PROPOSAL
1 – APPROVAL OF THE 2018 STOCK INCENTIVE PLAN
On
February 16, 2018, the Board adopted the ProPhase Labs, Inc. 2018 Stock Incentive Plan (the “2018 Stock Plan”), subject
to stockholder approval. The 2018 Stock Plan provides for the grant of incentive stock options qualifying under Section 422 of
the Code (“ISOs”) to our eligible employees, and for the grant of nonstatutory stock options to eligible employees,
directors and consultants. The 2018 Stock Plan is attached to this Proxy Statement as Appendix A.
Purpose
The
purpose of the 2018 Stock Plan is to advance the interests of the Company and its stockholders by providing an incentive to attract,
retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability
of the Company. The Company intends that the stock options granted pursuant to the 2018 Stock Plan will be exempt from or comply
with Section 409A of the Code (including any amendments or replacements of such section), and the 2018 Stock Plan will be so construed.
Term
of 2018 Stock Plan
The
2018 Stock Plan will continue in effect until it is terminated by the Board, however, all stock options will be granted, if at
all, within ten years from the date the 2018 Stock Plan was adopted by the Board.
Authorized
Shares
Subject
to certain adjustments, as described below, the aggregate number of shares of Common Stock that may be issued pursuant to stock
options awarded under the 2018 Stock Plan may not exceed 2,300,000 shares of Common Stock. The Common Stock issuable under the
2018 Stock Plan may consist, in whole or in part, of unissued shares or treasury share. All shares of Common Stock authorized
under the 2018 Stock Plan have been reserved for the stock option granted to the Company’s Chief Executive Officer on February
23, 2018, subject to stockholder approval of the 2018 Stock Plan and the New CEO Employment Agreement.
If
a stock option granted under the 2018 Stock Plan expires without having been exercised in full, the shares that were subject to
the stock option will become available for future grant or sale under the 2018 Stock Plan (unless the 2018 Stock Plan has terminated).
The
maximum aggregate number of shares that may be issued under the 2018 Stock Plan for the exercise of ISOs will not exceed 2,300,000
shares.
Plan
Administration
The
Board or one or more committees appointed by the Board (the “Administrator”) will administer the 2018 Stock Plan.
If we determine it is desirable to qualify transactions under the 2018 Stock Plan as exempt under Rule 16b-3, such transactions
will be structured to satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the 2018 Stock Plan,
the Administrator has the power to administer the 2018 Stock Plan, including but not limited to, the power to interpret the terms
of the 2018 Stock Plan and stock options granted under it, to create, amend and revoke rules relating to the 2018 Stock Plan,
including creating sub-plans, and to determine the terms of any stock options granted under the 2018 Stock Plan, including the
exercise price, the number of shares subject to each such stock option, the exercisability of the stock options and the form of
consideration, if any, payable upon exercise.
Options
The
exercise price of stock options granted under the 2018 Stock Plan must at least be equal to the fair market value of the Common
Stock on the grant date. The term of an ISO may not exceed ten years, except that with respect to any participant who owns more
than 10% of the voting power of all classes of our outstanding stock, the term must not exceed five years and the exercise price
must equal at least 110% of the fair market value on the grant date. For nonstatutory stock options the exercise price must equal
at least 100% of the fair market value. The Administrator will determine the methods of payment of the exercise price of an option,
which may include cash, shares or other property acceptable to the Administrator, as well as other types of consideration permitted
by applicable law. After the termination of service of an employee, director or consultant, he or she may exercise the vested
portion of his or her stock option for the period of time stated in his or her award agreement, except in the case of an employee
terminated for cause (as defined in the 2018 Stock Plan), in which case the stock option will terminate upon his or her termination
from service. Generally, if termination is due to death or disability, the vested portion of the stock option will remain exercisable
for 12 months. In all other cases, the vested portion of the stock option generally will remain exercisable for three months following
the termination of service. A stock option may not be exercised after expiration of its term. However, if the exercise of a stock
option is prevented by applicable law the exercise period may be extended under certain circumstances. Subject to the provisions
of the 2018 Stock Plan, the Administrator determines the other terms of stock options.
Non-Transferability
of Stock Options
Unless
the Administrator provides otherwise, stock options issued under the 2018 Stock Plan are not transferrable other than by will
or the laws of descent and distribution, and only the recipient of a stock option may exercise an award during his or her lifetime,
although a recipient may designate a beneficiary to exercise a stock option after death.
Certain
Adjustments to Stock Options and Stock Reserves
Subject
to any required action of our stockholders, the number of shares of Common Stock covered by each outstanding stock option, and
the exercise price per share for a stock option, shall be proportionately adjusted for any increase or decrease in the number
of issued shares of Common Stock of the Company resulting from a dividend (other than regular, ongoing dividends) or other distribution
(whether in the form of cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or other securities
of the Company, or other change in the corporate structure of the Company effecting the shares affected without receipt of consideration
by the Company.
Merger
or Change in Control
The
2018 Stock Plan provides that in the event of a merger or Change in Control (as defined under the 2018 Stock Plan), each outstanding
stock option will be treated as the Administrator determines, including (i) the assumption, continuation or substitution of the
stock options by the successor corporation or its parent or subsidiary, (ii) the acceleration of vesting for any unvested portion
of the stock options, or (iii) the cash-out of the stock option.
Amendment
or Termination of the 2018 Stock Plan
The
Administrator has the authority to amend, suspend or terminate the 2018 Stock Plan provided such action does not impair the existing
rights of any participant.
Summary
of Federal Income Tax Consequences of Awards
ISOs.
A participant who is granted an ISO does not recognize taxable income at the time the ISO is granted or upon its exercise,
but the excess of the aggregate fair market value of the shares acquired on the exercise date (the “
ISO shares
”)
over the aggregate exercise price paid by the participant is included in the participant’s income for alternative minimum
tax purposes. Upon a disposition of the ISO shares more than two years after grant of the ISOs and one year after exercise of
the ISOs, any gain or loss is treated as long-term capital gain or loss. In such case, the Company would not be entitled to a
deduction. If the participant sells the ISO shares prior to the expiration of these holding periods, the participant recognizes
ordinary income at the time of disposition equal to the excess if any, of the lesser of (1) the aggregate fair market value of
the ISO shares at the date of exercise and (2) the amount received for the ISO shares, over the aggregate exercise price previously
paid by the participant. Any gain or loss recognized on such a premature disposition of the ISO shares in excess of the amount
treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on how long the ISO shares were
held by the participant prior to the sale. The amount of ordinary income recognized by the participant is subject to payroll taxes.
The Company would be entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
Nonstatutory
Stock Options.
A participant who is granted a stock option that is not an ISO (a nonstatutory stock option) does not recognize
any taxable income at the time of grant. Upon exercise, the participant recognizes taxable income in an amount equal to the aggregate
fair market value of the shares subject to the nonstatutory stock options over the aggregate exercise price of such shares. Any
taxable income recognized in connection with the exercise of nonstatutory stock options by an employee is subject to payroll taxes.
The Company is entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
The participant’s basis in the Stock will be increased by the amount of ordinary income recognized. Upon the sale of the
Stock issued upon exercise of the nonstatutory stock options, any further gain or loss recognized will be treated as long-term
or short-term capital gain or loss, depending on how long the shares were held by the participant prior to the sale.
New
Plan Benefits
The
stock options detailed in the table below were granted subject to stockholder approval of the 2018 Stock Plan and the New CEO
Employment Agreement.
NEW PLAN BENEFITS
2018 Stock Incentive Plan
|
Name and Position
|
|
Dollar Value ($)
|
|
|
Number of Units
|
|
Ted Karkus
Chief Executive Officer
|
|
|
—
|
|
|
|
2,300,000
|
|
Monica Brady
Chief Accounting Officer
|
|
|
—
|
|
|
|
—
|
|
Robert V. Cuddihy
Former Chief Financial Officer and Chief Operating
Officer
|
|
|
—
|
|
|
|
—
|
|
Executive Group
|
|
|
—
|
|
|
|
2,300,000
|
|
Non-Executive Director Group
|
|
|
—
|
|
|
|
—
|
|
Non-Executive Officer Employee Group
|
|
|
—
|
|
|
|
—
|
|
On
February 16, 2018, the Board approved the New CEO Employment Agreement, which became effective February 23, 2018 (the “Effective
Date”), subject to stockholder approval of the New CEO Employment Agreement Proposal and this 2018 Stock Plan Proposal.
Pursuant
to the terms of the New CEO Employment Agreement, Mr. Karkus has agreed to reduce his base salary from a rate of not less than
$675,000 per annum to a base salary of not less than $125,000 per annum. As consideration for his agreement to accept the reduced
base salary, under the terms of the New CEO Employment Agreement, Mr. Karkus was granted a stock option under the 2018 Stock Plan,
on the Effective Date, to purchase 2,300,000 shares of Common Stock of the Company at an exercise price of $3.00 per share (the
“CEO Option”), which will vest and be exercisable in 35 equal monthly installments of 63,888 shares on the 1
st
day of each month beginning on March 1, 2018 (the “Initial Vesting Date”), and one monthly installment of 63,920
shares on the 1
st
day of the 36
th
month following the Initial Vesting Date, subject to Mr. Karkus’
continued employment with the Company. The CEO Option is subject to accelerated vesting in the event Mr. Karkus’ employment
is terminated for any reason other than by the Company for Cause or by Mr. Karkus without Good Reason (as such terms are defined
in the New CEO Employment Agreement).
In
the event our stockholders do not approve both the New CEO Employment Agreement Proposal and the 2018 Stock Plan Proposal, the
New CEO Employment Agreement will become null and void and the CEO Option will terminate and be cancelled. The CEO Option may
not be exercised unless and until stockholder approval has been attained. See “Proposal 2—Approval of New CEO Employment
Agreement” for additional information regarding the terms and conditions of the New CEO Employment Agreement.
Required
Vote
The
2018 Stock Plan Proposal must be approved by the affirmative vote of the majority of the votes cast by the shares of Common Stock
of the Company present in person or represented by proxy at the Special Meeting and entitled to vote on this matter. A quorum
must be present at the Special Meeting for a valid vote.
The
Board and Mr. Karkus have agreed that Mr. Karkus will abstain from voting on the 2018 Stock Plan Proposal, due to his personal
interest in this matter.
Recommendation
of the Board of Directors
THE
BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE 2018 STOCK PLAN PROPOSAL. PROXIES SOLICITED
BY THE BOARD WILL BE VOTED “
FOR
” THE 2018 STOCK PLAN PROPOSAL UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.
EQUITY
COMPENSATION PLAN INFORMATION
The
table below sets forth information with respect to shares of common stock that may be issued under our equity compensation plans
issued as of December 31, 2017:
Plan
Category
|
|
Number
of Securities
to be Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
|
|
|
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
|
|
|
Number
of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding
Securities
Reflected
in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders
(1)(2)
|
|
|
979,500
|
|
|
$
|
1.8156
|
|
|
|
268,967
|
|
Equity
compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
979,500
|
|
|
$
|
1.8156
|
|
|
|
268,967
|
|
(1)
|
On
May 5, 2010, our stockholders approved the 2010 Plan which, was subsequently amended and restated and approved by stockholders
on April 24, 2011, further amended and approved by stockholders on May 6, 2013, and further amended and restated and approved
by stockholders on May 24, 2016. The 2010 Plan provides that the total number of shares of Common Stock that may be issued
under the 2010 Plan is equal to 3,200,000 shares. At December 31, 2017, we had outstanding 979,500 stock options, subject
to vesting, under the 2010 Plan. At December 31, 2017, there were 121,159 shares of Common Stock that were available for issuance
pursuant to the 2010 Plan.
|
|
|
(2)
|
On
May 5, 2010, our stockholders approved the 2010 Directors’ Equity Compensation Plan, which was subsequently amended
and approved by our stockholders on May 6, 2013. The 2010 Directors’ Equity Compensation Plan provides that the total
number of shares of Common Stock that may be issued under the 2010 Directors’ Equity Compensation Plan is equal to 425,000.
At December 31, 2017, there were no shares of our Common Stock outstanding pursuant to awards under the 2010 Directors’
Equity Compensation Plan. At December 31, 2017, there were 147,808 shares of Common Stock that were available for issuance
pursuant to the 2010 Directors Equity Compensation Plan.
|
PROPOSAL
2 – APPROVAL OF THE NEW CEO EMPLOYMENT AGREEMENT
On
February 16, 2018, the Board approved a new employment agreement with Ted Karkus, our Chief Executive Officer, which became effective
February 23, 2018, subject to stockholder approval. The New CEO Employment Agreement is attached to this Proxy Statement as Appendix
B.
Background
In
March 2017, the Company sold its Cold-EEZE
®
business to a wholly-owned subsidiary of Mylan N.V. (“Mylan”).
The Company continues to own and operate its manufacturing facility and manufacturing business in Lebanon, Pennsylvania, and its
headquarters in Doylestown, Pennsylvania. Prior to the sale to Mylan, our flagship OTC drug brand was Cold-EEZE
®
and our principal product was Cold-EEZE
®
cold remedy zinc gluconate lozenges, proven in clinical studies to reduce
the duration and severity of symptoms of the common cold
As
part of the sale of the Cold-EEZE
®
business, the Company entered into a manufacturing and supply agreement, pursuant
to which it supplies various Cold-EEZE
®
lozenge products to Mylan. The Company also produces over-the-counter drug
and dietary supplement lozenges and other products for other third party customers in addition to performing operational tasks
such as warehousing, customer order processing and shipping.
The
Company is also engaged in the research and development of additional over-the-counter dietary supplements, including Legendz
XL, which are marketed under the Company’s TK Supplements brand.
The
Company is also developing ProPhase Digital Media as a service that leverages and applies technology to the direct-to-consumer
marketing of consumer products and is actively exploring additional opportunities outside of the consumer products industry.
Given
the current transitional state of the Company, the Board of Directors and Mr. Karkus have determined that it is in the best interests
of the Company and its stockholders to reduce the cash compensation payable to Mr. Karkus in order to further align Mr. Karkus’
interests with the interests of the Company and its stockholders and to provide more liquidity to the Company so that the Company
may continue to expand its research and development efforts for its over-the-counter dietary supplement initiatives, continue
to develop ProPhase Digital Media, and pursue potential business opportunities outside of the consumer products industry.
Terms
of the New CEO Employment Agreement
The
New CEO Employment Agreement is substantially similar to the 2015 CEO Employment Agreement, except that the New CEO Employment
Agreement (1) amends the salary and benefits payable to Mr. Karkus and (2) amends the benefits payable to Mr. Karkus upon termination
of his employment. See “Executive and Director Compensation—Employment Agreements—2015 Employment Agreement
with Ted Karkus.”
Adjustments
to Salary and Benefits
Under
the New CEO Employment Agreement, Mr. Karkus has agreed to reduce his base salary from a rate of not less than $675,000 per annum
to a base salary of not less than $125,000 per annum. As consideration for his agreement to accept a reduced base salary, Mr.
Karkus was granted a stock option under the 2018 Stock Plan on February 23, 2018 to purchase 2,300,000 shares of Common Stock
of the Company at an exercise price of $3.00 per share, which will vest and be exercisable in 35 equal monthly installments of
63,888 shares on the 1
st
day of each month beginning on March 1, 2018, and one monthly installment of 63,920 shares
on the 1
st
day of the 36
th
month following the Initial Vesting Date, subject to Mr. Karkus’ continued
employment with the Company. The CEO Option is subject to accelerated vesting in the event Mr. Karkus’ employment is terminated
for any reason other than by the Company for Cause or by Mr. Karkus without Good Reason (as such terms are defined in the New
CEO Employment Agreement). The CEO Option may not be exercised unless and until stockholder approval of the New CEO Employment
Agreement Proposal and the 2018 Stock Plan Proposal has been attained.
Changes
to Benefits Payable to Mr. Karkus Upon Termination
Under
the terms of the New CEO Employment Agreement, in the event of a termination of Mr. Karkus’ employment by the Company for
“Cause” or due to his voluntary resignation without a “Good Reason” (as such terms are defined in the
New CEO Employment Agreement) (each an “Ineligible Termination”), no severance benefits will become payable to Mr.
Karkus. If, however, Mr. Karkus’ employment is terminated by the Company for any reason other than termination for Cause
or due to his voluntary resignation without Good Reason (as defined in the agreements), then Mr. Karkus will be entitled to receive
the benefits and payments set forth below.
Termination
of Employment Prior to February 22, 2021
For
the time period from the Effective Date until February 22, 2021, Mr. Karkus will be eligible to receive a combination of accelerated
vesting of the CEO Option and a cash severance payment upon a termination of his employment other than an Ineligible Termination
as set forth in the chart below.
Month
in which Mr. Karkus’ employment
is terminated other than an Ineligible Termination
|
|
Ratio
of CEO Option
subject to acceleration
of vesting
|
|
|
Cash
severance
payment (based upon a
total potential cash
severance payment of
$1,687,500)
|
|
January
2018
|
|
|
1
|
|
|
$
|
0
|
|
February
2018
|
|
|
35/36
|
|
|
$
|
46,875
|
|
March
2018
|
|
|
34/36
|
|
|
$
|
93,750
|
|
April
2018
|
|
|
33/36
|
|
|
$
|
140,625
|
|
May
2018
|
|
|
32/36
|
|
|
$
|
187,500
|
|
June
2018
|
|
|
31/36
|
|
|
$
|
234,375
|
|
July
2018
|
|
|
30/36
|
|
|
$
|
281,250
|
|
August
2018
|
|
|
29/36
|
|
|
$
|
328,125
|
|
September
2018
|
|
|
28/36
|
|
|
$
|
375,000
|
|
October
2018
|
|
|
27/36
|
|
|
$
|
421,875
|
|
November
2018
|
|
|
26/36
|
|
|
$
|
468,750
|
|
December
2018
|
|
|
25/36
|
|
|
$
|
515,625
|
|
January
2019
|
|
|
24/36
|
|
|
$
|
562,500
|
|
February
2019
|
|
|
23/36
|
|
|
$
|
609,375
|
|
March
2019
|
|
|
22/36
|
|
|
$
|
656,250
|
|
April
2019
|
|
|
21/36
|
|
|
$
|
703,125
|
|
May
2019
|
|
|
20/36
|
|
|
$
|
750,000
|
|
June
2019
|
|
|
19/36
|
|
|
$
|
796,875
|
|
July
2019
|
|
|
18/36
|
|
|
$
|
843,750
|
|
August
2019
|
|
|
17/36
|
|
|
$
|
890,625
|
|
September
2019
|
|
|
16/36
|
|
|
$
|
937,500
|
|
October
2019
|
|
|
15/36
|
|
|
$
|
984,375
|
|
November
2019
|
|
|
14/36
|
|
|
$
|
1,031,250
|
|
December
2019
|
|
|
13/36
|
|
|
$
|
1,078,125
|
|
January
2020
|
|
|
12/36
|
|
|
$
|
1,125,000
|
|
February
2020
|
|
|
11/36
|
|
|
$
|
1,171,875
|
|
March
2020
|
|
|
10/36
|
|
|
$
|
1,218,750
|
|
April
2020
|
|
|
9/36
|
|
|
$
|
1,265,625
|
|
May
2020
|
|
|
8/36
|
|
|
$
|
1,312,500
|
|
June
2020
|
|
|
7/36
|
|
|
$
|
1,359,375
|
|
July
2020
|
|
|
6/36
|
|
|
$
|
1,406,250
|
|
August
2020
|
|
|
5/36
|
|
|
$
|
1,453,125
|
|
September
2020
|
|
|
4/36
|
|
|
$
|
1,500,000
|
|
October
2020
|
|
|
3/36
|
|
|
$
|
1,546,875
|
|
November
2020
|
|
|
2/36
|
|
|
$
|
1,593,750
|
|
December
2020
|
|
|
1/36
|
|
|
$
|
1,640,625
|
|
Termination
of Employment On or After February 23, 2021
On
or after February 23, 2021, Mr. Karkus will be eligible to receive the following benefits and cash payments upon a Termination
of Employment other than an Ineligible Termination:
|
●
|
A
cash severance payment equal to two and one-half (2.5) times his then current base salary (
i.e.,
two hundred fifty
percent (250%) of his then current base salary). Such cash severance payment will be paid as follows: (x) one-half of the
cash severance payment will be paid in a lump sum within five (5) business days following the effective date of the termination;
and (y) the remaining one-half of the cash severance payment will be paid in twelve (12) equal, consecutive, monthly installments
commencing on the first business day of the month following the effective date of the termination; and
|
|
|
|
|
●
|
All
of his outstanding and unvested stock options and/or restricted stock will automatically vest concurrently upon such termination
of employment, regardless of any prior existing vesting schedules.
|
If
Mr. Karkus’s employment terminates by reason of his death or disability, then the cash payments described above under will
be paid only to the extent of the proceeds payable to the Company through a “key man” life, disability or similar
insurance relating to the death or disability of Mr. Karkus.
In
the event that Mr. Karkus has received a cash payment described above in connection with his termination of employment and it
is determined that his employment termination was in connection with a Change in Control, then Mr. Karkus will be entitled to
receive an additional payment as described below, less the amount of payments previously received in connection with the termination
of employment.
In
the event Mr. Karkus’ employment terminates due to a reason other than an Ineligible Termination, death or disability, and
if such termination occurs within (i) eighteen (18) months following a Change in Control, or (ii) prior to a Change in Control
but in contemplation of a Change in Control which a Change in Control actually occurs, then, in lieu of the cash payments described
above, Executive will instead receive a one-time payment in cash equal to two million five hundred thousand dollars ($2,500,000).
In addition, in such event, all of Mr. Karkus’ stock options and/or restricted stock will automatically vest concurrently
upon such termination of employment, regardless of any prior existing vesting schedule.
The
involuntary termination of Mr. Karkus’ employment due to a reason other than an Ineligible Termination, death or disability
within one hundred eighty (180) days preceding a Change of Control will be deemed to have been a termination of employment in
contemplation of a Change in Control.
In
determining whether a termination of Mr. Karkus’ employment occurring more than one hundred eighty (180) days preceding
a Change of Control (due to a reason other than an Ineligible Termination, death or disability) constitutes a termination of employment
in contemplation of a Change in Control, the court or other tribunal making such determination will consider the totality of facts
and circumstances surrounding such termination of employment.
In
addition, Mr. Karkus, and his eligible dependents, will be entitled to Company-paid COBRA continuation coverage premiums under
the Company’s welfare plans, for a period of up to 18 months. Notwithstanding the above, if a termination of employment
occurs as a result of death or disability, then any cash severance payment will only be made to the extent that the proceeds are
payable to the Company through a “key man” life, disability or similar insurance policy.
Stockholder
Approval Requirement
The
continued effectiveness of the New CEO Employment Agreement (including the CEO Option) is subject to stockholder approval. In
the event our stockholders do not approve the New CEO Employment Agreement Proposal and the 2018 Stock Plan Proposal, the New
CEO Employment Agreement will be null and void and the 2015 CEO Employment Agreement will be reinstated in its entirety, retroactive
to the Effective Date.
In
the event the 2015 CEO Employment Agreement is reinstated, any amounts of base salary payable to Mr. Karkus under such agreement,
but not previously paid, will be immediately paid to Mr. Karkus. In addition, the CEO Option will terminate and be cancelled.
Required
Vote
The
New CEO Employment Agreement Proposal must be approved by the affirmative vote of the majority of the votes cast by the shares
of Common Stock of the Company present in person or represented by proxy at the Special Meeting and entitled to vote on this matter.
A quorum must be present at the Special Meeting for a valid vote.
The
Board and Mr. Karkus have agreed that Mr. Karkus will abstain from voting on the New CEO Employment Agreement Proposal,
due to his personal interest in this matter.
Recommendation
of the Board of Directors
THE
BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE NEW CEO EMPLOYMENT AGREEMENT PROPOSAL. PROXIES
SOLICITED BY THE BOARD WILL BE VOTED “
FOR
” THE NEW CEO EMPLOYMENT AGREEMENT PROPOSAL UNLESS STOCKHOLDERS SPECIFY
A CONTRARY VOTE.
Stockholder
Proposals
The
Company’s Bylaws provide that advance notice of a stockholder’s proposal must be delivered to the Secretary of the
Company at the Company’s principal executive offices not less than ninety (90) days nor more than one hundred twenty (120)
days 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 thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder
to be timely must be so delivered, or mailed and received, not later than the ninetieth (90th) day prior to such annual meeting,
or, if such meeting is announced later than the ninetieth (90th) day prior to the date of such meeting, the tenth (10th) day following
the day on which public disclosure of the date of such annual meeting was first made.
Other
than a proposal made pursuant to Rule 14a-8, each stockholder making a proposal must provide, (A) the name and address of such
person (including, if applicable, the name and address that appear on the Company’s books and records); and (B) the class
or series and number of shares of the Company that are, directly or indirectly, owned of record or beneficially owned (within
the meaning of Rule 13d-3 under the Exchange Act) by such person, except that such person shall in all events be deemed to beneficially
own any shares of any class or series of the Company as to which such person has a right to acquire beneficial ownership at any
time in the future. In addition, each person must provide information relating to their derivative and short positions in the
Company’s securities, as set out in the Company’s Bylaws.
Other
than with respect to a proposal made pursuant to Rule 14a-8, as to each item of business that the stockholder proposes to bring
before the annual meeting, such stockholder must provide (A) a reasonably brief description of the business desired to be brought
before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business
of the stockholder, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration),
and (C) a reasonably detailed description of all agreements, arrangements and understandings (x) between or among any of the proposing
stockholders or (y) between or among any proposing stockholder and any other record or beneficial holder of the shares of any
class or series of the Company (including their names) in connection with the proposal of such business by such stockholder.
A
copy of the full text of the provisions of the Company’s Bylaws dealing with stockholder proposals is available to stockholders
from the Secretary of the Company upon written request and an electronic copy of which is available at the SEC’s website
located at
www.sec.gov
. For business or nominations intended to be brought to the 2018 Annual Meeting of Stockholders,
the notice deadline is prior to February 17, 2018 but not earlier than January 18, 2017. Stockholder proposals or director nominations
submitted outside these dates may not be presented at the 2018 Annual Meeting of Stockholders.
Under
the rules of the SEC, stockholders who wish to submit proposals for inclusion in the Proxy Statement for the 2018 Annual Meeting
of Stockholders must submit such proposals to the Company by December 21, 2017. Please address such proposals to: Secretary, ProPhase
Labs, Inc., 621 N. Shady Retreat Road, Doylestown, PA 18901.
YOUR
VOTE IS IMPORTANT!
You
are cordially invited to attend the Special Meeting. However, to ensure that your shares are represented at the meeting, please
submit your Proxy or voting instructions by mail. Please see the instructions on the Proxy and voting instruction card. Submitting
a proxy or voting instructions will not prevent you from attending the Special Meeting and voting in person, if you so desire,
but will help the Company secure a quorum and reduce the expense of additional proxy solicitation.
Annex A
THE PROPHASE LABS, INC.
2018 STOCK INCENTIVE PLAN
1. ESTABLISHMENT,
PURPOSE AND TERM OF PLAN.
1.1.
Establishment
.
The Plan is hereby established effective as of February 23, 2018.
1.2.
Purpose
. The
purpose of the Plan is to advance the interests of the Company and its stockholders by providing an incentive to attract, retain
and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability
of the Company. The Company intends that Options granted pursuant to the Plan be exempt from or comply with Section 409A of the
Code (including any amendments or replacements of such section), and the Plan shall be so construed.
1.3.
Term of Plan
.
The Plan shall continue in effect until its termination by the Board; provided, however, that all Options shall be granted, if
at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved
by the stockholders of the Company.
2. DEFINITIONS
AND CONSTRUCTION.
2.1.
Definitions
.
Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) “
1933 Act
”
means the Securities Act of 1933, as amended from time to time, and any reference to a section of the 1933 Act shall include any
successor provision of the 1933 Act.
(b) “
1934 Act
”
means the Securities Exchange Act of 1934, as amended from time to time, and any reference to a section of the 1934 Act shall include
any successor provision of the 1934 Act.
(c) “
Applicable
Law
” means the requirements relating to the administration of Options under U.S. federal and state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation system on which the Company’s common stock is
listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the
Plan.
(d) “
Board
”
means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan,
“Board” also means such Committee(s).
(e) “
Cause
”
means, unless such term or an equivalent term is otherwise defined with respect to an Option by the Participant’s Option
Agreement or written contract of employment or service, any of the following: (i) the Participant’s theft, dishonesty, willful
misconduct, breach of fiduciary duty for personal profit, or falsification of any Company documents or records; (ii) the Participant’s
material failure to abide by the Company’s code of conduct or other policies (including, without limitation, policies relating
to confidentiality and reasonable workplace conduct); (iii) the Participant’s unauthorized use, misappropriation, destruction
or diversion of any tangible or intangible asset or corporate opportunity of the Company (including, without limitation, the Participant’s
improper use or disclosure of the Company’s confidential or proprietary information); (iv) any intentional act by the Participant
which has a material detrimental effect on the Company’s reputation or business; (v) the Participant’s repeated failure
or inability to perform any reasonable assigned duties after written notice from the Company of, and a reasonable opportunity to
cure, such failure or inability; (vi) any material breach by the Participant of any employment or service agreement between the
Participant and the Company, which breach is not cured pursuant to the terms of such agreement; or (vii) the Participant’s
conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation
or moral turpitude, or which impairs the Participant’s ability to perform his or her duties with the Company.
(f) “
Change of
Control
” means the occurrence of any of the following events:
(i) A change in the ownership
of the Company that occurs on the date that any one person, or more than one person acting as a group (for purposes of SEC Rule
13d) (“Person”), acquires ownership of the Stock of the Company that, together with the Stock held by such Person,
constitutes more than fifty percent (50%) of the total voting power of the Stock of the Company. No Change of Control shall have
occurred in the event Ted Karkus (the “Executive”) or a group which includes Executive acquires more than 50% of the
voting control of the Company. The acquisition of additional Stock by any one Person, who is considered to own more than fifty
percent (50%) of the total voting power of the Stock of the Company will not be considered an additional Change of Control; or
(ii) A change in the effective
control of the Company that occurs on the date that a majority of members of the Board is replaced during any twelve (12) month
period by directors whose appointment or election is not endorsed by one of either the Executive or a majority of the members of
the Board prior to the date of the appointment or election; or
(iii) A change in the ownership
of a “substantial portion of the Company’s assets”, as defined herein. For this purpose, a “substantial
portion of the Company’s assets” shall mean assets of the Company having a total gross fair market value equal to or
more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such
change in ownership. For purposes of this subsection (iii), a change in ownership of a substantial portion of the Company’s
assets occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the
most recent acquisition by such Person or Persons) assets from the Company that constitute a “substantial portion of the
Company’s assets.” For purposes of this subsection (iii), the following will not constitute a change in the ownership
of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders
immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before
the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of
the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or
indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4)
an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person
described in this subsection (iii). For purposes of this subsection (c), gross fair market value means the value of the assets
of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such
assets.
For purposes of this definition,
persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation,
purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing,
a transaction will not be deemed a Change of Control unless the transaction qualifies as a change of control event within the meaning
of Section 409A.
Further and for the avoidance
of doubt, a transaction will not constitute a Change of Control if its primary purpose is to: (1) change the state of the Company’s
incorporation, or (2) create a holding company that will be owned in substantially the same proportions by the persons who held
the Company’s securities immediately before such transaction.
(g) “
Code
”
means the Internal Revenue Code of 1986, as such is amended from time to time, and any reference to a section of the Code shall
include any successor provision of the Code.
(h) “
Committee
”
means the committee appointed by the Board (pursuant to Section 3 to administer the Plan.
(i) “
Company
”
means ProPhase Labs, Inc., a Delaware corporation, including its Subsidiary Corporation or Parent Corporation or any successor
corporation thereto.
(j) “
Director
”
means a member of the Board.
(k) “
Disability
”
means a permanent and total disability within the meaning of Section 22(e)(3) of the Code. In the case of Options other than Incentive
Stock Options, the Committee, in its discretion, may determine that a different definition of Disability shall apply in accordance
with standards adopted by the Committee from time to time.
(l) “
Employee
”
means any person treated as an employee (including an Officer or a Director who is also treated as an employee) in the records
of the Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section
422 of the Code; provided, however, that neither service as a Director nor payment of a director’s fee shall be sufficient
to constitute employment for purposes of the Plan. The Company shall determine in its discretion whether an individual has become
or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the
case may be. For purposes of an individual’s rights, if any, under the terms of the Plan as of the time of the Company’s
determination of whether or not the individual is an Employee, all such determinations by the Company shall be final, binding and
conclusive as to such rights, if any, notwithstanding that the Company or any court of law or governmental agency subsequently
makes a contrary determination as to such individual’s status as an Employee.
(m) “
Exercise
Price
” means the price at which a share of Stock may be purchased by a Participant pursuant to the exercise of an Option
(n) “
Fair Market
Value
” means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its
discretion, subject to the following:
(i) If, on such date, the
Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall
be the closing price of a share of Stock as quoted on the national or regional securities exchange or market system constituting
the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable. If
the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on
which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date,
or such other appropriate day as shall be determined by the Committee, in its discretion.
(ii) If, on such date, the
Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall
be as determined by the Committee in good faith without regard to any restriction other than a restriction which, by its terms,
will never lapse, and in a manner consistent with the requirements of Section 409A of the Code.
(o) “
Grant Date
”
means, with respect to an Option, the date on which the Committee makes the determination granting such Option, or such later date
as is determined by the Committee at the time it approves the grant. The Grant Date of an Option shall not be earlier than the
date the Option is approved by the Committee.
(p) “
Incentive
Stock Option
” means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422(b) of the Code.
(q) “
Insider
”
means an Officer, a Director or other person whose transactions in Stock are subject to Section 16 of the 1934 Act.
(r) “
Insider
Trading Policy
” means the written policy of the Company pertaining to the purchase, sale, transfer or other disposition
of the Company’s equity securities by Directors, Officers, Employees or other service providers who may possess material,
nonpublic information regarding the Company or its securities.
(s)
“
Nonemployee
Director
” means a Director who is not an employee of the Company.
(t) “
Nonstatutory
Stock Option
” means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as
an Incentive Stock Option.
(u) “
Officer
”
means any person designated by the Board as an officer of the Company.
(v) “
Option
”
means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
(w) “
Option Agreement
”
means a written or electronic agreement between the Company and a Participant setting forth the terms, conditions and restrictions
of the Option granted to the Participant.
(x) “
Parent Corporation
”
means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.
(y)
“Participant
”
means any eligible person who has been granted one or more Options.
(z) “
Plan
”
means the ProPhase Labs, Inc. 2018 Stock Incentive Plan, as amended.
(aa) “
Rule 16b-3
”
means Rule 16b-3 promulgated under the 1934 Act, and any future regulation amending, supplementing or superseding such regulation.
(bb) “
Section
16 Person
” means an individual, who, with respect to the Stocks of Stock, is subject to Section 16 of the 1934 Act and
the rules and regulations promulgated thereunder.
(cc) “
Service
”
means a Participant’s employment or service with the Company, whether in the capacity of an Employee. Unless otherwise provided
by the Committee, a Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity
in which the Participant renders such Service or a change in the Company for which the Participant renders such Service, provided
that there is no interruption or termination of the Participant’s Service. Furthermore, a Participant’s Service shall
not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved
by the Company. However, unless otherwise provided by the Committee, if any such leave taken by a Participant exceeds ninety (90)
days, then on the ninety-first (91st) day following the commencement of such leave the Participant’s Service shall be deemed
to have terminated, unless the Participant’s right to return to Service is guaranteed by statute or contract. Notwithstanding
the foregoing, unless otherwise designated by the Company or required by law, an unpaid leave of absence shall not be treated as
Service for purposes of determining vesting under the Participant’s Option Agreement. Except as otherwise provided by the
Committee, in its discretion, the Participant’s Service shall be deemed to have terminated either upon an actual termination
of Service or upon the business entity for which the Participant performs Service ceasing to be a Company. Subject to the foregoing,
the Company, in its discretion, shall determine whether the Participant’s Service has terminated and the effective date of
and reason for such termination.
(dd) “
Stock
”
means a share of common stock of the Company, as adjusted from time to time in accordance with Section 4.3.
(ee) “
Subsidiary
Corporation
” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f)
of the Code.
(ff) “
Ten Percent
Stockholder
” means a person who, at the time an Option is granted to such person, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the Company within the meaning of Section 422(b)(6)
of the Code.
(gg) “
Vesting
Conditions
” mean those conditions established in accordance with the Plan prior to the satisfaction of which Stock subject
to an Option remain subject to forfeiture or a repurchase option in favor of the Company.
2.2.
Construction
.
Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision
of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include
the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
3. ADMINISTRATION.
3.1.
The Committee
.
The Plan shall be administered by the Committee. The Committee shall consist of not less than two (2) Directors who shall be appointed
from time to time by, and shall serve at the pleasure of, the Board. The Committee shall be comprised solely of Directors who are
Nonemployee Directors under Rule 16b-3.
3.2.
Authority of the
Committee
. It shall be the duty of the Committee to administer the Plan in accordance with the Plan’s provisions. The
Committee shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including,
but not limited to, the power to:
(a) prescribe, amend,
and rescind rules and regulations relating to the Plan, including the forms of Option Agreement and manner of acceptance of an
Option, and to take or approve such further actions as it determines necessary or appropriate to the administration of the Plan
and Options, such as correcting a defect or supplying any omission, or reconciling any inconsistency so that the Plan or any Option
Agreement complies with Applicable Law, regulations and listing requirements and so as to avoid unanticipated consequences or address
unanticipated events (including any temporary closure of Nasdaq, disruption of communications or natural catastrophe) deemed by
the Committee to be inconsistent with the purposes of the Plan or any Option Agreement, provided that no such action shall be taken
absent stockholder approval to the extent required under Section 11.12;
(b) determine which persons
are eligible to be Participants, to which of such persons, if any, Options shall be granted hereunder and the timing of any such
Options, and to grant Options;
(c) grant Options to Participants
and determine the terms and conditions thereof, including the number of Stock subject to Options and the Exercise Price or purchase
price of such Stock and the circumstances under which Options become exercisable or vested or are forfeited or expire, which terms
may but need not be conditioned upon the passage of time, continued employment, the satisfaction of performance goals, the occurrence
of certain events, or other factors;
(d) establish or verify
the extent of satisfaction of any performance goals or other conditions applicable to the grant, issuance, exercisability, vesting
and/or ability to retain any Option;
(e) determine whether,
and the extent to which, adjustments are required pursuant to Section 4.3;
(f) interpret and construe
this Plan, any rules and regulations under this Plan and the terms and conditions of any Option granted hereunder, and to make
exceptions to any such provisions in good faith and for the benefit of the Company;
(g) impose such restrictions,
conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent
transfers by a Participant of any Stock issued under an Option, including without limitation (i) restrictions under an Insider
Trading Policy, (ii) restrictions designed to delay and/or coordinate the timing and manner of sales by the Participant or Participants,
and (iii) restrictions as to the use of a specified brokerage firm for receipt, resales or other transfers of such Stock; and
(h) make all other determinations
deemed necessary or advisable for the administration of this Plan.
Notwithstanding the preceding,
other than in connection with a change in the Company’s capitalization or other transaction as described in Section 4.3,
at any time when the Exercise Price of an Option is above the market value of a share of Stock, the Committee shall not, without
stockholder approval, reduce the Exercise Price of such Option or exchange such Option for a new Option with a lower (or no) purchase
price or for cash.
3.3.
Delegation by
the Committee
. The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or
any part of its authority and powers under the Plan to one or more Directors or Officers of the Company, except that the Committee
may not delegate all or any part of its authority under the Plan with respect to Options granted to any individual who is a Section
16 Person. To the extent of any delegation by the Committee, references to the Committee in this Plan and any Option Agreement
shall be deemed also to include reference to the applicable delegate(s).
3.4.
Decisions Binding
.
All interpretations, determinations and decisions made by the Committee, the Board, and any delegate of the Committee pursuant
to the provisions of the Plan shall be final, conclusive, and binding on all persons, and shall be given the maximum deference
permitted by law.
4. STOCK SUBJECT
TO PLAN.
4.1.
Number of Shares
of Stock
. Subject to adjustment as provided in Section 4.3, the aggregate number of Stock that may be issued pursuant to Options
shall not exceed 2,300,000 shares (the “Stock Reserve”). The Stock may consist, in whole or in part, of unissued shares
or treasury shares.
4.2.
Lapsed Options
.
If an Option expires without having been exercised in full, the Stock which were subject to Options under the Plan will become
available for future grant or sale under the Plan (unless the Plan has terminated). Stock that have been issued under the Plan
under any Option will not be returned to the Plan and will not become available for future distribution under the Plan. Stock used
to pay the exercise price of an Option and/or to satisfy the tax withholding obligations related to an Option will not become available
for future grant or sale under the Plan. To the extent an Option under the Plan is paid out in cash rather than Stock, such cash
payment will not reduce the number of Stock available for issuance under the Plan.
4.3.
Adjustments in
Options and Authorized Stock
. Subject to any required action of stockholders, the number of Stock covered by each outstanding
Option, and the Exercise Price per share for an Option, shall be proportionately adjusted for any increase or decrease in the number
of issued Stock of the Company resulting from a dividend (other than regular, ongoing dividends) or other distribution (whether
in the form of cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company, or
other change in the corporate structure of the Company effecting the Stock affected without receipt of consideration by the Company;
provided, however, the conversion of any convertible securities of the Company shall not be deemed to have been “effected
without receipt of consideration” by the Company Notwithstanding the preceding, the number of Stock subject to any Option
always shall be a whole number.
5. ELIGIBILITY.
5.1.
Persons Eligible
for Options
. Options may be granted only to Employees.
5.2.
Participation
in the Plan
. Options are granted solely at the discretion of the Committee. Eligible persons may be granted more than one Option.
However, eligibility in accordance with this Section 5 shall not entitle any person to be granted an Option, or, having been granted
an Option, to be granted an additional Option.
6. STOCK OPTIONS.
Options shall be evidenced
by Option Agreements specifying the number of Stock covered thereby, in such form as the Committee shall from time to time establish.
Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the
following terms and conditions:
6.1.
Exercise Price
.
The Exercise Price for each Option shall be established in the discretion of the Committee; provided, however, that (a) the Exercise
Price per share for an Option shall be not less than the Fair Market Value of a share of Stock on the Grant Date of the Option
and (b) no Incentive Stock Option granted to a Ten Percent Stockholder shall have an Exercise Price per share less than one hundred
ten percent (110%) of the Fair Market Value of a share of Stock on the Grant Date of the Option. Notwithstanding the foregoing,
an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an Exercise Price lower than the
minimum Exercise Price set forth above if such Option is granted pursuant to an assumption or substitution for another option in
a manner qualifying under the provisions of Section 424(a) of the Code.
6.2.
Exercisability
and Term of Options
. Options shall be exercisable at such time or times, or upon such event or events, and subject to such
terms, conditions, performance goals and restrictions as shall be determined by the Committee and set forth in the Option Agreement
evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after
the Grant Date of such Option and (b) no Incentive Stock Option granted to a Ten Percent Stockholder shall be exercisable after
the expiration of five (5) years after the Grant Date of such Option. Subject to the foregoing, unless otherwise specified by the
Committee in the grant of an Option, any Option granted hereunder shall terminate ten (10) years after the Grant Date, unless earlier
terminated in accordance with its provisions.
6.3.
Payment of Exercise
Price
.
(a)
Forms of Consideration
Authorized
. Except as otherwise provided below, payment of the Exercise Price for the Stock being purchased pursuant to any
Option shall be made (i) in cash, by check or in cash equivalent, (ii) by tender to the Company, or attestation to the ownership,
of Stock owned by the Participant having a Fair Market Value not less than the Exercise Price, (iii) by delivery of a properly
executed notice of exercise together with irrevocable instructions to a broker providing for the assignment to the Company of the
proceeds of a sale or loan with respect to some or all of the Stock being acquired upon the exercise of the Option (including,
without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board
of Governors of the Federal Reserve System) (a “Cashless Exercise”), (iv) by delivery of a properly executed notice
electing a “net-exercise”, (v) by such other consideration as may be approved by the Committee from time to time to
the extent permitted by Applicable Law, or (vi) by any combination thereof. The Committee may at any time or from time to time
grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the Exercise Price or which
otherwise restrict one or more forms of consideration.
(b)
Limitations on
Forms of Consideration - Tender of Stock
. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company,
or attestation to the ownership, of Stock to the extent such tender or attestation would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company’s Stock. Unless otherwise provided by the Committee,
an Option may not be exercised by tender to the Company, or attestation to the ownership, of Stock unless such Stock either have
been owned by the Participant for more than six (6) months or such other period, if any, required by the Company (and were not
used for another Option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.
6.4.
Certain Additional
Provisions for Incentive Stock Options
.
(a)
Maximum Number
of Stock Issuable Pursuant to Incentive Stock Options
. Subject to Section 4 and adjustment as provided in Subsection 4.3, the
maximum aggregate number of Stock that may be issued under the Plan pursuant to the exercise of Incentive Stock Options shall not
exceed 2,300,000 shares (the “ISO Share Limit”).
(b)
Exercisability
.
The aggregate Fair Market Value (determined on the Grant Date(s)) of the Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Employee during any calendar year (under all plans of the Company and its Subsidiaries) shall
not exceed $100,000. To the extent a Participant holds two (2) or more Incentive Stock Options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the exercisability of such Option as Incentive Stock Options
under the Federal tax laws shall be applied on the basis of the order in which such Incentive Stock Options are granted. If, for
any reason, an entire Option does not qualify as an Incentive Stock Option by reason of exceeding such maximum, such Option shall
be considered a Nonstatutory Option.
(c)
Termination of
Service
. No Incentive Stock Option may be exercised more than three (3) months after the Termination of Participant’s
Service for any reason other than Disability or death, unless (a) the Participant dies during such three-month period, and/or (b)
the Option Agreement or the Committee permits later exercise (in which case the Option instead may be deemed to be a Nonqualified
Stock Option). No Incentive Stock Option may be exercised more than one (1) year after the termination of Participant’s Service
on account of Disability, unless (a) the Participant dies during such one (1)-year period, and/or (b) the Option Agreement or the
Committee permit later exercise (in which case the Option instead may be deemed to be a Nonqualified Stock Option).
(d)
Expiration
.
No Incentive Stock Option may be exercised after the expiration of ten (10) years from the Grant Date; provided, however, that
if the Option is granted to an Employee who, together with persons whose Stock ownership is attributed to the Employee pursuant
to Section 424(d) of the Code, owns stock possessing more than 10% of the total combined voting power of all classes of Stock or
any of its Subsidiaries stock, the Option may not be exercised after the expiration of five (5) years from the Grant Date.
6.5.
Effect of Termination
of Service
.
(a)
Option Exercisability
.
Subject to earlier termination of the Option as otherwise provided by this Plan and unless a longer exercise period is provided
by the Committee or set forth in the Option Agreement, an Option shall terminate immediately upon the termination of Participant’s
Service to the extent that it is then unvested and shall be exercisable after the termination of Participant’s Service to
the extent it is then vested only during the applicable time period determined in accordance with this Section and thereafter shall
terminate:
(i)
Disability
. If
the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised
and exercisable for vested Stock on the date on which the Participant’s Service terminated, may be exercised by the Participant
(or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the
date on which the Participant’s Service terminated, but in any event no later than the date of expiration of the Option’s
term as set forth in the Option Agreement.
(ii)
Death
. Except
as set forth in the Option Agreement, if the Participant’s Service terminates because of the death of the Participant, the
Option, to the extent unexercised and exercisable for vested Stock on the date on which the Participant’s Service terminated,
may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option
by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date on which the
Participant’s Service terminated, but in any event no later than the expiration of the Option term as set forth in the Option
Agreement. The Participant’s Service shall be deemed to have terminated on account of death if the Participant dies within
three (3) months after the termination of Participant’s Service.
(iii)
Termination for
Cause
. Notwithstanding any other provision of the Plan to the contrary, if the Participant’s Service is terminated for
Cause, the Option shall terminate in its entirety and cease to be exercisable immediately upon such termination of Service.
(iv)
Other Termination
of Service
. Except as set forth in the Option Agreement, if the Participant’s Service terminates for any reason, except
Disability, death or Cause, the Option, to the extent unexercised and exercisable for vested Stock on the date on which the Participant’s
Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months after the date
on which the Participant’s Service terminated, but in any event no later than the expiration of the Option term as set forth
in the Option Agreement.
(b)
Extension if Exercise
Prevented by Law
. Notwithstanding the foregoing other than termination of Service for Cause, if the exercise of an Option within
the applicable time periods set forth in Subsection 6.5(a) is prevented by the provisions of Section 9 of the Plan, the Option
shall remain exercisable until the later of (i) thirty (30) days after the date such exercise first would no longer be prevented
by such provisions or (ii) the end of the applicable time period under Subsection 6.5(a), but in any event no later than the expiration
of the Option term as set forth in the Option Agreement.
6.6.
Transferability
of Options
. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s
guardian or legal representative. An Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except
transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Committee,
in its discretion, and set forth in the Option Agreement evidencing such Option, a Nonstatutory Stock Option shall be assignable
or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 Registration Statement
under the 1933 Act.
7. CHANGE
OF CONTROL.
7.1.
Effect of Change
of Control on Options
. Subject to the requirements and limitations of Section 409A of the Code, if applicable, the Committee
may provide for any one or more of the following:
(a)
Accelerated Vesting
.
The Committee may, in its discretion, provide in any Option Agreement or, in the event of a Change of Control, may take such actions
as it deems appropriate to provide for the acceleration of the exercisability and/or vesting in connection with such Change of
Control of each or any outstanding Option or portion thereof and Stock acquired pursuant thereto upon such conditions, including
termination of the Participant’s Service prior to, upon, or following such Change of Control, to such extent as the Committee
shall determine.
(b)
Assumption, Continuation
or Substitution of Options
. In the event of a Change of Control, the surviving, continuing, successor, or purchasing corporation
or other business entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of any Participant,
assume or continue the Company’s rights and obligations under each or any Option or portion thereof outstanding immediately
prior to the Change of Control or substitute for each or any such outstanding Option or portion thereof a substantially equivalent
Option with respect to the Acquiror’s stock. For purposes of this Section, if so determined by the Committee, in its discretion,
an Option or any portion thereof shall be deemed assumed if, following the Change of Control, the Option confers the right to receive,
subject to the terms and conditions of the Plan and the applicable Option Agreement, for each share of Stock subject to such portion
of the Option immediately prior to the Change of Control, the consideration (whether stock, cash, other securities or property
or a combination thereof) to which a holder of a share of Stock on the effective date of the Change of Control was entitled; provided,
however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror,
provide for the consideration to be received upon the exercise of the Option for each share of Stock to consist solely of common
stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change
of Control. If any portion of such consideration may be received by holders of Stock pursuant to the Change of Control on a contingent
or delayed basis, the Committee may, in its discretion, determine such Fair Market Value per share as of the time of the Change
of Control on the basis of the Committee’s good faith estimate of the present value of the probable future payment of such
consideration. Any Option or portion thereof which is neither assumed or continued by the Acquiror in connection with the Change
of Control nor exercised as of the time of consummation of the Change of Control shall terminate and cease to be outstanding effective
as of the time of consummation of the Change of Control. Notwithstanding the foregoing, Stock acquired upon exercise of an Option
prior to the Change of Control and any consideration received pursuant to the Change of Control with respect to such Stock shall
continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided
in such Option Agreement.
(c)
Cash-Out of Outstanding
Options
. The Committee may, in its discretion and without the consent of any Participant, determine that, upon the occurrence
of a Change of Control, each or any Option or portion thereof outstanding immediately prior to the Change of Control shall be canceled
in exchange for a payment with respect to each vested share of Stock (and each unvested share of Stock, if so determined by the
Committee) of Stock subject to such canceled Option in (i) cash, (ii) stock of the Company or of a corporation or other business
entity a party to the Change of Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market
Value equal to the Fair Market Value of the consideration to be paid per share of Stock in the Change of Control, reduced by the
Exercise Price or purchase price per share of Stock, if any, under such Option. If any portion of such consideration may be received
by stockholders pursuant to the Change of Control on a contingent or delayed basis, the Committee may, in its sole discretion,
determine such Fair Market Value per share as of the time of the Change of Control on the basis of the Committee’s good faith
estimate of the present value of the probable future payment of such consideration. In the event such determination is made by
the Committee, the amount of such payment (reduced by applicable withholding taxes, if any) shall be paid to Participants in respect
of the vested portions of their canceled Options as soon as practicable following the date of the Change of Control and in respect
of the unvested portions of their canceled Options in accordance with the vesting schedules applicable to such Options.
8. TAX WITHHOLDING.
8.1.
Withholding Requirements
.
Prior to the delivery of any Stock or cash pursuant to an Option (or exercise thereof), or at such earlier time as the tax obligations
are due, the Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company,
an amount sufficient to satisfy all tax obligations.
8.2.
Withholding Arrangements
.
The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may designate the method
or methods by which a Participant may satisfy such tax obligations. As determined by the Committee in its discretion from time
to time, these methods may include one or more of the following: (a) paying cash, (b) electing to have the Company withhold otherwise
cash or Stock having a Fair Market Value equal to the amount required to be withheld, (c) delivering to the Company already-owned
Stock having a Fair Market Value equal to the minimum amount required to be withheld or remitted, provided the delivery of such
Stock will not result in any adverse accounting consequences as the Committee determines in its sole discretion, (d) selling a
sufficient number of Stock otherwise deliverable to the Participant through such means as the Committee may determine in its sole
discretion (whether through a broker or otherwise) equal to the tax obligations required to be withheld, (e) retaining from salary
or other amounts payable to the Participant cash having a sufficient value to satisfy the tax obligations, or (f) any other means
which the Committee, in its sole discretion, determines to both comply with Applicable Law, and to be consistent with the purposes
of the Plan. The amount of tax obligations will be deemed to include any amount that the Committee agrees may be withheld at the
time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax
rates applicable to the Participant or the Company, as applicable, with respect to the Option on the date that the amount of tax
or social insurance liability to be withheld or remitted is to be determined. The Fair Market Value of the Stock to be withheld
or delivered shall be determined as of the date that the tax obligations are required to be withheld.
9. COMPLIANCE
WITH SECURITIES LAW.
9.1.
Section 16 Persons
.
With respect to Section 16 Persons, transactions under this Plan are intended to qualify for the exemption provided by Rule 16b-3.
To the extent any provision of the Plan, Option Agreement or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable or appropriate by the Committee.
9.2.
Investment Representations
.
As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant
at the time of any such exercise that the Stock are being purchased only for investment and without any present intention to sell
or distribute such Stock if, in the opinion of counsel for the Company, such a representation is required.
9.3.
Inability to Obtain
Authority
. The Company will not be required to issue any Stock, cash, or other property under the Plan unless all the following
conditions are satisfied: (a) the admission of the Stock or other property to listing on all stock exchanges on which such class
of stock or property then is listed; (b) the completion of any registration or other qualification or rule compliance of the Stock
under any U.S. state or federal law or under the rulings or regulations of the Securities and Exchange Commission, the stock exchange
on which Stock of the same class are then listed, or any other governmental regulatory body, as counsel to the Company, in its
absolute discretion, deems necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. federal,
state or other governmental agency, which counsel to the Company, in its absolute discretion, determines to be necessary or advisable;
and (d) the lapse of such reasonable period of time following the Grant Date, vesting and/or exercise as the Company may establish
from time to time for reasons of administrative convenience. If the Committee determines, in its absolute discretion, that one
or more of the preceding conditions will not be satisfied, the Company automatically will be relieved of any liability with respect
to the failure to issue the Stock, cash or other property as to which such requisite authority will not have been obtained.
10. AMENDMENT
OR TERMINATION OF PLAN.
The Board may amend, suspend
or terminate the Plan at any time. However, without the approval of the Company’s stockholders, there shall be (a) no increase
in the maximum aggregate number of Stock that may be issued under the Plan (except by operation of the provisions of Subsection
4.3), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan
that would require approval of the Company’s stockholders under any Applicable Law, regulation or rule, including the rules
of any stock exchange or market system upon which the Stock may then be listed. No amendment, suspension or termination of the
Plan shall affect any then outstanding Option unless expressly provided by the Board. Except as provided by the next sentence,
no amendment, suspension or termination of the Plan may adversely affect any then outstanding Option without the consent of the
Participant. Notwithstanding any other provision of the Plan or any Option Agreement to the contrary, the Board may, in its sole
and absolute discretion and without the consent of any Participant, amend the Plan or any Option Agreement, to take effect retroactively
or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Option Agreement to any present
or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A of the Code.
11. MISCELLANEOUS
PROVISIONS.
11.1.
Indemnification
.
Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her
in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action taken or failure to act under the Plan or any Option Agreement, and (b) from any and
all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction
of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her
own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise,
or under any power that the Company may have to indemnify them or hold them harmless.
11.2.
Successors.
All obligations of the Company under the Plan, with respect to Options granted hereunder, shall be binding on any successor to
the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business or assets of the Company.
11.3.
Rights as Employee
.
No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected,
to be selected again as a Participant. Nothing in the Plan or any Option granted under the Plan shall confer on any Participant
a right to remain an Employee or interfere with or limit in any way any right of the Company to terminate the Participant’s
Service at any time. To the extent that an Employee of the Company other than the Company receives an Option under the Plan, that
Option shall in no event be understood or interpreted to mean that the Company is the Employee’s employer or that the Employee
has an employment relationship with the Company.
11.4.
Rights as a Stockholder
.
A Participant shall have no rights as a stockholder with respect to any Stock covered by an Option until the date of the issuance
of such Stock (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the
Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date
such Stock are issued.
11.5.
Delivery of Title
to Stock.
Subject to any governing rules or regulations, the Company shall issue or cause to be issued the Stock acquired pursuant
to an Option and shall deliver such Stock to or for the benefit of the Participant by means of one or more of the following: (a)
by delivering to the Participant evidence of book entry Stock credited to the account of the Participant, (b) by depositing such
Stock for the benefit of the Participant with a broker of the Committee’s choosing, or (c) by delivering such Stock to the
Participant in certificate form
.
11.6.
Fractional Shares
.
The Company shall not be required to issue fractional shares upon the exercise or settlement of any Option.
11.7.
Retirement and
Welfare Plans
. This Plan is not intended to satisfy the requirements for qualification under Section 401(a) of the Code or
to satisfy the definitional requirements for an “employee benefit plan” under Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended. It is intended to be a non-qualified incentive compensation program that is exempt from
the regulatory requirements of the Employee Retirement Income Security Act of 1974, as amended. The Plan shall be construed and
administered so as to effectuate this intent. Neither Options made under this Plan nor Stock or cash paid pursuant to such Options
shall be included as “compensation” for purposes of computing the benefits payable to any Participant under the Company’s
retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such
compensation shall be taken into account in computing such benefits.
11.8.
Section 409A
of the Code
. Notwithstanding other provisions of the Plan or any Option Agreements hereunder, no Option shall be granted, deferred,
accelerated, extended, paid out or modified under this Plan in a manner that would result in the imposition of an additional tax
under Section 409A of the Code upon a Participant. In the event that it is reasonably determined by the Committee that, as a result
of Section 409A of the Code, payments in respect of any Option under the Plan may not be made at the time contemplated by the terms
of the Plan or the relevant Option Agreement, as the case may be, without causing the Participant holding such Option to be subject
to taxation under Section 409A of the Code, including as a result of the fact that the Participant is a “specified employee”
under Section 409A of the Code, the Company will make such payment on the first day that would not result in the Participant incurring
any tax liability under Section 409A of the Code. The Company shall use commercially reasonable efforts to implement the provisions
of this Subsection 11.8 in good faith; provided that neither the Company, the Committee nor any of the Employees, Directors or
representatives shall have any liability to Participants with respect to this Subsection 11.8.
11.9.
Severability
.
If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any
respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability
of the remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired thereby.
11.10.
No Constraint
on Corporate Action
. Nothing in this Plan shall be construed to: (a) limit, impair, or otherwise affect the Company’s
right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to
merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or (b) limit the right
or power of the Company to take any action which such entity deems to be necessary or appropriate.
11.11.
Choice of Law
.
Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of the Plan
and each Option Agreement shall be governed by the laws of the State of Delaware, without regard to its conflict of law rules.
11.12.
Stockholder
Approval
. The Plan or any increase in the maximum aggregate number of Stock issuable thereunder as provided in Subsection 4
(the “Authorized Stock”) shall be approved by a majority of the outstanding securities of the Company entitled to vote
by the later of (a) a period beginning twelve (12) months before and ending twelve (12) months after the date of adoption thereof
by the Board. Options granted prior to stockholder approval of the Plan or in excess of the Authorized Stock previously approved
by the stockholders shall become exercisable no earlier than the date of stockholder approval of the Plan or such increase in the
Authorized Stock, as the case may be, and such Options shall be rescinded if such stockholder approval is not received in the manner
described in the preceding sentence.
11.13.
Unfunded Plan
.
Insofar as it provides for Options, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to
Participants who are granted Options under this Plan, any such accounts will be used merely as a bookkeeping convenience. The Company
shall not be required to segregate any assets which may at any time be represented by Options, nor shall this Plan be construed
as providing for such segregation, nor shall the Company or the Committee be deemed to be a trustee of stock or cash to be Optioned
under the Plan.
11.14.
Third Party
Administrator
. In connection with a Participant’s participation in the Plan, the Company may use the services of a third
party administrator, including a brokerage firm administrator, and the Company may provide this administrator with personal information
about a Participant, including a Participant’s name, social security number and address, as well as the details of each Option,
and this administrator may provide information to the Company concerning the exercise of a Participant’s rights and account
data as it relates to Options under the Plan.
11.15.
Liability of
Company
. The Company shall not be liable to a Participant or other persons as to: (a) the non-issuance or sale of Stock as
to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s
counsel to be necessary to the lawful issuance and sale of any Stock hereunder; and (b) any tax consequence expected, but not realized,
by any Participant or other person due to the receipt, exercise or settlement of any Option or other Option granted hereunder.
Annex
B
ProPhase
Labs, Inc.
Amended
and Restated
2015
EXECUTIVE EMPLOYMENT AGREEMENT
This
Employment Agreement (the “Agreement”) is made as of February 23, 2018 (“Effective Date”) by and between
ProPhase Labs, Inc.,
a corporation organized under the laws of the State of Delaware (“PPL” or the “Company”),
and
Ted Karkus
(“Executive”) and, subject to Section 1(b) below, amends and restates the May 29, 2015 Executive
Employment Agreement between PPL and Executive (“2015 Employment Agreement”).
NOW
,
THEREFORE
, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
1.
Appointment, Title and Duties, Shareholder Approval
.
(a)
Executive currently serves as its Chief Executive Officer and desires to continue in such position based upon the terms and conditions
set forth herein. In such capacity, Executive shall report solely to the Board of the Company (the “Board”), and shall
have such duties, powers and responsibilities as are customarily assigned to a Chief Executive Officer. In addition, Executive
shall have such other duties and responsibilities as the Board may reasonably assign him, but only with his consent, including
serving with the consent or at the request of the Board as an officer or on the board of directors of affiliated corporations,
provided
that such duties are commensurate with and customary for a senior executive officer bearing Executive’s
experience, qualifications, title and position.
(b)
Approval By Shareholders
. Notwithstanding any other provision in this Agreement, this Agreement will be null and void if
it is not approved by a majority of the shares voted to approve the Agreement (excluding the shares voted by Executive) at a meeting
of stockholders of the Company to be held no later than September 30, 2018 (“Approval”). In the event that this Agreement
is not so approved by the shareholders of the Company by September 30, 2018, the 2015 Employment Agreement shall be reinstated
in its entirety; and the Initial Base Salary under the 2015 Employment Agreement shall be reinstated, retroactive to the Effective
Date. In the event the 2015 Employment Agreement is thereby reinstated, any amounts of Initial Salary under the 2015 Employment
Agreement not previously paid to Executive shall be immediately paid to Executive.
2.
Term of Agreement
. The term of this Agreement shall commence as of the Effective Date and shall extend and continue unless
and until it is terminated in accordance with the terms of this Agreement.
3.
Acceptance of Position
. Executive accepts the position of Chief Executive Officer, and agrees that during the term of this
Agreement he will faithfully perform his duties and, except as expressly approved by the Board, will devote substantially all
of his business time to the business and affairs of PPL, and will not during the term of this agreement engage, for his own account
or for the account of any other person or entity, in a business which competes with PPL. It is acknowledged and agreed that Executive
may serve as an officer and/or director of companies in which PPL owns voting or non-voting stock or other securities. In addition,
it is acknowledged and agreed that Executive may, from time to time, serve as a member of the board of directors of other companies
which do not compete with PPL, provided that Executive has provided the Board with notice of election to any such board of directors.
Any compensation or remuneration which Executive receives in consideration of service on the board of directors of other companies
shall be the sole and exclusive property of Executive, and PPL shall have no right or entitlement at any time to any such compensation
or remuneration. Nothing herein shall preclude Executive from serving on the board of directors or similar governing body of any
not for profit or philanthropic organization. It is understood and agreed by the parties that Executive has in the past, and shall
be permitted during the term of this Agreement, to perform his services in part from the Company’s offices, and also in
part from an office Executive maintains at his home, consistent with the practices Executive and the Company have followed and
applied prior to the Effective Date.
4.
Salary and Benefits
.
(a)
From the Effective Date through February 22, 2021, Executive voluntarily agrees to reduce his salary from the rate set forth in
the 2015 Employment Agreement (
i.e.,
not less than six-hundred seventy five thousand dollars ($675,000) per annum) to a
base salary at a rate of one hundred twenty five thousand dollars ($125,000) per annum (“Term Base Salary”), paid
in approximately equal installments at intervals based on any reasonable Company policy. PPL agrees from time to time to consider
increases in the Term Base Salary in the discretion of the Board. Any increase in the Term Base Salary, once granted, shall automatically
amend this Agreement to provide that thereafter Executive’s Term Base Salary shall not be less than the annual amount of
his increased Term Base Salary.
Unless
otherwise determined by mutual agreement of the Company and Executive, on February 22, 2021 and thereafter, Executive’s
salary shall increase from the Term Base Salary to not less than six-hundred seventy five thousand dollars ($675,000) per annum
paid in approximately equal installments at intervals based on any reasonable Company policy (“Post-Term Base Salary”).
PPL agrees from time to time to consider increases in the Post-Term Base Salary in the discretion of the Board. Any increase in
the Post-Term Base Salary, once granted, shall automatically amend this Agreement to provide that thereafter Executive’s
Post-Term Base Salary shall not be less than the annual amount of the increased Post-Term Base Salary.
(b)
Equity Compensation; Stock Option
.
(i)
In consideration of Executive’s voluntary reduction of his salary, the Company hereby grants to Executive a stock option
award to purchase shares of the Company’s common stock (the “Option”) in accordance with the notice of grant
and award agreement (the “Option Agreement”) attached hereto. As set forth in the Option Agreement, the number of
shares underlying the Option shall equal two million three hundred (2,300,000) shares of the Company’s common stock with
an exercise price of three dollars ($3) per share. The Option will vest and be exercisable in thirty-five (35) equal monthly installments
of sixty-three thousand eight hundred eighty eight (63,888) shares and one monthly installment of sixty-three thousand nine hundred
twenty (63,920) shares, on the 1st day of each month, commencing on March 1, 2018, and subject to Executive’s continued
employment with the Company. The Option shall be subject to accelerated vesting as set forth in this Agreement and the Option
Agreement. The Option shall be exercisable for a five (5) - year term commencing on the Effective Date. The Option will be subject
to the terms, definitions, and provisions of the Company’s 2018 Stock Incentive Plan and the Option Agreement.
(ii)
The Option shall terminate and be cancelled in the event Approval is not attained as set forth in Section 1(b) above. The Option
may not be exercised unless and until such Approval is attained.
(iii)
The income received pursuant to the Option shall be subject to applicable tax withholding (including federal, state, and local
taxes, as applicable), and other deductions as required by law or authorized by Executive.
(iv)
The Company intends that the Option will be exempt from or comply with the requirements of Section 409A of the Code.
(c)
During the term hereof, Executive shall participate in all health, retirement, Company-paid insurance, sick leave, disability,
expense reimbursement and other benefit programs which PPL makes available to any of its senior executives.
(d)
Executive shall be eligible to participate in and earn an annual bonus pursuant to the terms of the Company’s bonus plans
in effect during the term of his employment. Executive also shall be eligible to participate in any PPL incentive stock, option
or bonus plan offered by PPL to its senior executives, subject to the terms thereof and at the sole discretion of the Board.
(e)
Executive shall be entitled to a minimum of four (4) weeks paid vacation per year, or such greater amount as approved by the Compensation
Committee of the Board (the “Compensation Committee”) or, if there is no Compensation Committee, the Board, provided
that not more than two (2) weeks of such vacation time may be taken consecutively without prior notice to and non-objection by
the Compensation Committee or, if there is no Compensation Committee, the Board.
5.
Certain Terms Defined
. For purposes of this Agreement:
(a)
Executive shall be deemed to be “disabled” if both of the following conditions have been satisfied: (i) a physical
or mental condition shall occur and persist which, in the written opinion of a licensed and qualified physician selected by the
Board in good faith, has rendered Executive unable to perform the duties set forth in Section 1 hereof for a period of seventy-five
(75) consecutive days or more, or for sixty (60) days or more out of any (90) day period, and, (ii) in the written opinion of
such physician, the condition will continue for an indefinite and long-term period of time, rendering Executive unable to return
to his duties.
(b)
A termination of Executive’s employment by PPL shall be deemed for “Cause” if, and only if, it is based upon
(i) conviction of a felony; or (ii) material disloyalty to the Company such as embezzlement, misappropriation of corporate assets;
or (iii) breach of Executive’s agreement not to engage during the term of this Agreement in business for another enterprise
of the type engaged in by the Company, except as permitted pursuant to Section 3 of this Agreement; or (iv) the engaging in unethical
or illegal behavior which is of a public nature, brings PPL into disrepute, and results in material damage to the Company; or
(v) a material breach of this Agreement which causes material and demonstrable harm to the Company.
Cause
shall not exist to terminate the Executive’s employment unless the Company gives Executive written notice within thirty
(30) days after the discovery of the occurrence of the event which the Company believes constitutes the basis for Cause, specifying
in detail the particular act or failure to act which the Company believes constitutes the basis for Cause. If the Executive fails
to cure such act or failure to act within sixty (60) days after receipt of such notice, the Company may terminate Executive’s
employment for Cause. For the avoidance of doubt, if such act is not curable, the Company may terminate Executive’s employment
for Cause upon providing written notice of termination specifying the reasons therefore.
(c)
A resignation by Executive of his employment shall not be deemed to be voluntary and shall be deemed to be a resignation with
“Good Reason” if it is based upon (i) a diminution in Executive’s title, duties, responsibilities, privileges
or Term Base Salary; or (ii) a direction by PPL that Executive report to any person or group other than the Board; or (iii) a
geographic relocation of Executive’s place of work a distance of more than ten miles (10) from the Company’s offices
as of the Effective Date in Doylestown, PA (unless such relocation results in PPL’s offices being forty (40) miles or less
from Executive’s primary residence as of the date when the relocation occurs); or (iv) a direction by PPL that Executive
shall not be permitted to perform his services from such location or locations as Executive reasonably determines are appropriate;
or (v) the material breach of this agreement by PPL.
Good
Reason shall not exist unless the Executive gives the Company written notice within thirty (30) days after the discovery of the
occurrence of the event which the Executive believes constitutes the basis for Good Reason, specifying the particular act or failure
to act which the Executive believes constitutes the basis for Good Reason. If the Company fails to cure such act or failure to
act within thirty (30) days after receipt of such notice, the Executive may terminate his employment for Good Reason. However,
such termination must occur within two (2) years following the initial existence of the condition specified in Section 5(c) which
constitutes the basis for Good Reason.
(d)
“Affiliate” means with respect to any Person, a Person who, directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control, with the Person specified.
(e)
“Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act.
(f)
A “Change in Control” means the occurrence of any of the following events:
(i)
A change in the ownership of the Company that occurs on the date that any one Person, or more than one Person acting as a group
(for purposes of SEC Rule 13d), acquires ownership of the stock of the Company that, together with the stock held by such Person,
constitutes more than fifty percent (50%) of the total voting power of the stock of the Company. For purposes of this agreement,
no Change of Control shall have occurred in the event Executive or a group which includes Executive acquires more than fifty percent
(50%) of the voting control of the Company. The acquisition of additional stock by any one Person, who is considered to own more
than fifty percent (50%) of the total voting power of the stock of the Company will not be considered an additional Change of
Control; or
(ii)
A change in the effective control of the Company that occurs on the date that a majority of members of the Board is replaced during
any twelve (12) month period by directors whose appointment or election is not endorsed by one of either the Executive or a majority
of the members of the Board prior to the date of the appointment or election;
(iii)
A change in the ownership of a “substantial portion of the Company’s assets”, as defined herein. For this purpose,
a “substantial portion of the Company’s assets” shall mean assets of the Company having a total gross fair market
value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately
prior to such change in ownership. For purposes of this subsection (iii), a change in ownership of a substantial portion of the
Company’s assets occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending
on the date of the most recent acquisition by such person or persons) assets from the Company that constitute a “substantial
portion of the Company’s assets.” For purposes of this subsection (iii), the following will not constitute a change
in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the
Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder
of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity,
fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3)
a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding
stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly
or indirectly, by a Person described in this subsection (iii). For purposes of this subsection (iii), gross fair market value
means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities
associated with such assets.
For
purposes of this definition, Persons will be considered to be acting as a group if they are owners of a corporation that enters
into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding
the foregoing, a transaction will not be deemed a Change of Control unless the transaction qualifies as a change of control event
within the meaning of Section 409A.
Further
and for the avoidance of doubt, a transaction will not constitute a Change of Control if its primary purpose is to: (1) change
the state of the Company’s incorporation, or (2) create a holding company that will be owned in substantially the same proportions
by the persons who held the Company’s securities immediately before such transaction.
(g)
“Code” means the Internal Revenue Code of 1986, as amended.
(h)
“Exchange Act” means the Exchange Act of 1934, as amended.
(i)
“Person” means any individual, corporation, partnership, limited liability company, trust, association or other entity.
(j)
“Related Person” means any immediate family member (spouse, partner, parent, sibling or child whether by birth or
adoption) of the Executive and any trust, estate or foundation, the beneficiary of which is the Executive and/or an immediate
family member of the Executive.
6.
Certain Benefits Upon Termination
. Executive’s employment shall be terminated upon the earlier of (i) the voluntary
resignation of Executive with or without Good Reason; or (ii) Executive’s death or permanent disability; or (iii) upon the
termination of Executive’s employment by PPL for any reason at any time. In the event of any termination of employment,
Executive shall be entitled to receive all accrued and unpaid salary, expense reimbursements, Option vesting, and benefits through
the effective date of termination.
(a)
Certain Terminations
. If Executive’s employment by PPL terminates for any reason other than as a result of (i) a
termination for Cause, or (ii) a voluntary resignation by Executive without a Good Reason ((i) and (ii) collectively, an “Ineligible
Termination”), then Executive also shall receive benefits and payments upon said termination of employment as described
in Appendix A attached hereto.
(b)
If Executive’s employment by PPL terminates for any reason, other than an Ineligible Termination, Executive and his then
covered dependents shall remain eligible to participate in all Company provided medical and dental plans to the extent Executive
elects and remains eligible for coverage under COBRA and for a maximum period of eighteen (18) months at the Company’s sole
expense.
(c)
In the event that Executive’s employment terminates by reason of his death, all benefits provided in this Section 6 shall
be paid to his estate or as his executor shall direct, but payment may be deferred until Executive’s executor or personal
representative has been appointed and qualified pursuant to the laws in effect in Executive’s jurisdiction of residence
at the time of his death.
(d)
PPL shall have no liability to Executive under subsections 6(a), (b), or (c) if Executive’s employment pursuant to this
Agreement terminates due to an Ineligible Termination.
(e)
To the extent that any or all of the payments and benefits provided for in this Agreement constitute “parachute payments”
within the meaning of Section 280G of the Code and, but for this paragraph, would be subject to the excise tax imposed by Section
4999 of the Code, then, either: (i) Executive shall receive all such payments and benefits Executive is entitled to receive hereunder,
and any liability for taxes pursuant to any payments included herein shall be Executive’s liability alone; or (ii) the aggregate
amount of such payments and benefits shall be reduced such that the present value thereof (as determined under the Code and applicable
regulations) is equal to 2.99 times Executive’s “base amount” (as defined in Section 280G of the Code), whichever
of (i) and (ii) yields the greatest after-tax amount to Executive. The determination of any reduction or increase of any payment
or benefits under this paragraph pursuant to the foregoing provision shall be made by a nationally recognized public accounting
firm chosen by the Company in good faith, and such determination shall be conclusive and binding on the Company and Executive.
If a reduction in payments is required by the foregoing provisions of this Section 6(h), the reduction shall occur in the following
order: (i) first, any future cash payments (if any) shall be reduced (if necessary, to zero); (ii) second, any current cash payments
shall be reduced (if necessary, to zero); (iii) third, all non-cash payments (other than equity or equity derivative related payments)
shall be reduced (if necessary, to zero); and (iv) fourth, all equity or equity derivative payments shall be reduced, except if,
and only if, a different order of reduction is required to avoid the imposition of an additional tax under Section 409A of the
Code. As expressly permitted by Q/A-32 of the final regulations under Section 280G of the Code, with respect to performing any
present value calculations that are required in connection with the foregoing calculations, the parties affirmatively elect to
utilize the Applicable Federal Rates that are in effect as of the date of this letter, and the accounting firm shall therefore
use such Applicable Federal Rates in its determinations and calculations.
7.
Clawback Provision
. In the event that all of the following conditions are satisfied:
(a)
A mandatory restatement of the Company’s financial results occurs and is released to the public at a time when the Company’s
securities are traded on any United States securities exchange (a “Restatement”); and
(b)
The Restatement is attributable to misconduct or wrongdoing by the Executive; and
(c)
Executive has received payment of a cash bonus or has been issued any shares of PPL as a bonus within three (3) years preceding
the date of the issuance and release to the public of such restatement; and
(d)
The amount of such cash bonus or share grant has been calculated and awarded pursuant to a specific financial formula; and
(e)
Such bonus or share grant would have been diminished based on the restated financial results had the financial formula pursuant
to which the bonus or share grant has been calculated (the “Formula”) been applied to the restated financial results
(the amount of such diminution, is the “Clawback Amount”);
then,
upon written demand from the Company setting forth in detail the basis for such demand, the Executive shall remit to the Company
the Clawback Amount less the amount of any taxes paid or payable by Executive in respect of such bonus or share grant. Provided,
however, that if and to the extent that (x) the Restatement results in the Company increasing expenses or reducing income, revenues
or another component of the Formula during the measurement period during which the applicable bonus or share grant was calculated,
but also results in (y) the Company increasing or shifting such income, revenues or expenses into a different fiscal period, such
that the net effect of the Restatement is effectively neutral to the Company over the applicable time periods, then no Clawback
Amount shall be due from the Executive.
8.
Indemnification
. PPL shall indemnify, defend and hold Executive harmless from and against all claims, losses, damages,
expense or liabilities, including expenses of defense and settlement, and advancement of defense costs as such costs are incurred,
(collectively, “Indemnified Losses”) to the fullest extent allowable by law and as provided in any of the PPL by-laws,
charter, any indemnification agreement with the Executive, or as otherwise agreed between the parties and under any applicable
laws, where such claims or Indemnified Losses are based upon or in any way arise from or are connected with his employment by
PPL or his service as an officer or director of PPL or any PPL Affiliate. To the fullest extent permitted by law, PPL shall advance
to or on behalf of Executive all expenses incurred in connection with the defense of any indemnified action or claim pursuant
to this Section 8. PPL shall investigate in good faith the availability and cost of directors’ and officers’ insurance
and shall include Executive as an insured in any directors’ and officers’ insurance policy it maintains. The provisions
of this Section 8 shall survive any termination or expiration of this Agreement. Executive shall have the right to elect either
(a) to arbitrate in accordance with Section 13 of this Agreement any claim by Executive to enforce the provisions of Section 8
of this Agreement, or (b) to litigate any such claim in any court of competent jurisdiction.
9.
Attorney Fees
. In the event that any action or proceeding is brought to enforce the terms and provisions of this Agreement,
each party shall bear its own attorney’s fees,
except that
the Company shall bear all attorney’s fees
and litigation costs incurred by Executive in successfully enforcing the provisions of this Agreement or in successfully defending
any claim brought by the Company against the Executive arising pursuant to this Agreement.
10.
Notices
. All notices and other communications provided to either party hereto under this Agreement shall be in writing
and delivered by hand, or by certified or registered mail to such party at its/his address set forth below its/his signature hereto,
or at such other address as may be designated with postage prepaid, shall be deemed given when received.
11.
Construction
. In constructing this Agreement, if any portion of this Agreement shall be found to be invalid or unenforceable,
the remaining terms and provisions of this Agreement shall be given effect to the maximum extent permitted without considering
the void, invalid or unenforceable provisions. In construing this Agreement, the singular shall include the plural, the masculine
shall include the feminine and neuter genders as appropriate, and no meaning in effect shall be given to the captions of the sections
in this Agreement, which is inserted for convenience of reference only. Without limitation to the foregoing, nothing in this Agreement
is intended to violate the Sarbanes-Oxley Act of 2002, the Dodd–Frank Wall Street Reform and Consumer Protection Act of
2010, the rules and regulations of the Securities and Exchange Commission or the applicable listing standards of NASDAQ or the
NYSE, and to the extent that any provision of this Agreement would constitute such a violation, such provision shall be modified
to the extent required by such Act, rule, regulation or standard, or, to the extent that such provision cannot be so modified
and is found to be invalid or unenforceable, the remaining terms and provisions shall be given effect to the maximum extent permitted
without considering the void, invalid or unenforceable provision.
This
Agreement is intended to comply with the requirements of Section 409A of the Code, including the exceptions thereto, and shall
be construed and administered in accordance with such intent. For purposes of Section 409A of the Code, each installment payment
provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement in connection
with a termination of employment shall only be made if such termination of employment constitutes a “separation from service”
under Section 409A of the Code.
Notwithstanding
any other provision of the Agreement, to the extent that (i) any amount paid pursuant to the Agreement is treated as nonqualified
deferred compensation pursuant to Section 409A of the Code and is provided to the Executive on account of his separation from
service and (ii) the Executive is a “specified employee” pursuant to Section 409A(2)(B) of the Code, then such payments
shall be made on the date which is six (6) months after the date of the Executive’s separation from service. In connection
with the payment of any obligation that is delayed pursuant to this section, the Company shall establish an irrevocable trust
to hold funds to be used for payment of such obligations. Upon the date that such amount would otherwise be payable, the Company
shall deposit into such irrevocable trust an amount equal to the obligation. However, notwithstanding the establishment of the
irrevocable trust, the Company’s obligations under the Agreement upon the Executive’s termination of employment shall
constitute a general, unsecured obligation of the Company and any amount payable to the Executive shall be paid solely out of
the Company’s general assets, and the Executive shall have no right to any specific assets of the Company. The funds, if
any, contained or contributed to the irrevocable trust shall remain available for the claims of the Company’s general creditors.
12.
Headings
. The section headings hereof have been inserted for convenience of reference only and shall not be construed to
affect the meaning, construction or effect of this Agreement.
13.
Governing Law
. The provisions of this Agreement shall be construed and interpreted in accordance with the internal laws
of the State of Pennsylvania as at the time in effect and without regard to conflict of laws provisions,
except that
the
provisions of Section 8 of this Agreement shall be construed and interpreted in accordance with the laws of the state in which
PPL is incorporated at the time that any claim under Section 8 is asserted. The parties agree that any dispute arising under this
Agreement shall be determined by binding arbitration before the American Arbitration Association (“AAA”) under the
AAA’s commercial arbitration rules. Such arbitration shall be conducted in New York, New York, before a single, impartial
arbitrator selected by the AAA; provided, however, the parties may mutually agree after the commencement of a proceeding to hold
the arbitration in another jurisdiction. In any such arbitration, the Company shall bear and shall be solely responsible for the
costs and fees imposed by the AAA and the arbitrator. The parties agree to abide by all decisions and awards rendered in such
proceedings. All decisions and awards rendered by the arbitrator shall be final, binding and conclusive. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction thereof, and the parties consent to the non-exclusive
jurisdiction of the federal and state courts in New York and Pennsylvania for this purpose. If at the time any dispute or controversy
arises with respect to this Agreement the AAA is no longer providing arbitration services, then JAMS shall be substituted for
the AAA for purposes of this paragraph, and the arbitration will be conducted in accordance with the then-existing and applicable
rules and procedures of JAMS.
14.
Entire Agreement
. Except as otherwise provided herein, this Agreement constitutes the entire agreement and supersedes all
other prior employment agreements and undertakings, both written and oral, among Executive and the Company, with respect to the
subject matter hereof, except that the separate Indemnification Agreement dated August 19, 2009 between the parties shall survive
the execution of this Agreement. This Agreement may not be modified or amended except in writing, manually signed in pen and ink
by each of the parties hereto.
[SIGNATURE
PAGE TO FOLLOW]
IN
WITNESS WHEREOF
, this Agreement shall be effective as of the date specified in the first paragraph of this Agreement.
|
ProPhase
Labs, Inc., a Delaware corporation
|
|
Address:
|
|
By:
|
/s/
Monica Brady
|
|
|
Monica Brady,
Chief Accounting Officer
|
|
Executive:
|
|
|
|
/s/
Ted Karkus
|
|
Ted
Karkus
|
|
Address:
|
APPENDIX
A
Certain
Benefits Upon Termination
I.
|
For
the time period from the Effective Date until February 22, 2021, Executive shall be eligible to receive the following benefits
and cash payments upon a Termination of Employment other than an Ineligible Termination
:
|
|
A.
|
Executive
shall receive a combination of accelerated vesting of the outstanding and unvested stock options granted to him under Section
4(b) of the Agreement and a cash severance payment as set forth in the chart below:
|
Month
in which Executive’s
employment is terminated
other than an Ineligible
Termination
|
|
Ratio
of Option subject to
acceleration of vesting
|
|
Cash
severance payment
(based upon a total potential
cash severance payment of
$1,687,500)
|
|
February
2018
|
|
1
|
|
$
|
0
|
|
March
2018
|
|
35/36
|
|
$
|
46,875
|
|
April
2018
|
|
34/36
|
|
$
|
93,750
|
|
May
2018
|
|
33/36
|
|
$
|
140,625
|
|
June
2018
|
|
32/36
|
|
$
|
187,500
|
|
July
2018
|
|
31/36
|
|
$
|
234,375
|
|
August
2018
|
|
30/36
|
|
$
|
281,250
|
|
September
2018
|
|
29/36
|
|
$
|
328,125
|
|
October
2018
|
|
28/36
|
|
$
|
375,000
|
|
November
2018
|
|
27/36
|
|
$
|
421,875
|
|
December
2018
|
|
26/36
|
|
$
|
468,750
|
|
January
2019
|
|
25/36
|
|
$
|
515,625
|
|
February
2019
|
|
24/36
|
|
$
|
562,500
|
|
March
2019
|
|
23/36
|
|
$
|
609,375
|
|
April
2019
|
|
22/36
|
|
$
|
656,250
|
|
May
2019
|
|
21/36
|
|
$
|
703,125
|
|
June
2019
|
|
20/36
|
|
$
|
750,000
|
|
July
2019
|
|
19/36
|
|
$
|
796,875
|
|
August
2019
|
|
18/36
|
|
$
|
843,750
|
|
September
2019
|
|
17/36
|
|
$
|
890,625
|
|
October
2019
|
|
16/36
|
|
$
|
937,500
|
|
November
2019
|
|
15/36
|
|
$
|
984,375
|
|
December
2019
|
|
14/36
|
|
$
|
1,031,250
|
|
January
2020
|
|
13/36
|
|
$
|
1,078,125
|
|
February
2020
|
|
12/36
|
|
$
|
1,125,000
|
|
March
2020
|
|
11/36
|
|
$
|
1,171,875
|
|
April
2020
|
|
10/36
|
|
$
|
1,218,750
|
|
May
2020
|
|
9/36
|
|
$
|
1,265,625
|
|
June
2020
|
|
8/36
|
|
$
|
1,312,500
|
|
July
2020
|
|
7/36
|
|
$
|
1,359,375
|
|
August
2020
|
|
6/36
|
|
$
|
1,406,250
|
|
September
2020
|
|
5/36
|
|
$
|
1,453,125
|
|
October
2020
|
|
4/36
|
|
$
|
1,500,000
|
|
November
2020
|
|
3/36
|
|
$
|
1,546,875
|
|
December
2020
|
|
2/36
|
|
$
|
1,593,750
|
|
January
2021 – February 22, 2021
|
|
1/36
|
|
$
|
1,640,625
|
|
II.
|
On
or after February 23, 2021, Executive shall be eligible to receive the following benefits and cash payments upon a Termination
of Employment other than an Ineligible Termination
:
|
1.
Certain Benefits Upon Termination
. Executive’s employment shall be terminated upon the earlier of (i) the voluntary
resignation of Executive with or without Good Reason; or (ii) Executive’s death or permanent disability; or (iii) upon the
termination of Executive’s employment by PPL for any reason at any time. In the event of any termination of employment,
Executive shall be entitled to receive all accrued and unpaid salary, expense reimbursements, and benefits through the effective
date of termination. In addition, the following provisions of this Section also shall apply:
(a)
Certain Terminations
. If Executive’s employment by PPL terminates for any reason other than as a result of (y) a
termination for Cause, or (z) a voluntary resignation by Executive without a Good Reason ((y) and (z) collectively, an “Ineligible
Termination”), then Executive also shall receive:
(i)
a cash severance payment equal to two and one-half (2.5) times his Base Salary (
i.e.,
two hundred fifty percent (250%)
of his Post-Term Base Salary). Such cash severance payment shall be paid as follows: (x) one-half (.5) of the cash severance payment
shall be paid in a lump sum within five (5) business days following the effective date of the termination; and (y) the remaining
one-half of the cash severance payment shall be paid in twelve (12) equal, consecutive, monthly installments commencing on the
first business day of the month following the effective date of the termination; and
(ii)
all of Executive’s stock options and/or restricted stock shall automatically vest concurrently upon such termination of
employment, regardless of any prior existing vesting schedules;
(iii)
Provided, however, that if his employment terminates by reason of his death or disability, then such cash payments shall be paid
only to the extent of the proceeds payable to the Company through a “key man” life, disability or similar insurance
relating to the death or disability of Executive.
(b)
Additional Payment if Termination Occurs in Connection with a Change in Control
. In the event that Employee has received
the payments described in Section II.1(a), and it is determined that the provisions of Section II.1(c) also are applicable (termination
in connection with a Change in Control), then Employee shall be entitled to receive an additional payment equal to the amounts
due to Employee pursuant to Section II.1(c), less the amount of payments previously received by Employee pursuant to Section II.1(a).
(c)
Payment if Termination Occurs in Connection with a Change in Control.
Notwithstanding the provisions of Section II.1(a)
above, in the event Executive’s employment terminates due to a reason other than an Ineligible Termination, death or disability,
and if such termination occurs within (a) eighteen (18) months following a Change in Control, or (b) prior to a Change in Control
but in contemplation of a Change in Control which Change in Control actually occurs, then, in lieu of the severance payment described
in Section II.1(a) above, Executive shall instead receive a one-time severance payment in cash equal to two million five hundred
thousand dollars ($2,500,000). In addition, in such event, all of Executive’s stock options and/or restricted stock shall
automatically vest concurrently upon such termination of employment, regardless of any prior existing vesting schedule.
(i)
For purposes of this Section II.1(c), the involuntary termination of Executive’s employment within one hundred eighty (180)
days preceding a Change of Control (due to a reason other than an Ineligible Termination, death or disability) will be deemed
to have been a termination of employment in contemplation of a Change in Control.
(ii)
In determining whether a termination of Executive’s employment occurring more than one hundred eighty (180) days preceding
a Change of Control (due to a reason other than an Ineligible Termination, death or disability) constitutes a termination of employment
in contemplation of a Change in Control, the court or other tribunal making such determination shall consider the totality of
facts and circumstances surrounding such termination of employment.
Schedule A
Form of Employment Release
SEPARATION
AGREEMENT AND GENERAL RELEASE
This
SEPARATION AGREEMENT AND GENERAL RELEASE (“Agreement”) is made and entered into by and among ProPhase Labs, Inc. (the
“Company”) and [INSERT EMPLOYEE NAME] (“Employee”). The Company and Employee shall be referred to as the
“Parties” or, each separately, a “Party.”
WHEREAS,
Employee and the Company have agreed that Employee shall permanently separate from employment with the Company effective on _____________,
20__; and
WHEREAS,
Employee and the Company wish to agree on matters relating to the end of Employee’s employment with the Company on the terms
included in this Agreement.
NOW,
THEREFORE, for good and valuable consideration, receipt of which is acknowledged, and fully intending to be legally bound, Employee
and the Company AGREE as follows:
1.
Separation Date.
Employee’s employment with the Company shall terminate at the close of business on _______________,
20__ (“Separation Date”). To the extent he has not already, Employee shall receive his regular pre-separation compensation
and benefits through the Separation Date, consistent with Company policy. Employee confirms that he shall relinquish all titles
and positions with the Company
2.
Separation Benefits.
If Employee signs, complies with, and does not revoke this Agreement, the Company shall provide the
following compensation and benefits to Employee. Employee acknowledges and agrees that such compensation and benefits constitute
valid consideration for this Agreement and that he would not be entitled to such compensation and benefits but for his execution
(and non-revocation) of this Agreement.
a.
Severance Payment.
The Company shall pay Employee the severance payments and other severance benefits (collectively, the
“Benefits”) set forth in his Employment Agreement dated as of January _ 2018 (the “Employment Agreement”).
The Employee shall not receive the first cash payment until the first regular payroll date that falls at least ten (10) business
days after the Effective Date (as defined below).
b.
Accrued Vacation.
The Company shall pay Employee __________ Dollars ($______) as payment for his [INSERT NUMBER] weeks
of accrued, unused vacation days, such payment being based on Employee’s base salary as of the Separation Date, less all
tax withholdings and other applicable deductions, which shall be paid to Employee in a single lump-sum payment. The Employee shall
not receive payment until the first regular payroll date that falls at least ten (10) business days after the Effective Date (as
defined below).
c.
Other Benefits.
For the avoidance of doubt, this will confirm that Employee shall receive all of the severance payments
and other post-employment benefits set forth in his ____ and has not waived _____
3.
Consideration.
Employee acknowledges: (i) the sufficiency of the consideration included in Section 2 above for the release
of Employee’s claims; (ii) that the Company is not, in the absence of this Agreement, otherwise required to make any such
payment to Employee; (iii) that such payment is being made to Employee because of his agreement to fulfill the promises and to
provide the releases stated in this Agreement; and (iv) that such payment is in excess of any payment or benefit, to which Employee
might otherwise be entitled.
4.
Taxes.
Employee is responsible for paying any taxes on amounts he receives because he signed this Agreement. As to payments
made pursuant to this Agreement, Employee is responsible for determining and paying any required taxes. Employee agrees to indemnify
the Company and Released Parties (as defined below) for all expenses, penalties, or interest charges it incurs as a result of
not paying payroll taxes on, or withholding taxes from, amounts paid under this Agreement. Employee further agrees not to make
any claims against the Company or any other Released Party or other person based on how the Company or Released Parties report
amounts paid under this Agreement. In addition, Employee understands and agrees that the Released Parties have no duty to try
to prevent such an adverse determination.
5.
Benefits.
Except as stated in this Agreement, the Employment Agreement, or otherwise required by law, all medical and health
benefits from the Company ceased as of Employee’s Separation Date.
6.
Release by Employee and Acknowledgement by Company.
In consideration of the compensation and benefits provided in this
Agreement and intending to be legally bound, Employee, for himself, his heirs, executors, administrators, successors, assigns,
and legal and personal representatives, unconditionally and irrevocably releases and forever discharges the Company, each of the
Company’s current and former employees, agents, officers, directors, shareholders, members, managers, partners, and attorneys
(collectively, the “Released Parties”) from any and all claims, causes of action, liabilities, obligations, controversies,
damages, lawsuits, debts, demands, costs, charges and/or expenses (including attorneys’ fees and costs) arising solely out
of Employee’s employment relationship with the Company or the termination of that relationship of any nature whatsoever,
asserted or unasserted, known or unknown, suspected or unsuspected, that Employee ever had, now has or hereafter may have against
the Company and/or any of the other Released Parties that arose at any time regarding any matter up to and including the date
of this Agreement (together, the “Claims”). Without in any way limiting the generality of the foregoing, Employee
specifically acknowledges and agrees that the Claims released include all claims based on events occurring up to the date of Employee’s
execution of this Agreement under any federal, state or local statute, ordinance, or regulation, governing solely his employment
with the Company including, including but not limited to, the Civil Rights Acts of 1866 and 1867, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Employee Retirement Income Security Act, the Fair Labor Standards Act, the Family
and Medical Leave Act, the Americans with Disabilities Act, the National Labor Relations Act, Workers’ Compensation law,
the Rehabilitation Act, the Equal Pay Act, the Age Discrimination in Employment Act (“ADEA”), as amended by the Older
Workers Benefit Protection Act (“OWBPA”), any claims under the Pennsylvania Human Relations Act (PHRA), the Pennsylvania
Wage Payment and Collection Law (WPCL), the Pennsylvania Minimum Wage Act (PMWA), or under any common law, such as claims for
wrongful discharge, constructive discharge, defamation, unjust enrichment, breach of contract, or negligent or intentional infliction
of emotional distress. Employee does not release the Company from any claims that may arise (i) as a result of any failure by
the Company to comply with this Agreement or (ii) after the date of Employee’s execution of this Agreement.
Nothing
in this Agreement shall affect, terminate or discharge Employee’s rights to indemnification and advancement of expenses
pursuant to the Employment Agreement, the August 19, 2009 Indemnity Agreement, the Company’s by-laws, and applicable laws.
7.
No Other Claims or Proceedings by Employee
. Employee warrants, covenants, and represents that he has not assigned or transferred
or purported to assign or transfer to any person any of the Claims. Employee also warrants, covenants, and represents that, as
of the date of this Agreement, neither he nor anyone acting on his behalf has made or filed any lawsuit, complaint, charge, action
or proceeding against any of the Company Released Parties with any federal, state, or local court agency or authority, or any
other regulatory authority.
8.
Unemployment Benefits.
Should Employee apply for unemployment benefits following the Separation Date, the Company will
not actively seek to contest Employee’s application.
9.
Return of Documents and Things.
On or before the Separation Date, Employee shall return to the Company, all electronic
and hard copy data, documents, and other materials, equipment and other property of the Company and the other Released Parties
in his possession or under his control. Such property includes, but is not limited to, any and all (1) company car; (2) cell phone,
computers, computer tablets, computer-related devices, computer storage media and other portable media, personal digital assistants
(PDAs), and other equipment; (3) hard copy and electronic documents, records, data, files, memoranda, reports, drawings, and plans.
and (4) keys and credit cards, in all cases that were provided by the Company or any other Company Released Parties that relate
to the Company or the other Company Released Parties, or that Employee has used, prepared or come into contact with during the
course of his employment with the Company.
10.
Full Compensation.
Employee acknowledges that, other than (i) as stated in Section 2 of this Agreement, and (ii) as set
forth in his Employment Agreement, he has received payment in full of all of the compensation, benefits and/or payments due to
him from the Company by virtue of his status as an employee through the Separation Date, including all wages, bonuses, equity,
expense reimbursements, payments to benefit plans and any other payment under a compensation plan, compensation program, compensation
practice or compensation promise of the Company. Employee further acknowledges that he shall not be entitled to any post-separation
compensation or benefits by virtue of his status as an employee, including any severance or separation payments, except as specifically
stated in this Agreement and in his Employment Agreement.
[** Note: Before signing this Agreement, parties need to confirm
that all salary and reimbursements that were due to Employee for periods prior to Separation Date were paid in full.]
11.
Non-Disparagement.
Neither the Company, nor Employee shall disparage to any third party the professional or personal reputation
or character of the other. This Non-Disparagement provision applies to comments made verbally, in writing, electronically or by
any other means, including, but not limited to blogs, postings, message boards, texts, video or audio files and all other forms
of communication.
12.
References.
The Company agrees to provide neutral references upon request, which is to only provide dates of employment,
position(s) held and employment status.
13.
Non-Admission.
Employee agrees that the payments made and other consideration received pursuant to this Agreement are not
to be construed as an admission of legal liability by the Company and that no person or entity shall utilize this Agreement or
the consideration received pursuant to this Agreement as evidence of any admission of liability or obligation.
14.
Knowing and Voluntary Waiver.
Employee acknowledges that he has carefully reviewed this Agreement with the benefit of counsel
and that he enters into such documents knowingly and voluntarily. Employee understands and acknowledges that, under this Agreement,
he is receiving compensation and benefits in addition to anything to which Employee is already entitled and that, by this Section,
the Company has hereby advised Employee in writing to consult with an attorney of his choosing prior to executing this Agreement,
which he has done. Employee acknowledges that neither the Company nor any of its employees, representatives or attorneys have
made any representations or promises concerning the terms or effects of this Agreement other than those contained in this Agreement.
15.
Notices.
All notices shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return receipt requested, or by telegram or telecopy (confirmed
by U.S. mail), receipt acknowledged, addressed below. Any such notice shall be deemed to have been given as of the date received,
in the case of personal delivery, or on the date shown on the receipt or confirmation, in all other cases. Any and all notice
as provided for in this Agreement may be given as follows:
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a.
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If
to the Company:
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[INSERT
NAME/ADDRESS]
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b.
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If
to Employee:
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[INSERT
NAME/ADDRESS]
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16.
Consideration Period; Right to Revoke Agreement; Effective Date.
Employee acknowledges that he has been given a period
of 21 days within which to consider the Agreement (although he need not take all 21 days if he does not wish to do so), and the
Parties agree that any changes to this Agreement, whether material or immaterial, have not re-started the running of this period.
Employee may revoke or cancel this Agreement within seven days after his execution of it by notifying the Company of his desire
to do so in writing delivered to [INSERT NAME] at the Company. To be effective, notice must be given in the manner specified in
this Agreement before the close of business on the seventh day following Employee’s execution of this Agreement. Employee
understands and agrees that he shall not be entitled to any payments or benefits under this Agreement if he revokes this Agreement.
This Agreement shall be effective on the eighth day after Employee’s execution of it, assuming that he has not first validly
revoked the Agreement (the “Effective Date”).
17.
Interpretation and Governing Law.
This Agreement shall be construed as a whole according to their fair meaning. It shall
not be construed strictly for or against Employee or the Company. This Agreement shall be governed by the statutes and common
law of the Commonwealth of Pennsylvania. The Parties irrevocably submit to the exclusive jurisdiction and venue of the United
States federal courts or the courts of the Commonwealth of Pennsylvania in any action or proceeding brought with respect to or
in connection with this Agreement. Each Party waives any objection based on forum non conveniens and waives any objection to venue
of any action instituted hereunder in such courts.
18.
Enforceability and Waiver.
If any provision of this Agreement is determined to be invalid or unenforceable by a court of
competent jurisdiction by reason of the nature of the covenants contained in this Agreement, such terms shall be deemed changed
or reduced to enforceable terms, but only to the extent necessary to cure such invalidity. Further, whenever possible, each provision
of this Agreement shall be interpreted in such a manner to be effective and valid under applicable law. No waiver by either Party
of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by either Party of any right
under this Agreement shall be construed as a waiver of any other right.
19.
Headings/Counterparts.
The headings of the sections in this Agreement are for convenience only and shall not be deemed
to control or affect the meaning or construction of any of the provisions of this Agreement. This Agreement may be executed in
two or more counterparts.
20.
Entire Agreement.
This Agreement constitutes the entire agreement between Employee and the Company. Amendments to this
Agreement shall not be effective unless they are in writing signed by Employee and a duly authorized representative of the Company.
By
signing this Agreement, [insert employee name] acknowledges that he DOES SO Voluntarily after carefully reading and fully understanding
EACH provision and all of the effects of this agreement AND THE MUTUAL RELEASE, which includes a release of known and unknown
claims and Restricts future legal action against [INSERT COMPANY NAME] and Other released parties AS PROVIDED in this agreement.
IN
WITNESS WHEREOF, and intending to be legally bound, the Parties have executed this Agreement on this
day of ________,
2015.
[INSERT
EMPLOYEE NAME]
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[INSERT
COMPANY NAME]
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By:
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By:
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Date:
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Date:
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