Item 5.02
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Departure of Directors or Certain Officers; Election of Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
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Compensatory Arrangements of Certain
Officers
Stock Options
. The disinterested
members of the Board, granted Mr.
Mona Two Hundred Thousand (200,000) stock options, Mr. Dowling One Hundred Thousand (100,000) stock options and Mr. Mona III One
Hundred Thousand (100,000) stock options pursuant to the bonus plan set forth in the Employment Agreements for fiscal year 2016
performance. The stock options are fully-vested, have an exercise price equal to the fair market value of the Company’s common
stock at the time of grant, or $0.38, and have a term of ten (10) years from the date of grant. Vesting shall accelerate upon a
sale of the Company or change in control.
As previously set forth in “Item
3.02 – Unregistered Sales of Equity Securities”, the disinterested members of the Board, granted Mr. Mona Five Million (5,000,000) stock options. These stock options (a) are durational-based, conditioned upon
the Company’s achievement of the Vesting Milestones (defined above), with 25% vesting on the first Vesting Milestone, 33%
vesting on the second Vesting Milestone and 50% vesting on the third Vesting Milestone, (b) have an exercise price equal to the
fair market value of the Company’s common stock at the time of grant, or $0.38, and (c) have a term of ten (10) years from
the date of grant. Vesting shall accelerate upon a sale of the Company or change in control.
Amendment to Vesting Milestones (Previously
Issued Options)
. The disinterested members of the Board also approved the amendment of certain milestones applicable to the
vesting of stock options previously issued to the Executives, as more particularly set forth in the July 2016 8-K. The second,
third and fourth milestones related to the vesting of such prior stock options have been superseded and replaced by the Vesting
Milestones (defined above), with one-third (1/3) of the remaining option shares subject to each such stock option vesting upon
achievement of each of the Vesting Milestones.
Stock Option Repricing
. The terms
of the Plan, a copy of which is attached as Attachment A to the Company’s Schedule 14A Proxy Statement Pursuant to Section
14(a) of the Securities Exchange Act of 1934 filed by the Company with the Commission on September 13, 2016, provide discretion
for the Administrator (as defined in the Plan) to amend the terms of one or more Stock Option Awards (as defined in the Plan) to
provide terms more favorable than previously provided in the Stock Award Agreement issued to a Participant. The disinterested members
of the Board, as the Plan Administrator, approved the amendment to certain stock options
granted to employees of the Company, including the Executives, to reduce the exercise price of such stock options. The stock options
of the Executives amended are as set forth below:
Name
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October 2014
($2.82)
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December 2014
($2.64)
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May 2015
($1.39)
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Michael Mona, Jr.
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4,000,000
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Joseph Dowling
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600,000
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100,000
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Michael Mona III
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500,000
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As a result of the amendment to the stock
option grants to the Executives, each of the stock options issued to Messrs. Mona, Dowling and Mona III referenced above have been
amended to provide for a strike price equal to $0.38 per share, which represents 100% of the Fair Market Value (as defined in the
Plan) of the Company’s common stock as of March 15, 2017, the date of the amendment to the Executives’ stock option
grants.
Bonus Compensation
. The disinterested
members of the Board also approved an amendment to the Employment Agreements for each of Michael Mona, Jr. and Michael Mona III
(the “Amendments”) to provide eligibility for a cash bonus upon occurrence of certain events as more particularly set
forth below. Messrs. Mona’s and Mona III’s Employment Agreements are filed as exhibits to the Company’s Quarterly
Report on Form 10-Q filed by the Company with the Commission on November 1, 2016. Pursuant to the Amendments, upon a Liquidity
Event (as defined below), Mr. Mona or his assign(s) shall receive four percent (4%) and Mr. Mona III or his assign(s) shall receive
two percent (2%) of the Gross Closing Proceeds (as defined below), subject to an aggregate cap of $750,000,000 (on the total 6%).
For purposes of the Amendments, a “Liquidity
Event” shall mean and include (A) a licensing of the CBD Drug Product or any other intellectual property asset of the Company,
or (B) (i) the direct or indirect sale or transfer, in a single transaction or a series of related transactions, by the stockholders
of the Company of voting securities, in which the holders of the outstanding voting securities of the Company immediately prior
to such transaction or series of transactions hold, as a result of holding Company securities prior to such transaction, in the
aggregate, securities possessing less than twenty percent (20%) of the total combined voting power all outstanding voting securities
of the Company or of the acquiring entity immediately after such transaction or series of related transactions, (ii) a merger or
consolidation in which the Company is not the surviving entity, except for a transaction in which the holders of the outstanding
voting securities of the Company immediately prior to such merger or consolidation hold as a result of holding Company securities
prior to such transaction, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power
of all outstanding voting securities of the surviving entity (or the parent of the surviving entity) immediately after such merger
or consolidation, (iii) a reverse merger in which the Company is the surviving entity but in which the holders of the outstanding
voting securities of the Company immediately prior to such merger hold as a result of holding Company securities prior to such
transaction, in the aggregate, securities possessing less than fifty percent (50%) of the total combined voting power of all outstanding
voting securities of the Company or of the acquiring entity immediately after such merger, or (iv) the sale, transfer or other
disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company,
except for a transaction in which the holders of the outstanding voting securities of the Company immediately prior to such transaction(s)
receive as a distribution with respect to securities of the Company, in the aggregate, securities possessing more than fifty percent
(50%) of the total combined voting power of all outstanding voting securities of the acquiring entity immediately after such transaction(s).
For purposes of the Amendments, “Gross
Closing Proceeds” shall mean and include all cash sums payable to the Company or its stockholders in connection with a Liquidity
Event at the closing of a transaction constituting a Liquidity Event, and not including any deferred payments, earnouts, ongoing
royalty payments or other contingent or deferred compensation.
The Amendments also provide that if any
payments to Mr. Mona or Mr. Mona III in connection with a Liquidity Event would be subject to the excise tax under Sections 280G
or 4999 of the Internal Revenue Code on excess parachute payments, the Company will, in general, "gross up" their respective
compensation to offset the excise tax, except that (a) if the aggregate parachute payments that would otherwise be made to them
do not exceed 110% of the maximum amount of parachute payments that can be made without triggering the excise tax, the parachute
payments to them will be reduced to the extent necessary to avoid the imposition of the excise tax and no "gross up"
will be paid, and (b) if the aggregate parachute payments that would otherwise be made to them do exceed 110% of the maximum amount
of parachute payments that can be made without triggering the excise tax, the full amount of those parachute payments will be made,
they will have to individually bear the excise tax allocable to 10% of the aggregate total of parachute payments, and the Company
will "gross up" their compensation to offset the excise taxes other than that portion that is allocable to 10% of the
aggregate total of parachute payments.