by your stockbroker, bank, or other nominee
who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct
your stockbroker, bank, or other nominee on how to vote your shares. If you hold your shares in street name, your stockbroker,
bank, or other nominee has enclosed a voting instruction card for you to use in directing your stockbroker, bank, or other nominee
in how to vote your shares.
Stockbrokers,
banks, or other nominees who hold shares in street name for customers have the discretion to vote those shares with respect to
certain matters if they have not received instructions from the beneficial owners. Stockbrokers, banks, or other nominees will
have this discretionary authority with respect to routine matters such as the ratification of the appointment of our independent
registered public accounting firm, which is the only matter scheduled for this annual meeting for which such nominees have voting
authority. However, stockbrokers, banks or other nominees will not have this discretionary authority with respect to non-routine
matters.
How
can you attend the Annual Meeting?
The
Annual Meeting will be held on September 14, 2017, beginning at 9:00 a.m., Eastern time, at the Company’s offices at 2515
Liberty Avenue, Pittsburgh, PA 15222. Information on how to vote in person at the Annual Meeting is discussed above under the
caption “How can you vote?” Each stockholder who wishes to attend the Annual Meeting will be required to present valid
government-issued photo identification to be admitted to the Annual Meeting.
Can
you change your vote or revoke your proxy?
If
you have signed and returned the enclosed WHITE proxy card, you may revoke it at any time before it is voted by: (i) submitting
to us a properly executed proxy bearing a later date; (ii) submitting to us a written revocation of the proxy; or (iii) voting
in person at the Annual Meeting.
If
you are the beneficial owner of shares held in street name, you must submit new voting instructions to your stockbroker, bank,
or other nominee in accordance with the instructions you have received from them.
The
last proxy or vote that we receive from you will be the vote that is counted.
What
is a proxy?
A
proxy is a person you appoint to vote on your behalf. By using any of the methods discussed above, you will be appointing as your
proxies Jack E. Stover, our Chief Executive Officer and a member of the Board, and Jim Early, our Chief Financial Officer, Secretary
and Treasurer. They may act together or individually on your behalf, and will have the authority to appoint a substitute to act
as proxy. If you are unable to attend the Annual Meeting, please use the means available to you to vote by proxy so that your
shares of common stock may be voted.
How
will your proxy vote your shares?
The
persons acting as proxies pursuant to the enclosed WHITE proxy card will vote the shares represented as directed in the signed
WHITE proxy card. Unless otherwise directed in the WHITE proxy card, the proxy holders will vote the shares represented by the
WHITE proxy card: (i) FOR the re-election of two Class III director nominees named in this Proxy Statement (Proposal No. 1); (ii)
FOR approval of the non-binding advisory resolution to approve the compensation of our named executive officers (Proposal No.
2); (iii) FOR approval of a non-binding advisory vote on a resolution to conduct the non-binding advisory vote on the compensation
of our named executive officers once every three years; (Proposal No. 3); (iv) FOR approval of a proposal to amend the Company’s
Amended and Restated 2004 Stock Award and Incentive Plan (the “Incentive Plan”) to increase the maximum number of
shares available for sale thereunder by 3,700,000 shares and to approve certain recent option awards (Proposal No. 4); (v) FOR
ratification of the appointment of BDO USA, LLP (“BDO”) as the independent registered public accounting firm to audit
our financial statements for the fiscal year ending December 31, 2017 (Proposal No. 5); and (vi) FOR in the proxy holders’
discretion, on any other business that may come properly before the Annual Meeting and any adjournment or postponement thereof.
What
constitutes a quorum?
A
quorum will be present at the Annual Meeting if holders of a majority of the shares of common stock outstanding on the record
date are represented at the Annual Meeting in person or by proxy. A quorum is necessary in order to conduct the Annual Meeting.
If you choose to have your shares represented by proxy at the Annual Meeting, you will be considered part of the quorum. Broker
non-votes and abstentions will be counted as present for the purpose of establishing a quorum. If a quorum is not present at the
Annual Meeting, the stockholders present in person or by proxy may adjourn the meeting to a date when a quorum is present. If
an adjournment is for more than 30 days or a new record date is fixed for the adjourned meeting, we will provide notice of the
adjourned meeting to each stockholder of record entitled to vote at the Annual Meeting.
What
vote is required to approve each matter and how are votes counted?
Proposal
No. 1: Election of Two Class III Directors. The election of directors requires a plurality of the votes of the shares present
in person or represented by proxy at the Annual Meeting and entitled to vote. Accordingly, the directorships to be filled at the
Annual Meeting will be filled by the nominees receiving the highest number of votes cast “FOR” such nominees. In the
election of directors, votes may be cast in favor of or withheld with respect to any or all nominees; votes that are withheld
and broker non-votes will be excluded entirely from the vote and will therefore have no effect on the outcome of the vote.
Proposal
No. 2: Non-binding Advisory Vote on Resolution to Approve Named Executive Officer Compensation. A majority of the votes cast at
the Annual Meeting is required to approve this proposal. A properly executed WHITE proxy card marked ABSTAIN with respect to this
proposal will not be voted and will have no effect on the outcome of the vote. In addition, broker non-votes will be excluded
entirely from the vote and will, therefore, have no effect on the outcome of the vote.
Proposal
No. 3: Non-binding Advisory Vote on Resolution to Approve Named Executive Officer Compensation Every Three Years. A majority of
the votes cast at the Annual Meeting is required to approve this proposal. A properly executed WHITE proxy card marked ABSTAIN
with respect to this proposal will not be voted and will have no effect on the outcome of the vote. In addition, broker non-votes
will be excluded entirely from the vote and will, therefore, have no effect on the outcome of the vote.
Proposal
No. 4: To amend the Company’s Incentive Plan to increase the maximum number of shares available for sale thereunder by 3,700,000
shares and to approve certain recent option awards. A majority of the votes cast at the Annual Meeting is required to approve
this proposal. A properly executed WHITE proxy card marked ABSTAIN with respect to this proposal will not be voted and will have
the same effect as a vote against the proposal. In addition, broker non-votes will be excluded entirely from the vote and will,
therefore, have the same effect as a vote against the proposal.
Proposal
No. 5: Ratification of Appointment of our Independent Registered Public Accounting Firm. A majority of the votes cast at the Annual
Meeting is required to approve this proposal. A properly executed WHITE proxy card marked ABSTAIN with respect to this proposal
will not be voted and will have no effect on the outcome of the vote. In addition, broker non-votes will be excluded entirely
from the vote and will, therefore, have no effect on the outcome of the vote.
How
does the Board recommend that you vote?
As
to the proposals to be voted on at the Annual Meeting, the Board unanimously recommends that you vote:
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FOR
Proposal No. 1, for the election of the Board’s nominees for Class III Directors;
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FOR
Proposal No. 2, for the approval, on a non-binding advisory basis, of the compensation of the Company’s named executive
officers;
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FOR
Proposal No. 3, for conducting future stockholder advisory votes on executive compensation every three years;
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FOR
Proposal No. 4, for the approval of a resolution to amend the Company’s Incentive Plan to increase the maximum number
of shares available for sale thereunder by 3,700,000 shares and to approve certain recent option awards; and
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FOR
Proposal No. 5, for the ratification of appointment of our independent registered public accounting firm.
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Why
are you being asked to approve on a non-binding basis the compensation of the Company’s named executive officers?
Under
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the Company’s
stockholders are entitled to vote at the Annual Meeting on whether to provide advisory approval of the compensation of the Company’s
named executive officers as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities
and Exchange Commission (the “SEC”). This proposal, commonly known as a “say-on-pay” proposal, gives our
stockholders the opportunity to express their views on our named executive officers’ compensation. Pursuant to the Dodd-Frank
Act, the stockholder vote on executive compensation is an advisory vote only, and it is not binding on us or the Board. While
this advisory vote is non-binding, the Board values the opinions that stockholders express in their votes and will, as a matter
of good corporate practice, take into account the outcome of the vote when considering future compensation decisions.
Why
are you being asked to approve on a non-binding basis the frequency of the stockholders’ non-binding, advisory vote on compensation
of the Company’s named executive officers?
The
Dodd-Frank Act and Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) provide stockholders
the opportunity to indicate how frequently the Company should hold future advisory votes on the compensation of our named executive
officers. Stockholders may indicate whether they would prefer to have future advisory votes on executive compensation every year,
every two years, every three years or abstain from voting on this proposal. For the reasons described below, we recommend that
our stockowners select a frequency of three years, or a triennial vote.
In
2013, stockholders approved an annual frequency for their non-binding approval of the compensation of the Company’s named
executive officers. Section 14A of the Exchange Act requires that stockholders be afforded the opportunity to approve, on a non-binding
basis, no less often than every six years the frequency of their non-binding approval of the compensation of the Company’s
named executive officers. In the case of the Company, such vote must occur by 2019. The Company has elected to give stockholders
the opportunity to participate in such a vote this year.
Our
executive compensation program is designed to support long-term value creation, and a triennial vote will allow shareowners to
better judge our executive compensation program in relation to our long-term performance. Accordingly, we grant awards with multi-year
performance and service periods to encourage our proxy officers to focus on long-term performance, and recommend a triennial vote,
which would allow our executive compensation programs to be evaluated over a similar time-frame and in relation to our long-term
performance.
A
triennial vote will provide us with the time to thoughtfully respond to shareowners’ sentiments and implement any necessary
changes. We carefully review changes to our program to maintain the consistency and credibility of the program, which is important
in motivating and retaining our employees. We therefore believe that a triennial vote is an appropriate frequency to provide our
people and compensation committee sufficient time to thoughtfully consider shareowners’ input and to implement any appropriate
changes to our executive compensation program, in light of the timing that would be required to implement any decisions related
to such changes.
The
Company believes that it has changed significantly since the prior stockholder vote in 2013, and that as a smaller reporting company,
a triannual vote is more appropriate.
We
will continue to engage with our shareowners regarding our executive compensation program during the period between shareowner
votes. Engagement with our shareowners is a key component of our corporate governance. We seek and are open to input from our
shareowners regarding board and governance matters, as well as our executive compensation program, and believe we have been appropriately
responsive to our shareowners. We believe this outreach to shareowners, and our shareowners’ ability to contact us at any
time to express specific views on executive compensation, hold us accountable to shareowners and reduce the need for and value
of more frequent advisory votes on executive compensation.
Your
vote is requested. We therefore request that our shareowners select “Three Years” when voting on the frequency of
advisory votes on executive compensation. Although the advisory vote is non-binding, our board will review the results of the
vote and, consistent with our record of shareowner engagement, take them into account in making a determination concerning the
frequency of advisory votes on executive compensation
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Why
are you being asked to ratify the appointment of BDO?
Although
stockholder approval of the Audit Committee’s selection of BDO as our independent registered public accounting firm is not
required, we believe that it is advisable to give stockholders an opportunity to ratify this selection. If this proposal is not
approved at the Annual Meeting, the Audit Committee has agreed to reconsider its selection of BDO, but will not be required to
take any action.
Are
there other matters to be voted on at the Annual Meeting?
We
do not know of any other matters that may come before the Annual Meeting other than the aforementioned matters. If any other matters
are properly presented to the Annual Meeting, the persons named as proxies in the accompanying WHITE proxy card intend to vote
or otherwise act in accordance with their judgment on the matter.
Where
can you find the voting results?
Voting
results will be reported in a current report on Form 8-K, which we will file with the SEC within four business days following
the Annual Meeting.
Who
is soliciting proxies, how are they being solicited, and who pays the cost?
The
solicitation of proxies is being made on behalf of our Board and we will pay the expenses of the preparation of proxy materials
and the solicitation of proxies for the Annual Meeting. In addition to the solicitation of proxies by mail, solicitation may be
made by certain of our directors, officers or employees who will not receive additional compensation for those services, telephonically,
electronically or by other means of communication. We will reimburse brokers and other nominees for costs incurred by them in
mailing proxy materials to beneficial owners in accordance with applicable rules.
Who
is our independent registered public accounting firm, and will they be represented at the Annual Meeting?
BDO
served as our independent registered public accounting firm for the fiscal year ended December 31, 2016 and audited our financial
statements for such year. We expect that one or more representatives of BDO will be available at the Annual Meeting. They
will have an opportunity to make a statement, if they desire, and will be available to answer appropriate questions after the
Annual Meeting.
What
is “householding” and where can you obtain additional copies of the proxy materials?
For
information about householding and how to request additional copies of proxy materials, please see the section captioned “Additional
Information – Householding”.
Who
can you contact if you have other questions about the Annual Meeting or voting?
You
may contact the Company by writing to Interpace Diagnostics Group, Inc., Morris Corporate Center 1, 300 Interpace Parkway, Building
C, Parsippany, NJ 07054, or by calling (862) 207-7862.
PROPOSAL
NO. 1 –
ELECTION OF DIRECTORS
The
Board currently consists of three members and is divided into three classes, with one director in Class I, no director in Class
II and two directors in Class III. Directors serve for three-year terms with one class of directors being elected by the Company’s
stockholders at each annual meeting.
NAME
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AGE
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CLASS(1)
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PRINCIPAL
OCCUPATION OR EMPLOYMENT
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Stephen
J. Sullivan
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70
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I
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Founder
of CRO Advisors LLC
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Joseph
Keegan, Ph.D.
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64
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III
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Chairman
of the Board for Labcyte Corporation
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Jack
E. Stover
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64
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III
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President
and Chief Executive Officer of Interpace Diagnostics Group, Inc.
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(1) The
term of the Class I directors expires in 2019; the term of the Class II directors expires in 2018; and the term of the Class III
directors expires in 2017. The Company anticipates electing one or more Class II directors to fill the existing vacancy prior
to the Annual Meeting of Stockholders.
At
the Annual Meeting, two Class III directors will be elected to serve until the annual meeting of stockholders in 2020 and until
each director’s successor is elected and qualified. Joseph Keegan, Ph.D. and Jack E. Stover are the Board’s nominees
for re-election as Class III directors. The nominees have been approved, recommended and nominated for re-election to the Board
by the Nominating and Corporate Governance Committee (the “Nominating Committee”) and by the Board. The accompanying
proxy will be voted for the election of Joseph Keegan, Ph.D. and Jack E. Stover, unless the proxy contains instructions otherwise.
Management has no reason to believe that Joseph Keegan, Ph.D. or Jack E. Stover will not stand for re-election or will be unable
to serve. However, in the event that Joseph Keegan, Ph.D. or Jack E. Stover should become unable or unwilling to serve as a director,
the proxy will be voted for the election of such person or persons as shall be designated by the Board.
Proposal
No. 1, the election of directors, requires a plurality of the votes of the shares present in person or represented by proxy at
the Annual Meeting and entitled to vote. Accordingly, the directorships to be filled at the Annual Meeting will be filled by the
nominees receiving the highest number of votes cast “FOR” such nominees. In the election of directors, votes may be
cast in favor of or withheld with respect to any or all nominees; votes that are withheld and broker non-votes will be excluded
entirely from the vote and will therefore have no effect on the outcome of the vote.
The
Board Recommends a Vote FOR
the Election of Joseph Keegan, Ph.D. and Jack E. Stover
and Proxies That are Returned Will be so Voted
Unless Otherwise Instructed.
Incumbent
Class I Director, Term Expiring 2019
Stephen
J. Sullivan was appointed Chairman of the Board effective June 21, 2016. Mr. Sullivan served as Interim Chairman of the Board
from January 1, 2016 to June 20, 2016. Mr. Sullivan joined us as a director in September 2004 and has served as Chairman of various
committees of the Board. Mr. Sullivan currently serves as Chairman of the Company’s Compensation and Management Development
Committee. In early 2010, Mr. Sullivan founded CRO Advisors LLC, a specialty consulting firm he continues to head. Previously,
Mr. Sullivan was the president and chief executive officer and a member of the board of directors of Harlan Laboratories, Inc.
(“Harlan”), a privately held global provider of preclinical research tools and services, from February 2006 through
January 2010, when he retired from that position. Prior to joining Harlan in 2006, Mr. Sullivan was a senior vice president of
Covance, Inc. (“Covance”) and the president of Covance Central Laboratories, Inc., a major division of Covance. Prior
to joining Covance, Mr. Sullivan was chairman and chief executive officer of Xenometrix, Inc., a biotechnology company with proprietary
gene expression technology. He assisted with the merger of Xenometrix with Discovery Partners International. Prior to Xenometrix,
Mr. Sullivan was vice president and general manager of a global diagnostic sector of Abbott Laboratories. From June 2013 through
January 2016, when the company was sold, Mr. Sullivan was the chairman of the board of BioreclamationIVT, LLC, a privately owned
bio-materials company. From May 2013 through March 2015, when the company was sold, Mr. Sullivan was a member of the board of
directors of PHT Corporation, a privately owned leader in electronic patient recorded outcomes in clinical trials. Since April
2011, Mr. Sullivan has been chairman of the board of MI Bioresearch, Inc. (formerly known as Molecular Imaging, Inc.), a privately
held venture-backed drug discovery services company. Since May 2015, Mr. Sullivan has been chairman of the board of Microbiology
Research Associates (now known as Analytical Lab Group since an August, 2016 merger with Accuratus Labs), a privately held microbiology
services company. In January 2016, Mr. Sullivan became chairman of the board of H2O Clinical. In July 2016, Mr. Sullivan became
chairman of the board of PharmaStart. As of June 2017, both H20 Clinical and PharmaStart are doing business as Firma Clinical
Research, a privately held specialty contract research organization. In November 2015, Mr. Sullivan joined the board of Accel
Clinical Research, a phase 1 contract research organization. Mr. Sullivan graduated from the University of Dayton, was a commissioned
officer in the Marine Corps, and completed his M.B.A. in Marketing and Finance at Rutgers University.
Mr.
Sullivan has held senior leadership positions in companies in the life sciences and healthcare services industries. His specific
qualifications and skills in the areas of general operations, financial operations and administration, and mergers and acquisitions
led the Board to conclude that Mr. Sullivan should serve as a director of the Company.
Nominees
for Re-election as Class III Directors, Term Expiring 2020
Joseph
Keegan, Ph.D. was appointed to the Board effective January 1, 2016 and was subsequently appointed Chairman of our Audit Committee
and our Nominating and Corporate Governance Committee. Dr. Keegan has more than 30 years of experience in life science businesses.
From 2007 to 2012, when it was sold to Pall Corporation, Dr. Keegan was CEO at ForteBio, Inc., a life science tool company, where
he helped to lead a financing round and established product development and sales strategies for that company. From 1998 to 2007,
Dr. Keegan was CEO at Molecular Devices Corporation (NASDAQ: MDCC), a provider of bioanalytical measurement systems, software
and consumables, where Dr. Keegan helped grow the company both internally and through acquisitions. From 1992 to 1998, Dr. Keegan
worked at Becton Dickinson and Company, a medical technology company that manufactures and sells medical devices and instrument
systems, where he served as President of Worldwide Tissue Culture and Vice President, General Manager of Worldwide Flow Cytometry.
From 1988 to 1992, Dr. Keegan was Vice President of the Microscopy and Scientific Instruments Division of Leica, Inc., a life
science tool and semiconductor equipment provider. He currently serves on the boards of directors of the following privately held
companies: Courtagen Life Sciences, Labcyte Corporation (as chairman), Nanomedical Diagnostics, Inc., Halo Labs (formerly known
as Optofluidics, Inc.), Unchained Labs, Inc., and Carterra (formerly known as Wasatch Microfluidics, Inc.). In April, 2017, he
joined the board of ArrayJet, a privately held Scottish company. Dr. Keegan is also on the board of the San Francisco Opera.
Dr. Keegan holds a B.A. in Chemistry from Boston University and a Ph.D. in Physical Chemistry from Stanford University.
Dr.
Keegan’s specific qualifications and skills in the areas of life science businesses, product development and sales strategies
led the Board to conclude that Dr. Keegan should serve as a director of the Company.
Jack
E. Stover has been a member of the Board since 2005 and previously served as Chairman of the Audit Committee of the Board from
2005 to December 22, 2015. He was appointed as President and Chief Executive Officer of the Company effective June 21, 2016. Mr.
Stover served as the Company’s Interim President and Chief Executive Officer from December 22, 2015 to June 20, 2016. Mr.
Stover has been a member of the Board of Directors, Chairman of the Audit Committee, and a member of the Compensation Committee
and Special Deal Committee of Onconova Therapeutics, Inc., a publicly held biopharmaceutical company since May 2016. Mr. Stover
also was a member of the board of Cernostics, Inc., a private molecular diagnostic company, from March of 2015 until July of 2016.
Further, Mr. Stover served as a director and Chairman of the Audit Committee of Viatar CTC Solutions, Inc., a publically held
circulating tumor cell company from May 2016 until December 2016. Mr. Stover was also previously chief executive officer of Zebec
Therapeutics LLC (the successor to Quadrant Pharmaceuticals LLC), a privately held clinical stage specialty pharmaceutical company,
from April 2014 until December 2015. From 2009 to February 2012, Mr. Stover served as the executive chairman of Targeted Nano
Therapeutics LLC, a privately held biotechnology company focused on targeted delivery of peptides and proteins. Mr. Stover also
provided consulting and advisory services through JEStoverConsulting LLC from 2008 through 2015. Mr. Stover was chairman of the
audit committee and a member of the board of directors of Arbios Systems Inc. from 2005 to 2008 and a member of the board of directors
of Influmedix, Inc. a private vaccine company from 2010 to 2011. From 2004 to 2008, he served as chief executive officer, president
and director of Antares Pharma Inc., a publicly held specialty pharmaceutical and medical device company listed at the time on
the American Stock Exchange. Prior to that, Mr. Stover was executive vice president and chief financial officer of Sicor, Inc.,
a publicly held company which manufactured and marketed injectable pharmaceutical products, and which was acquired by Teva Pharmaceutical
Industries. Prior to that, Mr. Stover was executive vice president and director of a private proprietary women’s pharmaceutical
company, Gynetics, Inc., and before that he was senior vice president, CFO and director of B. Braun Medical, Inc., a private global
medical device and pharmaceutical company. From 1975 to 1995, Mr. Stover was employed by PricewaterhouseCoopers LLC (then Coopers
and Lybrand), and was a partner from 1985, working in the bioscience industry division in Pennsylvania and New Jersey. Mr. Stover
received his B.A. in Accounting from Lehigh University and is a Certified Public Accountant.
Mr.
Stover has held several senior leadership positions in the life sciences and medical device industry. In addition, his specific
experience and skills in the areas of general operations, financial operations and administration of life sciences and device
companies, as well as his role as the Company’s President and Chief Executive Officer, led the Board to conclude that Mr.
Stover should serve as a director of the Company.
There
are no arrangements or understandings between any of our directors and any other persons pursuant to which such person was selected
as a director. In addition, no director is related to any of our other directors, executive officers or persons nominated or chosen
by the Company to become a director or executive officer that would require disclosure pursuant to Item 401(d) of Regulation S-K.
Executive
Officers
The
following table sets forth the names, ages and principal position of our executive officers as of the date of this Proxy Statement
:
Name
|
|
Age
|
|
Position
|
Jack
E. Stover
|
|
64
|
|
President
and Chief Executive Officer
|
James
Early
|
|
63
|
|
Chief
Financial Officer
|
The
principal occupation and business experience for at least the last five years for each executive officer is set forth below (except
for Mr. Stover, whose business experience is discussed above, under the heading “Nominees for Re-election as Class III Directors,
Term Expiring 2020.” On October 11, 2016, James Early was appointed as the Chief Financial Officer of the Company. Mr. Early
serves as the Company’s principal financial officer and principal accounting officer. Since August 29, 2016, the Company
had engaged Mr. Early as a consultant to perform the role of interim chief financial officer. Mr. Early continues to be engaged
as a consultant.
Mr.
Early previously served as the interim and subsequently permanent Chief Financial Officer of AbGenomics International Inc., a
clinical stage drug development company with a product pipeline in immunology and oncology, from September 2015 to July 2016.
Mr. Early also previously served as the Chief Financial Officer of Zebec Therapeutics, LLC (the successor to Quadrant Pharmaceuticals
LLC), a privately held specialty pharmaceutical company, from October 2014 to September 2015. In addition, Mr. Early has provided
interim chief financial officer and business development services for pharmaceutical, life science and other similar companies
as a sole proprietor from August 2009 to December 2013 and through Early Financial Consulting, LLC (“Early Financial”)
from January 2014 to the present. Prior to his consulting role, Mr. Early was Senior Vice President of Finance and Administration
for Synageva BioPharma, an orphan drug development company, from February 2006 to January 2009. Mr. Early is a Certified Public
Accountant and has an MBA in Finance and Accounting from the UCLA-Anderson School of Management and a BBA in Accounting from the
University of Notre Dame.
There
are no arrangements or understandings between Mr. Early and any other persons pursuant to which he was selected as an officer.
In addition, there is no family relationship between Mr. Early and any director, executive officer or person nominated or chosen
by the Company to become a director or executive officer that would require disclosure pursuant to Item 401(d) of Regulation S-K.
There
are no arrangements or understandings between Mr. Stover and any other persons pursuant to which he was selected as an officer.
In addition, there is no family relationship between Mr. Stover and any director, executive officer or person nominated or chosen
by the Company to become a director or executive officer that would require disclosure pursuant to Item 401(d) of Regulation S-K.
INFORMATION
ABOUT THE COMPENSATION OF OUR DIRECTORS
Each
of our non-employee directors receives an annual director’s fee of $30,000, payable quarterly in arrears. The Chairman of
the Board receives an additional fee of $20,000 and the Chairperson of each of the Audit Committee, Compensation Committee and
Nominating Committee receive an additional annual fee of $15,000, $10,000 and $5,000, respectively. In addition, those non-employee
directors sitting on more than one committee receive additional compensation of $5,000 annually. From time to time, the Board
may form special committees to address discrete issues and the non-employee directors sitting on such special committees may receive
additional compensation. In addition, our non-employee directors are entitled to reimbursement for travel and related expenses
incurred in connection with attendance at Board and committee meetings.
Prior
to 2017, each of our non-employee directors received an annual director’s fee of $40,000, payable quarterly in arrears.
The Chairman of the Board received an additional fee of $30,000 and the Chairperson of each of the Audit Committee, Compensation
Committee and Nominating Committee received an additional annual fee of $25,000, $15,000 and $5,000, respectively. In addition,
those non-employee directors sitting on more than one committee received additional compensation of $5,000 annually.
Prior
to 2017, upon initial appointment to the Board, each non-employee director received $60,000 in restricted stock units (“RSUs”),
which vested in equal annual installments over a three-year period. In addition, each non-employee director received $45,000 in
RSUs (with the exception of the Chairman of the Board who received $60,000 in RSUs) on the date of our annual meeting each year,
which RSUs vest in equal annual installments over a three-year period.. Commencing in 2017, non-employee directors do not receive
grants of RSUs and instead receive grants of stock options as set forth below.
Commencing
in 2017, upon initial appointment to the Board, each non-employee director receives 20,000 stock options which vest in equal annual
installments over a three-year period. In addition, each non-employee director thereafter receives an annual grant of 10,000 stock
options (with the exception of the Chairman of the Board who receives 13,000 options). The following table presents information
relating to total compensation for our non-employee directors for the year ended December 31, 2016. Mr. Glorikian (who resigned
from the Board effective October 2, 2016) and Dr. Keegan were appointed to the Board effective January 1, 2016. Information regarding
the compensation of Mr. Stover can be found below, under the heading “Information About Our Executive Compensation”
DIRECTOR
COMPENSATION IN 2016
|
Name
|
|
Fees
earned
($)
|
|
|
Stock
awards
($)
(1)
|
|
|
Option
awards
($)
|
|
|
Nonqualified
Compensation
Earnings
($)
|
|
|
Total
($)
|
|
Stephen
J. Sullivan
(2)
|
|
|
75,000
|
|
|
|
29,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104,000
|
|
Joseph
Keegan
(3)
|
|
|
70,000
|
|
|
|
37,030
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107,030
|
|
Harry
Glorikian
(4)
|
|
|
37,500
|
|
|
|
37,030
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,530
|
|
Heinrich
Dreismann
(5)
|
|
|
45,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,000
|
|
Kapila
Ratnam
(6)
|
|
|
28,152
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,152
|
|
|
(1)
|
The
dollar amounts set forth under the heading “Stock Awards” represent aggregate grant date fair value computed in
accordance with FASB ASC Topic 718. For purposes of computing such amounts, we disregarded estimates of forfeitures related
to service-based vesting conditions. For additional information regarding our valuation assumptions, please refer to Note
14 - “Stock-Based Compensation” to our consolidated financial statements included with our annual report on Form
10-K for the year ended December 31, 2016, filed with the SEC on March 31, 2017. Outstanding stock awards held by the Board
of Directors as of December 31, 2016 consisted of 10,000 RSUs for Mr. Sullivan and 12,769 RSUs for Dr. Keegan.
|
|
(2)
|
Mr.
Sullivan’s fees represent the annual director’s fee then in effect of $40,000, plus the $30,000 Chairman of the
Board fee, and a fee of $5,000 for serving on multiple committees.
|
|
(3)
|
Dr.
Keegan’s fees represent the annual director’s fee then in effect of $40,000, plus the $25,000 Chair of the Audit
Committee fee, and a fee of $5,000 for serving on multiple committees.
|
|
(4)
|
Mr.
Glorikian’s fees represent the prorated portion of his annual director’s fee then in effect of $40,000, the prorated
portion of his Chair of the Nominating Committee fee of $10,000 plus the prorated fee of $5,000 for serving on multiple committees.
Mr. Glorikian resigned on October 2, 2016.
|
|
(5)
|
Dr.
Dreismann’s fees represent the prorated annual director’s fee then in effect of $40,000, the prorated Chair of
the Compensation Committee fee of $15,000 plus the prorated fee of $5,000 for serving on multiple committees. Dr. Dreismann
resigned on September 29, 2016.
|
|
(6)
|
Ms.
Ratnam’s fee represents the prorated portion of her annual director’s fee then in effect of $40,000. Ms. Ratnam
resigned on September 13, 2016.
|
Governance
of the Company
Corporate
Governance and Code of Business Conduct
Our
Board has adopted a written Code of Business Conduct that applies to our directors, officers, and employees, as well as Corporate
Governance Guidelines applicable specifically to our Board. You can find links to these documents in the “Investor Relations”
section of our website page at www.interpacediagnostics.com. The content contained in, or that can be accessed through, our website
is not incorporated into this Proxy Statement. Disclosure regarding any amendments to, or any waivers from, a provision of our
Code of Business Conduct that applies to one or more of our directors, our principal executive officer, our principal financial
or our principal accounting officer will be included in a Current Report on Form 8-K within four business days following the date
of the amendment or waiver, or posted on our website (www.interpacediagnostics.com).
Board
Leadership and Structure
The
Chairman of the Board, who is currently an independent director, presides at all meetings of the Board. Mr. Sullivan serves as
the Chairman of the Board, and Mr. Stover, our Chief Executive Officer, serves as a director.
The
Board believes that having an independent director serve as Chairman of the Board is in the best interests of our stockholders.
This structure provides more direct independent oversight and active participation of our independent directors in setting agendas
and establishing policies and procedures of our Board. Further, this structure permits our Chief Executive Officer to focus on
the management of our day-to-day operations.
The
Board does not have a policy on whether or not the roles of Chief Executive Officer and Chairman of the Board should be separate.
The Board believes that it should be free to make a choice from time to time in any manner that is in the best interests of the
Company and our stockholders.
RISK
OVERSIGHT BY THE BOARD
The
Board and, in particular, the Audit Committee view enterprise risk management as an integral part of the Company’s planning
process. The subject of risk management is a recurring agenda item. The Audit Committee evaluates enterprise risk with management
and the company’s independent registered public accountants on a regular basis and also receives updates from the Company’s
internal audit consultants, Accume Partners, and the Audit Committee in turn calls the Board’s attention to items in such
reports as it deems appropriate for review by the full board of directors.
Additionally,
the charters of certain of the Board’s committees assign oversight responsibility for particular areas of risk. For example,
our Audit Committee oversees management of enterprise-wide risks, including those related to accounting, auditing and financial
reporting and maintaining effective internal control over financial reporting, and for compliance with the Code of Business Conduct.
Our Nominating Committee oversees compliance with listing standards for independent directors, committee assignments and related
party transactions and other conflicts of interest. Our Compensation Committee oversees the risk related to our compensation plans,
policies and practices. All of these risks are discussed with the entire Board in the ordinary course of the chairperson’s
report of committee activities at regular Board meetings.
Board
Meetings and Committees
During
the year ended December 31, 2016, the Board held 26 meetings and additionally acted three times by unanimous written consent,
the Audit Committee held seven meetings, the Compensation Committee held four meetings, and the Nominating and Corporate Governance
Committee (the “Nominating Committee”) held four meetings. Each committee member is a non-employee director of the
Company who meets the independence requirements of The Nasdaq Stock Market, LLC (“NASDAQ”) and applicable law. Each
of our incumbent directors attended at least 75% of the total number of Board meetings and committee meetings on which he or she
served during 2016. We have adopted a policy encouraging our directors to attend annual meetings of stockholders. All of our directors
attended our annual stockholders’ meeting held on August 3, 2016. Our Board has three standing committees, each of which
is described below.
Audit
Committee
The
Audit Committee is currently comprised of Dr. Keegan (Chairperson) and Mr. Sullivan. The primary purposes of our Audit Committee
are to assist the Board in fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, auditing,
financial reporting, internal control, legal compliance and risk management functions of the Company, including, without limitation,
assisting the Board’s oversight of: (i) the integrity of our financial statements; (ii) the effectiveness of our internal
control over financial reporting; (iii) our compliance with legal and regulatory requirements; (iv) the qualifications and independence
of our independent registered public accounting firm; and (v) the performance of our internal audit function and independent registered
public accounting firm. The Audit Committee is also responsible for preparing the report of the Audit Committee required by the
rules and regulations of the SEC for inclusion in our annual proxy statement.
Our
Board has determined that each member of our Audit Committee is independent within the meaning of the rules of NASDAQ and as required
by the Audit Committee charter. Our Board has determined that the chairperson of the Audit Committee, Dr. Keegan, is an “audit
committee financial expert,” as that term is defined in Item 407(d) of Regulation S-K under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”).
As
previously disclosed in our Current Report on Form 8-K dated October 5, 2016, Heinrich Dreismann, Ph.D, a member of our Board
who was also a member of our Audit Committee resigned effective as of September 30, 2016. As a result, we are not currently in
compliance with NASDAQ Listing Rule 5605(c)(2)(A), which requires the Audit Committee be comprised of at least three members.
We intend to appoint an additional independent director to our Board and to the Audit Committee as a Class II Director prior to
the Company’s 2017 Annual Meeting of Stockholders. If appointed, the term of such director will expire in 2018. However,
even if we appoint an additional independent director to the Audit Committee prior to the 2017 Annual Meeting of Stockholders,
no assurance can be given that we will maintain our listing on NASDAQ due to our not being in compliance with the minimum bid
price requirements of NASDAQ, for which we have until January 29, 2018 to cure.
Our
Audit Committee charter is posted and can be viewed in the “Investor Relations” section of our website at www.interpacediagnostics.com.
Compensation
& Management Development Committee (the “Compensation Committee”)
The
Compensation Committee is currently comprised of Dr. Keegan (Chairperson) and Mr. Sullivan. Each member of our Compensation Committee
is “independent” within the meaning of the rules of NASDAQ and as required by the Compensation Committee charter.
The primary purposes of our Compensation Committee are: (i) to establish and maintain our executive compensation policies consistent
with corporate objectives and stockholder interests; (ii) to oversee the competency and qualifications of our senior management
personnel and the provisions of senior management succession planning; and (iii) to advise the Board with respect to director
compensation issues. The Compensation Committee also administers our equity compensation plans.
The
Compensation Committee, which is composed solely of independent directors, provides overall guidance for our executive compensation
policies and determines the value and elements of compensation for our executive officers. With the sale of our Commercial Services
business on December 22, 2015 and the downsizing of the infrastructure and staff of the Company, the Compensation Committee used
its experience in working with emerging medical companies as the basis for establishing compensation for 2016.
Our
Compensation Committee charter is posted and can be viewed in the “Investor Relations” section of our website at www.interpacediagnostics.com.
Nominating
and Corporate Governance Committee (the “Nominating Committee”)
The
Nominating Committee is currently comprised of Dr. Keegan (Chairperson) and Mr. Sullivan. Each member of our Nominating Committee
is “independent” within the meaning of the rules of NASDAQ and as required by the Nominating Committee charter. The
primary purposes of the Nominating Committee are: (i) to recommend to the Board the nomination of individuals who are qualified
to serve as our directors and on committees of the Board; (ii) to advise the Board with respect to the composition, size, structure
and procedures of the Board; (iii) to advise the Board with respect to the composition, size and membership of the Board’s
committees; (iv) to advise the Board with respect to corporate governance principles applicable to the Company; and (v) to oversee
the evaluation of the Board as a whole and the evaluation of its individual members standing for re-election. The Nominating Committee
also has responsibility for reviewing and approving all transactions that are “related party” transactions under SEC
rules.
The
Nominating Committee does not set specific, minimum qualifications that nominees for director must meet in order for the Nominating
Committee to recommend them to the Board, but rather believes that each nominee should be evaluated based on his or her individual
merits, taking into account our needs and the composition of the Board. Members of the Nominating Committee discuss and evaluate
possible candidates in detail, and suggest individuals to explore in more depth. Once a candidate is identified whom the Nominating
Committee wants to seriously consider and move toward nomination, the chairperson of the Nominating Committee enters into a discussion
with that nominee candidate. Subsequently, the chairperson will discuss the qualifications of the candidate with the other members
of the Nominating Committee, and the Nominating Committee will then make a final recommendation with respect to that candidate
to the Board.
The
Nominating Committee considers many factors when determining the eligibility of candidates for nomination as directors. The Nominating
Committee does not have a diversity policy; however, its goal is to nominate candidates from a broad range of experiences and
backgrounds who can contribute to the Board’s deliberations by reflecting a range of perspectives, thereby increasing its
overall effectiveness. In identifying and recommending nominees for positions on the Board, the Nominating Committee places primary
emphasis on: (i) a candidate’s judgment, character, expertise, skills and knowledge useful to the oversight of our business;
(ii) a candidate’s business or other relevant experience; and (iii) the extent to which the interplay of the candidate’s
expertise, skills, knowledge and experience with that of other members of the Board will build a Board that is effective, collegial
and responsive to our needs. The Nominating Committee will consider nominees recommended by stockholders, based on the same criteria
described above, provided such nominations comply with the applicable provisions of our Amended and Restated Bylaws and the procedures
to be followed in submitting proposals. No material changes have been implemented to the procedures by which stockholders may
recommend nominees to our Board since the date of our last disclosure.
Our
Nominating Committee charter is posted and can be viewed in the “Investor Relations” section of our website at www.interpacediagnostics.com.
Compensation
Committee Interlocks and Insider Participation in Compensation Decisions
As
of December 31, 2016, the Compensation Committee consisted of Dr. Sullivan and Dr. Keegan. As of the date of this Proxy Statement,
the Compensation Committee also consists of Dr. Sullivan and Dr. Keegan. During 2016 and as of the date of this Proxy Statement,
no member of our Compensation Committee has ever been an executive officer or employee of ours and no executive officer of ours
currently serves, or has served during the last completed year, on the Board, Compensation Committee or other committee serving
an equivalent function, of any other entity that has one or more officers serving as a member of our Board or Compensation Committee.
Policies
on Communicating with our Board and Reporting of Concerns Regarding Accounting or Auditing Matters
Stockholders may contact
an individual director, a committee of our Board or our Board as a group. The name of any specific intended director recipient
(or recipients) should be noted in the communication. Communications may be sent to Interpace Diagnostics Group, Inc., Building
C, Morris Corporate Center 1, 300 Interpace Parkway, Parsippany, NJ 07054. Our CEO will forward such correspondence only to
the intended recipients. Prior to forwarding any correspondence, however, the CEO will review the correspondence and will not
forward any communications deemed to be of a commercial or frivolous nature or otherwise inappropriate for our Board’s consideration.
In such cases, that correspondence may be forwarded elsewhere in the Company for review and possible response.
Any
person who has a concern regarding accounting, internal accounting controls or auditing matters may, in a confidential or anonymous
manner, communicate that concern in either of the following manners: (1) by utilizing our Ethics Hotline to report such concerns
via a confidential and secure Internet and telephone based reporting system administered by an external vendor, which may be accessed
via the Internet at www.guideline.lrn.com or toll-free by telephone at 1-888-577-9483; or (2) by setting forth such
concerns in writing and forwarding them in a sealed envelope to the Chairperson of the Audit Committee, Interpace Diagnostics
Group, Inc., Morris Corporate Center 1, Building C, 300 Interpace Parkway, Parsippany, NJ 07054, such envelope to be labeled with
a legend such as: “Anonymous Submission of Complaint or Concern.”
All
communications received through the Ethics Hotline, including concerns about accounting or auditing matters, will be forwarded
to the chairperson of our Audit Committee. Additional information on how to access our Ethics Hotline is posted and can be viewed
in the “Investor Relations” section of our website at www.interpacediagnostics.com.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent (10%) of our
common stock, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than
ten percent (10%) stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To
the best of our knowledge, based solely on our review of the copies of such forms furnished to us, or written representations
that no other forms were required, we believe that all Section 16(a) filing requirements applicable to our executive officers,
directors and greater than ten percent (10%) stockholders were complied with during the fiscal year ended December 31, 2016, except
that a Form 4 with respect to a grant of stock options to Jim Early was filed one day late.
PROPOSAL
NO. 2 –
ADVISORY VOTE ON EXECUTIVE COMPENSATION
Under
the Dodd-Frank Act, the Company’s stockholders are entitled to vote at the Annual Meeting on whether to provide advisory
approval of the compensation of the Company’s named executive officers as disclosed in this Proxy Statement pursuant to
the compensation disclosure rules of the SEC. This proposal, commonly known as a “say-on-pay” proposal, gives our
stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended
to address any specific item of compensation, but rather the overall total compensation of our named executive officers and the
philosophy, policies and practices described in this Proxy Statement. Pursuant to the Dodd-Frank Act, the stockholder vote on
executive compensation is an advisory vote only, and it is not binding on us or the Board.
Our
executive compensation program is designed to attract and retain superior employees in key positions to enable us to succeed in
the highly competitive market for talent, while simultaneously maximizing stockholder returns. We intend to provide a competitive
compensation package to our executives, tie a significant portion of pay to performance and utilize components that align the
interests of our executives with those of our stockholders. The Compensation Committee and the Board believe that our executive
compensation program fulfills these goals and is reasonable, competitive and appropriately aligned with our performance and the
performance of our executives.
We
are asking the Company’s stockholders to indicate their support for the advisory approval of the Company’s executive
compensation as described in this Proxy Statement. Accordingly, we ask that our stockholders vote “FOR” the following
resolution:
“RESOLVED,
that the Company’s stockholders APPROVE, on an advisory basis, the Company’s executive compensation as disclosed in
the Company’s Proxy Statement for the 2017 Annual Meeting of Stockholders, pursuant to the compensation disclosure rules
of the Securities and Exchange Commission, including the 2016 Summary Compensation Table and the other related tables and narrative
disclosure.”
Proposal
No. 2 must be approved by a majority of the votes cast at the Annual Meeting. A properly executed WHITE proxy card marked ABSTAIN
with respect to this proposal will not be voted and will have no effect on the outcome of the vote. In addition, broker non-votes
will be excluded entirely from the vote and will, therefore, have no effect on the outcome of the vote.
While
this advisory vote is non-binding, the Board values the opinions that stockholders express in their votes and will, as a matter
of good corporate practice, take into account the outcome of the vote when considering future compensation decisions.
The
Board Recommends a Vote FOR the Advisory Vote
on Executive Compensation and Proxies That are Returned
will be So Voted Unless Otherwise Instructed.
INFORMATION
ABOUT OUR EXECUTIVE COMPENSATION
Summary
Compensation Table
The
following table sets forth certain information concerning compensation paid to our Chief Executive Officer in 2016, our other
most highly compensated executive officer who served in this capacity as of December 31, 2016, and two other executive officers
who would have qualified as an executive officer during 2016, but for a termination of employment prior to December 31, 2016 (collectively
referred to as the “named executive officers”).
SUMMARY
COMPENSATION TABLE
|
Name
and Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
(1)
|
|
|
Stock
Awards
($)
(2)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Compensation
|
|
|
All
Other
Compen-
sation
(3)
|
|
|
Total
|
|
Jack E. Stover
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEO
|
|
|
2016
|
|
|
$
|
296,730
|
|
|
$
|
127,500
|
(7)
|
|
$
|
29,000
|
|
|
$
|
47,322
|
|
|
$
|
50,719
|
(7)
|
|
$
|
1,007
|
|
|
$
|
552,278
|
|
|
|
|
2015
|
|
|
|
8,065
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
108,234
|
|
|
|
116,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Early
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFO
|
|
|
2016
|
|
|
|
116,519
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
123,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graham G. Miao
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
CFO
|
|
|
2016
|
|
|
|
71,615
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
166,047
|
|
|
|
237,662
|
|
|
|
|
2015
|
|
|
|
420,000
|
|
|
|
-
|
|
|
|
273,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
693,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nat Krishnamurti
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
CFO
|
|
|
2016
|
|
|
|
148,282
|
|
|
|
-
|
|
|
|
13,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,527
|
|
|
|
166,609
|
|
|
(1)
|
The
amount set forth in this column with respect to Mr. Stover represents annual cash incentive bonus earned for 2016.
|
|
(2)
|
The
dollar amounts set forth under the heading “Stock Awards” represent aggregate grant date fair value computed in
accordance with FASB ASC Topic 718. For purposes of computing such amounts, we disregarded estimates of forfeitures related
to service-based vesting conditions. For additional information regarding our valuation assumptions, please refer to note
12 – “Stock-Based Compensation” to our consolidated financial statements included in our annual report on
Form 10-K for the year ended December 31, 2016, filed with the SEC on March 31, 2017.
|
|
(3)
|
For
the named executive officers, this column includes the following amounts in 2016:
|
`
|
|
401(k)
Company
Match
($)
|
|
|
Term
Life/Disability
Insurance
Payment
($)
|
|
|
Other
($)
(1)
|
|
|
Totals
($)
|
|
Jack
E. Stover
|
|
$
|
-
|
|
|
$
|
1,007
|
|
|
$
|
-
|
|
|
$
|
1,007
|
|
James Early
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Graham G.
Miao
|
|
|
2,865
|
|
|
|
29
|
|
|
|
163,153
|
|
|
|
166,047
|
|
Nat Krishnamurti
|
|
|
-
|
|
|
|
85
|
|
|
|
4,442
|
|
|
|
4,527
|
|
|
(1)
|
The
amounts set forth in this column for Mr. Miao represent severance of $147,000 and unused vacation balances of $16,153. The
amount for Mr. Krishnamurti pertains to unused vacation balances payable upon termination.
|
|
|
|
|
(4)
|
Mr.
Early’s salary pertains to amounts earned as part of his consulting agreement.
|
|
|
|
|
(5)
|
Mr.
Miao no longer served as Chief Financial Officer effective March 1, 2016.
|
|
|
|
|
(6)
|
Mr.
Krishnamurti no longer served as Chief Financial Officer effective September 2, 2016.
|
|
|
|
|
(7)
|
Mr.
Stover’s incentive compensation represents the 3% of the net transaction proceeds the Company received from its registered
share offering on December 22, 2016.
|
Narrative
Disclosure to Summary Compensation Table
Base
Salary
Base salaries are set
with regard to the level of the executive officer’s position within the Company and the individual’s current and historical
performance. The base salary levels and any changes to those levels for each executive are reviewed each year by the Compensation
Committee and adjustments may be based on factors such as new roles and/or responsibilities assumed by the executive and the executive’s
impact on our strategic goals and financial performance. While our executives’ base salaries are generally targeted to be
consistent with median base salaries for similar positions based on competitive market data, there is no specific weighting applied
to any one factor in setting the level of salary, and the process ultimately relies on the evaluation of various factors considered
by the Compensation Committee with respect to each named executive officer (and the full board of directors, in the case of the
Chief Executive Officer). The Compensation Committee also takes into account additional factors such as historical compensation,
the financial condition of the Company in general and the individual’s potential to be a key contributor as well as special
recruiting and retention situations. Upon his appointment as our Interim Chief Executive Officer, Mr. Stover’s annual base
salary was set at $300,000, which was not subject to an employment agreement. Mr. Stover entered into an employment agreement
with the Company as President & Chief Executive Officer on October 28, 2016. See “
Employment Arrangements
”.
Mr. Miao’s base salary was $420,000 and Mr. Krishnamurti’s base salary was $250,000. Mr. Krishnamurti’s base
salary was reduced to $210,000 in March 2016 as part of the Company’s cost-cutting measures. Mr. Miao and Mr. Krishnamurti
were no longer employed as of March 1, 2016 and September 2, 2016, respectively. There were no raises issued to any executive
officers in 2016. Pursuant to Jim Early’s consulting agreement, Mr. Early’s base salary is determined at an hourly
rate of $250 for the first 30 hours worked and $200 per hour for hours in excess of 30 hours. Accordingly, Mr. Early’s base
compensation was $116,519 for 2016 (5 months).
Annual
Cash Incentives
The
annual cash incentive program provides our executive officers with an opportunity to receive a cash award at the discretion of
the Compensation Committee (and the full board of directors as to the Chief Executive Officer). Annual cash incentive targets
and performance metrics are usually determined by the Compensation Committee typically during the first quarter of each fiscal
year, based on competitive market data generally available to the Compensation Committee as well as consideration based upon the
financial condition of the Company.
In
connection with Mr. Stover’s appointment as Interim Chief Executive Officer, the Board approved a target annual cash bonus
of 50% of his annual base salary based principally upon meeting specific financial goals and objectives as recommended by the
Compensation Committee and approved by the Board in its sole discretion. Mr. Stover had $50,000 paid to him in 2016 for meeting
targets regarding the first two quarters of 2016. For the final two quarters of 2016, the Board determined that Mr. Stover met
applicable targets and awarded a cash bonus of $77,500, whose payment was made in 2017. The remainder of his 2016 bonus was paid
in April 2017. Mr. Miao’s target annual cash incentive was 50% of base salary and Mr. Krishnamurti’s target was 30%
of base salary. Because of their respective terminations of employment, neither Mr. Miao nor Mr. Krishnamurti received any bonus
for 2016.
Mr.
Stover, upon the occurrence of a capital raising “Transaction” (as such term is defined in Mr. Stover’s employment
agreement) is eligible to receive non-equity incentive compensation calculated based on 3% of the net transaction proceeds received
in connection with such a Transaction. In order to receive such non-equity incentive compensation, Mr. Stover must remain employed
through the closing of the related Transaction. As a result of our stock offering in December 2016 (which constituted a “Transaction”
under his employment agreement), Mr. Stover earned $50,719. Additionally, the Board awarded Mr. Stover a discretionary bonus of
$127,500 (including the $50,000 bonus described in the paragraph above) for 2016, based on the Board’s determination of
Mr. Stover’s and the Company’s performance in 2016.
Sign-on
bonuses may be granted from time to time at the discretion of our Compensation Committee in connection with new hires at the executive
officer level. There were no cash sign-on bonuses for any named executive officer in 2016.
Long-Term
Equity Incentives
Our
executives are also eligible to participate in a long-term equity incentive program each year, which is administered under our
Incentive Plan. The long-term equity incentive component of our compensation program is used to promote alignment with stockholders
and to balance the short-term focus of the annual cash incentive component by linking a substantial part of compensation to our
long-term stockholder returns. The Compensation Committee believes that long-term stock-based compensation enhances our ability
to attract and retain high quality talent and provides the motivation to improve our long-term financial performance and increase
stockholder value. In 2016, Mr. Stover was granted 10,000 restricted stock units (“RSUs”), which vest in equal installments
over a three-year period. Mr. Stover was also granted 32,636 stock options with an exercise price of $1.60. The options vest in
equal monthly installments over a one-year period. Mr. Krishnamurti was granted 6,000 RSUs in 2016 which vest in equal installments
over a three-year period. The RSUs were forfeited upon Mr. Krishnamurti’s termination from the Company on September 2, 2016.
Perquisites
As
a matter of practice, we provide only limited perquisites to our executive officers that are not generally provided to all employees.
Executives are eligible for the standard benefits and programs generally available to all of our employees. The value of special
perquisites, as well as additional benefits that are available generally to all of our employees, that were provided to each named
executive officer in 2016 are set forth in footnote 3 to the Summary Compensation Table.
Compensation
Features Intended to Prevent Excessive Risk Taking
The
Compensation Committee reviewed our compensation policies and practices for all employees, including executive officers, and believes
that such policies and practices do not create risks that are reasonably likely to have a material adverse effect on us. In particular,
the Compensation Committee believes that the following factors help mitigate against any such risks: (a) annual cash incentive
compensation and long-term equity incentive compensation are based on a mix of our overall performance, business unit performance
and individual performance; (b) the annual cash incentive compensation plan has no minimum funding levels, such that employees
will not receive any rewards if satisfactory financial performance is not achieved by us; and (c) base salaries are consistent
with employees’ responsibilities and general market practices so that they are not motivated to take excessive risks to
achieve a reasonable level of financial security.
Outstanding
Equity Awards
The
following table provides information concerning the number and value of unexercised options, SARs, restricted stock awards and
RSUs for the named executive officers outstanding as of the year ended December 31, 2016:
OUTSTANDING
EQUITY AWARDS AT DECEMBER 31, 2016
|
|
Options/SARs
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
Number
of Securities
Underlying
Unexercised Options/SARs (#) Exercisable
|
|
|
Number
of Securities Underlying Unexercised Options/SARs (#) Unexercisable
|
|
|
Option/
SAR Exercise Price ($)
|
|
|
Option/
SAR Expiration Date
|
|
|
Number
of Shares/RSUs that have not Vested (#)
|
|
|
Market
Value of Shares/RSUs that have not Vested ($)
|
|
Jack E.
Stover
|
|
|
5,440
|
|
|
|
27,196
|
(2)
|
|
|
1.60
|
|
|
|
10/14/2026
|
|
|
|
10,000
|
(1)
|
|
|
44,000
|
|
James Early
|
|
|
1,334
|
|
|
|
6,666
|
(2)
|
|
|
1.60
|
|
|
|
10/14/2026
|
|
|
|
-
|
|
|
|
-
|
|
Graham G. Miao
(4)
|
|
|
11,718
|
|
|
|
-
|
|
|
|
17.90
|
|
|
|
10/20/2019
|
|
|
|
-
|
|
|
|
-
|
|
Nat Krishnamurti
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
Restricted
stock units that vest one-third on each of February 3, 2017, February 3, 2018, and February 3, 2019.
|
|
(2)
|
Stock
options that vest one-tenth on the 14
th
of each month from January 2017 through October 2017.
|
|
(3)
|
Upon
his resignation on September 2, 2016, Mr. Krishnamurti forfeited his outstanding equity awards.
|
|
(4)
|
Mr.
Miao no longer served with the Company effective March 1, 2016.
|
Potential
Payments upon Termination or Change in Control
The
following table includes the original estimated amount of compensation payable to Mr. Miao upon termination of his employment
in accordance with his employment separation agreements. In general: (i) RSUs vest upon a change of control; and (ii) restricted
stock vests upon a change of control. The amounts shown below assume that such termination was effective as of December 31, 2016,
and are estimates of the amounts which would be paid out upon termination; however, with respect to Mr. Miao, the amount shown
for him is based on his contractual severance at the time of his actual termination of employment. The actual amounts to be paid
out can only be determined at the time of separation from the Company.
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
|
Name
|
|
Cash
Payment
($)
|
|
|
Continuation
of
Medical/
Welfare
Benefits
(Present
Value)
($)
|
|
|
Acceleration
of
Equity
Awards
($)
(1)
|
|
|
Total
Termination
Benefits
($)
|
|
Termination Without
Cause or Resignation for Good Reason:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack
E. Stover
(2)
|
|
$
|
225,000
|
|
|
$
|
24,288
|
|
|
$
|
120,149
|
|
|
$
|
369,437
|
|
James
Early
|
|
|
-
|
|
|
|
-
|
|
|
|
18,665
|
|
|
|
18,665
|
|
Graham
G. Miao
(3)
|
|
|
420,000
|
|
|
|
24,288
|
|
|
|
-
|
|
|
|
444,288
|
|
Nat
Krishnamurti
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Upon a Change
in Control (Not in connection with a termination)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack
E. Stover
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
120,149
|
|
|
$
|
120,149
|
|
James
Early
|
|
|
-
|
|
|
|
-
|
|
|
|
18,665
|
|
|
|
18,665
|
|
Nat
Krishnamurti
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
These
amounts are based on the value of RSUs held at December 31, 2016 that would become immediately vested upon retirement or a
change of control pursuant to the applicable restricted stock grant agreement. Stock options that would become immediately
vested upon a change in control pursuant to the Incentive Plan were included. The market value of all equity reflected in
the above table is based on the closing stock price of $4.40 on December 30, 2016, the last day of trading in 2016.
|
|
(2)
|
Mr.
Stover’s cash payment would be paid in nine equal monthly installments.
|
|
(3)
|
Mr.
Miao’s employment was terminated on March 1, 2016 and he was entitled to receive the amounts and benefits upon such
termination as discussed below. The Company reached agreement with Mr. Miao and four other former executives to accept 35%
of their contracted severance amount. The $420,000 lump sum payment for Mr. Miao was subsequently reduced to $147,000 as a
result of this agreement and was paid on February 27, 2017.
|
The
amounts shown in the table above do not include payments and benefits to the extent they are provided on a non-discriminatory
basis to salaried employees generally upon termination, including accrued vacation pay, distributions of plan balances under the
401(k) plan and payments of amounts under disability insurance policies.
Actions
taken after the end of the Last Fiscal Year
In 2017, the Company granted
184,647 share options in excess of the number available for grant under the Company’s 2004 Incentive Plan. Upon discovery,
these grants to six employees were cancelled and replaced with grants for the same number of shares at a price of $2.39, the fair
market value on the date of grant, that will remain outstanding only if the stockholders approve Proposal No. 4 regarding the
Incentive Plan. If the stockholders do not approve the amendment to the Incentive Plan, these grants will be cancelled and considered
void
ab initio
.
Employment
Arrangements
Jack
E. Stover –Chief Executive Officer
On
October 30, 2016, we entered into an employment agreement with Mr. Stover pursuant to which he receives an annual base salary
of $300,000, subject to annual cost of living adjustments, and is eligible to receive an annual performance bonus with a target
of 50% of his base salary, based on the attainment of certain quarterly performance targets. Pursuant to the Employment Agreement,
the Company and Mr. Stover agreed that the performance targets for the first two quarters of 2016 were met at target. Mr. Stover
received payment of this amount, as a partial payment of his 2016 performance bonus, on October 31, 2016. The remainder of the
bonus was paid in April 2017.
In
addition, upon the occurrence of a capital raising “Transaction” (as such term is defined in Mr. Stover’s employment
agreement), provided he remains employed through the closing of such Transaction, Mr. Stover would receive non-equity incentive
compensation calculated based on 3% of the net transaction proceeds received in connection with such Transaction. As a result
of our stock offering in December 2016, Mr. Stover earned $50,719.
In
the event of a termination of Mr. Stover’s employment by the Company without “Cause” or a resignation by Mr.
Stover for “Good Reason” (as such terms are defined in the Employment Agreement), Mr. Stover would be entitled to
receive monthly payments of $25,000 for nine months following such termination and, provided that Mr. Stover timely elected COBRA
continuation coverage, the Company would pay his applicable COBRA premium for 12 months following such termination. Such payments
and benefits would be subject to an effective release of claims and would cease upon breach by Mr. Stover of any applicable restrictive
covenants.
Graham
G. Miao – Former Executive Vice President, Chief Financial Officer and Treasurer
On
October 14, 2014, we entered into offer letter and an employment separation agreement with Mr. Miao upon his employment with us.
Pursuant to the offer letter, Mr. Miao was employed as our Executive Vice President, Chief Financial Officer and Treasurer and
his employment with us was “at will.” The offer letter provided for an annual base salary of $420,000, with eligibility
for a cash annual incentive award with a target of 50% of base salary, based on achievement of established performance metrics.
The offer letter provided that Mr. Miao was entitled to participate in long-term equity incentive awards plans, pursuant to which
he is eligible to receive grants of RSUs and SARs with an aggregate grant date value of up to $300,000. All service-based long-term
incentive awards would immediately vest upon the occurrence of a change in control.
Under
Mr. Miao’s employment separation agreement, effective October 20, 2014, in consideration of certain covenants not to compete
and not to solicit employees or clients for a period of up to 12 months after termination of employment, as well as a general
release of claims against the Company, Mr. Miao was entitled to receive the following benefits if he was terminated without cause
or if he resigned with good reason:
|
|
●
|
A
payment equal to the product of 12 times his then current monthly base salary;
|
|
|
|
|
|
|
●
|
A
payment equal to the average cash incentive compensation paid to him based on the three most recent years (or such lesser
period of actual employment); and
|
|
|
|
|
|
|
●
|
Continued
participation in our health and dental programs, at our expense, for 12 months
|
On
March 28, 2016, the Company, in connection with Mr. Miao’s termination of employment, entered into a severance agreement
and general release with Mr. Miao which implemented certain terms of the employment separation agreement effective October 20,
2014. This severance agreement and general release provided for certain severance benefits to Mr. Miao, including the following:
(a) a lump sum cash severance payment of $420,000 in September 2016, which is equal to 12 months’ base salary and (b) 12
months of continued medical coverage at the Company’s expense. Mr. Miao would be subject to confidentiality, non-solicitation
and non-competition obligations. The Company and Mr. Miao also mutually released each other from all claims. As stated above,
pursuant to a settlement agreement, Mr. Miao agreed to accept 35% of this $420,000 contracted severance amount. Accordingly, the
Company paid Mr. Miao $147,000 in full settlement of this amount on February 27, 2017.
James
Early – Chief Financial Officer
On
October 11, 2016, James Early was appointed as Chief Financial Officer for the Company by means of an Engagement Letter Agreement
executed between the Company and Early Financial Consulting, LLC. Professional fees under this agreement are charged at the hourly
rate of $250 per hour for the first 30 hours per week and $200 per hour for time in excess of 30 hours per week. Fees and travel
expenses must be invoiced weekly under fifteen day payment terms. Services may be suspended if payments are deemed delinquent,
and either party may terminate the agreement upon thirty days written notice. Either party may terminate the agreement (and Mr.
Early’s service thereunder) upon 30 days’ notice with no severance or other termination payments due.
Nat
Krishnamurti – Former Chief Financial Office
r
Mr.
Krishnamurti was not a party to any employment or severance agreement and was not entitled to any severance upon his voluntary
termination of employment on September 2, 2016.
PROPOSAL
NO. 3 –
ADVISORY VOTE ON FREQUENCY OF EXECUTIVE COMPENSATION ADVISORY VOTES
In
Proposal No. 2 above, we are asking stockholders to cast an advisory vote for the compensation disclosed in this proxy statement
that we paid in fiscal 2016 to our named executive officers. This advisory vote is referred to as a “say-on-pay” vote.
In
this Proposal No. 3, the Board of Directors is asking stockholders to cast a non-binding, advisory vote on how frequently we should
have say-on-pay votes in the future. Stockholders will be able to mark the enclosed proxy card or voting instruction form on whether
to hold say-on-pay votes every one, two or three years. Alternatively, you may indicate that you are abstaining from voting.
“RESOLVED,
that the shareholders of the Company recommend, in a non-binding vote, whether an advisory vote to approve the compensation of
the Company’s named executive officers should occur every one, two or three years.”
In
2013, stockholders approved an annual frequency for their non-binding approval of the compensation of the Company’s named
executive officers. Section 14A of the Exchange Act requires that stockholders be afforded the opportunity to approve, on a non-binding
basis, no less often than every six years the frequency of their non-binding approval of the compensation of the Company’s
named executive officers. In the case of the Company, such vote must occur by 2019. The Company has elected to give stockholders
the opportunity to participate in such a vote this year.
The
Company believes that it has changed significantly since the prior stockholder vote in 2013, and that as a smaller reporting company,
a triannual vote is more appropriate.
A
triennial vote will provide us with the time to thoughtfully respond to shareowners’ sentiments and implement any necessary
changes. We carefully review changes to our program to maintain the consistency and credibility of the program which is important
in motivating and retaining our employees. We therefore believe that a triennial vote is an appropriate frequency to provide our
people and compensation committee sufficient time to thoughtfully consider shareowners’ input and to implement any appropriate
changes to our executive compensation program, in light of the timing that would be required to implement any decisions related
to such changes.
We
will continue to engage with our shareowners regarding our executive compensation program during the period between shareowner
votes. Engagement with our shareowners is a key component of our corporate governance. We seek and are open to input from our
shareowners regarding board and governance matters, as well as our executive compensation program, and believe we have been appropriately
responsive to our shareowners. We believe this outreach to shareowners, and our shareowners’ ability to contact us at any
time to express specific views on executive compensation, hold us accountable to shareowners and reduce the need for and value
of more frequent advisory votes on executive compensation.
This
vote, like the say-on-pay vote itself in Proposal No. 2, is not binding on the Board. The Board believes that every three years
is the appropriate frequency. Our executive compensation programs are intended to have a focus that is longer than the current
year for which compensation is paid. The Board believes that our executive compensation programs should be evaluated in a say-on-pay
stockholder vote over a period longer than one year because our programs are designed to reward performance over time, and the
Company believes that three years is an appropriate period over which to evaluate the effectiveness of those programs. While we
recognize that there are many views on the appropriateness of any interval of frequency, we believe that conducting an annual
advisory vote on executive compensation may unnecessarily focus on short-term performance. However, if a plurality of votes is
cast in favor of an interval other than three years, the Board intends to consider the vote of stockholders and evaluate the frequency
with which an advisory vote on executive compensation will be submitted to stockholders in the future. Even if a plurality of
votes are cast in favor of a three-year frequency, if our executive compensation program is materially changed in any year, the
Board may present a say-on-pay vote at the next annual meeting even if it would otherwise not be scheduled.
Proposal
No. 3 must be approved by a majority of the votes cast at the Annual Meeting. A properly executed WHITE proxy card marked ABSTAIN
with respect to this proposal will not be voted and will have no effect on the outcome of the vote. In addition, broker non-votes
will be excluded entirely from the vote and will, therefore, have no effect on the outcome of the vote.
The
Board Unanimously Recommends That Stockholders Select “EVERY 3 YEARS” On The Proposal Concerning The Frequency Of
Future Advisory Votes On Executive Compensation.
PROPOSAL
NO. 4 –
APPROVAL OF AMENDMENT TO OUR AMENDED AND RESTATED 2004 STOCK AWARD
AND INCENTIVE PLAN
AND approval of CERTAIN RECENT OPTION AWARDS
At
the Annual Meeting, our stockholders will be asked to approve an amendment to our Amended and Restated 2004 Stock Award and Incentive
Plan (the “Incentive Plan”) increasing the maximum number of shares of our common stock that may be issued under the
Incentive Plan by 3,700,000 and to approve certain recent stock option awards under the Incentive Plan. As of July 31, 2017,
we had no shares available for grant under the Incentive Plan.
On
August 7, 2017, our Board of Directors unanimously adopted an amendment to our Incentive Plan that will increase the total number
of shares of common stock that can be issued under the Incentive Plan by 3,700,000 shares (the “Amendment”). The effectiveness
of the Amendment is subject to approval by the Company’s stockholders at the Annual Meeting. Our executive officers and
directors have an interest in the Amendment because they are eligible for awards under the Incentive Plan.
Additionally, if the stockholders
approve the Amendment to the Incentive Plan, then certain option awards to six employees, that were contingent on receiving
such stockholder approval will remain outstanding (the “Contingent Awards”). These option awards aggregating 184,647
shares were made on May 11, 2017, with a strike price of $2.39 and will vest in equal monthly installments over one year subject
generally to the continued service of the grantees.
The text of the proposed
Incentive Plan (including the Amendment) is attached to this Proxy Statement as
Annex A
.
Except as set forth above,
there are no other changes to the Incentive Plan. If our stockholders do not approve the proposed Amendment to the
Incentive Plan, then the Incentive Plan will continue, without modifications, in full force and effect and all of the Contingent
Awards will be immediately forfeited.
If
our stockholders do not approve this proposal, no further awards could be made under the Incentive Plan, and we will have lost
our only vehicle for providing equity-based compensation to our directors, executives and other key personnel. The Board believes
this would present serious challenges to our ability to attract and retain management and other key personnel and would be detrimental
to our business and the interests of our stockholders. Accordingly, our Board of Directors recommends the approval of the Amendment
and the grant of options with respect to 184,647 shares underlying the Contingent Awards pursuant to the Incentive Plan to certain
non-executive members of the Company’s management team.
Background
and Reasons for the Amendment
The
Incentive Plan’s purpose is to attract, retain and motivate executives, other key employees, non-employee directors and
providers of substantial services to us. Equity compensation has been a key element of our compensation program, and the ability
to grant equity-based compensation has enabled us to attract and retain talented employees. Additionally, equity-based awards
have allowed us to link incentive rewards to our performance, to encourage employee ownership in our stock and to further align
the interests of employees with those of our stockholders. Equity based compensation is a common form of compensation in our industry,
and without these awards, we would be at a significant disadvantage against our competitors for recruiting and retaining key talent.
As
of July 31, 2017, we had no shares available for grant under the Incentive Plan.
In
2017, the Company inadvertently granted 184,647 share options to six employees in excess of the number available for grant under
the Existing Plan. These grants, were cancelled and replaced with the Contingent Awards. These option grants were made on May
11, 2017, with a strike price of $2.39 and will vest in equal monthly installments over one year subject generally to the continued
service of the grantees. The Contingent Awards will only remain outstanding if the stockholders approve the proposal. If the stockholders
do not approve this Proposal No. 4, these Contingent Awards will be cancelled immediately and considered void
ab initio
.
We
wish to replenish the number of shares available for grant to attract, motivate and retain executives, other key employees, non-employee
directors and providers of substantial services to us as we seek to grow our business. We believe that our future success and
growth depends, in large part, upon our ability to maintain a competitive position in attracting, motivating and retaining key
personnel. Equity based compensation is not only an expected part of the compensation package in the extremely competitive labor
markets in which we compete, but we believe it is also particularly important for us since we have an emerging growth diagnostics
business and need to be able to offer competitive equity based compensation to attract and retain key talent due to the risks
inherent with a business in its growth phase. Furthermore, we believe that being able to offer personnel competitive equity based
compensation will enable us to conserve some of our cash resources and apply some of those cash resources toward research and
development, marketing initiatives, strategic relationships, acquisitions and other opportunities that we believe we will need
to consider and possibly pursue in order to grow our business. In light of our compensation philosophy and our business strategy
to grow our business, as well as the fact that we have no more shares eligible for issuance under the Incentive Plan, we believe
that the Amendment is necessary under the Incentive Plan is insufficient to satisfy our future equity compensation needs. If we
are unable to make awards to key personnel, we believe we will be put at a significant competitive disadvantage and our business
may be adversely affected. Furthermore, if we are unable to make competitive equity awards to key personnel, in order to attract,
motivate and retain those individuals and remain competitive with our compensation program, we may need to use some of our cash
resources to pay increased cash compensation, which would reduce the cash flow available for the operation of our business.
Reasons
for Stockholder Approval
Our
board of directors seeks stockholder approval of the Amendment in order to satisfy certain requirements, including NASDAQ rules
which require stockholder approval of material modifications to plans such as the Incentive Plan, including, but not limited to,
amendments which increase the number of shares available under such plans. In addition, our board of directors regards stockholder
approval of the Amendment as desirable and consistent with corporate governance best practices.
As
of July 31, 2017, the equity awards available and outstanding under the Incentive Plan, and their respective features, were as
follows
(1)
:
SARs Outstanding
|
|
|
84,963
|
|
RSUs Outstanding
|
|
|
68,000
|
|
Stock Options Outstanding
|
|
|
322,882
|
*
|
Shares Available for Grant
|
|
|
0
|
|
|
|
|
|
|
*Excludes Contingent Awards discussed
above.
|
|
|
|
|
(1)
|
The figures included
in this table reflect all equity plan shares. This table excludes the 3,700,000 shares requested in this proposal.
|
Summary
of the Incentive Plan
The
material features of the Incentive Plan are described below. This summary does not purport to be a complete description of all
of the provisions of the Incentive Plan, and is qualified in its entirety by reference to the full text of the Incentive Plan,
which is attached to this Proxy Statement as
Annex D
and which we incorporate by reference into this Proxy Statement.
Purpose
of the Incentive Plan
The
Incentive Plan has enabled us to implement a compensation program with different types of incentives for attracting, retaining
and motivating employees, directors and other persons who provide substantial services to us. In particular, stock options, restricted
stock, SARs and RSUs are an important element of compensation for employees and directors because such awards enable them to acquire
or increase their proprietary interest in us, thereby promoting a closer identity of interests between them and our stockholders.
Annual incentive awards and other performance-based awards provide rewards for achieving specific performance objectives, such
as earnings goals. The ability to grant such awards as compensation under the Incentive Plan will help us to remain competitive,
and provide a stronger incentive for each person granted an award to dedicate his or her maximum efforts for the success of our
business. Our board of directors and the Compensation Committee therefore view the Incentive Plan as a key part of our compensation
program.
Types
of Awards Available Under the Incentive Plan
The
Incentive Plan authorizes a broad range of awards, including:
|
●
|
SARs, which
is a contractual right to receive cash or shares of stock equal in value to the excess of the price of the shares at the time
of exercise over the price of the shares on the grant date;
|
|
●
|
restricted stock,
which is a current grant of shares subject to a risk of forfeiture and restrictions on transfer;
|
|
●
|
deferred stock,
which is a contractual commitment to deliver shares or other awards at a future date, which may also be referred to as “stock
units,” “RSUs,” “phantom shares” or “performance shares”;
|
|
●
|
bonus stock
and other awards based on our common stock;
|
|
●
|
dividend equivalents,
which are rights to receive cash, shares or other awards equal in value to dividends paid with respect to specified number
of shares of our stock;
|
|
●
|
performance
awards, denominated in cash, stock or other awards, tied to the achievement of specific performance objectives; and
|
|
●
|
options to purchase
shares pursuant to an employee stock purchase program.
|
Shares
Available under the Incentive Plan
Only
the number of shares actually delivered to participants in connection with an award are counted against the number of shares reserved
under the Incentive Plan. Thus, shares underlying an award will become available again for new awards if an award expires or is
forfeited, if shares are withheld or separately surrendered to pay the exercise price of an option or to satisfy tax withholding
obligations relating to an award, if fewer shares are delivered upon exercise of a SAR than the number to which the SAR related,
or if shares that had been issued as restricted stock are forfeited.
As
of July 31, 2017, there were 475,845 shares subject to outstanding awards under our plans, which as described above may become
available for grant under the Incentive Plan if those awards expire or are forfeited. In addition, as of July 31, 2017, there
were no shares of common stock available for issuance in respect of new awards under the Incentive Plan.
The
proposed Amendment to the Incentive Plan we are asking you to approve would increase the shares available under the Incentive
Plan by 3,700,000. As of July 31, 2017, this amount of shares represented approximately 17% of the issued and outstanding shares
of our common stock.
Shares
delivered under the Incentive Plan may be either authorized and unissued shares or treasury shares. The number of shares reserved
under the Incentive Plan is subject to adjustment in the event of stock splits, stock dividends, and other extraordinary events.
On
July 31, 2017 the last reported sale price of our common stock on NASDAQ was $0.91 per share. The above numbers do not include
the Contingent Awards, as those will only be counted as outstanding, if, and only if, the stockholders approve this proposal.
Per-Person
Award Limitations
The
Incentive Plan includes limitations on the amount of awards that may be granted to a participant in a given year in order to qualify
awards as “performance-based” compensation not subject to the limitation on deductibility under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the “Code”). Under this annual per-person limitation, a participant
may in any year be granted share-based awards of each type authorized under the Incentive Plan – options, SARs, restricted
stock, deferred stock, bonus stock or stock in lieu of other compensation obligations, dividend equivalents, and other stock-based
awards – relating to no more than his or her “Annual Limit.” The Annual Limit equals 400,000 shares of each
type of share-based award, plus the amount of the participant’s unused Annual Limit relating to share-based awards of the
same type as of the close of the previous year, subject to adjustment for splits and other extraordinary corporate events.
With
respect to incentive awards not valued by reference to common stock at the date of grant, the Incentive Plan limits such performance
awards that may be earned by a participant to the participant’s defined Annual Limit, which for this purpose equals $3,500,000
plus the amount of the participant’s unused cash Annual Limit as of the close of the previous year. The per person limit
on stock-based awards is independent of the limit on cash-denominated performance awards. These limits apply only to awards under
the Incentive Plan and do not limit our ability to enter into compensation arrangements outside of the Stock Incentive Plan.
Adjustments
to Shares Reserved, Awards and Award Limits
In
the event of a large, special and non-recurring dividend or distribution, recapitalization, stock split, stock dividend, reorganization,
business combination, or other similar corporate transaction or event affecting the common stock, the Compensation Committee will,
in the manner it deems equitable, adjust the number and kind of shares which may be delivered in connection with an award, the
number and kind of shares by which annual per-person award limits are measured, any exercise price or share price referenced in
the award terms and other terms of the award in order to preserve without enhancing or diminishing the value of the award. The
Compensation Committee is also authorized to adjust performance conditions and other terms of awards in response to these kinds
of events or to changes in applicable laws, regulations, or accounting principles.
No
Re-pricing
We
may not re-price, replace, or re-grant options or SARs granted under the Incentive Plan without stockholder approval. Specifically,
without stockholder approval: (i) no outstanding option or SAR granted under the Incentive Plan may be amended to provide an exercise
price per share that is lower than the then-current exercise price per share of such outstanding option or SAR; (ii) our board
of directors may not cancel any outstanding option or SAR (whether or not granted under the Incentive Plan) and grant in substitution
therefor new awards under the Incentive Plan covering the same or a different number of shares of stock and having an exercise
price per share lower than the then-current exercise price per share of the cancelled option or SAR; and (iii) we may not repurchase
for cash options or SARs granted under the Incentive Plan with an exercise price that is more than 100% of the fair market value
of a share of stock on the date of repurchase.
Eligibility
Our
employees or employees of any of our subsidiaries or affiliates, non-employee directors, a consultant or any other person who
provides substantial services to us or a subsidiary or affiliate are eligible to be granted awards under the Incentive Plan. A
prospective employee may be granted an award, but no value may be realized under it if such person does not become an employee.
The Compensation Committee has the authority to select eligible persons to become participants in the Incentive Plan. As of July
31, 2017, approximately 66 employees, two non-employee directors and seven consultants or other persons providing substantial
services to us, a subsidiary or affiliate are eligible to participate in the Incentive Plan. Additionally, the Compensation Committee
has generally granted our Chief Executive Officer the authority to issue stock-based awards up to a certain share or dollar amount
each year to employees who are not members of the management team and who have made special contributions to us.
Administration
The
Incentive Plan is administered by the Compensation Committee, except that our board of directors may itself act in place of the
Compensation Committee to administer the Incentive Plan. The members of the Compensation Committee must be non-employee directors.
Subject to the terms and conditions of the Incentive Plan, the Compensation Committee is authorized to select participants, grant
awards, determine the type and number of awards to be granted and the number of shares to which awards will relate or the amount
of an annual or long term incentive award, specify times at which awards will be exercisable or settled, including performance
conditions that may be required as a condition thereof, set other terms and conditions of such awards, prescribe forms of award
agreements, interpret and specify rules and regulations relating to the Incentive Plan, and make all other determinations, which
may be necessary or advisable for the administration of the Incentive Plan. It is not the Compensation Committee’s practice
to permit transfers of awards for consideration.
The
Compensation Committee is permitted to delegate authority to our Chief Executive Officer or other officers of the Company to
perform such functions as the Compensation Committee may determine, including the granting of awards, but action pursuant to
delegated authority generally will be limited to grants to employees who are below the executive officer level. The Incentive
Plan provides that Compensation Committee members shall not be personally liable, and shall be fully indemnified, in
connection with any action, determination, or interpretation taken or made in good faith under the Incentive Plan.
Stock
Options and SARs
The
Compensation Committee is authorized to grant stock options, including both ISOs, which can result in potentially favorable tax
treatment to the participant, and non-qualified stock options. SARs may also be granted, entitling the participant to receive
the excess of the fair market value of a share on the date of exercise over the SAR’s designated “grant price.”
The exercise price of an option and the grant price of a SAR are determined by the Compensation Committee, but generally may not
be less than the fair market value of the shares on the date of grant. The maximum term of each option or SAR will be ten years
from the date of grant. Subject to this limit, the times at which each option or SAR will be exercisable and provisions requiring
forfeiture of unexercised options at or following termination of employment or upon the occurrence of other events generally are
fixed by the Compensation Committee. Options may be exercised by payment of the exercise price in cash, shares or other property
(which may include through cashless exercise procedures) or by surrender of other outstanding awards having a fair market value
equal to the exercise price. Methods of exercise and settlement and other terms of SARs will be determined by the Compensation
Committee. SARs may be exercisable for shares or for cash, as determined by the Compensation Committee.
Restricted
and Deferred Stock/ RSUs
The
Compensation Committee is authorized to grant restricted stock and deferred stock. Prior to the end of the restricted period,
shares granted as restricted stock may not be sold, and will be forfeited in the event of termination of employment in specified
circumstances. The Compensation Committee will establish the length of the restricted period for awards of restricted stock. Aside
from the risk of forfeiture and non-transferability, an award of restricted stock entitles the participant to the rights of our
stockholders, including the right to vote the shares and to receive dividends, unless otherwise determined by the Compensation
Committee.
Deferred
stock gives a participant the right to receive shares at the end of a specified deferral period. Deferred stock subject to forfeiture
conditions may be denominated as an award of RSUs. The Compensation Committee will establish any vesting requirements for deferred
stock/ RSUs granted for continuing services. One advantage of RSUs, as compared to restricted stock, is that the period during
which the award is deferred as to settlement can be extended past the date the award becomes non-forfeitable, so the Compensation
Committee can require or permit a participant to continue to hold an interest tied to common stock on a tax-deferred basis. Prior
to settlement, deferred stock awards, including RSUs, carry no voting or dividend rights or other rights associated with stock
ownership, but dividend equivalents may be paid or accrue if so authorized by the Compensation Committee.
Other
Stock-Based Awards, Stock Bonus Awards, and Awards in Lieu of Other Obligations
The
Incentive Plan authorizes the Compensation Committee to grant awards that are denominated or payable in, valued in whole or in
part by reference to, or otherwise based on or related to, common stock. The Compensation Committee will determine the terms and
conditions of such awards, including the consideration to be paid to exercise awards in the nature of purchase rights, the periods
during which awards will be outstanding, and any forfeiture conditions and restrictions on awards. In addition, the Compensation
Committee is authorized to grant shares as a bonus free of restrictions, or to grant shares or other awards in lieu of obligations
under other plans or compensatory arrangements, subject to such terms as the Compensation Committee may specify.
Performance-Based
Awards
The
Compensation Committee may grant performance awards, which may be denominated as a cash amount, number of shares or specified
number of other awards. Generally, performance awards require satisfaction of pre-established performance goals, consisting of
one or more business criteria and a targeted performance level with respect to such criteria as a condition of awards being granted
or becoming exercisable or settleable, or as a condition to accelerating the timing of such events. Performance may be measured
over a period of any length specified by the Compensation Committee. If so determined by the Compensation Committee, in order
to avoid the limitations on tax deductibility under Section 162(m) of the Code, the business criteria used by the Compensation
Committee in establishing performance goals applicable to performance awards to the named executive officers will be selected
from among the following:
|
●
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earnings from
operations, earnings before or after taxes, earnings before or after interest, depreciation, amortization, incentives, service
fees or extraordinary or special items;
|
|
●
|
return on assets,
return on investment, return on capital or return on equity;
|
|
●
|
net revenue
or net income per common share (basic or diluted);
|
|
●
|
cash flow, free
cash flow, cash flow return on investment, or net cash provided by operations;
|
|
●
|
economic value
created or added;
|
|
●
|
operating margin
or profit margin;
|
|
●
|
stock price
or total stockholder return; and
|
|
●
|
strategic business
criteria, consisting of one or more objectives based on meeting specified market penetration or value added, geographic business
expansion goals, cost targets, the acquisition of new clients and/or the retention of existing clients, client satisfaction,
employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information
technology, goals relating to acquisitions or divestitures of subsidiaries or affiliates, goals related to entering into or
the performance of joint ventures or strategic alliances, and goals related to the development of new services and markets
and our financial performance related to such new services and markets.
|
The
targeted level or levels of performance with respect to such business criteria may be established at such levels and in such terms
as the Compensation Committee may determine, in its discretion, including in absolute terms, as a goal relative to performance
in prior periods, or as a goal compared to the performance of one or more comparable companies or an index covering multiple companies.
The Compensation Committee may specify that these performance measures will be determined before payment of bonuses, capital charges,
non-recurring or extraordinary income or expense, or other financial and general and administrative expenses for the performance
period.
Annual
Incentive Awards
One
type of performance award that may be granted under the Incentive Plan is annual incentive awards, settleable in cash, shares
or other awards upon achievement of pre-established performance objectives achieved during a specified period of up to one year.
The Compensation Committee generally must establish the terms of annual incentive awards, including the applicable performance
goals and the corresponding amounts payable (subject to per-person limits), and other terms of settlement, and all other terms
of these awards, not later than the earlier of 90 days after the beginning of the performance period and the time that 25% of
such performance period has elapsed. As stated above, annual incentive awards granted to named executive officers are intended
to constitute “performance-based compensation” not subject to the limitation on deductibility under Section 162(m)
of the Code. In order for such an annual incentive award to be earned, one or more of the performance objectives described in
the preceding paragraph will have to be achieved. The Compensation Committee may specify additional requirements for the earning
of such awards.
Employee
Stock Purchase Program
The
Compensation Committee has discretion to make awards under the “employee stock purchase plan” component of the Incentive
Plan (the “ESPP”) and the discretion to determine employees who are eligible to participate in the ESPP. Employees
who are not eligible to participate in the ESPP include, but are not limited to, any participant who would own more than 5% of
the voting power or value of our stock immediately after a grant under the ESPP and participation for each eligible participant
is annually limited such that no participant may receive options to purchase more than $25,000 of common stock based on the fair
market value of such stock at the time the options are granted. The aggregate number of shares of stock that may be subject to
options under the ESPP is determined on an annual basis.
Forfeiture
of Awards and Award Gains Upon Certain Events
Unless
otherwise determined by the Compensation Committee, each award granted under the Incentive Plan will be subject to forfeiture,
as described in this section. The unexercised portion of an option, whether or not vested, and any other award not then settled,
will be forfeited and cancelled upon a forfeiture event, as defined in the Incentive Plan, and the participant will be obligated
to repay us the total amount of gain realized by the participant upon exercise or settlement of the award that occurred within
the time period specified in the Incentive Plan. A forfeiture event is defined in the Incentive Plan as any of the following events,
if the event occurs either during the participant’s employment with us or during the one-year period following termination
of employment: (i) the participant competing with us, interfering with our business relationships or influencing our employees
to terminate employment with us; (ii) the participant’s failure to maintain as confidential our confidential or proprietary
information; (iii) the participant making disparaging remarks about us or our representatives; (iv) the participant’s failure
to cooperate with us in any suit or proceeding; or (v) termination of the participant’s employment for cause, as defined
in the Incentive Plan.
Dividend
Equivalents
Dividend
equivalents are rights to receive payments or property equal in value to the amount of dividends paid on a specified number of
shares of common stock while an award is outstanding. These amounts may be in the form of cash, stock, other awards or other property
having a value equal to the dividends paid with respect to a specified number of shares. Historically, we have not paid any dividends
to our stockholders or granted any dividend equivalents under the original 2004 Stock Award and Incentive Plan (including, without
limitation, any dividend equivalent rights in respect of performance-based awards).
These
awards may be granted on a stand-alone basis or in conjunction with another award. Typically, rights to dividend equivalents would
be granted in connection with RSUs or deferred stock, so that the participant can earn amounts equal to dividends paid on the
number of shares covered by the award while the award is outstanding.
Vesting,
Forfeitures, and Related Award Terms
The
Compensation Committee may, in its discretion, determine the vesting schedule of options and other awards, the circumstances that
will result in forfeiture of awards, the post-termination exercise periods of options and similar awards, and the events that
will result in acceleration of the ability to exercise and the lapse of restrictions, or the expiration of any deferral period,
on any award.
Impact
of a Change in Control
Upon
a change in control, as defined in the Incentive Plan, unless otherwise provided by the Compensation Committee in the award agreement,
awards will become fully vested and exercisable and restrictions thereon will lapse. In addition, the Compensation Committee may
permit a participant who holds an option or SAR the right to elect, during the 60-day period immediately following the change
in control, to receive in cash the excess of the change in control price over the exercise price of the option or SAR, in lieu
of acquiring shares covered by the option or SAR, for each share covered by such option. The Compensation Committee may also extend
to any participant who holds other types of awards denominated in shares the right to elect, during the 60-day period immediately
following the change in control, in lieu of receiving shares covered by the award, to receive in cash the change in control price
multiplied by the number of shares covered by the award. The change in control price will be determined based on the highest market
price during the 60-day period prior to or following the change in control or, if higher, the consideration received by stockholders
in the change in control transaction. The Compensation Committee may also specify in any award agreement that performance conditions
will be deemed met or exceeded upon a change in control.
Amendment
and Termination of the Incentive Plan
Our
board of directors may amend, suspend, discontinue, or terminate the Incentive Plan or the Compensation Committee’s authority
to grant awards thereunder without stockholder approval, except as required by law or regulation or under the NASDAQ rules. NASDAQ
rules require stockholder approval of material modifications to plans such as the Incentive Plan, including, but not limited to,
amendments which increase the number of shares available under such plans. Unless earlier terminated by our board of directors,
the Incentive Plan will terminate at such time that no shares reserved under the Incentive Plan remain available and we have no
further obligation with respect to any outstanding award.
Federal
Income Tax Implications of the Incentive Plan
The
following discussion is a summary of certain federal income tax considerations that may be relevant with respect to awards issuable
under the Incentive Plan. The discussion is for general informational purposes only and does not purport to address specific federal
income tax considerations that may apply to a participant based on his or her particular circumstances, nor does it address state
or local income tax or other considerations that may be relevant to a participant. In general, the discussion below relates only
to types of awards that we currently grant or have granted in the past.
Stock
Options and SARs
The
grant of an option or a SAR will create no federal income tax consequences for the participant or the Company. A participant will
not have taxable income upon exercising an option which is an ISO, except that alternative minimum tax may apply. Upon exercising
an option which is not an ISO, the participant generally must recognize ordinary income equal to the difference between the exercise
price and the fair market value of the freely transferable and non-forfeitable shares acquired on the date of exercise. Upon exercising
a SAR, the participant must generally recognize ordinary income equal to the difference between the grant price and the cash or
the fair market value of the shares received.
Upon
a disposition of shares acquired upon exercise of an ISO before the end of the applicable ISO holding periods (two years from
the date the option was granted and one year from the date the shares were transferred upon the exercise of the option), the participant
must generally recognize ordinary income equal to the lesser of (i) the fair market value of the ISO shares at the date of exercise
minus the exercise price or (ii) the amount realized upon the disposition of the ISO shares minus the exercise price.
Otherwise,
a participant’s sale of shares acquired by exercise of an option generally will result in short-term or long-term capital
gain or loss measured by the difference between the sale price and the participant’s tax “basis” in such shares.
The tax “basis” normally is the exercise price plus any amount he or she recognized as ordinary income in connection
with the option’s exercise. A participant’s sale of shares acquired by exercise of a SAR generally will result in
short-term or long-term capital gain or loss measured by the difference between the sale price and the tax “basis”
in the shares, which generally is the amount he or she recognized as ordinary income in connection with the SAR’s exercise.
We
normally can claim a tax deduction equal to the amount recognized as ordinary income by a participant in connection with an option
or SAR, but no tax deduction relating to a participant’s capital gains. Accordingly, we will not be entitled to any tax
deduction with respect to an ISO if the participant holds the shares for the applicable ISO holding periods before selling the
shares.
Restricted
Stock
A
participant will generally not recognize federal taxable income when he or she receives a grant of restricted stock, and we will
not be entitled to a deduction, until the stock is transferable by the participant or is otherwise no longer subject to a substantial
risk of forfeiture. When the stock is either transferable or is no longer subject to a substantial risk of forfeiture, a participant
will recognize ordinary income in an amount equal to the fair market value of the shares at that time (less any amounts paid for
the shares), and generally, we will be entitled to a deduction in the same amount. Any gain or loss recognized by the participant
upon a later disposition of the shares will be capital gain or loss. A participant’s holding period for purposes of determining
whether that capital gain or loss is long-term or short-term will be counted from the date the stock became transferable or ceased
to be subject to a substantial risk of forfeiture.
A
participant may elect to recognize ordinary income in the year when the share award is granted in an amount equal to the fair
market value of the shares subject to the award (less any amounts paid for such shares) at the time of grant, determined without
regard to any restrictions. This election is referred to as a Section 83(b) election. In that event, we will be entitled to a
corresponding deduction in the same year. Any gain or loss recognized by the participant upon a later disposition of the shares
will be capital gain or loss. A participant’s holding period for purposes of determining whether that capital gain or loss
is long-term or short-term will be counted from the date of the original transfer to the participant. The participant may not
claim a credit for any tax previously paid on stock that is later forfeited.
Deferred
Stock/ RSUs
If
a participant is granted deferred stock or a RSU, he or she will not be required to recognize any taxable income at the time of
grant. Upon distribution of shares or cash in respect of deferred stock or a RSU, the fair market value of those shares or the
amount of that cash will be taxable to the participant as ordinary income and we will receive a deduction equal to the income
recognized by the participant. The subsequent disposition of shares acquired pursuant to deferred stock or a RSU will result in
capital gain or loss based on the difference between the price received on disposition and the participant’s basis in those
shares (generally, the market value of the shares at the time of their issuance).
Performance-Based
Compensation
As
discussed above, compensation that qualifies as “performance-based” compensation is excluded from the limitation on
deductibility under Section 162(m) of the Code, and therefore remains fully deductible by the company that pays it.
Under
the Incentive Plan, options and SARs granted with an exercise price or grant price at least equal to 100% of fair market value
of the underlying stock at the date of grant, and certain other awards which are conditioned upon achievement of performance goals
are intended to qualify as such “performance-based” compensation. A number of requirements must be met in order for
particular compensation to so qualify; however, there can be no assurance that such compensation under the Incentive Plan will
be fully deductible under all circumstances.
The
foregoing provides only a general description of the application of federal income tax laws to certain awards under the Incentive
Plan. This discussion is intended for the information of stockholders considering how to vote at the Annual Meeting and not as
tax guidance to participants in the Incentive Plan, as the consequences may vary with the types of awards made, the identity of
the recipients and the method of payment or settlement. This summary does not address the effects of other federal taxes (including
possible “golden parachute” excise taxes and taxed under Section 409A of the Code) or taxes imposed under state, local,
or foreign tax laws.
New
Plan Benefits
If
the proposed Amendment to the Incentive Plan is approved by stockholders, awards under the Incentive Plan will be determined by
the Compensation Committee in its discretion, and it is, therefore, not possible to predict the awards that will be made to particular
officers or directors in the future under the Incentive Plan. In addition, the options to purchase 184,647 shares of common stock
granted to six employees will have been approved.
Securities
Authorized For Issuance under Equity Compensation Plans
The
table below sets forth certain information with respect to all of our equity compensation plans as of June 30, 2017, and does
not reflect grants, awards, exercises, terminations or expirations since that date.
Equity
Compensation Plan Information
Six
Months Ended June 30, 2017
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights (a)
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights (b)
|
|
|
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
(a)) (c)
|
|
Equity compensation plans
approved by security holders (2004 Stock Award and Incentive Plan, 2000 Omnibus Incentive Compensation Plan, and 1998 Stock
Option Plan)
|
|
|
396,128
|
|
|
$
|
10.29
|
|
|
|
-
|
|
Equity compensation plans not approved
by security holders
|
|
|
11,718
|
|
|
$
|
17.90
|
|
|
|
-
|
|
Total
|
|
|
407,846
|
|
|
$
|
10.51
|
|
|
|
-
|
|
RECOMMENDATION
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL NO. 4 TO APPROVE AN AMENDMENT TO OUR AMENDED
2004 STOCK AWARD AND INCENTIVE PLAN AND TO APPROVE CERTAIN RECENT OPTION AWARDS.
PROPOSAL
NO. 5 –
RATIFICATION OF APPOINTMENT OF OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Audit Committee of our Board has appointed BDO as our independent registered public accounting firm for the fiscal year ending
December 31, 2017. Although stockholder approval is not required, we desire to obtain from the stockholders an indication of their
approval or disapproval of the Audit Committee’s action in appointing BDO as the independent registered public accounting
firm of the Company and its subsidiaries. The accompanying proxy will be voted FOR the ratification of the appointment of BDO
unless the proxy contains instructions otherwise. If the stockholders do not ratify this appointment, such appointment will be
reconsidered by the Audit Committee, but the Audit Committee will not be required to take any action.
A
representative of BDO will be present at the Annual Meeting and will be afforded an opportunity to make a statement and to respond
to questions
The
Board Recommends a Vote FOR the Ratification of the Appointment of
BDO USA, LLP for Fiscal Year 2017, and Proxies That are Returned
will be So Voted Unless Otherwise Instructed.
Audit
Committee Matters and Fees Paid to Independent Registered Public Accounting Firm
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
Under
its charter, the Audit Committee must pre-approve all engagements of our independent registered public accounting firm unless
an exception to such pre-approval exists under the Exchange Act or the rules of the SEC. Each year, the independent registered
public accounting firm’s retention to audit our financial statements and permissible non-audit services, including the associated
fees, is approved by the Audit Committee. At the beginning of each fiscal year, the Audit Committee evaluates other known potential
engagements of the independent registered public accounting firm, in light of the scope of the work proposed to be performed and
the proposed fees, and approves or rejects 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 registered public accounting firm’s independence.
At subsequent Audit Committee meetings, the Audit Committee receives updates on the services actually provided by the independent
registered public accounting firm, and management may present additional services for approval. Typically, these would be services,
such as due diligence for an acquisition, that were not known at the beginning of the year. The Audit Committee has delegated
to the Chairperson of the Audit Committee the authority to evaluate and approve engagements on behalf of the Audit Committee in
the event that a need arises for pre-approval between committee meetings. If the Chairperson so approves any such engagements,
he will report that approval to the full Audit Committee at the next Audit Committee meeting. All of the services and corresponding
fees described above were approved by the Audit Committee.
BDO
USA LLP (“BDO”), an independent registered public accounting firm, has served as our independent accountants beginning
in 2012. Fees for services provided by BDO for the past two completed years ended December 31 were as follows:
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
|
|
2016
|
|
|
2015
|
|
Audit
Fees
|
|
$
|
287,266
|
|
|
$
|
469,726
|
|
Audit-Related
Fees
|
|
|
11,950
|
|
|
|
11,302
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
All Other
Fees
|
|
|
-
|
|
|
|
-
|
|
Total Fees
|
|
$
|
299,216
|
|
|
$
|
481,028
|
|
Audit
fees include the audit of our consolidated financial statements.
Included
within audit fees for the year ended December 31, 2016 are those fees totaling $7,988 associated with the filing of the Company’s
registration statement on Form S-8 on October 26, 2016, and fees totaling $56,000 associated with our registered public offering
in December 2016.
Included
within audit fees for the year ended December 31, 2015 are those fees totaling $48,129 associated with the filing of the Company’s
registration statement on Form S-3 and Form S-3/A on October 2, 2015 and October 7, 2015, respectively, and fees totaling $78,393
associated with the disposition of the Company’s Commercial Services business as presented in the Company’s definitive
proxy statement and Form 8-K on December 23, 2015.
Fees
for audit-related services in 2016 and 2015 consist of the audits of our 401(k) plan by BDO.
AUDIT
COMMITTEE REPORT
The
following Report of the Audit Committee shall not be deemed incorporated by reference into any of our filings under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent we specifically incorporate
it by reference therein.
The
Audit Committee has reviewed our audited financial statements for the fiscal year ended December 31, 2016 and discussed them with
management and BDO USA, LLP (“BDO”), the independent registered public accounting firm that audited our financial
statements for fiscal 2016. The Audit Committee has also discussed with BDO the matters required to be discussed by Public Company
Accounting Oversight Board’s Audit Standard No. 16 Communication with Audit Committees. The Audit Committee also received
the written disclosures and the letter from BDO required by Rule 3526 of the Public Company Accounting Oversight Board (Communications
with Audit Committees Concerning Independence), and the Audit Committee discussed with BDO the firm’s independence.
Management
is responsible for the preparation, presentation and integrity of our financial statements, accounting and financial reporting
principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and
regulations, including the effectiveness of internal control over financial reporting. BDO was responsible for performing an independent
audit of our financial statements and expressing an opinion as to their conformity with generally accepted accounting principles.
BDO had full access to the Audit Committee to discuss any matters they deem appropriate.
Based
on the reports and discussions described in this report, the Audit Committee recommended to the Board that our audited financial
statements for the fiscal year ended December 31, 2016 be included in our annual report on Form 10-K for the year ended December
31, 2016 for filing with the SEC.
Submitted
by the Audit Committee
Joseph
Keegan, Chairperson
Stephen
Sullivan
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table shows, as of July 31, 2017 (unless otherwise indicated), the number of shares of our common stock beneficially
owned by: (i) each stockholder who is known by us to own beneficially in excess of 5% of our outstanding common stock; (ii) each
of our current directors; (iii) each of our named executive officers included in the section of this Proxy Statement entitled
“Summary Compensation Table”; and (iv) all directors and executive officers as a group.
Except as otherwise indicated,
the persons listed below have sole voting and investment power with respect to all shares of common stock owned by them and all
information with respect to beneficial ownership has been furnished to us by the respective stockholder. The address of the persons
listed below is c/o Interpace Diagnostics Group, Inc., Morris Corporate Center One, Building C, 300 Interpace Parkway,
Parsippany, New Jersey 07054. On December 28, 2016, the Company effected a one-for-ten reverse split of the issued and outstanding
shares of its common stock in order to achieve the requisite increase in the market price of its common stock to be in compliance
with the NASDAQ minimum bid price requirement. At the effective time of the reverse split, every 10 shares of common stock issued
and outstanding were automatically combined into one share of issued and outstanding common stock, without any change in the par
value per share. The share totals below reflect that split. The percentage of beneficial ownership is based on 22,163,604 shares
of common stock outstanding on July 31, 2017.
Name
of Beneficial Owner
|
|
Number
of Shares Beneficially Owned
(1)
|
|
|
Percent
of Shares
Outstanding
|
|
Executive
officers and directors:
|
|
|
|
|
|
|
|
|
Jack
E. Stover
(2)
|
|
|
115,743
|
(6)
|
|
|
*
|
|
James
Early
(3)
|
|
|
14,571
|
(7)
|
|
|
*
|
|
Stephen
J. Sullivan
(4)
|
|
|
26,282
|
(8)
|
|
|
*
|
|
Joseph
Keegan
(5)
|
|
|
9,257
|
(9)
|
|
|
*
|
|
as
a group (7 persons)
|
|
|
156,596
|
(6)(7)(8)(9)
|
|
|
*
|
|
*
Represents less than 1% of shares of common stock outstanding.
(1)
|
Beneficial ownership and percentage
ownership are determined in accordance with the rules and regulations of the SEC and include voting or investment power with
respect to shares of stock. This information does not necessarily indicate beneficial ownership for any other purpose. In
computing the number of shares beneficially owned by a person and the percentage ownership of that person, we include shares
underlying common stock derivatives, such as options, RSUs and SARs that a person has the right to acquire within 60 days
of July 31, 2017. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of
any other person.
|
|
|
(2)
|
Currently serves as our
President and Chief Executive Officer and as a member of the Board.
|
|
|
(3)
|
Currently serves as our
Chief Financial Officer, Secretary and Treasurer.
|
|
|
(4)
|
Currently serves as Chairman
of the Board.
|
|
|
(5)
|
Member of the Board.
|
|
|
(6)
|
Includes 6,666 RSUs that
would vest immediately upon retirement and 97,218 shares issuable pursuant to options exercisable within 60 days of the date
of this Schedule 14A.
|
|
|
(7)
|
Includes 14,571 shares
issuable pursuant to options exercisable within 60 days of the date of this Schedule 14A.
|
|
|
(8)
|
Includes 6,666 RSUs that
would vest immediately upon retirement and 6,500 shares issuable pursuant to options exercisable within 60 days of the date
of this Schedule 14A.
|
|
|
(9)
|
Includes 5,000 shares
issuable pursuant to options exercisable within 60 days of the date of this Schedule 14A.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
We
are required to disclose transactions since January 1, 2016, to which we have been a party, in which the amount involved in the
transaction exceeds $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of
more than 5% of our capital stock or an affiliate or immediate family member thereof had or will have a direct or indirect material
interest, other than employment, compensation, termination and change in control arrangements with our named executive officers,
which are described in Item 11 - “Executive Compensation.” Other than as set forth in Item 11 – “Executive
Compensation,” we are not a party to a current transaction with a related person, have not been a party to such a transaction
since January 1, 2016, and no transaction is currently proposed, in which the amount of the transaction exceeds $120,000 and in
which a related person had or will have a direct or indirect material interest.
OTHER
MATTERS
We
know of no other matters to be acted upon at the Annual Meeting. If any other matters properly come before the meeting, it is
the intention of the persons named in the enclosed form of proxy to vote the shares they represent as the Board may recommend.
ADDITIONAL
INFORMATION
Householding
The SEC’s rules
permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements and annual reports with
respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report addressed
to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience
for stockholders and cost savings for companies. Some brokers household proxy materials and annual reports, delivering a single
proxy statement and annual report to multiple stockholders sharing an address, although each stockholder will receive a separate
proxy card. Once you have received notice from your broker that they will be householding materials to your address, householding
will continue until you are notified otherwise or until you revoke your consent. If at any time you no longer wish to participate
in householding and would prefer to receive a separate proxy statement and annual report, please notify your broker. If you would
like to receive a separate copy of this year’s Proxy Statement or annual report on Form 10-K, please contact us by writing
to Interpace Diagnostics Group, Inc., Morris Corporate Center One, Building C, 300 Interpace Parkway, Parsippany, New Jersey
07054, or calling 1-862-207-7862.
Stockholder
Proposals for the 2018 Annual Meeting
Any
proposal that a stockholder desires to have included in our proxy materials relating to our annual meeting of stockholders in
2018 must be received by us at our principal office at Interpace Diagnostics Group, Inc., Morris Corporate Center One, 300 Interpace
Parkway, Building C, Parsippany, New Jersey 07054 no later than April 10, 2017 and must otherwise comply with the requirements
of Rule 14a-8 under the Exchange Act for inclusion in our proxy materials for that meeting.
The
Company’s Bylaws provide that advance written notice of stockholder-proposed business intended to be brought before an annual
meeting of shareholders must be given to the Secretary of the Company not less than 90 days (June 16, 2018) nor more than 120
days (May 17, 2017) prior to the one-year anniversary of the preceding year’s annual meeting; provided, however, that if
the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by any stockholder
of business intended to be brought must be received not later than the 90th day prior to such annual meeting or, if later, the
tenth day following the day on which public disclosure of the date of such annual meeting was first made (such advance written
notice within such time periods is defined as “Timely Notice”).
A
stockholder’s written notice must set forth, as to each proposed matter: (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such business at the annual meeting and, if such business
includes a proposal to amend our Bylaws, the language of the proposed amendment; (ii) the name and address, as they appear on
our books, of the stockholder proposing such business; (iii) the number of shares of our common stock which are beneficially owned
by such stockholder; (iv) a representation that the stockholder is a holder of record of shares of the Company’s common
stock entitled to vote at such annual meeting and intends to appear in person or by proxy at the annual meeting to propose such
business; and (v) any Disclosable Interests (as defined in the Company’s Bylaws) of the stockholder in such proposal.
The
Company’s Bylaws also provide that a stockholder may request that persons be nominated for election as directors by providing
Timely Notice and providing the information, agreements and questionnaires with respect to such stockholder and its candidate
for nomination as required to be set forth in the Company’s Bylaws.
Important
Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on September 14, 2017.
This
Proxy Statement and our annual report on Form 10-K (including an amendment on Form 10-K/A) for the year
ended December 31, 2016 are available on the Internet at:
http://www.astproxyportal.com/ast/21231/
Incorporation
by Reference
To
the extent that this Proxy Statement is incorporated by reference into any other filing under the Securities Act of 1933, as amended,
or the Exchange Act, then the section of this Proxy Statement entitled “Audit Committee Report” will not be deemed
incorporated unless specifically provided otherwise in such filing. The content contained in, or that can be accessed through,
our website is not incorporated into this Proxy Statement.
Availability
of Annual Report on Form 10-K
We
will provide without charge to each person being solicited by this Proxy Statement, on the written request of any such person,
a copy of our annual report on Form 10-K (including an amendment on Form 10-K/A) for the year ended December 31, 2016, including
the financial statements and financial statement schedules included therein. All such requests should be directed to Interpace
Diagnostics Group, Inc., Morris Corporate Center One, 300 Interpace Parkway, Building C, Parsippany, New Jersey 07054.
|
By order of the Board
of Directors,
|
|
|
|
/s/
Stephen J. Sullivan
|
|
Stephen J. Sullivan
|
|
Chairman
|
|
|
August 14, 2017
|
|
Annex
A
Interpace
Diagnostics Group, Inc.
Amended and Restated 2004 Stock Award and Incentive Plan
1.
Purpose
. The purpose of this Amended and Restated 2004 Stock Award and Incentive Plan (the “Plan”) is to
aid Interpace Diagnostics Group, Inc. (formerly known as PDI, Inc.), a Delaware corporation (the “Company”), in attracting,
retaining, motivating and rewarding employees, non-employee directors, and other persons who provide substantial services to the
Company or its subsidiaries or affiliates, to provide for equitable and competitive compensation opportunities, to recognize individual
contributions and reward achievement of Company goals, and promote the creation of long-term value for stockholders by closely
aligning the interests of Participants with those of stockholders. The Plan authorizes stock-based and cash-based incentives for
Participants.
2.
Definitions
. In addition to the terms defined in Section 1 above and elsewhere in the Plan, the following capitalized
terms used in the Plan have the respective meanings set forth in this Section:
“
Annual
Incentive Award
” means a type of Performance Award granted to a Participant under Section 7(c) representing a conditional
right to receive cash, Stock or other Awards or payments, as determined by the Committee, based on performance in a performance
period of one fiscal year or a portion thereof.
“
Award
”
means any Option, SAR, Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of another award, Dividend Equivalent,
Other Stock-Based Award, Performance Award or Annual Incentive Award, together with any related right or interest, granted to
a Participant under the Plan.
“
Beneficiary
”
means the legal representatives of the Participant’s estate entitled by will or the laws of descent and distribution to
receive the benefits under a Participant’s Award upon a Participant’s death, provided that, if and to the extent authorized
by the Committee, a Participant may be permitted to designate a Beneficiary, in which case the “Beneficiary” instead
will be the person, persons, trust or trusts (if any are then surviving) which have been designated by the Participant in his
or her most recent written beneficiary designation filed with the Committee to receive the benefits specified under the Participant’s
Award upon such Participant’s death. Unless otherwise determined by the Committee, any designation of a Beneficiary other
than a Participant’s spouse shall be subject to the written consent of such spouse.
“
Board
”
means the Company’s Board of Directors.
“
Cause
”
shall mean “Cause” as such term is defined in the Participant’s employment agreement, or if none shall exist,
as any of the following: (a) the Participant’s conviction of any crime (whether or not involving the Company) constituting
a felony in the jurisdiction involved; (b) conduct of the Participant related to the Participant’s employment for which
either criminal or civil penalties against the Participant or the Company may be sought; (c) material violation of the Company’s
policies, including, but not limited to those relating to sexual harassment, the disclosure or misuse of confidential information,
or those set forth in Company manuals or statements of policy; or (d) serious neglect or misconduct in the performance of the
Participant’s duties for the Company or willful or repeated failure or refusal to perform such duties.
“
Change
in Control
” and related terms have the meanings specified in Section 9.
“
Code
”
means the Internal Revenue Code of 1986, as amended. References to any provision of the Code or regulation (including a proposed
regulation) thereunder shall include any successor provisions and regulations.
“
Committee
”
means the Compensation and Management Development Committee of the Board, the composition and governance of which is established
in the Committee’s Charter as approved from time to time by the Board and subject to any applicable NASDAQ rule or regulation
and other corporate governance documents of the Company. No action of the Committee shall be void or deemed to be without authority
due to the failure of any member, at the time the action was taken, to meet any qualification standard set forth in the Committee
Charter or this Plan. The full Board may perform any function of the Committee hereunder, in which case the term “Committee”
shall refer to the Board.
“
Covered
Employee
” means an Eligible Person who is a Covered Employee as specified in Section 12(j).
“
Deferred
Stock
” means a right, granted to a Participant under Section 6(e), to receive Stock or other Awards or a combination
thereof at the end of a specified deferral period. Deferred Stock may be denominated as “stock units,” “restricted
stock units,” “phantom shares,” “performance shares,” or other appellations.
“
Disability
”
shall mean a disability described in Section 422(c)(6) of the Code. The existence of a Disability shall be determined by the Committee
in its absolute discretion.
“
Dividend
Equivalent
” means a right, granted to a Participant under Section 6(g), to receive cash, Stock, other Awards or other
property equal in value to all or a specified portion of the dividends paid with respect to a specified number of shares of Stock.
“
Effective
Date
” means the effective date specified in Section 12(p).
“
Eligible
Person
” has the meaning specified in Section 5.
“
Employee
Stock Purchase Plan
” has the meaning specified in Section 11.
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended. References to any provision of the Exchange Act or rule
(including a proposed rule) thereunder shall include any successor provisions and rules.
“
Fair
Market Value
” means, with respect to a share of Stock on an applicable date:
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(i)
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If
the principal market for the Stock (the “Market”) is a national securities exchange or the National Association
of Securities Dealers Automated Quotation System (“NASDAQ”) National Market, the last sale price or, if no reported
sales take place on the applicable date, the average of the high bid and low asked price of Stock as reported for such Market
on such date or, if no such quotation is made on such date, on the next preceding day on which there were quotations, provided
that such quotations shall have been made within the ten (10) business days preceding the applicable date;
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(ii)
|
If
the Market is the NASDAQ National List, the NASDAQ Supplemental List or another market, the average of the high bid and low
asked price for Stock on the applicable date, or, if no such quotations shall have been made on such date, on the next preceding
day on which there were quotations, provided that such quotations shall have been made within the ten (10) business days preceding
the applicable date; or,
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(iii)
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In
the event that neither paragraph i. nor ii. shall apply, the Fair Market Value of a share of Stock on any day shall be determined
in good faith by the Committee in a manner consistently applied.
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“
Incentive
Stock Option
” or “
ISO
” means any Option designated as an incentive stock option within the meaning
of Code Section 422 or any successor provision thereto and qualifying thereunder.
“
Option
”
means a right, granted to a Participant under Section 6(b) or 11, to purchase Stock or other Awards at a specified price during
specified time periods.
“
Other
Stock-Based Awards
” means Awards granted to a Participant under Section 6(h).
“
Participant
”
means a person who has been granted an Award under the Plan that remains outstanding, including a person who is no longer an Eligible
Person.
“
Performance
Award
” means a conditional right, granted to a Participant under Sections 6(i) and 7, to receive cash, Stock or other
Awards or payments, as determined by the Committee, based upon performance criteria specified by the Committee.
“
Preexisting
Plans
” means the Company’s 2000 Omnibus Incentive Compensation Plan and the Company’s 1998 Stock Option
Plan.
“
Qualified
Member
” means a member of the Committee who is a “Non-Employee Director” within the meaning of Rule 16b-3(b)(3)
and an “outside director” within the meaning of Regulation 1.162-27 under Code Section 162(m).
“
Restricted
Stock
” means Stock granted to a Participant under Section 6(d) which is subject to certain restrictions and to a risk
of forfeiture.
“
Retirement
”
means termination of employment from the Company by a Participant whose age and years of service together equal 65.
“
Rule
l6b-3
” means Rule 16b-3, as from time to time in effect and applicable to Participants, promulgated by the Securities
and Exchange Commission under Section 16 of the Exchange Act.
“
Stock
”
means the Company’s Common Stock, and any other equity securities of the Company that may be substituted or resubstituted
for Stock pursuant to Section 12(c).
“
Stock
Appreciation Rights
” or “
SAR
” means a right granted to a Participant under Section 6(c).
3.
Administration
.
(a)
Authority of the Committee
. The Plan shall be administered by the Committee, which shall have full and final authority,
in each case subject to and consistent with the provisions of the Plan, to select Eligible Persons to become Participants; to
grant Awards; to determine the type and number of Awards, the dates on which Awards may be exercised and on which the risk of
forfeiture or deferral period relating to Awards shall lapse or terminate, the acceleration of any such dates, the expiration
date of any Award, whether, to what extent, and under what circumstances an Award may be settled, or the exercise price of an
Award may be paid, in cash, Stock, other Awards, or other property, and other terms and conditions of, and all other matters relating
to, Awards; to prescribe documents evidencing or setting terms of Awards (such Award documents need not be identical for each
Participant), amendments thereto, and rules and regulations for the administration of the Plan and amendments thereto; to construe
and interpret the Plan and Award documents and correct defects, supply omissions or reconcile inconsistencies therein; and to
make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan.
Decisions of the Committee with respect to the administration and interpretation of the Plan shall be final, conclusive, and binding
upon all persons interested in the Plan, including Participants, Beneficiaries, transferees under Section 12(b) and other persons
claiming rights from or through a Participant, and stockholders. The foregoing notwithstanding, the Board shall perform the functions
of the Committee for purposes of granting Awards under the Plan to non-employee directors (authority with respect to other aspects
of non-employee director awards is not exclusive to the Board, however).
(b)
Manner of Exercise of Committee Authority
. At anytime that a member of the Committee is not a Qualified Member, any action
of the Committee relating to an Award intended by the Committee to qualify as “performance-based compensation” within
the meaning of Code Section 162(m) and regulations thereunder or intended to be covered by an exemption under Rule 16b-3 under
the Exchange Act may be taken by a subcommittee, designated by the Committee or the Board, composed solely of two or more Qualified
Members or may be taken by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself
or herself from such action, provided that, upon such abstention or recusal, the Committee remains composed of two or more Qualified
Members. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-Qualified
Member(s), shall be the action of the Committee for purposes of the Plan. The express grant of any specific power to the Committee,
and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. To
the fullest extent authorized under Section 157(c) and other applicable provisions of the Delaware General Corporation Law, the
Committee may delegate to officers or managers of the Company or any subsidiary or affiliate, or committees thereof, the authority,
subject to such terms as the Committee shall determine, to perform such functions, including administrative functions, as the
Committee may determine, to the extent that such delegation will not cause Awards intended to qualify as “performance-based
compensation” under Code Section 162(m) to fail to so qualify.
(c)
Limitation of Liability
. The Committee and each member thereof, and any person acting pursuant to authority delegated by
the Committee, shall be entitled, in good faith, to rely or act upon any report or other information furnished by any executive
officer, other officer or employee of the Company or a subsidiary or affiliate, the Company’s independent auditors, consultants
or any other agents assisting in the administration of the Plan. Members of the Committee, any person acting pursuant to authority
delegated by the Committee, and any officer or employee of the Company or a subsidiary or affiliate acting at the direction or
on behalf of the Committee or a delegee shall not be personally liable for any action or determination taken or made in good faith
with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect
to any such action or determination.
4.
Stock Subject to Plan
.
(a)
Overall Number of Shares Available for Delivery
. Subject to adjustment as provided in Section 12(c), the shares of Stock
reserved and available for delivery in connection with Awards under the Plan shall be: (i) 893,916 original shares reserved on
the Effective Date of the adoption of the Plan on June 16, 2004; (ii) 1,100,000 new shares reserved on May 31, 2011 the effective
date of the Plan’s first amendment and restatement; (iii) 1,250,000 new shares reserved on June 4, 2014 the effective date
of the restated Plan’s first amendment; (iv) 2,450,000 new shares reserved on December 22, 2015 the effective date of the
Plan’s second amendment and restatement; (v) 3,700,000 new shares reserved on September 14, 2017 the effective date of the
restated Plan’s third amendment; (vi) the number of shares remaining under the Preexisting Plans as of the Effective Date;
and (vii) the number of shares which become available in accordance with Section 4(b) after the Effective Date. In order that
applicable regulations under the Code relating to ISOs shall be satisfied, the maximum number of shares of Stock that may be delivered
upon exercise of ISOs shall be the number specified in clause (i) of the first sentence of this Section 4(a), and, if necessary
to satisfy such regulations, that same maximum limit shall apply to the number of shares of Stock that may be delivered in connection
with each other type of Award under the Plan (applicable separately to each type of Award). Any shares of Stock delivered under
the Plan shall consist of authorized and unissued shares or treasury shares.
(b)
Share Counting Rules
. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double
counting (as, for example, in the case of tandem or substitute awards) and make adjustments if the number of shares of Stock actually
delivered differs from the number of shares previously counted in connection with an Award. Shares that are potentially deliverable
under an Award under the Plan or an award under any Preexisting Plan that are canceled, expired, forfeited, settled in cash or
otherwise terminated without a delivery of such shares to the Participant will not be counted as delivered under the Plan or such
Preexisting Plan. Shares that have been issued in connection with an Award (
e.g
., Restricted Stock) or Preexisting Plan
award that is canceled, forfeited, or settled in cash such that those shares are returned to the Company will again be available
for Awards. Shares withheld in payment of the exercise price or taxes relating to an Award or Preexisting Plan award and shares
equal to the number surrendered in payment of any exercise price or taxes relating to an Award or Preexisting Plan award shall
be deemed to constitute shares not delivered to the Participant and shall be deemed to be available for Awards under the Plan.
The foregoing notwithstanding, if issued shares are returned to the Company, including upon a cash out of Restricted Stock, surrender
of shares in payment of an exercise price or taxes relating to an Award, or withholding of shares in payment of taxes upon vesting
of Restricted Stock, such shares shall not become available again under the Plan if the transaction resulting in the return of
shares occurs more than ten years after the date of the most recent shareholder approval of the Plan, and otherwise shares shall
not become available under this Section 4(b) in an event that would constitute a “material revision” of the Plan subject
to shareholder approval under then applicable rules of the NASDAQ. In addition, in the case of any Award granted in substitution
for an award of a company or business acquired by the Company or a subsidiary or affiliate, shares issued or issuable in connection
with such substitute Award shall not be counted against the number of shares reserved under the Plan, but shall be available under
the Plan by virtue of the Company’s assumption of the plan or arrangement of the acquired company or business. This Section
4(b) shall apply to the share limit imposed to conform to the Treasury regulations governing ISOs only to the extent consistent
with applicable regulations relating to ISOs under the Code. Because shares will count against the number reserved in Section
4(a) upon delivery, and subject to the share counting rules under this Section 4(b), the Committee may determine that Awards may
be outstanding that relate to a greater number of shares than the aggregate remaining available under the Plan, so long as Awards
will not result in delivery and vesting of shares in excess of the number then available under the Plan.
5.
Eligibility and Certain Award Limitations
.
(a)
Eligibility.
Awards may be granted under the Plan only to Eligible Persons. For purposes of the Plan, an “Eligible
Person” means an employee of the Company or any subsidiary or affiliate, including any executive officer, a non-employee
director of the Company, a consultant or other person who provides substantial services to the Company or a subsidiary or affiliate,
and any person who has been offered employment by the Company or a subsidiary or affiliate, provided that such prospective employee
may not receive any payment or exercise any right relating to an Award until such person has commenced employment with the Company
or a subsidiary or affiliate. An employee on leave of absence may be considered as still in the employ of the Company or a subsidiary
or affiliate for purposes of eligibility for participation in the Plan. For purposes of the Plan, a joint venture in which the
Company or a subsidiary has a substantial direct or indirect equity investment shall be deemed an affiliate, if so determined
by the Committee.
(b)
Per-Person Award Limitations.
In each calendar year during any part of which the Plan is in effect, an Eligible Person
may be granted Awards intended to qualify as “performance-based compensation” under Code Section 162(m) under each
of Section 6(b), 6(c), 6(d), 6(e), 6(f), 6(g) or 6(h) relating to up to his or her Annual Limit (such Annual Limit to apply separately
to the type of Award authorized under each specified subsection, except that the limitation applies to Dividend Equivalents under
Section 6(g) only if such Dividend Equivalents are granted separately from and not as a feature of another Award). Subject to
Section 4(a), a Participant’s Annual Limit, in any year during any part of which the Participant is then eligible under
the Plan, shall equal 400,000 shares plus the amount of the Participant’s unused Annual Limit relating to the same type
of Award as of the close of the previous year, subject to adjustment as provided in Section 12(c). In the case of an Award which
is not valued in a way in which the limitation set forth in the preceding sentence would operate as an effective limitation satisfying
Treasury Regulation 1.162-27(e)(4) (including a Performance Award under Section 7 not related to an Award specified in Section
6), an Eligible Person may not be granted Awards authorizing the earning during any calendar year of an amount that exceeds the
Participant’s Annual Limit, which for this purpose shall equal $3,500,000 plus the amount of the Participant’s unused
cash Annual Limit as of the close of the previous year (this limitation is separate and not affected by the number of Awards granted
during such calendar year subject to the limitation in the preceding sentence). For this purpose, (i) “earning” means
satisfying performance conditions so that an amount becomes payable, without regard to whether it is to be paid currently or on
a deferred basis or continues to be subject to any service requirement or other non-performance condition, and (ii) a Participant’s
Annual Limit is used to the extent an amount or number of shares may be potentially earned or paid under an Award, regardless
of whether such amount or shares are in fact earned or paid.
6.
Specific Terms of Awards
.
(a)
General
. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may
impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Section 12(e)), such additional terms
and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms requiring
forfeiture of Awards in the event of termination of employment or service by the Participant and terms permitting a Participant
to make elections relating to his or her Award. The Committee shall retain full power and discretion with respect to any term
or condition of an Award that is not mandatory under the Plan. The Committee shall require the payment of lawful consideration
for an Award to the extent necessary to satisfy the requirements of the Delaware General Corporation Law, and may otherwise require
payment of consideration for an Award except as limited by the Plan.
(b)
Options
. The Committee is authorized to grant Options to Participants on the following terms and conditions:
(i)
Exercise Price
. The exercise price per share of Stock purchasable under an Option (including both ISOs and non-qualified
Options) shall be determined by the Committee, provided that such exercise price shall be not less than the Fair Market Value
of a share of Stock on the date of grant of such Option, subject to Section 8(a).
(ii)
Option Term; Time and Method of Exercise
. The Committee shall determine the term of each Option, provided that in no event
shall the term of any ISO or SAR in tandem therewith exceed a period of ten years from the date of grant. The Committee shall
determine the time or times at which or the circumstances under which an Option may be exercised in whole or in part (including
based on achievement of performance goals and/or future service requirements), the methods by which such exercise price may be
paid or deemed to be paid and the form of such payment, including, without limitation, cash, Stock (including through withholding
of Stock deliverable upon exercise, if such withholding will not result in additional accounting expense to the Company), other
Awards or awards granted under other plans of the Company or any subsidiary or affiliate, or other property (including through
“cashless exercise” arrangements, to the extent permitted by applicable law), and the methods by or forms in which
Stock will be delivered or deemed to be delivered in satisfaction of Options to Participants (including deferred delivery of shares
representing the Option “profit,” at the election of the Participant or as mandated by the Committee, with such deferred
shares subject to any vesting, forfeiture or other terms as the Committee may specify).
(iii)
ISOs
. The terms of any ISO granted under the Plan shall comply in all respects with the provisions of Code Section 422,
including but not limited to the requirement that no ISO shall be granted more than ten years after the date of the most recent
shareholder approval of the Plan.
(c)
Stock Appreciation Rights
. The Committee is authorized to grant SARs to Participants on the following terms and conditions:
(i)
Right to Payment
. A SAR shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof,
the excess of (A) the Fair Market Value of one share of Stock on the date of exercise (or, in the case of a “Limited SAR,”
the Fair Market Value determined by reference to the Change in Control Price, as defined under Section 9(c) hereof) over (B) the
grant price of the SAR as determined by the Committee, which grant price shall be not less than the Fair Market Value of a share
of Stock on the date of grant of such SAR.
(ii)
Other Terms
. The Committee shall determine at the date of grant or thereafter, the time or times at which and the circumstances
under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service
requirements), the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in
which Stock will be delivered or deemed to be delivered to Participants, whether or not a SAR shall be free-standing or in tandem
or combination with any other Award, and the maximum term of a SAR, which in no event shall exceed a period of ten years from
the date of grant. Limited SARs that may only be exercised in connection with a Change in Control or other event as specified
by the Committee may be granted on such terms, not inconsistent with this Section 6(c), as the Committee may determine. The Committee
may require that an outstanding Option be exchanged for a SAR exercisable for Stock having vesting, expiration, price and other
terms substantially the same as the Option, so long as such exchange will not result in additional accounting expense to the Company.
(d)
Restricted Stock
. The Committee is authorized to grant Restricted Stock to Participants on the following terms and conditions:
(i)
Grant and Restrictions
. Restricted Stock shall be subject to such restrictions on transferability, risk of forfeiture and
other restrictions, if any, as the Committee may impose, which restrictions may lapse separately or in combination at such times,
under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments
or otherwise and under such other circumstances as the Committee may determine at the date of grant or thereafter. Except to the
extent restricted under the terms of the Plan and any Award document relating to the Restricted Stock, a Participant granted Restricted
Stock shall have all of the rights of a stockholder, including the right to vote the Restricted Stock and the right to receive
dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Committee).
(ii)
Forfeiture
. Except as otherwise determined by the Committee, upon termination of employment or service during the applicable
restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Company;
provided that the Committee may provide, by rule or regulation or in any Award document, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Restricted Stock will lapse in whole or in part, including in the event
of terminations resulting from specified causes.
(iii)
Certificates for Stock
. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Committee may require
that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted
Stock, that the Company retain physical possession of the certificates, and that the Participant deliver a stock power to the
Company, endorsed in blank, relating to the Restricted Stock.
(iv)
Dividends and Splits
. As a condition to the grant of an Award of Restricted Stock, the Committee may require that any dividends
paid on a share of Restricted Stock shall be either (A) paid with respect to such Restricted Stock at the dividend payment date
in cash, in kind, or in a number of shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends,
or (B) automatically reinvested in additional Restricted Stock or held in kind, which shall be subject to the same terms as applied
to the original Restricted Stock to which it relates, or (C) deferred as to payment, either as a cash deferral or with the amount
or value thereof automatically deemed reinvested in shares of Deferred Stock, other Awards or other investment vehicles, subject
to such terms as the Committee shall determine or permit a Participant to elect. Unless otherwise determined by the Committee,
Stock distributed in connection with a Stock split or Stock dividend, and other property distributed as a dividend, shall be subject
to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or other
property has been distributed.
(e)
Deferred Stock
. The Committee is authorized to grant Deferred Stock to Participants, which are rights to receive Stock,
other Awards, or a combination thereof at the end of a specified deferral period, subject to the following terms and conditions:
(i)
Award and Restrictions
. Issuance of Stock will occur upon expiration of the deferral period specified for an Award of Deferred
Stock by the Committee (or, if permitted by the Committee, as elected by the Participant). In addition, Deferred Stock shall be
subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose,
which restrictions may lapse at the expiration of the deferral period or at earlier specified times (including based on achievement
of performance goals and/or future service requirements), separately or in combination, in installments or otherwise, and under
such other circumstances as the Committee may determine at the date of grant or thereafter. Deferred Stock may be satisfied by
delivery of Stock, other Awards, or a combination thereof, as determined by the Committee at the date of grant or thereafter.
(ii)
Forfeiture
. Except as otherwise determined by the Committee, upon termination of employment or service during the applicable
deferral period or portion thereof to which forfeiture conditions apply (as provided in the Award document evidencing the Deferred
Stock), all Deferred Stock that is at that time subject to such forfeiture conditions shall be forfeited; provided that the Committee
may provide, by rule or regulation or in any Award document, or may determine in any individual case, that restrictions or forfeiture
conditions relating to Deferred Stock will lapse in whole or in part, including in the event of terminations resulting from specified
causes.
(iii)
Dividend Equivalents
. Unless otherwise determined by the Committee, Dividend Equivalents on the specified number of shares
of Stock covered by an Award of Deferred Stock shall be either (A) paid with respect to such Deferred Stock at the dividend payment
date in cash or in shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends, or (B) deferred
with respect to such Deferred Stock, either as a cash deferral or with the amount or value thereof automatically deemed reinvested
in additional Deferred Stock, other Awards or other investment vehicles having a Fair Market Value equal to the amount of such
dividends, as the Committee shall determine or permit a Participant to elect.
(f)
Bonus Stock and Awards in Lieu of Obligations
. The Committee is authorized to grant Stock as a bonus, or to grant Stock
or other Awards in lieu of obligations of the Company or a subsidiary or affiliate to pay cash or deliver other property under
the Plan or under other plans or compensatory arrangements, subject to such terms as shall be determined by the Committee.
(g)
Dividend Equivalents
. The Committee is authorized to grant Dividend Equivalents to a Participant, entitling the Participant
to receive cash, Stock, other Awards, or other property equivalent to all or a portion of the dividends paid with respect to a
specified number of shares of Stock. Dividend Equivalents may be awarded on a free-standing basis or in connection with another
Award. The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have
been reinvested in additional Stock, Awards, or other investment vehicles, and subject to restrictions on transferability, risks
of forfeiture and such other terms as the Committee may specify.
(h)
Other Stock-Based Awards
. The Committee is authorized, subject to limitations under applicable law, to grant to Participants
such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or
related to, Stock or factors that may influence the value of Stock, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase rights for Stock, Awards with value and payment
contingent upon performance of the Company or business units thereof or any other factors designated by the Committee, and Awards
valued by reference to the book value of Stock or the value of securities of or the performance of specified subsidiaries or affiliates
or other business units. The Committee shall determine the terms and conditions of such Awards. Stock delivered pursuant to an
Award in the nature of a purchase right granted under this Section 6(h) shall be purchased for such consideration, paid for at
such times, by such methods, and in such forms, including, without limitation, cash, Stock, other Awards, notes, or other property,
as the Committee shall determine. Cash awards, as an element of or supplement to any other Award under the Plan, may also be granted
pursuant to this Section 6(h).
(i)
Performance Awards
. Performance Awards, denominated in cash or in Stock or other Awards, may be granted by the Committee
in accordance with Section 7.
7.
Performance Awards, Including Annual Incentive Awards
.
(a)
Performance Awards Generally
. The Committee is authorized to grant Performance Awards on the terms and conditions specified
in this Section 7. Performance Awards may be denominated as a cash amount, number of shares of Stock, or specified number of other
Awards (or a combination) which may be earned upon achievement or satisfaction of performance conditions specified by the Committee.
In addition, the Committee may specify that any other Award shall constitute a Performance Award by conditioning the right of
a Participant to exercise the Award or have it settled, and the timing thereof, upon achievement or satisfaction of such performance
conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance
as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase the
amounts payable under any Award subject to performance conditions, except as limited under Sections 7(b) and 7(c) in the case
of a Performance Award intended to qualify as “performance-based compensation” under Code Section 162(m).
(b)
Performance Awards Granted to Covered Employees
. If the Committee determines that a Performance Award to be granted to
an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as “performance-based
compensation” for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance Award shall
be contingent upon achievement of a preestablished performance goal and other terms set forth in this Section 7(b).
(i)
Performance Goal Generally
. The performance goal for such Performance Awards shall consist of one or more business criteria
and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent
with this Section 7(b). The performance goal shall be objective and shall otherwise meet the requirements of Code Section 162(m)
and regulations thereunder (including Regulation 1.162-27 and successor regulations thereto), including the requirement that the
level or levels of performance targeted by the Committee result in the achievement of performance goals being “substantially
uncertain.” The Committee may determine that such Performance Awards shall be granted, exercised and/or settled upon achievement
of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or
settlement of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to
different Participants.
(ii)
Business Criteria
. One or more of the following business criteria for the Company, on a consolidated basis, and/or for
specified subsidiaries or affiliates or other business units of the Company, shall be used by the Committee in establishing performance
goals for such Performance Awards: (1) revenues; (2) earnings from operations, earnings before or after taxes, earnings before
or after interest, depreciation, amortization, incentives, service fees or extraordinary or special items; (3) net income or net
income per common share (basic or diluted); (4) return on assets, return on investment, return on capital, or return on equity;
(5) cash flow, free cash flow, cash flow return on investment, or net cash provided by operations; (6) economic value created
or added; (7) operating margin or profit margin; (8) stock price or total stockholder return; and (9) strategic business criteria,
consisting of one or more objectives based on meeting specified market penetration, geographic business expansion goals, cost
targets, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information
technology, goals related to acquisitions or divestitures of subsidiaries or affiliates, goals related to entering into or the
performance of joint ventures or strategic alliances, and goals related to the development of new services and markets and the
financial performance of the Company related to such new services and markets. The targeted level or levels of performance with
respect to such business criteria may be established at such levels and in such terms as the Committee may determine, in its discretion,
including in absolute terms, as a goal relative to performance in prior periods, or as a goal compared to the performance of one
or more comparable companies or an index covering multiple companies.
(iii)
Performance Period; Timing for Establishing Performance Goals
. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of up to one year or more than one year, as specified by the Committee. A performance
goal shall be established not later than the earlier of (A) 90 days after the beginning of any performance period applicable to
such Performance Award or (B) the time 25% of such performance period has elapsed.
(iv)
Performance Award Pool
. The Committee may establish a Performance Award pool, which shall be an unfunded pool, for purposes
of measuring performance of the Company in connection with Performance Awards. The amount of such Performance Award pool shall
be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section
7(b)(ii) during the given performance period, as specified by the Committee in accordance with Section 7(b)(iv). The Committee
may specify the amount of the Performance Award pool as a percentage of any of such business criteria, a percentage thereof in
excess of a threshold amount, or as another amount which need not bear a strictly mathematical relationship to such business criteria.
(v)
Settlement of Performance Awards; Other Terms
. Settlement of such Performance Awards shall be in cash, Stock, other Awards
or other property, in the discretion of the Committee. The Committee may, in its discretion, increase or reduce the amount of
a settlement otherwise to be made in connection with such Performance Awards, but may not exercise discretion to increase any
such amount payable to a Covered Employee in respect of a Performance Award subject to this Section 7(b). Any settlement which
changes the form of payment from that originally specified shall be implemented in a manner such that the Performance Award and
other related Awards do not, solely for that reason, fail to qualify as “performance-based compensation” for purposes
of Code Section 162(m). The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited
in the event of termination of employment by the Participant or other event (including a Change in Control) prior to the end of
a performance period or settlement of such Performance Awards.
(c)
Annual Incentive Awards Granted to Designated Covered Employees
. The Committee may grant an Annual Incentive Award to an
Eligible Person who is designated by the Committee as likely to be a Covered Employee. Such Annual Incentive Award will be intended
to qualify as “performance-based compensation” for purposes of Code Section 162(m), and therefore its grant, exercise
and/or settlement shall be contingent upon achievement of preestablished performance goals and other terms set forth in this Section
7(c).
(i)
Grant of Annual Incentive Awards
. Not later than the earlier of 90 days after the beginning of any performance period applicable
to such Annual Incentive Award or the time 25% of such performance period has elapsed, the Committee shall determine the Covered
Employees who will potentially receive Annual Incentive Awards, and the amount(s) potentially payable thereunder, for that performance
period. The amount(s) potentially payable shall be based upon the achievement of a performance goal or goals based on one or more
of the business criteria set forth in Section 7(b)(ii) in the given performance period, as specified by the Committee. The Committee
may designate an annual incentive award pool as the means by which Annual Incentive Awards will be measured, which pool shall
conform to the provisions of Section 7(b)(iv). In such case, the portion of the Annual Incentive Award pool potentially payable
to each Covered Employee shall be pre-established by the Committee. In all cases, the maximum Annual Incentive Award of any Participant
shall be subject to the limitation set forth in Section 5.
(ii)
Payout of Annual Incentive Awards
. After the end of each performance period, the Committee shall determine the amount,
if any, of the Annual Incentive Award for that performance period payable to each Participant. The Committee may, in its discretion,
determine that the amount payable to any Participant as a final Annual Incentive Award shall be reduced from the amount of his
or her potential Annual Incentive Award, including a determination to make no final Award whatsoever, but may not exercise discretion
to increase any such amount. The Committee shall specify the circumstances in which an Annual Incentive Award shall be paid or
forfeited in the event of termination of employment by the Participant or other event (including a Change in Control) prior to
the end of a performance period or settlement of such Annual Incentive Award.
(d)
Written Determinations
. Determinations by the Committee as to the establishment of performance goals, the amount potentially
payable in respect of Performance Awards and Annual Incentive Awards, the level of actual achievement of the specified performance
goals relating to Performance Awards and Annual Incentive Awards, and the amount of any final Performance Award and Annual Incentive
Award shall be recorded in writing in the case of Performance Awards intended to qualify under Section 162(m). Specifically, the
Committee shall certify in writing, in a manner conforming to applicable regulations under Section 162(m), prior to settlement
of each such Award granted to a Covered Employee, that the performance objective relating to the Performance Award and other material
terms of the Award upon which settlement of the Award was conditioned have been satisfied.
8.
Certain Provisions Applicable to Awards
.
(a)
Stand-Alone, Additional, Tandem, and Substitute Awards
. Awards granted under the Plan may, in the discretion of the Committee,
be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted
under another plan of the Company, any subsidiary or affiliate, or any business entity to be acquired by the Company or a subsidiary
or affiliate, or any other right of a Participant to receive payment from the Company or any subsidiary or affiliate. Awards granted
in addition to or in tandem with other Awards or awards may be granted either as of the same time as or a different time from
the grant of such other Awards or awards.
(b)
Term of Awards
. The term of each Award shall be for such period as may be determined by the Committee, subject to the express
limitations set forth in Section 6(b)(ii).
(c)
Form and Timing of Payment under Awards; Deferrals
. Subject to the terms of the Plan and any applicable Award document,
payments to be made by the Company or a subsidiary or affiliate upon the exercise of an Option or other Award or settlement of
an Award may be made in such forms as the Committee shall determine, including, without limitation, cash, Stock, other Awards
or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. The settlement of
any Award may be accelerated, and cash paid in lieu of Stock in connection with such settlement, in the discretion of the Committee
or upon occurrence of one or more specified events. Installment or deferred payments may be required by the Committee (subject
to Section 12(e)) or permitted at the election of the Participant on terms and conditions established by the Committee. Payments
may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments
or the grant or crediting of Dividend Equivalents or other amounts in respect of installment or deferred payments denominated
in Stock.
(d)
Exemptions from Section 16(b) Liability
. With respect to a Participant who is then subject to the reporting requirements
of Section 16(a) of the Exchange Act in respect of the Company, the Committee shall implement transactions under the Plan and
administer the Plan in a manner that will ensure that each transaction with respect to such a Participant is exempt from liability
under Rule 16b-3 or otherwise not subject to liability under Section 16(b)), except that this provision shall not limit sales
by such a Participant, and such a Participant may engage in other non-exempt transactions under the Plan. The Committee may authorize
the Company to repurchase any Award or shares of Stock deliverable or delivered in connection with any Award in order to avoid
a Participant who is subject to Section 16 of the Exchange Act from incurring liability under Section 16(b). Unless otherwise
specified by the Participant, equity securities or derivative securities acquired under the Plan which are disposed of by a Participant
shall be deemed to be disposed of in the order acquired by the Participant.
9.
Change in Control
.
(a)
Effect of “Change in Control” on Non-Performance Based Awards
. In the event of a “Change in Control,”
the following provisions shall apply to non-performance based Awards, including Awards as to which performance conditions previously
have been satisfied or are deemed satisfied under Section 9(b), unless otherwise provided by the Committee in the Award document:
(i)
All deferral of settlement, forfeiture conditions and other restrictions applicable to Awards granted under the Plan shall lapse
and such Awards shall be fully payable as of the time of the Change in Control without regard to deferral and vesting conditions,
except to the extent of any waiver by the Participant or other express election to defer beyond the Change in Control and subject
to applicable restrictions set forth in Section 12(a);
(ii)
Any Award carrying a right to exercise that was not previously exercisable and vested shall become fully exercisable and vested
as of the time of the Change in Control and shall remain exercisable and vested for the balance of the stated term of such Award
without regard to any termination of employment or service by the Participant other than a termination for “cause”
(as defined in any employment or severance agreement between the Company or its subsidiary or affiliate and the Participant then
in effect or, if none, as defined by the Committee and in effect at the time of the Change in Control), subject only to applicable
restrictions set forth in Section 12(a); and
(iii)
The Committee may, in its discretion, determine to extend to any Participant who holds an Option the right to elect, during the
60-day period immediately following the Change in Control, in lieu of acquiring the shares of Stock covered by such Option, to
receive in cash the excess of the Change in Control Price over the exercise price of such Option, multiplied by the number of
shares of Stock covered by such Option, and to extend to any Participant who holds other types of Awards denominated in shares
the right to elect, during the 60-day period immediately following the Change in Control, in lieu of receiving the shares of Stock
covered by such Award, to receive in cash the Change in Control Price multiplied by the number of shares of Stock covered by such
Award. In addition, the Committee may provide that Options and SARs shall be subject to a mandatory cash-out in lieu of accelerated
vesting, in order to limit the extent of “parachute payments” under Sections 280G and 4999 of the Code.
(b)
Effect of “Change in Control” on Performance-Based Awards
. In the event of a “Change in Control,”
with respect to an outstanding Award subject to achievement of performance goals and conditions, such performance goals and conditions
shall be deemed to be met or exceeded if and to the extent so provided by the Committee in the Award document governing such Award
or other agreement with the Participant.
(c)
Definition of “Change in Control.”
A “Change in Control” shall be deemed to have occurred if, after
the Effective Date, there shall have occurred any of the following (whether as a result of a series of transactions or an isolated
event): (1) the consummation of any merger by the Company into another corporation or corporations which results in the stockholders
of the Company immediately prior to such transaction owning less than 55% of the surviving corporation; (2) the consummation of
any acquisition (by purchase, lease or otherwise) of all or substantially all of the assets of the Company by any person, corporation
or other entity or group thereof acting jointly; (3) the acquisition of beneficial ownership, directly or indirectly, of voting
securities of the Company (defined as Stock of the Company or any securities having voting rights that the Company may issue in
the future) and rights to acquire voting securities of the Company (defined as including, without limitation, securities that
are convertible into voting securities of the Company (as defined above) and rights, options, warrants and other agreements or
arrangements to acquire such voting securities) by any person, corporation or other entity or group thereof acting jointly, in
such amount or amounts as would permit such person, corporation or other entity or group thereof acting jointly to elect a majority
of the members of the Board of the Company, as then constituted; or (4) the acquisition of beneficial ownership, directly or indirectly,
of voting securities and rights to acquire voting securities having voting power equal to 25% or more of the combined voting power
of the Company’s then outstanding voting securities by any person, corporation or other entity or group thereof acting jointly
unless such acquisition as is described in this part (4) is expressly approved by resolution of the Board of the Company passed
upon affirmative vote of not less than a majority of the Board and adopted at a meeting of the Board held not later than the date
of the next regularly scheduled or special meeting held following the date the Company obtains actual knowledge of such acquisition
(which approval may be limited in purpose and effect solely to affecting the rights of a Participant under this Plan). Notwithstanding
the preceding sentence, any transaction that involves a mere change in identity form or place of organization within the meaning
of Section 368(a)(1)(F) of the Code, or a transaction of similar effect, shall not constitute a Change in Control.
(d)
Definition of “Change in Control Price.”
The “Change in Control Price” means an amount in cash
equal to the higher of (i) the amount of cash and fair market value of property that is the highest price per share paid (including
extraordinary dividends) in any transaction triggering the Change in Control or any liquidation of shares following a sale of
substantially all assets of the Company, or (ii) the highest Fair Market Value per share at any time during the 60-day period
preceding and 60-day period following the Change in Control.
10.
Additional Award Forfeiture Provisions
.
(a)
Forfeiture of Options and Other Awards and Gains Realized Upon Prior Option Exercises or Award Settlements
. Unless otherwise
determined by the Committee, each Award granted hereunder shall be subject to the following additional forfeiture conditions,
to which the Participant, by accepting an Award hereunder, agrees. If any of the events specified in Section 10(b)(i), (ii), or
(iii) occurs (a “Forfeiture Event”), all of the following forfeitures will result, such forfeitures to be effective
at the later of the occurrence of the Forfeiture Event or the Participant’s termination of employment:
(i)
The unexercised portion of the Option, whether or not vested, and any other Award not then settled (except for an Award that has
not been settled solely due to an elective deferral by the Participant and otherwise is not forfeitable in the event of any termination
of service of the Participant) will be immediately forfeited and canceled upon the occurrence of the Forfeiture Event; and
(ii)
The Participant will be obligated to repay to the Company, in cash, within five business days after demand is made therefore by
the Company, the total amount of Award Gain (as defined herein) realized by the Participant upon each exercise of an Option or
settlement of an Award (regardless of any elective deferral) that occurred on or after (A) the date that is six months prior to
the occurrence of the Forfeiture Event, if the Forfeiture Event occurred while the Participant was employed by the Company or
a subsidiary or affiliate, or (B) the date that is six months prior to the date the Participant’s employment by the Company
or a subsidiary or affiliate terminated, if the Forfeiture Event occurred after the Participant ceased to be so employed. For
purposes of this Section, the term “Award Gain” shall mean (i) in respect of a given Option exercise, the product
of (X) the Fair Market Value per share of Stock at the date of such exercise (without regard to any subsequent change in the market
price of shares) minus the exercise price times (Y) the number of shares as to which the Option was exercised at that date, and
(ii) in respect of any other settlement of an Award granted to the Participant, the Fair Market Value of the cash or Stock paid
or payable to Participant (regardless of any elective deferral) less any cash or the Fair Market Value of any Stock or property
(other than an Award or award which would have itself then been forfeitable hereunder and excluding any payment of tax withholding)
paid by the Participant to the Company as a condition of or in connection with such settlement.
(b)
Events Triggering Forfeiture
. The forfeitures specified in Section 10(a) will be triggered upon the occurrence of any one
of the following Forfeiture Events at any time during the Participant’s employment by the Company or a subsidiary or affiliate
or during the one-year period following termination of such employment:
(i)
The Participant, acting alone or with others, directly or indirectly, prior to a Change in Control, (A) engages, either as employee,
employer, consultant, advisor, or director, or as an owner, investor, partner, or stockholder unless the Participant’s interest
is insubstantial, in any business in an area or region in which the Company conducts business at the date the event occurs, which
is directly in competition with a business then conducted by the Company or a subsidiary or affiliate; (B) induces, or attempts
to influence, any client or supplier of the Company or a subsidiary or affiliate, or other company with which the Company or a
subsidiary or affiliate has a business relationship, to curtail, cancel, not renew, or not continue his or her or its business
with the Company or any subsidiary or affiliate; or (C) induces, or attempts to influence, any employee of or service provider
to the Company or a subsidiary or affiliate to terminate such employment or service. The Committee shall, in its discretion, determine
which lines of business the Company conducts on any particular date and which third parties may reasonably be deemed to be in
competition with the Company. For purposes of this Section 10(b)(i), a Participant’s interest as a stockholder is insubstantial
if it represents beneficial ownership of less than five percent of the outstanding class of stock, and a Participant’s interest
as an owner, investor, or partner is insubstantial if it represents ownership, as determined by the Committee in its discretion,
of less than five percent of the outstanding equity of the entity;
(ii)
The Participant discloses, uses, sells, or otherwise transfers, except in the performance of the Participant’s duties while
employed by or providing service to the Company or any subsidiary or affiliate, any confidential or proprietary information of
the Company or any subsidiary or affiliate, including but not limited to information regarding the Company’s current and
potential clients, organization, employees, finances, and methods of operations and investments, so long as such information has
not otherwise been disclosed to the public or is not otherwise in the public domain without fault of the Participant, except as
required by law or pursuant to legal process, or the Participant makes statements or representations, or otherwise communicates,
directly or indirectly, in writing, orally, or otherwise, or takes any other action which may, directly or indirectly, disparage
or be damaging to the Company or any of its subsidiaries or affiliates or their respective officers, directors, employees, advisors,
businesses or reputations, except as required by law or pursuant to legal process;
(iii)
The Participant fails to cooperate with the Company or any subsidiary or affiliate by making himself or herself available to testify
on behalf of the Company or such subsidiary or affiliate in any action, suit, or proceeding, whether civil, criminal, administrative,
or investigative, or otherwise fails to assist the Company or any subsidiary or affiliate in any such action, suit, or proceeding
by providing information and meeting and consulting with members of management of, other representatives of, or counsel to, the
Company or such subsidiary or affiliate, as reasonably requested; or
(iv)
The Participant is terminated for Cause.
(c)
Agreement Does Not Prohibit Competition or Other Participant Activities
. Although the conditions set forth in this Section
10 shall be deemed to be incorporated into an Award, a Participant is not thereby prohibited from engaging in any activity, including
but not limited to competition with the Company and its subsidiaries and affiliates. Rather, the non-occurrence of the Forfeiture
Events set forth in Section 10(b) is a condition to the Participant’s right to realize and retain value from his or her
compensatory Options and Awards, and the consequence under the Plan if the Participant engages in an activity giving rise to any
such Forfeiture Event are the forfeitures specified herein. The Company and the Participant shall not be precluded by this provision
or otherwise from entering into other agreements concerning the subject matter of Section 10(a) and 10(b).
(d)
Committee Discretion
. The Committee may, in its discretion, waive in whole or in part the Company’s right to forfeiture
under this Section, but no such waiver shall be effective unless evidenced by a writing signed by a duly authorized officer of
the Company. In addition, the Committee may impose additional conditions on Awards, by inclusion of appropriate provisions in
the document evidencing or governing any such Award.
11.
Employee Stock Purchase Program
.
(a)
Stock Available for Awards.
The aggregate number of shares of Stock that may be granted as Options under the Employee Stock
Purchase Plan (“ESPP”) shall be determined on an annual basis by the Committee. Shares shall be deemed to have been
granted under the ESPP only to the extent actually issued and delivered pursuant to the Award. To the extent that an Award lapses
or the rights of the Participant terminate, any shares of Stock subject to such Award shall again be available for the grant of
future Stock Awards.
(b)
Eligibility.
An Award made pursuant to the ESPP may be granted to an individual who, at the time of grant, is an employee
of the Company or a subsidiary and has been determined to be eligible for participation. An Award made pursuant to the ESPP may
be granted on more than one occasion to the same person; each Award shall be evidenced by a written instrument duly executed by
or on behalf of the Company. Notwithstanding the foregoing, no employee of the Company or a subsidiary shall be granted an Option
if such employee, immediately after the Option is granted, owns stock possessing five percent (5%) or more of the total combined
voting power or five percent (5%) or more of the value of all classes of stock of the Company or any subsidiary. For the purpose
of determining stock ownership, the rules of Section 424(d) of the Code shall apply. In addition, the Stock which the Participant
may purchase under any outstanding Options shall be treated as stock owned by the Participant. The Committee may exclude the following
employees from receiving Options under the ESPP:
(i)
Employees who have been employed by the Company or a subsidiary less than two (2) years;
(ii)
Employees whose customary employment with the Company or a subsidiary is twenty (20) hours or less per week;
(iii)
Employees whose customary employment with the Company or a subsidiary is not for more than five (5) months in any calendar year;
and
(iv)
Highly compensated employees within the meaning of Section 414(q) of the Code.
(c)
Employee Stock Purchase Plan Stock Option Agreement.
Each Option shall be evidenced by an Option Agreement between the
Company and the Participant which shall contain such terms and conditions as may be approved by the Committee and are consistent
with Section 423 of the Code. The terms and conditions of the respective Option Agreements need not be identical. Each Option
Agreement shall specify the effect of termination of employment, total and permanent Disability, Retirement or death on the exercisability
of the Option. Under each Option Agreement, a Participant shall have the right to appoint any individual or legal entity in writing
as his or her Beneficiary in the event of his or her death. Such designation may be revoked in writing by the Participant at any
time and a new Beneficiary may be appointed in writing on the form provided by the Committee for such purpose. In the absence
of such appointment, the Beneficiary shall be the legal representative of the Participant’s estate.
(d)
Option Period.
The term of each Option shall be as specified by the Committee at the date of grant and shall be stated
in the Option Agreement; provided, however, that an Option may not be exercised after the expiration of:
(i)
Five (5) years from the date such Option is granted if the ESPP requires that the Option price must be not less than eighty-five
percent (85%) of the Fair Market Value of the Stock at the time the Option is exercised; or
(ii)
Twenty-Seven (27) months from the date such Option is granted if the Option provides for an Option Price in some other permissible
manner under Section 423 of the Code (such as a flat dollar amount).
(e)
Limitation on Exercise of Option.
An Option may be exercisable in whole or in such installments and at such times as determined
by the Committee and the applicable term relating to the exercise of the option shall be stated in the Option Agreement and must
be uniform for all employees with the following exceptions: (1) the Committee may limit the maximum number of Options that can
be exercised under the ESPP, and (2) the Committee may limit the amount of Options that all employees may be granted to a specified
relationship to total compensation or the base or regular rate of compensation; and provided, however, that an Option may be exercised
at the rate of at least twenty percent (20%) per year over five (5) years from the date it is granted.
(f)
Special Limitation Regarding Exercise of Option.
No employee may be granted an Option which permits his or her rights to
exercise Options under the ESPP of the Company and subsidiaries to accrue at a rate that exceeds $25,000 of the Fair Market Value
of such stock (determined at the time of grant) for each calendar year in which such Option is outstanding at any time. For the
purpose of this rule:
The
right to purchase Stock under an Option accrues when the Option (or any portion thereof) first becomes exercisable during the
calendar year;
The
right to purchase Stock under an Option accrues at the rate provided in the Option, but in no case shall such rate exceed $25,000
of Fair Market Value of such stock (determined at the time of grant) for any one calendar year; and
A
right to purchase Stock which has accrued under one Option granted pursuant to the Plan may not be carried over to any other Option.
The
Committee shall determine, in accordance with applicable provisions of the Code, Treasury Regulations, and other administrative
pronouncements which Options will not constitute Options under Section 423 of the Code because of such limitation and shall notify
the Participant of such determination as soon as practicable after such determination.
(g)
Option Price.
The purchase price of Stock issued under each Option shall be determined by the Committee and shall be stated
in the Option Agreement, but such purchase price shall not be less than the lesser of:
(i)
An amount equal to eighty-five percent (85%) of the Fair Market Value of the Stock at the time the Option is granted; or
(ii)
An amount which under the terms of the Option may not be less than eighty-five percent (85%) of the Fair Market Value of such
Stock at the time of the exercise of the Option.
(h)
Options and Rights in Substitution for Stock Options Granted by Other Companies.
Options may be granted under the Plan
from time to time in substitution for stock options held by employees of companies who become, or who became prior to the Effective
Date of the Plan, employees of the Company or of any Subsidiary as a result of a merger or consolidation of the employing company
with the Company, or such subsidiary, or the acquisition by the Company or a subsidiary of all or a portion of the assets of the
employing company with the result that such employing company becomes a subsidiary; provided that any such Option grant shall
not serve as a direct or indirect reduction in the exercise price of the stock options for which the substitution was made.
12.
General Provisions
.
(a)
Compliance with Legal and Other Requirements
. The Company may, to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Stock or payment of other benefits under any Award until completion of such registration
or qualification of such Stock or other required action under any federal or state law, rule or regulation, listing or other required
action with respect to any stock exchange or automated quotation system upon which the Stock or other securities of the Company
are listed or quoted, or compliance with any other obligation of the Company, as the Committee may consider appropriate, and may
require any Participant to make such representations, furnish such information and comply with or be subject to such other conditions
as it may consider appropriate in connection with the issuance or delivery of Stock or payment of other benefits in compliance
with applicable laws, rules, and regulations, listing requirements, or other obligations. The foregoing notwithstanding, in connection
with a Change in Control, the Company shall take or cause to be taken no action, and shall undertake or permit to arise no legal
or contractual obligation, that results or would result in any postponement of the issuance or delivery of Stock or payment of
benefits under any Award or the imposition of any other conditions on such issuance, delivery or payment, to the extent that such
postponement or other condition would represent a greater burden on a Participant than existed on the 90th day preceding the Change
in Control.
(b)
Limits on Transferability; Beneficiaries
. No Award or other right or interest of a Participant under the Plan shall be
pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such Participant to any party
(other than the Company or a subsidiary or affiliate thereof), or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution or to a Beneficiary upon the death of a Participant, and such Awards or rights that
may be exercisable shall be exercised during the lifetime of the Participant only by the Participant or his or her guardian or
legal representative, except that Awards and other rights (other than ISOs and SARs in tandem therewith) may be transferred to
one or more transferees during the lifetime of the Participant, and may be exercised by such transferees in accordance with the
terms of such Award, but only if and to the extent such transfers are permitted by the Committee, subject to any terms and conditions
which the Committee may impose thereon (including limitations the Committee may deem appropriate in order that offers and sales
under the Plan will meet applicable requirements of registration forms under the Securities Act of 1933 specified by the Securities
and Exchange Commission). A Beneficiary, transferee, or other person claiming any rights under the Plan from or through any Participant
shall be subject to all terms and conditions of the Plan and any Award document applicable to such Participant, except as otherwise
determined by the Committee, and to any additional terms and conditions deemed necessary or appropriate by the Committee.
(c)
Adjustments
. In the event that any large, special and non-recurring dividend or other distribution (whether in the form
of cash or property other than Stock), recapitalization, forward or reverse split, Stock dividend, reorganization, merger, consolidation,
spin-off, combination, repurchase, share exchange, liquidation, dissolution or other similar corporate transaction or event affects
the Stock such that an adjustment is determined by the Committee to be appropriate under the Plan, then the Committee shall, in
such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Stock which may be delivered in
connection with Awards granted thereafter, (ii) the number and kind of shares of Stock by which annual per-person Award limitations
are measured under Section 5(b), (iii) the number and kind of shares of Stock subject to or deliverable in respect of outstanding
Awards, and (iv) the exercise price, grant price or purchase price relating to any Award or, if deemed appropriate, the Committee
may make provision for a payment of cash or property to the holder of an outstanding Option. In addition, the Committee is authorized
to make adjustments in the terms and conditions of, and the criteria included in, Awards (including Performance Awards and performance
goals and any hypothetical funding pool relating thereto) in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence, as well as acquisitions and dispositions of businesses and assets) affecting
the Company, any subsidiary or affiliate or other business unit, or the financial statements of the Company or any subsidiary
or affiliate, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee’s assessment of the business strategy of the Company, any subsidiary or affiliate
or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a
Participant, and any other circumstances deemed relevant; provided that no such adjustment shall be authorized or made if and
to the extent that the existence of such authority (i) would cause Options, SARs, or Performance Awards granted under Section
8 to Participants designated by the Committee as Covered Employees and intended to qualify as “performance-based compensation”
under Code Section 162(m) and regulations thereunder to otherwise fail to qualify as “performance-based compensation”
under Code Section 162(m) and regulations thereunder, or (ii) would cause the Committee to be deemed to have authority to change
the targets, within the meaning of Treasury Regulation 1.162-27(e)(4)(vi), under the performance goals relating to Options or
SARs granted to Covered Employees and intended to qualify as “performance-based compensation” under Code Section 162(m)
and regulations thereunder.
(d)
Tax Provisions
.
(i)
Withholding
. The Company and any subsidiary or affiliate is authorized to withhold from any Award granted, any payment
relating to an Award under the Plan, including from a distribution of Stock, or any payroll or other payment to a Participant,
amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to
take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold
or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant’s withholding
obligations, either on a mandatory or elective basis in the discretion of the Committee. Other provisions of the Plan notwithstanding,
only the minimum amount of Stock deliverable in connection with an Award necessary to satisfy statutory withholding requirements
will be withheld, except a greater amount of Stock may be withheld if such withholding would not result in additional accounting
expense to the Company.
(ii)
Required Consent to and Notification of Code Section 83(b) Election
. No election under Section 83(b) of the Code (to include
in gross income in the year of transfer the amounts specified in Code Section 83(b)) or under a similar provision of the laws
of a jurisdiction outside the United States may be made unless expressly permitted by the terms of the Award document or by action
of the Committee in writing prior to the making of such election. In any case in which a Participant is permitted to make such
an election in connection with an Award, the Participant shall notify the Company of such election within ten days of filing notice
of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification
required pursuant to regulations issued under Code Section 83(b) or other applicable provision.
(iii)
Requirement of Notification Upon Disqualifying Disposition Under Code Section 421(b)
. If any Participant shall make any
disposition of shares of Stock delivered pursuant to the exercise of an Incentive Stock Option under the circumstances described
in Code Section 421(b) (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition
within ten days thereof.
(e)
Changes to the Plan
. The Board may amend, suspend or terminate the Plan or the Committee’s authority to grant Awards
under the Plan without the consent of stockholders or Participants; provided, however, that any amendment to the Plan shall be
submitted to the Company’s stockholders for approval not later than the earliest annual meeting for which the record date
is after the date of such Board action if such stockholder approval is required by any federal or state law or regulation or the
rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Board may otherwise,
in its discretion, determine to submit other amendments to the Plan to stockholders for approval and provided further, that, without
the consent of an affected Participant, no such Board action may materially and adversely affect the rights of such Participant
under any outstanding Award.
(f)
Right of Setoff
. The Company or any subsidiary or affiliate may, to the extent permitted by applicable law, deduct from
and set off against any amounts the Company or its subsidiary or affiliate may owe to the Participant from time to time, including
amounts payable in connection with any Award, owed as wages, fringe benefits, or other compensation owed to the Participant, such
amounts as may be owed by the Participant to the Company, including but not limited to amounts owed under Section 10(a), although
the Participant shall remain liable for any part of the Participant’s payment obligation not satisfied through such deduction
and setoff. By accepting any Award granted hereunder, the Participant agrees to any deduction or setoff under this Section 12(f).
(g)
Unfunded Status of Awards; Creation of Trusts
. The Plan is intended to constitute an “unfunded” plan for incentive
and deferred compensation. With respect to any payments not yet made to a Participant or obligation to deliver Stock pursuant
to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those
of a general creditor of the Company; provided that the Committee may authorize the creation of trusts and deposit therein cash,
Stock, other Awards or other property, or make other arrangements to meet the Company’s obligations under the Plan. Such
trusts or other arrangements shall be consistent with the “unfunded” status of the Plan unless the Committee otherwise
determines with the consent of each affected Participant.
(h)
Non-exclusivity of the Plan
. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the
Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt
such other incentive arrangements, apart from the Plan, as it may deem desirable, including incentive arrangements and awards
which do not qualify under Code Section 162(m), and such other arrangements may be either applicable generally or only in specific
cases.
(i)
Payments in the Event of Forfeitures; Fractional Shares
. Unless otherwise determined by the Committee, in the event of
a forfeiture of an Award with respect to which a Participant paid cash consideration, the Participant shall be repaid the amount
of such cash consideration. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Award. The
Committee shall determine whether cash, other Awards or other property shall be issued or paid in lieu of such fractional shares
or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
(j)
Compliance with Code Section 162(m)
. It is the intent of the Company that Options and SARs granted to Covered Employees
and other Awards designated as Awards to Covered Employees subject to Section 7 shall constitute qualified “performance-based
compensation” within the meaning of Code Section 162(m) and regulations thereunder, unless otherwise determined by the Committee
at the time of allocation of an Award. Accordingly, the terms of Sections 7(b), (c), and (d), including the definitions of Covered
Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder.
The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only
a person designated by the Committee as likely to be a Covered Employee with respect to a specified fiscal year. If any provision
of the Plan or any Award document relating to a Performance Award that is designated as intended to comply with Code Section 162(m)
does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall
be construed or deemed amended to the extent necessary to conform to such requirements, and no provision shall be deemed to confer
upon the Committee or any other person discretion to increase the amount of compensation otherwise payable in connection with
any such Award upon attainment of the applicable performance objectives.
(k)
Limitation on Repricing
. Unless such action is approved by the Company’s stockholders or is pursuant to Section 12(c)(iii)
and (iv) above: (i) no outstanding Option or SAR granted under the Plan may be amended to provide an exercise price per share
that is lower than the then-current exercise price per share of such outstanding Option or SAR, (ii) the Board may not cancel
any outstanding option or stock appreciation right (whether or not granted under the Plan) and grant in substitution therefor
new Awards under the Plan covering the same or a different number of shares of Stock and having an exercise price per share lower
than the then-current exercise price per share of the cancelled option or stock appreciation right and (iii) the Company may not
repurchase for cash Options or SARs granted under the Plan with an exercise price that is more than 100% of the Fair Market Value
of a share of Stock on the date of repurchase.
(l)
Governing Law
. The validity, construction, and effect of the Plan, any rules and regulations relating to the Plan and any
Award document shall be determined in accordance with the laws of the State of Delaware, without giving effect to principles of
conflicts of laws, and applicable provisions of federal law.
(m)
Awards to Participants Outside the United States
. The Committee may modify the terms of any Award under the Plan made to
or held by a Participant who is then resident or primarily employed outside of the United States in any manner deemed by the Committee
to be necessary or appropriate in order that such Award shall conform to laws, regulations, and customs of the country in which
the Participant is then resident or primarily employed, or so that the value and other benefits of the Award to the Participant,
as affected by foreign tax laws and other restrictions applicable as a result of the Participant’s residence or employment
abroad shall be comparable to the value of such an Award to a Participant who is resident or primarily employed in the United
States. An Award may be modified under this Section 12(m) in a manner that is inconsistent with the express terms of the Plan,
so long as such modifications will not contravene any applicable law or regulation or result in actual liability under Section
16(b) for the Participant whose Award is modified.
(n)
Limitation on Rights Conferred under Plan
. Neither the Plan nor any action taken hereunder shall be construed as (i) giving
any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ or service of the
Company or a subsidiary or affiliate, (ii) interfering in any way with the right of the Company or a subsidiary or affiliate to
terminate any Eligible Person’s or Participant’s employment or service at any time, (iii) giving an Eligible Person
or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants and employees,
or (iv) conferring on a Participant any of the rights of a stockholder of the Company unless and until the Participant is duly
issued or transferred shares of Stock in accordance with the terms of an Award or an Option is duly exercised. Except as expressly
provided in the Plan and an Award document, neither the Plan nor any Award document shall confer on any person other than the
Company and the Participant any rights or remedies thereunder.
(o)
Severability; Entire Agreement
. If any of the provisions of this Plan or any Award document is finally held to be invalid,
illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the
extent, of such invalidity, illegality or unenforceability, and the remaining provisions shall not be affected thereby; provided,
that, if any of such provisions is finally held to be invalid, illegal, or unenforceable because it exceeds the maximum scope
determined to be acceptable to permit such provision to be enforceable, such provision shall be deemed to be modified to the minimum
extent necessary to modify such scope in order to make such provision enforceable hereunder. The Plan and any Award documents
contain the entire agreement of the parties with respect to the subject matter thereof and supersede all prior agreements (unless
an employment agreement entered into between the Company and the Participant specifically provides contradictory terms, in which
case the terms of the employment agreement shall govern), promises, covenants, arrangements, communications, representations and
warranties between them, whether written or oral with respect to the subject matter thereof.
(p)
Plan Effective Date and Termination
. The Plan shall become effective if, and at such time as, the stockholders of the Company
have approved it by the affirmative votes of the holders of a majority of the voting securities of the Company present in person
or by proxy and entitled to vote on the subject matter at a duly held meeting of stockholders at which a quorum is present. Unless
earlier terminated by action of the Board, the Plan will remain in effect until such time as no Stock remains available for delivery
under the Plan and the Company has no further rights or obligations under the Plan with respect to outstanding Awards under the
Plan.
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