Table of Contents
United States
Securities and Exchange Commission
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a)
of the
Securities Exchange Act of 1934
(Amendment No. 2)
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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3PEA INTERNATIONAL, INC.
(Name of Registrant As Specified In Its
Charter)
_______________________________________________________________________
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Date Filed:
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3PEA INTERNATIONAL, INC.
1700 W. Horizon Ridge Parkway, Suite
200
Henderson, Nevada 89012
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 12, 2019
Dear Stockholder:
You are cordially invited to attend the
annual meeting of stockholders of 3Pea International, Inc. The meeting will be held on Thursday, May 23, 2019 at 2:30 p.m.
(Pacific Daylight Time) at M Resort Spa Casino, at 12300 Las Vegas Blvd. S, Henderson, Nevada 89044, for the following purposes:
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To elect the seven nominees named in this proxy statement for director to hold office until the 2020 annual meeting of our stockholders.
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To approve our 2018 Incentive Compensation Plan.
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To ratify the selection of Squar Milner LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019.
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To conduct any other business properly brought before the meeting.
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These items of business are more fully described
in the proxy statement accompanying this Notice.
In addition, the proxy statement contains
other important information about 3Pea International, Inc., including information about the role and responsibilities of our Board
of Directors and its committees, information about executive compensation, and information about the beneficial ownership of 3Pea
International, Inc. securities.
Your vote is very important. Whether or
not you plan to attend the annual meeting in person, please complete and return the enclosed proxy card.
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Sincerely yours,
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/s/ Robert Strobo, Esq.
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Robert Strobo, Esq.
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General Counsel, Chief Legal Officer and Secretary
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You are cordially invited to attend the
meeting in person. Whether or not you expect to attend the meeting, please vote over the internet or by telephone, or, if you requested
to receive printed proxy materials, by mailing a proxy or voting instruction card, as promptly as possible in order to ensure your
representation at the meeting. Voting instructions are provided in the Notice of Internet Availability of Proxy Materials, or,
if you receive a proxy card by mail, the instructions are printed on your proxy card and included in the accompanying proxy statement.
Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares
are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your
name from that record holder.
TABLE OF CONTENTS
3PEA INTERNATIONAL, INC.
1700 W. Horizon Ridge Parkway, Suite
200
Henderson, Nevada 89012
PROXY STATEMENT
FOR 2018 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 23, 2019
This proxy statement contains information
about the 2019 annual meeting of stockholders (“2019 Annual Meeting”) of 3Pea International, Inc. (referred to in
this proxy statement as “3Pea”, “the Company”, “we”, “our” or “us”).
The meeting will be held on Thursday, May 23, 2019, beginning at 2:30 p.m. local time, at M Resort Spa Casino, located
at 12300 Las Vegas Blvd. S, Henderson, Nevada 89044.
This proxy statement is furnished in connection
with the solicitation of proxies by our Board of Directors for use at the 2019 Annual Meeting and at any adjournment of that meeting.
All proxies will be voted in accordance with the instructions they contain. If you do not specify your voting instructions on your
proxy, it will be voted in accordance with the recommendations of our Board of Directors.
These proxy materials, together with our
annual report to stockholders for our 2018 fiscal year, are first being made available to 3Pea stockholders online on April 12,
2019 at
www.iproxydirect.com/tpnl
and at www.3pea.com. The Notice of Internet Availability of Proxy Materials is first being
mailed to certain stockholders on or about April 12, 2019. For ease of voting, stockholders are encouraged to vote using the
Internet. We encourage you to access and review all of the important information in the proxy materials before voting.
QUESTIONS AND ANSWERS ABOUT THE 2019
ANNUAL MEETING AND VOTING
Why did I receive a notice regarding the availability of
proxy materials on the internet?
Pursuant to rules adopted by the Securities
and Exchange Commission (the “SEC”), we have elected to provide access to our proxy materials over the internet. Accordingly,
we have sent you a Notice of Internet Availability of Proxy Materials (the “Notice”) because our Board of Directors
is soliciting your proxy to vote at the 2019 Annual Meeting, including at any adjournments or postponements of the meeting. All
stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive
a printed set of the proxy materials. Instructions on how to access the proxy materials over the internet or to request a printed
copy may be found in the Notice.
We intend to mail the Notice on or about
April 12, 2019 to all stockholders of record entitled to vote at the 2019 Annual Meeting.
What is the purpose of the annual meeting?
At our 2019 Annual Meeting, stockholders
will consider and vote on the following matters:
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To elect the seven nominees named in this proxy statement for director to hold office until the 2019 annual meeting of our stockholders.
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To approve our 2018 Incentive Compensation Plan.
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3.
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To ratify the selection of Squar Milner LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018.
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4.
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To conduct any other business properly brought before the meeting.
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Who can vote?
You may vote if you were a stockholder of
3Pea as of the close of business on the record date, which is March 24, 2019. As of the record date, there were 46,731,912 shares
of common stock outstanding.
How many votes do I have?
Each share of our common stock that you
own on the record date entitles you to one vote on each matter subject to a vote.
Directors and executive officers of 3Pea
own or control the voting of 17,525,500 shares of common stock, representing approximately 37.5% of the total outstanding voting
shares at the record date. We expect all of these shares will be voted
FOR
all of the proposals as described in this proxy
statement.
How do I vote?
If you are the record holder of your shares,
meaning that you own your shares in your own name and not through a bank or brokerage firm, you may vote as follows:
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You may vote by mail
. You may vote by completing and signing the proxy card enclosed with this proxy statement (or by requesting a paper copy of the materials if you only received an electronic version) and promptly mailing it in the enclosed postage-prepaid envelope. You do not need to put a stamp on the enclosed envelope if you mail it from the United States. The shares you own will be voted according to your instructions on the proxy card you mail. If you return the proxy card, but do not give any instructions on a particular matter described in this proxy statement, the shares you own will be voted in accordance with the recommendations of our Board of Directors. Your vote will not be counted unless your proxy card is received by us prior the 2019 Annual Meeting.
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You may vote by Internet
. You may vote over the Internet as instructed on the proxy card enclosed with this proxy statement and accessing
www.iproxydirect.com/tpnl
. The shares you own will be voted according to your instructions on the proxy card submitted electronically. If you do not give any instructions on a particular matter described in this proxy statement, the shares you own will be voted in accordance with the recommendations of our Board of Directors. Your vote will not be counted unless you vote electronically prior to the 2019 Annual Meeting.
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You may vote in person
. If you attend the meeting, you may vote by delivering your completed proxy card in person or by completing a ballot. Ballots will be available at the meeting.
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How does the Board of Directors recommend that I vote on
the proposals?
The Board of Directors recommends that you
vote:
FOR
the election of each of the seven nominees
to serve as directors on the Board of Directors until our 2020 annual meeting of stockholders.
FOR
the approval of our 2018 Incentive Compensation
Plan.
FOR
the ratification of the selection of Squar
Milner LLP, as our independent registered public accounting firm for the 2019 fiscal year.
Is my vote important?
Your vote is important no matter how many
shares you own. Please take the time to vote. Take a moment to read the instructions in this proxy statement. Choose the way to
vote that is the easiest and most convenient for you and cast your vote as soon as possible.
What if I return a proxy card but do not make specific choices?
Any proxy card returned without directions
given will be voted (1) “
FOR
” the election of directors presented in this proxy statement to the Board
of Directors, (2) “
FOR
” the ratification of the 2018 Incentive Compensation Plan, (3) “
FOR
”
the ratification of the appointment of Squar Milner LLP as our independent registered public accounting firm to audit the
financial statements for our 2019 fiscal year, and (4) as to any other business that may come before the 2019 Annual Meeting,
in accordance with the judgment of the person or persons named in the proxy.
Will my shares be voted if I do not provide my proxy?
Your shares may be voted if they are held
in the name of a brokerage firm, even if you do not provide the brokerage firm with voting instructions. Brokerage firms have the
authority to vote shares for which their customers do not provide voting instructions on certain “routine” matters.
The proposal to ratify the selection of
Squar Milner LLP as our independent auditor for fiscal year 2019 is considered a routine matter for which brokerage firms may vote
shares for which they have not received voting instructions. The other proposals to be voted on at our 2019 Annual Meeting are
not considered “routine” under applicable rules. When a proposal is not a routine matter and the brokerage firm has
not received voting instructions from the beneficial owner of the shares with respect to that proposal, the brokerage firm cannot
vote the shares on that proposal. This is called a “broker non-vote.”
Can I change my vote after I have mailed my proxy card or
after I have voted my shares?
Yes. You can change your vote and revoke
your proxy at any time before the polls close at the meeting by doing any one of the following things:
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signing another proxy with a later date;
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giving our Corporate Secretary, Robert Strobo, Esq., written notice to that effect. He may be contacted at 1700 W. Horizon Ridge Parkway, Suite 200, Henderson, Nevada 89012; e-mail: rstrobo@3pea.com;
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voting again prior to the time at which the Internet voting facilities close by following the procedures applicable to that method of voting, as directed on the enclosed proxy card; or
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voting in person at the meeting.
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How can I access the proxy materials over the internet?
You may view and also download our proxy
materials, including our Form 10-K for the year ended December 31, 2018, which is our Annual Report for 2018, and the
Notice by accessing
www.iproxydirect.com/tpnl
and on our website at
www.3pea.com
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Who pays for the solicitation of Proxies?
The solicitation of proxies in the enclosed
form is made on behalf of the Board of Directors. We pay all costs to solicit these proxies. Our officers, directors and employees
may solicit proxies but will not be additionally compensated for such activities. We are also working with brokerage houses and
other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of shares held of record
by such institutions and persons. We will reimburse their reasonable expenses.
What is the quorum requirement?
A quorum of stockholders is necessary to
hold a valid meeting. A quorum will be present if more than 50% of the outstanding shares entitled to vote are represented by stockholders
present at the meeting or by proxy. On the record date, there were 46,731,912 shares of common stock outstanding. Thus, 23,365,957
shares must be represented by stockholders present at the meeting or by proxy to have a quorum.
Your shares will be counted towards the
quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote
in person at the meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If a quorum is not present,
the meeting will be adjourned until a quorum is obtained.
What vote is required for each item to pass?
Election of Directors
. Directors
are elected by a plurality of the votes cast by the holders of shares entitled to vote in the election. There are seven nominees
and seven positions to be filled; this means that the seven individuals receiving the most “for” votes will be elected.
Votes to “withhold” and broker non-votes will not be relevant to the outcome.
Approval of 2018 Incentive Compensation
Plan
. The votes cast “for” must exceed the votes cast “against” in order to approve the 2018 Incentive
Compensation Plan. Abstentions and broker non-votes will not be relevant to the outcome.
Ratification of independent registered
public accounting firm.
The votes cast “for” must exceed the votes cast “against” in order to ratify
the selection of Squar Milner LLP, as our independent registered public accounting firm. Abstentions and broker non-votes
will not be relevant to the outcome.
If your shares are held in street name and
you do not provide voting instructions to your broker, bank or other nominee, your broker is entitled to vote your shares with
respect to the proposal to ratify the selection of Squar Milner LLP as our independent auditor for the fiscal year 2019. Otherwise,
they will be treated as broker non-votes and will not be counted for purposes of determining the outcome of a proposal. Abstentions
and votes “withheld” are counted for the purpose of establishing a quorum.
Who will count the votes?
We will appoint an Inspector of Elections
for the 2019 Annual Meeting who will not be an officer, director or nominee.
What is “householding”?
SEC rules permit companies and intermediaries
such as brokers to satisfy delivery requirements for proxy statements with respect to two or more stockholders sharing the same
address by delivering a single proxy statement addressed to those stockholders. This process is called “householding.”
This reduces the volume of duplicate information received at your household and helps to reduce costs. Your materials may be househeld
based on your prior express or implied consent. A number of brokerage firms have instituted householding. Once a stockholder has
received notice from his or her broker that the broker will be householding communications to the stockholder’s address,
householding will continue until the stockholder is notified otherwise or until one or more of the stockholders revokes his or
her consent.
If you would like to receive your own set
of our proxy statement and related materials now or in the future, or if you share an address with another 3Pea stockholder and
together both of you would like to receive only a single set of our proxy materials in the future, please contact your broker (if
you hold your shares in “street name”). Be sure to indicate your name, the name of your brokerage firm or bank, and
your account number(s). You can also request prompt delivery of a copy of the proxy statement and related materials by contacting
our Corporate Secretary at 3Pea, 1700 W. Horizon Ridge Parkway, Suite 200, Henderson, Nevada 89012, Attention: Corporate Secretary;
telephone: (702) 453-2221; e-mail: rstrobo@3pea.com.
How and when may I submit a stockholder proposal for next
year’s annual meeting?
To be considered for inclusion in next year’s
proxy materials, your proposal must be submitted in writing to our Corporate Secretary at 1700 W. Horizon Ridge Parkway, Suite
200, Henderson, Nevada 89012. With respect to proposals made pursuant to Rule 14a-8 promulgated under the Securities Exchange Act
of 1934, the proposal must be received by our Corporate Secretary by December 12, 2019 for inclusion in our proxy statement and
form of proxy. In addition, all stockholder proposals submitted outside of the stockholder proposal rules promulgated pursuant
to Rule 14a-8 under the Exchange Act, including nominations of director candidates, must be received by our Corporate Secretary
by no later than December 12, 2019, in order to be considered timely.
You are also advised to review our bylaws,
which contain additional requirements about advance notice of stockholder proposals and director nominations.
Where can I find the voting results?
We will report the voting results on Form 8-K
within four business days after the end of our 2019 Annual Meeting of stockholders. If final voting results are not available to
us in time to file a current report on Form 8-K within four business days after the 2019 Annual Meeting, we intend to file
a current report on Form 8-K to publish preliminary results and, within four business days after the final results are known
to us, file an additional current report on Form 8-K to publish the final results.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our Board of Directors, or “Board”,
has nominated seven persons (the “Nominees”) to be elected at the 2019 Annual Meeting to serve until the 2020 annual
meeting of stockholders and until their respective successors are elected and qualified. Our Board currently has seven members,
and each Nominee already serves on our Board. Each Nominee has agreed to serve on the Board, if elected.
Directors are elected by a plurality of
the votes of the holders of shares present in person or represented by proxy and entitled to vote on the election of directors.
The seven nominees receiving the highest number of affirmative votes will be elected. Proxies cannot be voted for a greater number
of persons than the number of nominees named.
Set forth below is information regarding
the Nominees, as of March 24, 2019, including their ages as of December 31, 2018, positions with 3Pea, recent employment and other
directorships, if any.
Nominees
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Name
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Age
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Position
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Director Since
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Mark R. Newcomer
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53
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Chief Executive Officer, President and Director
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March 2006
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Daniel H. Spence
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55
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Chief Technology Officer, Director
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March 2006
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Joan M. Herman
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62
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Chief Operating Officer, Director
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November 2018
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Dan R. Henry
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53
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Chairman and Director
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May 2018
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Bruce Mina
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72
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Director
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March 2018
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Quinn Williams
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69
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Director
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April 2018
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Dennis Triplett
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72
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Director
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May 2018
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Mark R. Newcomer, Chief Executive Officer,
President, Vice-Chairman and Director
. Mr. Newcomer serves as our President and Chief Executive Officer and has served in this
capacity and as a director since March 2006. From February of 2001 to present, Mr. Newcomer continues to serve as chairman and
CEO of 3PEA Technologies, Inc., a payment solutions company he co-founded in 2001 with Mr. Spence. Mr. Newcomer continues to be
a driving force in guiding the company's growth through technology investments, acquisitions, new product lines, and strategic
partnerships. Mr. Newcomer attended Cal-Poly San Luis Obispo where he majored in Bio-Science. We believe Mr. Newcomer should
serve as our chairman based on the perspective and experience he brings to our board of directors as our founder and Chief Executive
Officer, which adds historical knowledge, operational expertise and continuity to our board of directors.
Daniel H. Spence, Chief Technology Officer,
Director
. Mr. Spence serves as our Chief Information Officer and has served as a director since March 2006. Mr. Spence is responsible
for the design and architecture of the PaySign
®
payments platform. Prior to founding 3PEA Technologies, Inc. with
co-founder Mr. Newcomer, Mr. Spence designed and developed secure middleware for Internet financial processing systems in various
contract positions. From 1995-1997, Mr. Spence was Systems Manager at The Associated Press. From 1997-1999, Mr. Spence was Director
of Technology Planning at The Associated Press, the world’s largest news gathering organization with over 4000 employees
in 227 countries. From 1984-1994, Mr. Spence was with Coca-Cola in Australia implementing financial and line of business systems
for Coca-Cola operations worldwide. In 2007-2008, he was Project Manager for the implementation of Medicare Easyclaim for ANZ Bank
in Australia. Easyclaim allows patients and medical practitioners to lodge Medicare claims using the existing EFTPOS infrastructure.
In 2010-2011 he was Business Analyst on the EFT and Banking Stream that was responsible for the upgrade of POS Terminals to EMV
capability for Australia Post. Previously for 3PEA, he designed and developed EFTPOS terminals and secure key injection systems,
and the software tools (API/SDK) for the EFTPOS terminal integration by third party developers. He has certified several financial
interchanges in the ISO8583 and AS2805 standards to various EFT networks in the United States and Australia. He has over 25 years’
experience deploying large-scale technology solutions for major international corporations. We believe that Mr. Spence should serve
as a director based on his experience in internet financial processing systems and as a founder of our company.
Joan M. Herman, Chief Operating Officer,
Director.
Ms. Herman serves as our Chief Operating Officer since September 2017and director since November 2018. Ms. Herman‘s
experience in payments spans more than 30 years, holding various management positions in operations, product development, and sales
and marketing on both the issuing and acquiring sides of the card business. Ms. Herman’s previous employers and directorships
include Sunrise Bank from June 2012 to August 2017, UMB Bank from 2010 to 2012 and Heartland Bank from 2006 to 2010, and served
as a Director at Heartland Payment Systems from 1997 to 2006. Ms. Herman is a member of the Board of Directors of the National
Branded Prepaid Card Association (NBPCA) and serves as its Treasurer. Ms. Herman earned her B.A. and M.A. in business and marketing
from Webster University, St. Louis, Missouri.
Dan R. Henry, Chairman
and Director.
Mr. Henry has served as a director since May 2018. Mr. Henry has been a private investor and advisor since
2013 and previously served as Chief Executive Officer of NetSpend, a leading provider of prepaid debit cards for personal &
commercial use, from 2008 to 2014. Prior to that, he served as president and chief operating officer of Euronet, a global leader
in processing secure electronic financial transactions from 1994 to 2006. He was also a co-founder of Euronet and served on its
board until January 2008. Mr. Henry currently serves on the Boards of Directors of a number of privately and publicly held companies,
including The Brinks Company, Balance Innovations, Card.com, Rx Savings Solutions, and Align Income Share Funding, in the payments
and technology industries. Mr. Henry is a seasoned financial services industry entrepreneur who brings valuable senior leadership,
experience and insight to the Board.
Bruce Mina, Director
. Mr. Mina has
served as a director since March 2018. Mr. Mina, MS-Taxation, CPA/ABV, CFF, CVA, BVAL is a co- founder & managing member of
Mina Llano Higgins Group, LLP (founded 1974). Mr. Mina is a Certified Public Accountant licensed in the State of New York for over
30 years. He is experienced in, and responsible for litigation support and valuation assignments regarding business valuations,
damage studies and appraisal engagements. Mr. Mina has been retained as a Business Appraiser, Expert Witness, Consultant, Forensic
Examiner, Auditor, Accountant and Tax Planner by business owners and corporate officers, attorneys and Municipalities to provide
services in business appraisal and enterprise valuation, forensic examination and litigation support. Mr. Mina has served as CFO
for Coal Brick Oven Pizzeria, Inc., a Nevada corporation (Grimaldi’s Pizzeria chain of restaurants) from 2011 to 2018, and
currently serves as CFO for Academy of Aviation in Long Island, NY since 2009. Mr. Mina earned his B.A. degree from Hofstra University,
and his Master of Science-Taxation Degree from Long Island University.
Quinn Williams, Director.
Mr.
Williams has served as a director since April 2018. Mr. Williams is an attorney and shareholder with the firm of Greenberg Traurig
LLP, which he joined in June 2002. Admitted to the Bar in New York and Arizona, Mr. Williams practice focuses on mergers and acquisitions,
public and private securities offerings, venture capital transactions and advising on the formation and funding of emerging companies.
Mr. Williams’ industry experience includes technology, fintech, banking, manufacturing, distribution, real estate and
specialty service industries. He serves as corporate counsel for private companies and was formerly general counsel of an international
retail franchisor and served on the Board of Directors of Swenson’s Inc., in 1985. Mr. Williams possesses a long list of
accolades and awards, including listed,
The Best Lawyers in America
, Corporate Law; Franchise Law; Venture Capital
Law, 1995-2018; selected by
The Business Journal
“Best of the Bar Award” Corporate Financing, 2005,
and is rated AV preeminent
®
5.0 out of 5 from Martindale Hubbell. Mr. Williams graduated from the University
of Wisconsin and University of Arizona College of Law
.
Dennis Triplett, Director.
Mr.
Triplett has served as a director since May 2018. Mr. Triplett served as CEO (March 2004 to April 2015) and Chairman (April 2015
to March 2017) of Healthcare Services at UMB Bank, N.A. a leading provider of healthcare payment solutions including health savings
accounts (HSAs), healthcare spending accounts and payments technology. Mr. Triplett founded this division that is now the fifth
largest HSA custodian in the nation with $2.6 billion in assets and accounts exceeding 1.25 million. Mr. Triplett developed
the Bank’s Medical Savings Account product in the late 90’s and grew that into a multipurpose card product supporting
a variety of spending accounts including HSAs, FSAs, and HRAs. Mr. Triplett has over 35 years of experience in the banking industry
including serving as the President and CEO of two banks in the Midwest and has extensive credit and debit card experience.
Mr. Triplett is a graduate of several banking schools and holds an MBA degree from the University of Missouri. Mr. Triplett industry
leadership has included Chairing the Employers Council on Flexible Compensation (ECFC) from 2007 to 2014; a founding Board Member
of the American Bankers Association’s HSA Council; Chairing American Health Insurance Plan’s (AHIP) HSA Leadership
Council from 2009 to 2013. Civically, Mr. Triplett serves on the Board of the Greater Kansas City Crime Commission since 2011,
Chairperson for Community for Coaches since 2016 and member of UMB Healthcare Services Strategic Advisory Council since 2016.
None of the directors share any familial
relationship with any other executive officers or key employees.
None of the directors has been involved
in any legal proceedings as listed in Regulation S-K, Section 401(f).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF EACH NAMED NOMINEE.
INFORMATION REGARDING CORPORATE GOVERNANCE
Independence of Board of Directors
Our Board has reviewed the materiality of
any relationship that each of our directors has with the Company, either directly or indirectly. Based upon this review, our Board
has determined that all of our presently serving directors other than Mr. Newcomer, Mr. Spence and Ms. Herman are “independent
directors” as defined by The NASDAQ Stock Market. Our Board also determined that Messrs. Henry and Williams, who comprise
our presently serving Nominating and Corporate Governance Committee, all satisfy the independence standards for such committee
established by the SEC and the NASDAQ Marketplace Rules. With respect to our presently serving Audit Committee, our Board has determined
that Messrs. Mina, Williams and Triplett satisfy the independence standards for such committee established by Rule 10A-3 under
the Exchange Act, the SEC and the NASDAQ Marketplace Rules, as applicable. Furthermore, the Nominating and Corporate Governance
Committee, with concurrence by the Board, has determined that Mr. Mina is an “audit committee financial expert”
within the meaning of SEC rules. With respect to our presently serving Compensation Committee, our Board of directors has determined
that Messrs. Henry, Mina and Triplett satisfy the independence standards for such committee established by Rule 10C-1 under the
Exchange Act, the SEC and the NASDAQ Marketplace Rules, as applicable.
In making such determinations, our Board
considered the relationships that each such non-employee director or director nominee has with our company and all other facts
and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of our capital
stock by each non-employee director. In considering the independence of our directors, our Board considered the association of
each such non-employee director has with us and all other facts and circumstances our Board deemed relevant in determining independence.
Board Leadership Structure
Dan R. Henry serves as our Chairman of the
Board, and Mark Newcomer serves as our President and Chief Executive Officer. Our Board has decided to maintain separate Chairman
and CEO roles to allow our CEO to focus on the development and execution of our business strategy and leading the Company, while
allowing the Chairman to lead the Board in its fundamental role of providing advice to, and independent oversight of, management.
The Board recognizes the time, effort and energy that the CEO is required to devote to his position in the current business environment,
as well as the commitment required to serve as our Chairman. While our Bylaws and Corporate Governance Guidelines do not require
that our Chairman and CEO positions be separate, the Board believes that having separate positions and having an independent director
serve as Chairman is the appropriate leadership structure for us at this time.
Role of the Board in Risk Oversight
Management is responsible for the day-to-day
management of risk and for identifying our risk exposures and communicating such exposures to our board. Our Board is responsible
for designing, implementing and overseeing our risk management processes. The Board does not have a standing risk management committee,
but administers this function directly through the Board as a whole. The whole Board considers strategic risks and opportunities
and receives reports from its officers regarding risk oversight in their areas of responsibility as necessary. We believe our Board’s
structure facilitates the division of risk management oversight responsibilities and enhances the Board’s efficiency in fulfilling
its oversight function with respect to different areas of our business risks and our risk mitigation practices.
Meetings of the Board
During 2018, there were four meetings of
the Board. Each of the directors attended at least 75% of the aggregate number of meetings of the Board of Directors and the committees
of the Board of Directors on which he or she served during the year ended December 31, 2018 (in each case, which
were held during the period for which he or she was a director and/or a member of the applicable committee). In addition to participation
at Board meetings, our directors discharge their responsibilities throughout the year through personal meetings and other communications,
including considerable personal and telephone contact with the chairman and chief executive officer and others regarding matters
of interest and concern to us.
We do not have a formal policy requiring
members of the Board to attend the annual meeting of stockholders, although all directors are strongly encouraged to attend. All
of our board members attended our 2018 annual meeting of stockholders.
Executive Sessions of Non-Management Directors
Pursuant to our corporate governance principles
or as required by NASDAQ Stock Market rules, non-management directors of the Board meet from time to time without the presence
of management. The Chairman generally chairs these sessions.
Committees of the Board
In 2018, the Board established three new
standing committees: the Audit Committee, the Compensation Committee and the Nominating & Corporate Governance Committee. From
time to time, the Board may also create various ad hoc committees for special purposes. The membership during the last fiscal
year and the function of each of the Audit, Compensation, and Nominating and Corporate Governance Committees are described below. The
board has determined that all of the members of each of the Audit, Compensation, and Nominating and Corporate Governance Committees
are independent as defined under the rules of the NASDAQ Stock Market, including, in the case of all members of the Audit Committee,
the independence requirements contemplated by Rule 10A-3 under the Exchange Act. The charters of each committee are available on
the Company’s website at www.3pea.com.
The following chart sets forth the directors
who currently serve as members of each of the Board committee as of the date of this proxy statement.
|
Directors
|
|
|
Audit
Committee
|
|
|
|
Compensation Committee
|
|
|
|
Nominating
Committee
|
|
|
Dan R. Henry*
|
|
|
|
|
|
|
C
|
|
|
|
C
|
|
|
Bruce Mina
|
|
|
C
|
|
|
|
X
|
|
|
|
|
|
|
Quinn Williams
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
|
Dennis Triplett
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
_______________________
* Chairman of the Board
“C” Denotes member and chair of committee
“X” Denotes member
Audit Committee Functions
We have a separately designated standing
Audit Committee established in accordance with Section 3(a)(58)(a) of the Exchange Act. The Audit Committee met
three times in 2018. The members of the Audit Committee are Bruce Mina (chair), Dennis Triplett and Quinn Williams.
The
Audit Committee is responsible for oversight of the quality and integrity of the accounting, auditing and reporting practices of
3PEA. More specifically, it assists the Board of Directors in fulfilling its oversight responsibilities relating to (i) the
quality and integrity of our financial statements, reports and related information provided to stockholders, regulators and others,
(ii) our compliance with legal and regulatory requirements, (iii) the qualifications, independence and performance of
our independent registered public accounting firm, (iv) the internal control over financial reporting that management and
the Board have established, and (v) the audit, accounting and financial reporting processes generally. The Committee is also
responsible for review and approval of related-party transactions. The Board had determined that Mr. Mina as an “audit
committee financial expert” within the meaning of SEC rules. The Audit Committee has the authority to obtain advice and assistance
from, and receive appropriate funding from the Company for, outside legal, accounting or other advisors as it deems necessary to
carry out its duties.
Compensation Committee Functions
The
Compensation Committee did not meet during 2018 since all matters within the scope of the Compensation Committee were addressed
at the Board of Directors level. Dan R. Henry (chair), Dennis Triplett and Bruce Mina are the members of the Compensation Committee.
The Committee is responsible for reviewing and recommending compensation policies and programs, management and corporate goals,
as well as salary and benefit levels for our executive officers and other significant employees. Its responsibilities include supervision
and oversight of the administration of our incentive compensation and stock programs. As such, the Committee is responsible for
administration of grants and awards to directors, officers, employees, consultants and advisors under the 3PEA 2018 Incentive Compensation
Plan.
Nominating & Corporate Governance Committee Functions
The
Nominating and Corporate Governance Committee did not meet during 2018 since all matters within the scope of the Nominating and
Corporate Governance Committee were addressed at the Board of Directors level. Dan R. Henry (chair) and Quinn Williams are the
members of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible
for identifying individuals qualified to become members of the Board, recommending to the Board, candidates for election or re-election as
directors, and reviewing our governance policies in light of the corporate governance rules of the SEC. Under its charter, the
Committee is required to establish and recommend criteria for service as a director, including matters relating to professional
skills and experience, board composition, potential conflicts of interest and manner of consideration of individuals proposed by
management or stockholders for nomination. The Committee believes candidates for the Board should have the ability to exercise
objectivity and independence in making informed business decisions; extensive knowledge, experience and judgment; the highest integrity;
loyalty to the interests of 3PEA and its stockholders; a willingness to devote the extensive time necessary to fulfill a director’s
duties; the ability to contribute to the diversity of perspectives present in board deliberations, and an appreciation of the role
of the corporation in society. The Committee will consider candidates meeting these criteria who are suggested by directors, management,
stockholders and other advisers hired to identify and evaluate qualified candidates. This committee also monitors the ethical behavior
of our employees, officers and directors.
Communication with the Board
The Board and management encourage communication
from our stockholders. Stockholders who wish to communicate with our management or directors should direct their communication
to the Corporate Secretary of the Company, 1700 W. Horizon Ridge Parkway, Suite 200, Henderson, Nevada 89012. The Secretary will
forward communications intended for the Board to the Chairman of the Board, currently Mr. Henry, or, if intended for an individual
director, to that director. If multiple communications are received on a similar topic, the Secretary may, in his discretion, forward
only representative correspondence. Any communications that are abusive, in bad taste or present safety or security concerns may
be handled differently.
Code of Ethics
We have adopted a Code of Ethics that applies
to all our directors, officers and employees. The Code of Ethics is publicly available on our website at www.3pea.com. Amendments
to the Code of Ethics and any grant of a waiver from a provision of the Code of Ethics requiring disclosure under applicable SEC
rules will be disclosed on our website.
Policies with Respect to Transactions
with Related Persons
The Nominating
and Corporate Governance Committee and the Board have adopted a Code of Ethics, which is available at www.3pea.com, that sets forth
various policies and procedures intended to promote the ethical behavior of the Company’s employees, officers and directors.
The Code of Ethics describes our policy on conflicts of interest.
The executive
officers and the Board are also required to complete a questionnaire on an annual basis which requires them to disclose any related
person transactions and potential conflicts of interest. The responses to these questionnaires are reviewed by outside corporate
counsel, and, if a transaction is reported by an independent director or executive officer, the questionnaire is submitted to the
Chairperson of the Audit Committee for review. If necessary, the Audit Committee will determine whether the relationship is material
and will have any effect on the director’s independence. After making such determination, the Audit Committee will report
its recommendation on whether the transaction should be approved or ratified by the entire Board.
Certain Relationships and Related
Transactions
We did not participate
in any transactions in which any of the Company directors, executive officers, any beneficial owner of more than 5% of our common
stock, nor any of their immediate family members, had a direct or indirect material interest.
Our Audit Committee
Charter requires that members of the Audit Committee, all of whom are independent directors, conduct an appropriate review of,
and be responsible for the oversight of, all related party transactions on an ongoing basis. There were no related party material
transactions during the fiscal year ended December 31, 2018.
Director Nomination Process
The Nominating and Corporate Governance,
or Nominating Committee, is responsible for, among other things, selection of candidates for the annual slate of directors.
When identifying and evaluating
candidates, the Nominating Committee first determines whether there are any evolving needs of the Board that require an
expert in a particular field. The Nominating Committee may retain a third-party search firm to assist it in locating
qualified candidates that meet the needs of the Board at that time. The search firm would provide information on a number of
candidates, which the Nominating Committee discusses. The Nominating Committee chair and some or all of the members of the
Nominating Committee, and the Chief Executive Officer, will interview potential candidates that the Nominating Committee
deems appropriate. If the Nominating Committee determines that a potential candidate meets the needs of the Board, has the
qualifications, and meets the independence standards required by NASDAQ rules, it will recommend the nomination of the
candidate to the Board. It is the Nominating Committee’s policy to consider director candidates recommended by
stockholders, if such recommendations are properly submitted to the Company. Stockholders wishing to recommend persons for
consideration by the Nominating Committee as nominees for election to the Board can do so by writing to the Corporate
Secretary of 3Pea International, Inc., at 1700 W. Horizon Ridge Parkway, Suite 200, Henderson, Nevada 89012.
Recommendations must include the proposed nominee’s name, biographical data and qualifications, as well as a written
statement from the proposed nominee consenting to be named and, if nominated and elected, to serve as a director.
Recommendations must also follow the Company’s procedures for nomination of directors by stockholders (see the
information under the subheadings “
Nominating and Corporate Governance Committee
” and “
Criteria
and Diversity
”). The Nominating Committee will consider the candidate and the candidate’s qualifications in
the same manner in which it evaluates nominees identified by the Nominating Committee. The Nominating Committee may contact
the stockholder making the nomination to discuss the qualifications of the candidate and the stockholder’s reasons for
making the nomination. The Nominating Committee may then interview the candidate if it deems the candidate to be appropriate.
The Nominating Committee may use the services of a third-party search firm to provide additional information about the
candidate prior to making a recommendation to the Board.
The Nominating Committee’s nomination
process is designed to ensure that the Nominating Committee fulfills its responsibility to recommend candidates who are properly
qualified to serve the Company for the benefit of all of its stockholders, consistent with the standards established by the Nominating
Committee under our corporate governance principles. The Nominating Committee did not receive any director nominee recommendations
from stockholders for the 2019 Annual Meeting.
Criteria and Diversity
In considering whether to recommend any
candidate for inclusion in the Board’s slate of recommended director nominees, the Nominating and Corporate Governance Committee
will apply the criteria set forth in governance guidelines. These criteria include the candidate’s integrity, business acumen,
age, experience, commitment, diligence, conflicts of interest and the ability to act in the interests of all stockholders. Our
guidelines specify that the value of diversity on the Board should be considered by the Nominating and Corporate Governance Committee
in the director identification and nomination process. The Committee seeks nominees with a broad diversity of experience, professions,
skills, geographic representation and backgrounds. The Committee does not assign specific weights to particular criteria, and no
particular criterion is necessarily applicable to all prospective nominees. We believe that the backgrounds and qualifications
of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that
will allow the Board to fulfill its responsibilities. Nominees are not discriminated against on the basis of race, religion, national
origin, sexual orientation, disability or any other basis proscribed by law.
Report of the Audit Committee
The Audit Committee is responsible for
providing independent, objective oversight of 3PEA’s accounting functions and internal control over financial reporting.
The Audit Committee has reviewed and discussed audited financial statements for 3PEA with management. The Audit Committee also
has discussed with Squar Milner LLP the matters required to be discussed by the applicable requirements of the Public Company Accounting
Oversight Board (“PCAOB”) and the SEC, which includes, among other items, matters related to the conduct of the annual
audit of our Company’s financial statements. The Audit Committee has also received and reviewed the written disclosures and
the letter from Squar Milner LLP, as required by applicable requirements of the Public Company Accounting Oversight Board, regarding
the communications by Squar Milner LLP with the Audit Committee concerning independence, and has discussed with Squar Milner LLP
its independence from 3PEA.
Based upon the review and discussions referred
to above, the Audit Committee recommended to our Board of Directors that the audited financial statements of 3PEA for the 2018
fiscal year be included in the Annual Report filed on Form 10-K for the year ended December 31, 2018.
By the Audit Committee of the Board of
Directors of 3PEA International, Inc.
Bruce Mina, Chair
Quinn Williams
Dennis Triplett
Director Compensation
The following
table details the total compensation earned by our non-employee directors during the year ended December 31, 2018.
|
Name
|
|
Fees Earned
or Paid in
Cash ($)
|
|
|
Restricted
Stock
Awards
($) (2)
|
|
|
Option
Awards
($)(3)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
All Other
Compensation
($)(4)
|
|
|
Total
($)
|
|
|
Dan R. Henry (1)
|
|
|
10,500
|
|
|
|
–
|
|
|
|
1,574,691
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,585,191
|
|
|
Bruce Mina (1)
|
|
|
10,500
|
|
|
|
234,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
244,500
|
|
|
Dennis Triplett (1)
|
|
|
10,500
|
|
|
|
268,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
278,500
|
|
|
Quinn Williams (1)
|
|
|
10,500
|
|
|
|
320,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
330,500
|
|
|
(1)
|
Mr. Henry, Mr. Mina, Mr. Triplett and Mr. Williams were appointed to the board for the first time in 2018.
|
|
(2)
|
Mr. Mina, Mr. Triplett and Mr. Williams
received restricted stock grants as part of their compensation for their services. The restricted shares will vest over a
four-year period from the date of their appointment as a director.
|
|
(3)
|
Represents the grant date fair value of stock option award based upon the Black Scholes valuation model made in 2018. Options were granted on May 3, 2018, and will vest over a four-year period from the date his appointment. For a description of the assumptions used to determine these amounts, see Note 4 to the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
|
|
(4)
|
Excludes travel expense reimbursements.
|
|
Name
|
|
Number of
Shares Subject
to Option
Awards Held as of
December 31,
2018
|
|
|
Dan R. Henry
|
|
|
1,500,000
|
|
|
TOTAL
|
|
|
1,500,000
|
|
For a more detailed description of
the assumptions used for purposes of determining grant date fair value, see Note 4 to the Consolidated Financial Statements and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies
and Estimates—Stock-Based Compensation” included in the Form 10-K for the 2018 fiscal year.
We also reimburse
our directors for reasonable travel and other related expenses.
During fiscal
2018, 3PEA adopted a cash compensation program for directors under which independent Board members are paid an annual fee of $15,000
per year, and $1,500 each quarterly board meeting they attend.
During 2018,
we also issued 200,000 shares of restricted common stock to three of our independent directors (other than Dan Henry) at the time
of their appointment to the Board. The shares vest over a four-year period from the date of their appointment. Mr. Henry was granted
a stock option for 1,500,000 shares of common stock with an exercise price of $1.34 for his role as an independent director and
chairman of the Board at the time of his appointment to the Board. Mr. Henry’s options vest over a four-year period
from the date of his appointment.
EQUITY COMPENSATION
PLAN INFORMATION
The following table provides information
as of December 31, 2018 about the securities issued, or authorized for future issuance, under our equity compensation plans.
|
Plan Category
|
|
Number of
securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
|
|
|
Weighted-
average exercise price of
outstanding options, warrants
and rights
(b)
|
|
|
|
Number of
securities
remaining
available for
future issuance
(c)
|
|
Equity compensation plans approved by security holders
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Officer Restricted Stock Grant (1)
|
|
|
2,700,000
|
|
|
$
|
0.16
|
|
|
|
–
|
|
|
2016 Consultant Restricted Stock Grant (2)
|
|
|
70,000
|
|
|
$
|
0.16
|
|
|
|
–
|
|
|
2017 Restricted Stock Grant to Officer (3)
|
|
|
600,000
|
|
|
$
|
0.42
|
|
|
|
–
|
|
|
2018 Incentive Compensation Plan (4)
|
|
|
707,327
|
|
|
$
|
2.40
|
|
|
|
4,292,673
|
|
|
2018 Option issued to Director (5)
|
|
|
1,500,000
|
|
|
$
|
1.34
|
|
|
|
–
|
|
|
2018 Restricted Stock Grants to Directors (6)
|
|
|
600,000
|
|
|
$
|
1.37
|
|
|
|
–
|
|
|
2018 Option issued to Employee (7)
|
|
|
500,000
|
|
|
$
|
3.39
|
|
|
|
–
|
|
|
2018 Restricted Stock Grants to Officers and Employees (8)
|
|
|
2,340,000
|
|
|
$
|
1.84
|
|
|
|
–
|
|
|
Total
|
|
|
9,017,327
|
|
|
$
|
1.24
|
|
|
|
4,292,673
|
|
|
|
(1)
|
In November 2016, we granted Mark Newcomer, Daniel Spence, Anthony DePrima (former General Counsel, Secretary) and Brian Polan
(former CFO) 2,000,000, 2,000,000, 500,000 and 500,000 shares of restricted stock. The shares were valued at $0.1576 on the date
of the award, based on the market value on the date of grant, less a 15% discount due to the shares being restricted and lacking
market liquidity. The shares vest quarterly over a five year period. As of December 31, 2018, 2,000,000 of the shares had been
issued and 300,000 shares lapsed as result of the retirement of Mr. DePrima, leaving 2,700,000 shares unissued.
|
|
|
(2)
|
In November 2016, we granted a consultant 210,000 shares of restricted stock. The shares were valued at $0.1576 on the date
of the award, based on the market value on the date of grant, less a 15% discount due to the shares being restricted and lacking
market liquidity. The shares vest quarterly over a three year period. As of December 31, 2018, 140,000 of the shares had been issued,
leaving 70,000 shares unissued.
|
|
|
(3)
|
In September 4, 2017, we granted 800,000 shares of
restricted stock to an officer. The shares were valued at $0.42 on the date of the award,
based on the market value on the date of grant. The shares vest annually over a four
year period. As of December 31, 2018, 200,000 of the shares had been issued, leaving
600,000 shares unissued.
|
|
|
(4)
|
In July 2018, the Board approved the Company’s 2018 Incentive Compensation Plan, and reserved 5,000,000 shares for issuance
under the plan. As of December 31, 2018, 750,000 options had been issued under the plan, of which 42,573 had been forfeited as
of December 31, 2018.
|
|
|
(5)
|
On May 3, 2018, we issued Dan Henry, one of our directors,
an option to purchase 1,500,000 shares of common stock for $1.34 per share, which was
the market price of the common stock on the date of the option. The option vests annually
over a four year period from the date of the option.
|
|
|
(6)
|
In March, April and May, we granted Bruce Mina, Quinn Williams and Dennis Triplett, each of whom is a director, 200,000 shares
of restricted stock each. The shares vest annually over a four year period from the date of the grant. The weighted average value
of the stock grant was $1.37 per share, based on the market price of our common stock on the date of each grant. As of December
31, 2018, none of the shares had been issued.
|
|
|
(7)
|
On August 7, 2018, we issued an employee an option
to purchase 500,000 shares of common stock for $3.39 per share, which was the market
price of the common stock on the date of the option. The option vests annually over a
five year period from the date of the option.
|
|
|
(8)
|
At various times in 2018, we granted an aggregate of 2,340,000 shares of restricted common stock to seven employees. 2,040,000
of the shares vest annually over a five year period from the date of the grant, and the remaining 300,000 shares vest annually
over a three year period from the date of the grant. The weighted average value of the stock grants was $1.84 per share, based
on the market price of our common stock on the date of each grant. None of the shares have been issued. As of December 31, 2018,
none of the shares had been issued.
|
PROPOSAL NO. 2
APPROVAL OF 2018 INCENTIVE COMPENSATION
PLAN
Background and Purpose
On July 18, 2018, our Board of Directors
adopted the 3Pea International, Inc. 2018 Incentive Compensation Plan, which we refer to as the 2018 Plan, and recommended that
it be submitted to our stockholders for their approval at the next annual meeting.
The purpose of the 2018 Plan is to assist
our company and its subsidiaries and other designated affiliates, which we refer to as “related entities”, in attracting,
motivating, retaining and rewarding high-quality executives and other employees, officers, directors consultants and other persons
who provide services to our company or its related entities, by enabling such persons to acquire or increase a proprietary interest
in our company in order to strengthen the mutuality of interests between such persons and our stockholders, and providing such
persons with annual and long term performance incentives to expend their maximum efforts in the creation of stockholder value.
The effective date of the 2018 Plan is
July 18, 2018. As of the date of this Proxy Statement, no awards have been granted under the 2018 Plan, except for non-qualified
stock options to purchase an aggregate of 750,000 shares of our common stock granted to 39 employees, none of whom are directors
or executive officers.
Stockholder approval of the 2018 Plan is
required (i) to comply with certain exclusions from the limitations of Section 162(m) of the Internal Revenue Code of
1986, which we refer to as the Code, as described below, (ii) for the 2018 Plan to be eligible under the “plan lender”
exemption from the margin requirements of Regulation G promulgated under the Securities Exchange Act of 1934, as amended, which
we refer to as the Exchange Act, (iii) to comply with the incentive stock options rules under Section 422 of the Code,
and (iv) for purposes of complying with the stockholder approval requirements for the issuance of shares for services by the
NASDAQ Capital Market, where our common stock is listed for trading.
Summary of 2018 Plan
The following is a summary of certain principal
features of the 2018 Plan. This summary is qualified in its entirety by reference to the complete text of the 2018 Plan. Stockholders
are urged to read the actual text of the 2018 Plan in its entirety which is set forth as Exhibit A to this Proxy Statement.
Shares Available for Awards; Annual
Per-Person Limitations.
Under the 2018 Plan, the total number of shares of common stock of our company
reserved and available for delivery under the 2018 Plan (the “awards”) at any time during the term of the 2018 Plan
shall be equal to 5,000,000 shares. The foregoing limit shall be increased by the number of shares of common stock with respect
to which awards previously granted under the 2018 Plan that are forfeited, expire or otherwise terminate without issuance of shares,
or that are settled for cash or otherwise do not result in the issuance of shares, and the number of shares that are tendered (either
actually or by attestation) or withheld upon exercise of an award to pay the exercise price or any tax withholding requirements.
Awards issued in substitution for awards previously granted by a company acquired by our company or a related entity, or with which
our company or any related entity combines, do not reduce the limit on grants of awards under the 2018 Plan.
The Compensation Committee of our Board
of Directors is authorized to adjust the limitations described in the two preceding paragraphs and is authorized to adjust outstanding
awards (including adjustments to exercise prices of options and other affected terms of awards) in the event that a dividend or
other distribution (whether in cash, shares of common stock or other property), recapitalization, forward or reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase, share exchange or other similar corporate transaction or event affects
the common stock so that an adjustment is appropriate. The Compensation Committee is also authorized to adjust performance conditions
and other terms of awards in response to these kinds of events or in response to changes in applicable laws, regulations or accounting
principles.
Eligibility.
The
persons eligible to receive awards under the 2018 Plan are the officers, directors, employees, consultants and other persons who
provide services to our company or any related entity. An employee on leave of absence may be considered as still in the employ
of our company or a related entity for purposes of eligibility for participation in the 2018 Plan.
Administration.
The
2018 Plan is to be administered by the Compensation Committee, provided, however, that except as otherwise expressly provided in
the 2018 Plan, our Board of Directors may exercise any power or authority granted to the Compensation Committee under the 2018
Plan. Subject to the terms of the 2018 Plan, the Compensation Committee is authorized to select eligible persons to receive awards,
determine the type, number and other terms and conditions of, and all other matters relating to, awards, prescribe award agreements
(which need not be identical for each participant), and the rules and regulations for the administration of the 2018 Plan, construe
and interpret the 2018 Plan and award agreements, correct defects, supply omissions or reconcile inconsistencies therein, and make
all other decisions and determinations as the Compensation Committee may deem necessary or advisable for the administration of
the 2018 Plan.
Stock Options and Stock Appreciation
Rights.
The Compensation Committee is authorized to grant stock options, including both incentive stock
options (“ISOs”), which can result in potentially favorable tax treatment to the participant, and non-qualified stock
options, and stock appreciation rights entitling the participant to receive the amount by which the fair market value of a share
of common stock on the date of exercise exceeds the grant price of the stock appreciation right. The exercise price per share subject
to an option and the grant price of a stock appreciation right are determined by the Compensation Committee, but must not be less
than the fair market value of a share of common stock on the date of grant. For purposes of the 2018 Plan, the term “fair
market value” means the fair market value of common stock, awards or other property as determined by the Compensation Committee
or under procedures established by the Compensation Committee. Unless otherwise determined by the Compensation Committee, the fair
market value of common stock as of any given date shall be the closing sales price per share of common stock as reported on the
principal stock exchange or market on which common stock is traded on the date as of which such value is being determined or, if
there is no sale on that date, then on the last previous day on which a sale was reported. The maximum term of each option or stock
appreciation right, the times at which each option or stock appreciation right will be exercisable, and provisions requiring forfeiture
of unexercised options or stock appreciation rights at or following termination of employment generally are fixed by the Compensation
Committee, except that no option or stock appreciation right may have a term exceeding ten years. Methods of exercise and settlement
and other terms of the stock appreciation right are determined by the Compensation Committee. The Compensation Committee, thus,
may permit the exercise price of options awarded under the 2018 Plan to be paid in cash, shares, other awards or other property
(including loans to participants). Options may be exercised by payment of the exercise price in cash, shares of common stock, outstanding
awards or other property having a fair market value equal to the exercise price, as the Compensation Committee may determine from
time to time.
Restricted and Deferred Stock.
The
Compensation Committee is authorized to grant restricted stock and deferred stock. Restricted stock is a grant of shares of common
stock which may not be sold or disposed of, and which shall be subject to such risks of forfeiture and other restrictions as the
Compensation Committee may impose. A participant granted restricted stock generally has all of the rights of a stockholder of our
company, unless otherwise determined by the Compensation Committee. An award of deferred stock confers upon a participant the right
to receive shares of common stock at the end of a specified deferral period, subject to such risks of forfeiture and other restrictions
as the Compensation Committee may impose. Prior to settlement, an award of deferred stock carries no voting or dividend rights
or other rights associated with share ownership, although dividend equivalents may be granted, as discussed below.
Dividend Equivalents.
The
Compensation Committee is authorized to grant dividend equivalents conferring on participants the right to receive, currently or
on a deferred basis, cash, shares of common stock, other awards or other property equal in value to dividends paid on a specific
number of shares of common stock or other periodic payments. Dividend equivalents may be granted alone or in connection with another
award, may be paid currently or on a deferred basis and, if deferred, may be deemed to have been reinvested in additional shares
of common stock, awards or otherwise as specified by the Compensation Committee.
Bonus Stock and Awards in Lieu of Cash
Obligations.
The Compensation Committee is authorized to grant shares of common stock as a bonus free
of restrictions, or to grant shares of common stock or other awards in lieu of company obligations to pay cash under the 2018 Plan
or other plans or compensatory arrangements, subject to such terms as the Compensation Committee may specify.
Other Stock-Based awards.
The
Compensation Committee or our Board of Directors is authorized to grant awards that are denominated or payable in, valued by reference
to, or otherwise based on or related to shares of common stock. The Compensation Committee determines the terms and conditions
of such awards.
Performance awards.
The
Compensation Committee is authorized to grant performance awards to participants on terms and conditions established by the Compensation
Committee. The performance criteria to be achieved during any performance period and the length of the performance period is determined
by the Compensation Committee upon the grant of the performance award; provided however, that a performance period cannot be shorter
than 12 months or longer than 5 years. Performance awards may be valued by reference to a designated number of shares (in which
case they are referred to as performance shares) or by reference to a designated amount of property including cash (in which case
they are referred to as performance units). Performance awards may be settled by delivery of cash, shares or other property, or
any combination thereof, as determined by the Compensation Committee. Performance awards granted to persons whom the Compensation
Committee expects will, for the year in which a deduction arises, be “covered employees” (as defined below) will, if
and to the extent intended by the Compensation Committee, be subject to provisions that should qualify such awards as “performance-based
compensation” not subject to the limitation on tax deductibility by our company under Code Section 162(m). For purposes
of Section 162(m), the term “covered employee” means our company’s chief executive officer and each other
person whose compensation is required to be disclosed in our company’s filings with the SEC by reason of that person being
among the three highest compensated officers of our company as of the end of a taxable year. If and to the extent required under
Section 162(m) of the Code, any power or authority relating to a performance award intended to qualify under Section 162(m)
of the Code is to be exercised by the Compensation Committee and not our Board of Directors.
If and to the extent that the Compensation
Committee determines that these provisions of the 2018 Plan are to be applicable to any award, one or more of the following business
criteria for our company, on a consolidated basis, and/or for related entities, or for business or geographical units of our company
and/or a related entity (except with respect to the total stockholder return and earnings per share criteria), shall be used by
the Compensation Committee in establishing performance goals for awards under the 2018 Plan: (1) earnings per share; (2) revenues
or margins; (3) cash flow; (4) operating margin; (5) return on assets, net assets, investment, capital, operating
revenue or equity; (6) economic value added; (7) direct contribution; (8) income; net income; pretax earnings; earnings
before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings after interest expense and
before extraordinary or special items; operating income; net operating income; income before interest income or expense, unusual
items and income taxes, local, state or federal and excluding budgeted and actual bonuses which might be paid under any ongoing
bonus plans of our company; (9) working capital or working capital management, including inventory turnover and days sales
outstanding; (10) management of fixed costs or variable costs; (11) identification or consummation of investment opportunities
or completion of specified projects in accordance with corporate business plans, including strategic mergers, acquisitions or divestitures;
(12) total stockholder return; (13) debt reduction; (14) market share; (15) entry into new markets, either
geographically or by business unit; (16) customer retention and satisfaction; (17) strategic plan development and implementation,
including turnaround plans; and (18) stock price. Any of the above goals may be determined on an absolute or relative basis
(e.g. growth in earnings per share) or as compared to the performance of a published or special index deemed applicable by the
Compensation Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of companies
that are comparable to our company. The Compensation Committee may exclude the impact of an event or occurrence which the Compensation
Committee determines should appropriately be excluded, including without limitation (i) restructurings, discontinued operations,
extraordinary items, and other unusual or non-recurring charges, (ii) an event either not directly related to the operations
of our company or not within the reasonable control of our company’s management, or (iii) a change in accounting standards
required by generally accepted accounting principles.
The Compensation Committee may, in its
discretion, determine that the amount payable as a performance award will be reduced from the amount of any potential award.
Other Terms of Awards.
Awards
may be settled in the form of cash, shares of common stock, other awards or other property, in the discretion of the Compensation
Committee. The Compensation Committee may require or permit participants to defer the settlement of all or part of an award in
accordance with such terms and conditions as the Compensation Committee may establish, including payment or crediting of interest
or dividend equivalents on deferred amounts, and the crediting of earnings, gains and losses based on deemed investment of deferred
amounts in specified investment vehicles. The Compensation Committee is authorized to place cash, shares of common stock or other
property in trusts or make other arrangements to provide for payment of our company’s obligations under the 2018 Plan. The
Compensation Committee may condition any payment relating to an award on the withholding of taxes and may provide that a portion
of any shares of common stock or other property to be distributed will be withheld (or previously acquired shares of common stock
or other property be surrendered by the participant) to satisfy withholding and other tax obligations. awards granted under the
2018 Plan generally may not be pledged or otherwise encumbered and are not transferable except by will or by the laws of descent
and distribution, or to a designated beneficiary upon the participant’s death, except that the Compensation Committee may,
in its discretion, permit transfers for estate planning or other purposes subject to any applicable restrictions under Rule 16b-3.
Awards under the 2018 Plan are generally
granted without a requirement that the participant pay consideration in the form of cash or property for the grant (as distinguished
from the exercise), except to the extent required by law. The Compensation Committee may, however, grant awards in exchange for
other awards under the 2018 Plan, awards under other company plans, or other rights to payment from our company, and may grant
awards in addition to and in tandem with such other awards, rights or other awards.
Acceleration of Vesting; Change in Control.
The
Compensation Committee may, in its discretion, accelerate the exercisability, the lapsing of restrictions or the expiration of
deferral or vesting periods of any award, and such accelerated exercisability, lapse, expiration and if so provided in the award
agreement or otherwise determined by the Compensation Committee, vesting shall occur automatically in the case of a “change
in control” of our company (including the cash settlement of stock appreciation rights which may be exercisable in the event
of a change in control). In addition, the Compensation Committee may provide in an award agreement that the performance goals relating
to any performance award will be deemed to have been met upon the occurrence of any “change in control.” For purposes
of the 2018 Plan, unless otherwise specified in an award agreement, a change in control means the occurrence of any of the following:
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(i)
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The acquisition by any person (as that term is used in the Exchange Act) of Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of either (A) the then outstanding shares of common stock of our company (the “Outstanding Company Common Stock”) or (B) the combined voting power of our then outstanding voting securities entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”) (the foregoing Beneficial Ownership hereinafter being referred to as a “Controlling Interest”); provided, however, that the following acquisitions shall not constitute or result in a Change of Control: (v) any acquisition directly from our company; (w) any acquisition by our company; (x) any acquisition by any person that as of the effective date owns Beneficial Ownership of a Controlling Interest; (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by our company or any subsidiary; or (z) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) below; or
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(ii)
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During any period of three (3) consecutive years (not including any period prior to the effective date of the 2018 Plan) individuals who constitute our board on the effective date (the “Incumbent Board”) cease for any reason to constitute at least a majority of our board; provided, however, that any individual becoming a director subsequent to the effective date whose election, or nomination for election by our stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than our board; or
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(iii)
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Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving our company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of our company, or the acquisition of assets or stock of another entity by our company or any of its subsidiaries (each a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns our company or all or substantially all of our company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company common stock and Outstanding Company Voting Securities, as the case may be, (B) no person (excluding any employee benefit plan (or related trust) of our company or such corporation resulting from such Business Combination or any person that as of the effective date owns Beneficial Ownership of a Controlling Interest) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or a
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(iv)
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Approval by our stockholders of a complete liquidation or dissolution of our company.
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Amendment and Termination.
Our
Board of Directors may amend, alter, suspend, discontinue or terminate the 2018 Plan or the Compensation Committee’s authority
to grant awards without further stockholder approval, except that stockholder approval must be obtained for any amendment or alteration
if such approval is required by law or regulation or under the rules of any stock exchange or quotation system on which shares
of common stock are then listed or quoted. Thus, stockholder approval may not necessarily be required for every amendment to the
2018 Plan which might increase the cost of the 2018 Plan or alter the eligibility of persons to receive awards. Stockholder approval
will not be deemed to be required under laws or regulations, such as those relating to ISOs, that condition favorable treatment
of participants on such approval, although our board may, in its discretion, seek stockholder approval in any circumstance in which
it deems such approval advisable. Unless earlier terminated by our board, the 2018 Plan will terminate at the earliest of (a) such
time as no shares of common stock remain available for issuance under the 2018 Plan, (b) termination of the 2018 Plan by our
board, or (c) the tenth anniversary of the effective date of the Plan. Awards outstanding upon expiration of the 2018 Plan
shall remain in effect until they have been exercised or terminated, or have expired.
New Plan Benefits
The table below sets forth the benefits
or amounts that have been, as of the record date, received by or allocated to each of the persons and groups described therein
under the 2018 Plan. Additional benefits or amounts may be received by or allocated to such persons or groups under the 2018 Plan
but no such benefits or amounts are determinable at this time because the amount and type of grant to be made to any eligible participant
under the 2018 Plan in any year is to be determined at the discretion of the Compensation Committee.
2018
Incentive Compensation
Plan
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Name and Position
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Dollar Value ($)
(1)
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Number of Units
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Mark Newcomer
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–
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–
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Daniel Spence
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–
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|
–
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|
|
Joan Herman
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|
|
–
|
|
|
|
–
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|
|
Executive Group
|
|
|
–
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|
|
|
–
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|
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Non-Executive Director Group
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|
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–
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–
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Non-Executive Officer Employee Group
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$
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1,397,777
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750,000
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(1)
|
Represents the amount to be recognized by us as compensation expense for financial statement reporting purposes with respect to equity awards in accordance with SFAS 123(R).
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Federal Income Tax Consequences of Awards.
The 2018 Plan is not qualified under the
provisions of section 401(a) of the Code and is not subject to any of the provisions of the Employee Retirement Income Security
Act of 1974.
Nonqualified Stock Options.
On
exercise of a nonqualified stock option granted under the 2018 Plan an optionee will recognize ordinary income equal to the excess,
if any, of the fair market value on the date of exercise of the shares of stock acquired on exercise of the option over the exercise
price. If the optionee is an employee of our company or a related entity, that income will be subject to the withholding of Federal
income tax. The optionee’s tax basis in those shares will be equal to their fair market value on the date of exercise of
the option, and his holding period for those shares will begin on that date.
If an optionee pays for shares of stock
on exercise of an option by delivering shares of our company’s stock, the optionee will not recognize gain or loss on the
shares delivered, even if their fair market value at the time of exercise differs from the optionee’s tax basis in them.
The optionee, however, otherwise will be taxed on the exercise of the option in the manner described above as if he had paid the
exercise price in cash. If a separate identifiable stock certificate is issued for that number of shares equal to the number of
shares delivered on exercise of the option, the optionee’s tax basis in the shares represented by that certificate will be
equal to his tax basis in the shares delivered, and his holding period for those shares will include his holding period for the
shares delivered. The optionee’s tax basis and holding period for the additional shares received on exercise of the option
will be the same as if the optionee had exercised the option solely in exchange for cash.
Our company will be entitled to a deduction
for Federal income tax purposes equal to the amount of ordinary income taxable to the optionee, provided that amount constitutes
an ordinary and necessary business expense for our company and is reasonable in amount, and either the employee includes that amount
in income or our company timely satisfies its reporting requirements with respect to that amount.
Incentive Stock Options.
The
2018 Plan provides for the grant of stock options that qualify as “incentive stock options” as defined in section 422
of the Code, which we refer to as ISOs. Under the Code, an optionee generally is not subject to tax upon the grant or exercise
of an ISO. In addition, if the optionee holds a share received on exercise of an ISO for at least two years from the date the option
was granted and at least one year from the date the option was exercised, which we refer to as the Required Holding Period, the
difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder’s tax
basis in that share will be long-term capital gain or loss.
If, however, an optionee disposes of a
share acquired on exercise of an ISO before the end of the Required Holding Period, which we refer to as a Disqualifying Disposition,
the optionee generally will recognize ordinary income in the year of the Disqualifying Disposition equal to the excess, if any,
of the fair market value of the share on the date the ISO was exercised over the exercise price. If, however, the Disqualifying
Disposition is a sale or exchange on which a loss, if realized, would be recognized for Federal income tax purposes, and if the
sales proceeds are less than the fair market value of the share on the date of exercise of the option, the amount of ordinary income
recognized by the optionee will not exceed the gain, if any, realized on the sale. If the amount realized on a Disqualifying Disposition
exceeds the fair market value of the share on the date of exercise of the option, that excess will be short-term or long-term capital
gain, depending on whether the holding period for the share exceeds one year.
An optionee who exercises an ISO by delivering
shares of stock acquired previously pursuant to the exercise of an ISO before the expiration of the Required Holding Period for
those shares is treated as making a Disqualifying Disposition of those shares. This rule prevents “pyramiding” or the
exercise of an ISO (that is, exercising an ISO for one share and using that share, and others so acquired, to exercise successive
ISOs) without the imposition of current income tax.
For purposes of the alternative minimum
tax, the amount by which the fair market value of a share of stock acquired on exercise of an ISO exceeds the exercise price of
that option generally will be an adjustment included in the optionee’s alternative minimum taxable income for the year in
which the option is exercised. If, however, there is a Disqualifying Disposition of the share in the year in which the option is
exercised, there will be no adjustment with respect to that share. If there is a Disqualifying Disposition in a later year, no
income with respect to the Disqualifying Disposition is included in the optionee’s alternative minimum taxable income for
that year. In computing alternative minimum taxable income, the tax basis of a share acquired on exercise of an ISO is increased
by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year
the option is exercised.
Our company is not allowed an income tax
deduction with respect to the grant or exercise of an incentive stock option or the disposition of a share acquired on exercise
of an incentive stock option after the Required Holding Period. However, if there is a Disqualifying Disposition of a share, our
company is allowed a deduction in an amount equal to the ordinary income includible in income by the optionee, provided that amount
constitutes an ordinary and necessary business expense for our company and is reasonable in amount, and either the employee includes
that amount in income or our company timely satisfies its reporting requirements with respect to that amount.
Stock awards.
Generally,
the recipient of a stock award will recognize ordinary compensation income at the time the stock is received equal to the excess,
if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. If, however,
the stock is non-vested when it is received under the 2018 Plan (for example, if the employee is required to work for a period
of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes
vested, at which time the recipient will recognize ordinary compensation income equal to the excess, if any, of the fair market
value of the stock on the date it becomes vested over any amount paid by the recipient in exchange for the stock. A recipient may,
however, file an election with the Internal Revenue Service, within 30 days of his or her receipt of the stock award, to recognize
ordinary compensation income, as of the date the recipient receives the award, equal to the excess, if any, of the fair market
value of the stock on the date the award is granted over any amount paid by the recipient in exchange for the stock.
The recipient’s basis for the determination
of gain or loss upon the subsequent disposition of shares acquired as stock awards will be the amount paid for such shares plus
any ordinary income recognized either when the stock is received or when the stock becomes vested. Upon the disposition of any
stock received as a stock award under the 2018 Plan the difference between the sale price and the recipient’s basis in the
shares will be treated as a capital gain or loss and generally will be characterized as long-term capital gain or loss if the shares
have been held for more the one year from the date as of which he or she would be required to recognize any compensation income.
Stock Appreciation Rights.
Our
company may grant SARs separate from any other award, which we refer to as Stand-Alone SARs, or in tandem with options, which we
refer to as Tandem SARs, under the 2018 Plan. Generally, the recipient of a Stand-Alone SAR will not recognize any taxable income
at the time the Stand-Alone SAR is granted.
With respect to Stand-Alone SARs, if the
recipient receives the appreciation inherent in the SARs in cash, the cash will be taxable as ordinary compensation income to the
recipient at the time that the cash is received. If the recipient receives the appreciation inherent in the SARs in shares of stock,
the recipient will recognize ordinary compensation income equal to the excess of the fair market value of the stock on the day
it is received over any amounts paid by the recipient for the stock.
With respect to Tandem SARs, if the recipient
elects to surrender the underlying option in exchange for cash or shares of stock equal to the appreciation inherent in the underlying
option, the tax consequences to the recipient will be the same as discussed above relating to the Stand-Alone SARs. If the recipient
elects to exercise the underlying option, the holder will be taxed at the time of exercise as if he or she had exercised a nonqualified
stock option (discussed above), i.e., the recipient will recognize ordinary income for federal tax purposes measured by the excess
of the then fair market value of the shares of stock over the exercise price.
In general, there will be no federal income
tax deduction allowed to our company upon the grant or termination of Stand-Alone SARs or Tandem SARs. Upon the exercise of either
a Stand-Alone SAR or a Tandem SAR, however, our company will be entitled to a deduction for federal income tax purposes equal to
the amount of ordinary income that the employee is required to recognize as a result of the exercise, provided that the deduction
is not otherwise disallowed under the Code.
Dividend Equivalents.
Generally,
the recipient of a dividend equivalent award will recognize ordinary compensation income at the time the dividend equivalent award
is received equal to the fair market value dividend equivalent award received. Our company generally will be entitled to a deduction
for federal income tax purposes equal to the amount of ordinary income that the employee is required to recognize as a result of
the dividend equivalent award, provided that the deduction is not otherwise disallowed under the Code.
Section 162 Limitations.
Section 162(m)
to the Code, generally disallows a public company’s tax deduction for compensation to covered employees in excess of $1 million
in any tax year beginning on or after January 1, 1994. Compensation that qualifies as “performance-based compensation”
is excluded from the $1 million deductibility cap, and therefore remains fully deductible by the company that pays it. We intend
that awards granted to employees under the 2018 Plan whom the Compensation Committee expects to be covered employees at the time
a deduction arises in connection with such options, may, if and to the extent so intended by the Compensation Committee, be granted
in a manner that will qualify as such “performance-based compensation,” so that such awards would not be subject to
the Section 162(m) deductibility cap of $1 million. Future changes in Section 162(m) or the regulations thereunder may
adversely affect our ability to ensure that awards under the 2018 Plan will qualify as “performance-based compensation”
that are fully deductible by us under Section 162(m).
Section 409A.
Section 409A
of the Code, enacted as part of the American Jobs Creation Act of 2004, imposes certain new requirements applicable to “nonqualified
deferred compensation plans,” including new rules relating to the timing of deferral elections and elections with regard
to the form and timing of benefit distributions, prohibitions against the acceleration of the timing of distributions, and the
times when distributions may be made, as well as rules that generally prohibit the funding of nonqualified deferred compensation
plans in offshore trusts or upon the occurrence of a change in the employer’s financial health. These new rules generally
apply with respect to deferred compensation that becomes earned and vested on or after January 1, 2005. If a nonqualified
deferred compensation plan subject to Section 409A fails to meet, or is not operated in accordance with, these new requirements,
then all compensation deferred under the plan is or becomes immediately taxable to the extent that it is not subject to a substantial
risk of forfeiture and was not previously taxable. The tax imposed as a result of these new rules would be increased by interest
at a rate equal to the rate imposed upon tax underpayments plus one percentage point, and an additional tax equal to 20% of the
compensation required to be included in income. Some of the awards to be granted under this 2018 Plan may constitute deferred compensation
subject to the Section 409A requirements, including, without limitation, discounted stock options, deferred stock and SARs
that are not payable in shares of our company stock. It is our company’s intention that any award agreement that will govern
awards subject to Section 409A will comply with these new rules.
Importance of Consulting Tax Adviser.
The
information set forth above is a summary only and does not purport to be complete. In addition, the information is based upon current
Federal income tax rules and therefore is subject to change when those rules change. Moreover, because the tax consequences to
any recipient may depend on his particular situation, each recipient should consult his tax adviser as to the Federal, state, local
and other tax consequences of the grant or exercise of an award or the disposition of stock acquired as a result of an award.
Certain Interests of Directors
In considering the recommendation of the
Board with respect to the 2018 Plan, stockholders of the Company should be aware that members of the Board may from time to time
have interests that present them with conflicts of interest in connection with the proposal to approve the 2018 Plan. Specifically,
directors, including members of the Compensation Committee, could be recipients of awards with respect to shares authorized under
the 2018 Plan. The Board believes that approval of the 2018 Plan will advance the interests of the Company and its shareholders
by encouraging employees and directors to make significant contributions to the long-term success of the Company.
Equity Compensation Plans of the Company
Information about the securities issued,
or authorized for future issuance, under our equity compensation plans is set forth in the table under the heading “Equity
Compensation Plan Information” above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL 2
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS
The Board of Directors has appointed Squar
Milner LLP (“Squar Milner”) as our independent auditors for the fiscal year ending December 31, 2019, and has
further directed that management submit the selection of its independent registered public accounting firm for ratification by
the stockholders at the 2019 Annual Meeting. We expect that a representative from Squar Milner will be present at the 2019 Annual
Meeting, and accordingly, the representative will be given the opportunity to make a statement and respond to any questions.
Neither our bylaws nor other governing documents
or law require stockholder ratification of the selection of Squar Milner as our independent registered public accounting firm.
However, the Board is submitting the selection of Squar Milner to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Board will reconsider whether or not to retain that firm. Even
if the selection is ratified, the Board in its discretion may direct the appointment of different independent auditors at any time
during the year if they determine that such a change would be in the best interests of us and its stockholders.
The affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled to vote on the matter at the 2019 Annual Meeting
will be required to ratify the appointment of Squar Milner.
Principal Accountant Fees and Services
Our independent public accountant for the
fiscal years ended December 31, 2018 and 2017 was Squar Milner LLP. The following table presents fees for professional audit services
and other services rendered to the Company by such accountants for the fiscal years ended December 31, 2018 and 2017.
|
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Fiscal Year
2018
|
|
|
Fiscal Year
2017
|
|
|
Audit Fees
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
Audit-Related Fees
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
|
Tax Fees
|
|
$
|
–
|
|
|
$
|
–
|
|
|
All Other Fees
|
|
$
|
1,279
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
81,279
|
|
|
$
|
80,000
|
|
__________
|
(1)
|
Audit Fees.
Audit services include work performed for the audit of our financial statements and the review of financial statements included in our quarterly reports, as well as work that is normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings.
|
|
(2)
|
Audit-related services
. Audit-related services are for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not covered above under “audit services.”
|
|
(3)
|
Tax services
. Tax services include all services performed by the independent registered public accounting firm’s tax personnel for tax compliance, tax advice and tax planning.
|
|
(4)
|
All other Fees
. All other fees are those services and/or travel expenses not described in the other categories.
|
Pre-Approval Policy and Procedures
Our Audit Committee has adopted policies
and procedures which set forth the manner in which the Audit Committee will review and approve all services to be provided by the
independent auditor before the auditor is retained to provide such services. The policy requires Audit Committee pre-approval of
the terms and fees of the annual audit services engagement, as well as any changes in terms and fees resulting from changes in
audit scope or other items. The Audit Committee also pre-approves, on an annual basis, other audit services, and audit-related
and tax services set forth in the policy, subject to estimated fee levels, on a project basis and aggregate annual basis, which
have been pre-approved by the Audit Committee.
All other services performed by the auditor
that are not prohibited non-audit services under SEC or other regulatory authority rules must be separately pre-approved by the
Audit Committee. Amounts in excess of pre-approved limits for audit services, audit-related services and tax services require separate
pre-approval of the Audit Committee.
Our chief financial officer reports quarterly
to the Audit Committee on the status of pre-approved services, including projected fees. All of the services reflected in the above
table were approved by the full Board in fiscal 2017 (when there was no Audit Committee) and by the Audit Committee in fiscal 2018.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL 3
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information
regarding our executive officers as of March 15, 2019.
|
Name
|
|
Age
|
|
Title
|
|
Mark R. Newcomer
|
|
53
|
|
Chief Executive Officer
|
|
Robert Strobo
|
|
40
|
|
General Counsel, Chief Legal Officer, Secretary
|
|
Daniel H. Spence
|
|
55
|
|
Chief Technology Officer
|
|
Mark Attinger
|
|
54
|
|
Chief Financial Officer
|
|
Joan M. Herman
|
|
62
|
|
Chief Operating Officer
|
The biographies of Messrs. Newcomer, Spence
and Herman are included above under the section titled “
Proposal No. 1 – Election of Directors
.”
Mark Attinger, Chief Financial Officer
.
Mr. Attinger serves as our Chief Financial Officer, since December 2018. Prior to joining 3PEA International, Inc. Mr. Attinger
served as President and Chief Operating Officer for Genesis Financial, Inc. from April 2018 to October 2018; Chief Executive Officer
for Zxerex Corporation from November 2016 to March 2018; founding Partner and Principal of management consulting firm Customer
Servicing Solutions, LLC from 2007 to 2016. He held positions as Chief Executive Officer of Affina (a business process outsourcer)
(2003 to 2007); Chief Operating Officer at Prudential Financial (2002 to 2003) and Vice President of Operations at NextCard (2000
to 2002). Mr. Attinger also served at American Express from 1987 to 2000 in various positions in Finance, Performance and Quality
Management, and Operations. Mr. Attinger earned a Bachelor of Science degree in Finance, with a minor in Accounting, and a Master
of Business Administration degree, both from Brigham Young University.
Robert Strobo, Esq., General Counsel,
Chief Legal Officer and Secretary
. Mr. Strobo serves as our General Counsel, Chief Legal Officer, and Secretary since October
2018. Prior to joining 3PEA International, Inc., from 2005 to 2018, Mr. Strobo served as Deputy General Counsel and Vice
President for Republic Bank & Trust Company, a state-charted financial institution out of Louisville, Kentucky. He specializes
in prepaid card issuance and non-traditional banking, which includes small-dollar consumer lending, commercial lending, payments
and tax-related financial products. In addition, Mr. Strobo served as Chairman of the Board of Directors for Commonwealth
Theatre Center, a non-profit youth conservatory and outreach program serving all of Kentucky and southern Indiana. He received
his B.A. in Psychology and Philosophy from the University of Kentucky and his J.D. from DePaul University College of Law in Chicago,
Illinois.
EXECUTIVE COMPENSATION
Our named executive officers, or NEOs, consisting
of our principal executive officer during the last completed fiscal year and our two most highly compensated executive officers
as of December 31, 2018:
|
|
·
|
Mark R. Newcomer, Chief Executive Officer;
|
|
|
|
|
|
|
·
|
Daniel H. Spence, Chief Technology Officer;
|
|
|
|
|
|
|
·
|
Joan M. Herman, Chief Operating Officer.
|
Summary Compensation Table
|
Name and Principal Position
|
|
Year
|
|
|
Salary
$
|
|
|
Bonus
$(1)
|
|
|
Other
$ (2)
|
|
|
Stock Grant
$ (3)(4)
|
|
|
Total
$
|
|
|
Mark R. Newcomer, President & CEO
|
|
|
2018
|
|
|
$
|
650,000
|
|
|
$
|
146,400
|
|
|
$
|
15,500
|
|
|
$
|
63,036
|
|
|
$
|
874,936
|
|
|
|
|
|
2017
|
|
|
$
|
424,188
|
|
|
$
|
60,000
|
|
|
$
|
4,500
|
|
|
$
|
63,036
|
|
|
$
|
551,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel H. Spence, CTO
|
|
|
2018
|
|
|
$
|
450,000
|
|
|
$
|
40,000
|
|
|
$
|
–
|
|
|
$
|
63,036
|
|
|
$
|
553,036
|
|
|
|
|
|
2017
|
|
|
$
|
318,500
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
63,036
|
|
|
$
|
381,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joan M. Herman, COO
|
|
|
2018
|
|
|
$
|
250,000
|
|
|
$
|
–
|
|
|
$
|
10,000
|
|
|
$
|
147,700
|
|
|
$
|
407,700
|
|
|
|
|
|
2017
|
|
|
$
|
76,923
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
105,500
|
|
|
$
|
182,423
|
|
|
|
(1)
|
The bonuses paid to Mr. Newcomer and Mr. Spence in 2018 and 2017, respectively, were discretionary bonuses determined by the Board of Directors and not based on the fulfillment of any formula, criteria, or fulfillment of any performance target, goal or condition.
|
|
|
(2)
|
Other is comprised of a 401(k) employer matching and profit sharing plan contributions for Mark R. Newcomer and Joan Herman.
|
|
|
(3)
|
In November 2016,
the Company granted Mark Newcomer and Daniel Spence 2,000,000 and 2,000,000 shares of restricted common stock, respectively,
which had a total value of $315,180 and $315,180, respectively, based upon a value of $0.15759 per share. The value per share
was based on the market value on the date of grant, less a 15% discount due to the shares being restricted and lacking market
liquidity. The stock grants vest in equal amounts over a period of five years as of the end of each calendar quarter to the
extent the officer is are still employed by us at the time. For both Messrs. Newcomer and Spence, a total of 800,000 shares
were vested and issued as of December 31, 2018. The balance of the unvested shares had not been issued as of December 31,
2018.
|
|
|
(4)
|
On September 4, 2017, the Company granted Joan M. Herman 200,000 shares of restricted common stock with a value of $84,400, which are fully vested and have been issued. At the same time, the Company granted Ms. Herman four equal tranches of 200,000 restricted common shares each with a total value of $337,600, which vest annually in equal amounts over a four-year period on the anniversary date of the grant, if Ms. Herman is still employed by us at that time. As of December 31, 2018, a total of 200,000 shares had vested and been issued.
|
We did not grant any stock options or stock
appreciation rights to our named executive officers in the last fiscal year. We did not reprice any options or stock appreciation
rights during the last fiscal year. We did not waive or modify any specified performance target, goal or condition to payout with
respect to any amount included in any incentive plan compensation included in the summary compensation table.
Narrative to Summary Compensation Table
The Board is responsible for creating and
reviewing the compensation of our executive officers, as well as overseeing our compensation and benefit plans and policies and
administering our equity incentive plans. The following Compensation Discussion and Analysis (“CD&A”) describes
our 2018 executive compensation program and explains our compensation philosophy, policies, and practices, focusing primarily on
the compensation of our named executive officers, or NEOs. This CD&A is intended to be read in conjunction with the tables
that follow, which provide detailed historical compensation information for our NEOs.
Compensation Philosophy
We believe in providing a competitive total
compensation package to its executives through a combination of base salary, annual performance bonuses, and long-term equity awards.
The executive compensation program is designed to achieve the following objectives:
|
|
·
|
provide competitive compensation that will help attract, retain and reward qualified executives;
|
|
|
·
|
align executives’ interests with our success by making a portion of the executive’s compensation dependent upon corporate performance; and
|
|
|
·
|
align executives’ interests with the interests of stockholders by including long-term equity incentives.
|
The Board believes that our executive compensation
program should include annual and long-term components, including cash and equity-based compensation, and should reward consistent
performance that meets or exceeds expectations. The Board evaluates both performance and compensation to make sure that the compensation
provided to executives remains competitive relative to compensation paid by companies of similar size and stage of development
operating in the payment processing industry and taking into account our relative performance and its own strategic objectives.
The Board has not used compensation consultants
in the past but reserves the right to do so in the future.
Employment Contracts of Named Executive Officers
There are no agreements or understandings
between the Company and any NEO which guarantees continued employment or any level of compensation, including incentive or bonus
payments, to the NEO.
Severance and Change of Control Benefits
We do not have any agreements with our named
executive officers that contain provisions requiring that we make payments to the name executive officer at, following, or in connection
with the resignation, retirement or other termination of the named executive officer, or a change in control of us, or a change
in the named executive officer's responsibilities following a change in control.
Employee Benefit Plans
We sponsor a 401(k) retirement plan in which
our NEO’s participate on the same basis as our other employees. Effective January 2017, our Board approved a matching contribution
of 100% of employee contributions up to 3% of the employee’s earnings, and a matching contribution of 50% of the next 2%
of the employee’s earnings. During the year ended December 31, 2018 and 2017, the Company made contributions to this plan
of approximately $83,135 and $34,000, respectively.
Pension Benefits
None of our NEOs are covered by a pension
plan or similar benefit plan that provides for payment or other benefits at, following, or in connection with retirement.
Nonqualified Deferred Compensation
None of our NEOs are covered by a deferred
contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
Option Exercises in 2018
There were no exercises of stock options
by the NEOs during the 2018 fiscal year.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
2018
The following table sets forth information
regarding all outstanding equity awards held by the NEOs at December 31, 2018. There are no outstanding option awards. Outstanding
restricted stock grants have been approved by our Board.
|
|
|
|
Stock Awards
|
|
Name
(a)
|
|
|
Number of
Shares or
Units of
Stock that
have not Vested
(#)
(g)
|
|
|
|
Market
Value of
Shares of
Units of
Stock that
Have not Vested
($)
(h)
|
|
|
|
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or
Other
Rights that
have not
Vested
(#)
(i)
|
|
|
|
Equity Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or other
Rights that
have not
Vested
($)
(j)
|
|
|
Mark R. Newcomer (2)
|
|
|
–
|
|
|
|
–
|
|
|
|
1,100,000
|
|
|
$
|
3,872,000
|
|
|
Daniel H. Spence (2)
|
|
|
–
|
|
|
|
–
|
|
|
|
1,100,000
|
|
|
$
|
3,872,000
|
|
|
Joan M. Herman (3)
|
|
|
–
|
|
|
|
–
|
|
|
|
600,000
|
|
|
$
|
2,112,000
|
|
|
|
(1)
|
The value of the unearned awards is based upon the closing price of our common stock on December 31, 2018, which was $3.52 per share.
|
|
|
(2)
|
The restricted stock grant consisted of 2,000,000 shares issued on November 21, 2016, which vest on a quarterly basis over five years to the extent the executive is still employed by us at the end of each quarter, of which 900,000 shares were vested as of December 31, 2018.
|
|
|
(3)
|
The restricted stock grant consisted of 800,000
shares issued on September 4, 2017, which vest on an annual basis over four years to the extent the executive is still
employed by us at the end of each anniversary date, of which 200,000 shares have vested as of December 31, 2018.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March
15, 2019, certain information concerning the beneficial ownership of our common stock by (i) each person known by us to own
beneficially five percent (5%) or more of the outstanding shares of each class, (ii) each of our directors and named
executive officers, and (iii) all of our executive officers and directors as a group.
The number of shares beneficially owned
by each 5% stockholder, director or executive officer is determined under the rules of the Securities & Exchange Commission,
or SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under those rules, beneficial
ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power and also
any shares that the individual or entity has the right to acquire within 60 days after March 15, 2019 through the exercise of any
stock option, warrant or other right, or the conversion of any security. Unless otherwise indicated, each person or entity has
sole voting and investment power (or shares such power with his or her spouse) with respect to the shares set forth in the following
table. The inclusion in the table below of any shares deemed beneficially owned does not constitute an admission of beneficial
ownership of those shares.
|
Name and Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
Percent of
Class (1)
|
|
|
5% Beneficial Owners:
|
|
|
|
|
|
|
|
|
|
Anthony DePrima (4)
|
|
|
2,745,163
|
|
|
|
5.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officers, Directors, and Nominees:
|
|
|
|
|
|
|
|
|
|
Mark R. Newcomer (2) (3)
|
|
|
9,010,000
|
|
|
|
19.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel H. Spence (2) (3)
|
|
|
8,510,000
|
|
|
|
18.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Joan M. Herman (2) (3)
|
|
|
400,000
|
|
|
|
0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan R. Henry (2) (3)
|
|
|
375,000
|
|
|
|
0.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Mina (2) (3)
|
|
|
56,500
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Quinn Williams (2) (3)
|
|
|
50,000
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis Triplett (2) (3)
|
|
|
50,000
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
All Officers and Directors as a Group
|
|
|
18,451,500
|
|
|
|
38.7%
|
|
|
(1)
|
Based upon 46,731,912 shares of Common Stock issued and outstanding as of March 15, 2019.
|
|
|
|
|
(2)
|
The address for the shareholder is 1700 W Horizon Ridge Pkwy., Suite 200, Henderson, NV 89012.
|
|
|
|
|
(3)
|
Includes the following number of shares of our common stock either (a) issuable upon exercise of stock options granted to our named executive officers and directors that are exercisable within 60 days after March 15, 2019, or (b) issuable pursuant to stock grants to our named executive officers and directors that vest within 60 days after March 15, 2019:
|
|
|
|
|
|
Directors and Executive Officers
|
Options Exercisable/Shares Issuable within 60 days
|
|
Unvested Options/Stock Grants not Included
|
|
|
Mark Newcomer
|
200,000
|
|
1,000,000
|
|
|
Daniel Spence
|
200,000
|
|
1,000,000
|
|
|
Joan Herman
|
–
|
|
600,000
|
|
|
Dan Henry
|
375,000
|
|
1,125,000
|
|
|
Bruce Mina
|
50,000
|
|
150,000
|
|
|
Quinn Williams
|
50,000
|
|
150,000
|
|
|
Dennis Triplett
|
50,000
|
|
150,000
|
|
|
All executive officers and directors as a group
|
925,000
|
|
4,175,000
|
|
|
|
|
|
|
|
(4)
|
Based
on information provided by Anthony DePrima on February 15, 2019. The address of Mr. DePrima is 13236 N. 7
th
Street
B4-299, Phoenix, AZ 85022.
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Exchange Act requires
directors, executive officer and persons who beneficially own more than 10% of a registered class of our equity securities to
file with the SEC initial reports of ownership and reports or changes in ownership of such equity securities. Such persons are
also required to furnish us with copies of all Section 16(a) forms that they file. Based upon a review of the copies of the forms
furnished to us and written representations from certain reporting persons, we believe that, during the year ended December 31,
2018, none of our executive officers, directors or beneficial owners of more than 10% of any class of registered equity security
failed to file on a timely basis any such report, except for Mark Newcomer, who failed to file a timely Form 4 or 5 to report
the receipt by his spouse of 75,000 options to acquire common stock for $2.40 per share, of which he is deemed to have beneficial
ownership.
TRANSACTIONS WITH RELATED PERSONS
Related-Person Transaction Policies and Procedures
All transactions between us and our officers,
directors, principal stockholders and their affiliates are subject to approval by the Board according to the terms of our written
Code of Ethics.
Certain Related-Person Transactions
None.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies
and intermediaries (e.g., brokers) to satisfy the delivery requirements for Notices of Internet Availability of Proxy Materials
or other 2019 Annual Meeting materials with respect to two or more stockholders sharing the same address by delivering a single
Notice of Internet Availability of Proxy Materials or other 2018 Annual Meeting materials addressed to those stockholders. This
process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and
cost savings for companies.
This year, a number of brokers with account
holders who are 3Pea stockholders will be “householding” the Company’s proxy materials. A single Notice of Internet
Availability of Proxy Materials will be delivered to multiple stockholders sharing an address unless contrary instructions have
been received from the affected stockholders. Once you have received notice from your broker that they will be “householding”
communications to your address, “householding” will continue until you are notified otherwise or until you revoke your
consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate
Notice of Internet Availability of Proxy Materials, please notify your broker or 3Pea International, Inc. Direct your written request
to our Corporate Secretary, Robert Strobo, Esq., at 1700 W. Horizon Ridge Parkway, Suite 200, Henderson, Nevada 89012; e-mail:
rstrobo@3pea.com. Stockholders who currently receive multiple copies of the Notices of Internet Availability of Proxy Materials
at their addresses and would like to request “householding” of their communications should contact their brokers.
OTHER MATTERS
The Board knows of no other matters that
will be presented for consideration at the 2019 Annual Meeting. If any other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.
EXHIBIT A
3PEA INTERNATIONAL, INC.
2018 INCENTIVE COMPENSATION PLAN
1.
Purpose
. The purpose of this 3PEA INTERNATIONAL, INC. 2018 INCENTIVE COMPENSATION PLAN (the “Plan”)
is to assist 3Pea International, Inc., a Nevada corporation (the “Company”) and its Related Entities (as hereinafter
defined) in attracting, motivating, retaining and rewarding high-quality executives and other employees, officers, directors, consultants
and other persons who provide services to the Company or its Related Entities by enabling such persons to acquire or increase a
proprietary interest in the Company in order to strengthen the mutuality of interests between such persons and the Company’s
shareholders, and providing such persons with annual and long term performance incentives to expend their maximum efforts in the
creation of shareholder value.
2.
Definitions
. For purposes of the Plan, the following terms shall be defined as set forth below, in addition
to such terms defined in Section 1 hereof and elsewhere herein.
(a)
“
Award
” means any Option, Stock Appreciation Right, Restricted Stock Award, Deferred Stock Award,
Share granted as a bonus or in lieu of another Award, Dividend Equivalent, Other Stock-Based Award or Performance Award, together
with any other right or interest, granted to a Participant under the Plan.
(b)
“
Award Agreement
” means any written agreement, contract or other instrument or document evidencing
any Award granted by the Committee hereunder.
(c)
“
Beneficiary
” means the person, persons, trust or trusts that have been designated by a Participant
in his or her most recent written beneficiary designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant’s death or to which Awards or other rights are transferred if and to the extent permitted under
Section 10(b) hereof. If, upon a Participant’s death, there is no designated Beneficiary or surviving designated Beneficiary,
then the term Beneficiary means the person, persons, trust or trusts entitled by will or the laws of descent and distribution to
receive such benefits.
(d)
“
Beneficial Owner
”
and “Beneficial Ownership”
shall have the meaning
ascribed to such term in Rule 13d-3 under the Exchange Act and any successor to such Rule.
(e)
“
Board
” means the Company’s Board of Directors.
(f)
“
Cause
” shall, with respect to any Participant, have the meaning specified in the Award Agreement.
In the absence of any definition in the Award Agreement, “Cause” shall have the equivalent meaning or the same meaning
as “cause” or “for cause” set forth in any employment, consulting, or other agreement for the performance
of services between the Participant and the Company or a Related Entity or, in the absence of any such agreement or any such definition
in such agreement, such term shall mean (i) the failure by the Participant to perform, in a reasonable manner, his or her
duties as assigned by the Company or a Related Entity, (ii) any violation or breach by the Participant of his or her employment,
consulting or other similar agreement with the Company or a Related Entity, if any, (iii) any violation or breach by the Participant
of any non-competition, non-solicitation, non-disclosure and/or other similar agreement with the Company or a Related Entity, (iv) any
act by the Participant of dishonesty or bad faith with respect to the Company or a Related Entity, (v) use of alcohol, drugs
or other similar substances in a manner that adversely affects the Participant’s work performance, or (vi) the commission
by the Participant of any act, misdemeanor, or crime reflecting unfavorably upon the Participant or the Company or any Related
Entity. The good faith determination by the Committee of whether the Participant’s Continuous Service was terminated by the
Company for “Cause” shall be final and binding for all purposes hereunder.
(g)
“
Change in Control
” means a Change in Control as defined in Section 9(b) of the Plan.
(h)
“
Code
” means the Internal Revenue Code of 1986, as amended from time to time, including regulations
thereunder and successor provisions and regulations thereto.
(i)
“
Committee
” means a committee designated by the Board to administer the Plan; provided, however,
that if the Board fails to designate a committee or if there are no longer any members on the committee so designated by the Board,
or for any other reason determined by the Board, then the Board shall serve as the Committee. While it is intended that the Committee
shall consist of at least two directors, each of whom shall be (i) a “non-employee director” within the meaning
of Rule 16b-3 (or any successor rule) under the Exchange Act, unless administration of the Plan by “non-employee directors”
is not then required in order for exemptions under Rule 16b-3 to apply to transactions under the Plan, (ii) an “outside
director” within the meaning of Section 162(m) of the Code, and (iii) “Independent”, the failure of
the Committee to be so comprised shall not invalidate any Award that otherwise satisfies the terms of the Plan.
(j)
“
Consultant
” means any Person (other than an Employee or a Director, solely with respect to rendering
services in such Person’s capacity as a director) who is engaged by the Company or any Related Entity to render consulting
or advisory services to the Company or such Related Entity.
(k)
“
Continuous Service
” means the uninterrupted provision of services to the Company or any Related
Entity in any capacity of Employee, Director, Consultant or other service provider. Continuous Service shall not be considered
to be interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entities,
or any successor entities, in any capacity of Employee, Director, Consultant or other service provider, or (iii) any change
in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director,
Consultant or other service provider (except as otherwise provided in the Award Agreement). An approved leave of absence shall
include sick leave, military leave, or any other authorized personal leave.
(l)
“
Covered Employee”
means the Person who, as of the end of the taxable year, either is the principal
executive officer of the Company or is serving as the acting principal executive officer of the Company, and each other Person
whose compensation is required to be disclosed in the Company’s filings with the Securities and Exchange Commission by reason
of that person being among the three highest compensated officers of the Company as of the end of a taxable year, or such other
person as shall be considered a “covered employee” for purposes of Section 162(m) of the Code.
(m)
“
Deferred Stock
” means a right to receive Shares, including Restricted Stock, cash measured based
upon the value of Shares or a combination thereof, at the end of a specified deferral period.
(n)
“
Deferred Stock Award
” means an Award of Deferred Stock granted to a Participant under Section 6(e)
hereof.
(o)
“
Director
” means a member of the Board or the board of directors of any Related Entity.
(p)
“
Disability
” means a permanent and total disability (within the meaning of Section 22(e)
of the Code), as determined by a medical doctor satisfactory to the Committee.
(q)
“
Dividend Equivalent
” means a right, granted to a Participant under Section 6(g) hereof,
to receive cash, Shares, other Awards or other property equal in value to dividends paid with respect to a specified number of
Shares, or other periodic payments.
(r)
“
Effective Date
” means the effective date of the Plan, which shall be July 18, 2018.
(s)
“
Eligible Person
” means each officer, Director, Employee, Consultant and other person who provides
services to the Company or any Related Entity. The foregoing notwithstanding, only Employees of the Company, or any parent corporation
or subsidiary corporation of the Company (as those terms are defined in Sections 424(e) and (f) of the Code, respectively),
shall be Eligible Persons for purposes of receiving any Incentive Stock Options. An Employee on leave of absence may, in the discretion
of the Committee, be considered as still in the employ of the Company or a Related Entity for purposes of eligibility for participation
in the Plan.
(t)
“
Employee
” means any person, including an officer or Director, who is an employee of the Company
or any Related Entity. The payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute
“employment” by the Company.
(u)
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended from time to time, including
rules thereunder and successor provisions and rules thereto.
(v)
“
Fair Market Value
” means the fair market value of Shares, Awards or other property as determined
by the Committee, or under procedures established by the Committee. Unless otherwise determined by the Committee, the Fair Market
Value of a Share as of any given date shall be (i) the last sale price of a Share on the principal national securities exchange
on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the average
of the closing bid and asked prices for the Common Stock quoted by an established quotation service for over-the-counter securities,
if the Common Stock is not then traded on a national securities exchange.
(w)
“
Good Reason
” shall, with respect to any Participant, have the meaning specified in the Award
Agreement. In the absence of any definition in the Award Agreement, “Good Reason” shall have the equivalent meaning
or the same meaning as “good reason” or “for good reason” set forth in any employment, consulting or other
agreement for the performance of services between the Participant and the Company or a Related Entity or, in the absence of any
such agreement or any such definition in such agreement, such term shall mean (i) the assignment to the Participant of any
duties inconsistent in any material respect with the Participant’s duties or responsibilities as assigned by the Company
or a Related Entity, or any other action by the Company or a Related Entity which results in a material diminution in such duties
or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company or a Related Entity promptly after receipt of notice thereof given by the Participant; (ii) any
material failure by the Company or a Related Entity to comply with its obligations to the Participant as agreed upon, other than
an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company or a Related
Entity promptly after receipt of notice thereof given by the Participant; or (iii) the Company’s or Related Entity’s
requiring the Participant to be based at any office or location outside of fifty miles from the location of employment or service
as of the date of Award, except for travel reasonably required in the performance of the Participant’s responsibilities.
(x)
“
Incentive Stock Option
” means any Option intended to be designated as an incentive stock option
within the meaning of Section 422 of the Code or any successor provision thereto.
(y)
“
Independent
”, when referring to either the Board or members of the Committee, shall have the
same meaning as used in the rules of the Listing Market.
(z)
“
Incumbent Board
” means the Incumbent Board as defined in Section 9(b)(ii) hereof.
(aa)
“Listing Market”
means the OTC Bulletin Board or any other national securities exchange on which
any securities of the Company are listed for trading, and if not listed for trading, by the rules of the Nasdaq Market.
(bb)
“
Option
” means a right granted to a Participant under Section 6(b) hereof, to purchase Shares
or other Awards at a specified price during specified time periods.
(cc)
“
Optionee
” means a person to whom an Option is granted under this Plan or any person who succeeds
to the rights of such person under this Plan.
(dd)
“
Other Stock-Based Awards
” means Awards granted to a Participant under Section 6(i) hereof.
(ee)
“
Participant
” means a person who has been granted an Award under the Plan which remains outstanding,
including a person who is no longer an Eligible Person.
(ff)
“
Performance Award
” means any Award of Performance Shares or Performance Units granted pursuant
to Section 6(h) hereof.
(gg)
“
Performance Period
” means that period established by the Committee at the time any Performance
Award is granted or at any time thereafter during which any performance goals specified by the Committee with respect to such Award
are to be measured.
(hh)
“
Performance Share
” means any grant pursuant to Section 6(h) hereof of a unit valued by reference
to a designated number of Shares, which value may be paid to the Participant by delivery of such property as the Committee shall
determine, including cash, Shares, other property, or any combination thereof, upon achievement of such performance goals during
the Performance Period as the Committee shall establish at the time of such grant or thereafter.
(ii)
“
Performance Unit
” means any grant pursuant to Section 6(h) hereof of a unit valued by reference
to a designated amount of property (including cash) other than Shares, which value may be paid to the Participant by delivery of
such property as the Committee shall determine, including cash, Shares, other property, or any combination thereof, upon achievement
of such performance goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter.
(jj)
“
Person
” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, and shall include a “group” as defined in Section 13(d) thereof.
(kk)
“
Related Entity
” means any Subsidiary, and any business, corporation, partnership, limited liability
company or other entity designated by the Board, in which the Company or a Subsidiary holds a substantial ownership interest, directly
or indirectly.
(ll)
“Restriction Period”
means the period of time specified by the Committee that Restricted Stock
Awards shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee
may impose.
(mm)
“
Restricted Stock
” means any Share issued with the restriction that the holder may not sell, transfer,
pledge or assign such Share and with such risks of forfeiture and other restrictions as the Committee, in its sole discretion,
may impose (including any restriction on the right to vote such Share and the right to receive any dividends), which restrictions
may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.
(nn)
“
Restricted Stock Award
” means an Award granted to a Participant under Section 6(d) hereof.
(oo)
“
Rule 16b-3
” means Rule 16b-3, as from time to time in effect and applicable to the Plan and Participants,
promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act.
(pp)
“
Shares
” means the shares of common stock of the Company, par value $0.001 per share, and such
other securities as may be substituted (or resubstituted) for Shares pursuant to Section 10(c) hereof.
(qq)
“
Stock Appreciation Right
” means a right granted to a Participant under Section 6(c) hereof.
(rr)
“
Subsidiary
” means any corporation or other entity in which the Company has a direct or indirect
ownership interest of 50% or more of the total combined voting power of the then outstanding securities or interests of such corporation
or other entity entitled to vote generally in the election of directors or in which the Company has the right to receive 50% or
more of the distribution of profits or 50% or more of the assets on liquidation or dissolution.
(ss)
“
Substitute Awards
” means Awards granted or Shares issued by the Company in assumption of, or
in substitution or exchange for, Awards previously granted, or the right or obligation to make future Awards, by a company (i) acquired
by the Company or any Related Entity, (ii) which becomes a Related Entity after the date hereof, or (iii) with which
the Company or any Related Entity combines.
3.
Administration
.
(a)
Authority of the Committee
. The Plan shall be administered by the Committee except to the extent (and subject
to the limitations imposed by Section 3(b) hereof) the Board elects to administer the Plan, in which case the Plan shall be
administered by only those members of the Board who are Independent members of the Board, in which case references herein to the
“Committee” shall be deemed to include references to the Independent members of the Board. The Committee shall have
full and final authority, subject to and consistent with the provisions of the Plan, to select Eligible Persons to become Participants,
grant Awards, determine the type, number and other terms and conditions of, and all other matters relating to, Awards, prescribe
Award Agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award Agreements and correct defects, supply omissions or reconcile inconsistencies therein,
and to make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the
Plan. In exercising any discretion granted to the Committee under the Plan or pursuant to any Award, the Committee shall not be
required to follow past practices, act in a manner consistent with past practices, or treat any Eligible Person or Participant
in a manner consistent with the treatment of any other Eligible Persons or Participants.
(b)
Manner of Exercise of Committee Authority
. The Committee, and not the Board, shall exercise sole and exclusive
discretion (i) on any matter relating to a Participant then subject to Section 16 of the Exchange Act with respect to
the Company to the extent necessary in order that transactions by such Participant shall be exempt under Rule 16b-3 under the Exchange
Act, (ii) with respect to any Award that is intended to qualify as “performance-based compensation” under Section 162(m),
to the extent necessary in order for such Award to so qualify; and (iii) with respect to any Award to an Independent Director.
Any action of the Committee shall be final, conclusive and binding on all persons, including the Company, its Related Entities,
Eligible Persons, Participants, Beneficiaries, transferees under Section 10(b) hereof or other persons claiming rights from
or through a Participant, and shareholders. The express grant of any specific power to the Committee, and the taking of any action
by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers
or managers of the Company or any Related Entity, or committees thereof, the authority, subject to such terms and limitations as
the Committee shall determine, to perform such functions, including administrative functions as the Committee may determine to
the extent that such delegation will not result in the loss of an exemption under Rule 16b-3(d)(1) for Awards granted to Participants
subject to Section 16 of the Exchange Act in respect of the Company and will not cause Awards intended to qualify as “performance-based
compensation” under Code Section 162(m) to fail to so qualify. The Committee may appoint agents to assist it in administering
the Plan.
(c)
Limitation of Liability
. The Committee and the Board, and each member thereof, shall be entitled to, in good
faith, rely or act upon any report or other information furnished to him or her by any officer or Employee, the Company’s
independent auditors, Consultants or any other agents assisting in the administration of the Plan. Members of the Committee and
the Board, and any officer or Employee acting at the direction or on behalf of the Committee or the Board, shall not be personally
liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted
by law, be fully indemnified and protected by the Company with respect to any such action or determination.
4.
Shares Subject to Plan
.
(a)
Limitation on Overall Number of Shares Available for Delivery Under Plan
. Subject to adjustment as provided
in Section 10(c) hereof, the total number of Shares reserved and available for delivery under the Plan shall be five million
(5,000,000). Any Shares delivered under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury
shares.
(b)
Application of Limitation to Grants of Awards
. No Award may be granted if the number of Shares to be delivered
in connection with such an Award exceeds the number of Shares remaining available for delivery under the Plan, minus the number
of Shares deliverable in settlement of or relating to then outstanding Awards. The Committee may adopt reasonable counting procedures
to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards) and make adjustments
if the number of Shares actually delivered differs from the number of Shares previously counted in connection with an Award.
(c)
Availability of Shares Not Delivered under Awards and Adjustments to Limits
.
i.
If any Awards are forfeited, expire or otherwise terminate without issuance of such Shares, or any Award is settled for
cash or otherwise does not result in the issuance of all or a portion of the Shares subject to such Award, the Shares to which
those Awards were subject, shall, to the extent of such forfeiture, expiration, termination, cash settlement or non-issuance, again
be available for delivery with respect to Awards under the Plan, subject to Section 4(c)(iv) below.
ii.
In the event that any Option or other Award granted hereunder is exercised through the tendering of Shares (either actually
or by attestation) or by the withholding of Shares by the Company, or withholding tax liabilities arising from such option or other
award are satisfied by the tendering of Shares (either actually or by attestation) or by the withholding of Shares by the Company,
then only the number of Shares issued net of the Shares tendered or withheld shall be counted for purposes of determining the maximum
number of Shares available for grant under the Plan.
iii.
Substitute Awards shall not reduce the Shares authorized for delivery under the Plan or authorized for delivery to a Participant
in any period. Additionally, in the event that a company acquired by the Company or any Related Entity or with which the Company
or any Related Entity combines has shares available under a pre-existing plan approved by its shareholders, the shares available
for delivery pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio
or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable
to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan
and shall not reduce the Shares authorized for delivery under the Plan; if and to the extent that the use of such Shares would
not require approval of the Company’s shareholders under the rules of the Listing Market.
iv.
Any Share that again becomes available for delivery pursuant to this Section 4(c) shall be added back as one (1) Share.
v.
Notwithstanding anything in this Section 4(c) to the contrary but subject to adjustment as provided in Section 10(c)
hereof, the maximum aggregate number of Shares that may be delivered under the Plan as a result of the exercise of the Incentive
Stock Options shall be 5,000,000 Shares.
5.
Eligibility
. Awards may be granted under the Plan only to Eligible Persons.
6.
Specific Terms of Awards
.
(a)
General
. Awards may be granted on the terms and conditions set forth in this Section 6. In addition,
the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Section 10(e)),
such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including
terms requiring forfeiture of Awards in the event of termination of the Participant’s Continuous Service and terms permitting
a Participant to make elections relating to his or her Award. Except as otherwise expressly provided herein, the Committee shall
retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of an Award that is not mandatory
under the Plan. Except in cases in which the Committee is authorized to require other forms of consideration under the Plan, or
to the extent other forms of consideration must be paid to satisfy the requirements of Nevada law, no consideration other than
services may be required for the grant (as opposed to the exercise) of any Award.
(b)
Options
. The Committee is authorized to grant Options to any Eligible Person on the following terms and conditions:
i.
Exercise Price
. Other than in connection with Substitute Awards, the exercise price per Share purchasable
under an Option shall be determined by the Committee, provided that such exercise price shall not be less than 100% of the Fair
Market Value of a Share on the date of grant of the Option and shall not, in any event, be less than the par value of a Share on
the date of grant of the Option. If an Employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d)
of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any parent corporation or subsidiary
corporation of the Company, as those terms are defined in Sections 424(e) and (f) of the Code, respectively) and an Incentive
Stock Option is granted to such Employee, the exercise price of such Incentive Stock Option (to the extent required by the Code
at the time of grant) shall be no less than 110% of the Fair Market Value of a Share on the date such Incentive Stock Option is
granted.
ii.
Time and Method of Exercise
. The Committee shall determine the time or times at which or the circumstances
under which an Option may be exercised in whole or in part (including based on achievement of performance goals and/or future service
requirements), the time or times at which Options shall cease to be or become exercisable following termination of Continuous Service
or upon other conditions, the methods by which the exercise price may be paid or deemed to be paid (including in the discretion
of the Committee a cashless exercise procedure), the form of such payment, including, without limitation, cash, Shares (including
without limitation the withholding of Shares otherwise deliverable pursuant to the Award), other Awards or awards granted under
other plans of the Company or a Related Entity, or other property (including notes or other contractual obligations of Participants
to make payment on a deferred basis provided that such deferred payments are not in violation of Section 13(k) of the Exchange
Act, or any rule or regulation adopted thereunder or any other applicable law), and the methods by or forms in which Shares will
be delivered or deemed to be delivered to Participants.
iii.
Incentive Stock Options
. The terms of any Incentive Stock Option granted under the Plan shall comply in all
respects with the provisions of Section 422 of the Code. Anything in the Plan to the contrary notwithstanding, no term of
the Plan relating to Incentive Stock Options (including any Stock Appreciation Right issued in tandem therewith) shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify either the Plan
or any Incentive Stock Option under Section 422 of the Code, unless the Participant has first requested, or consents to, the
change that will result in such disqualification. Thus, if and to the extent required to comply with Section 422 of the Code,
Options granted as Incentive Stock Options shall be subject to the following special terms and conditions:
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(A)
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the Option shall not be exercisable for more than ten years after the date such Incentive Stock Option is granted; provided,
however, that if a Participant owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the Company (or any parent corporation or subsidiary corporation
of the Company, as those terms are defined in Sections 424(e) and (f) of the Code, respectively) and the Incentive Stock Option
is granted to such Participant, the term of the Incentive Stock Option shall be (to the extent required by the Code at the time
of the grant) for no more than five years from the date of grant; and
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(B)
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The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the Shares with respect
to which Incentive Stock Options granted under the Plan and all other option plans of the Company (and any parent corporation or
subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f) of the Code, respectively) that
become exercisable for the first time by the Participant during any calendar year shall not (to the extent required by the Code
at the time of the grant) exceed $100,000.
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(c)
Stock Appreciation Rights
. The Committee may grant Stock Appreciation Rights to any Eligible Person in conjunction
with all or part of any Option granted under the Plan or at any subsequent time during the term of such Option (a “Tandem
Stock Appreciation Right”), or without regard to any Option (a “Freestanding Stock Appreciation Right”), in each
case upon such terms and conditions as the Committee may establish in its sole discretion, not inconsistent with the provisions
of the Plan, including the following:
i.
Right to Payment
. A Stock Appreciation Right shall confer on the Participant to whom it is granted a right
to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one Share on the date of exercise over (B) the
grant price of the Stock Appreciation Right as determined by the Committee. The grant price of a Stock Appreciation Right shall
not be less than 100% of the Fair Market Value of a Share on the date of grant, in the case of a Freestanding Stock Appreciation
Right, or less than the associated Option exercise price, in the case of a Tandem Stock Appreciation Right.
ii.
Other Terms
. The Committee shall determine at the date of grant or thereafter, the time or times at which
and the circumstances under which a Stock Appreciation Right may be exercised in whole or in part (including based on achievement
of performance goals and/or future service requirements), the time or times at which Stock Appreciation Rights shall cease to be
or become exercisable following termination of Continuous Service or upon other conditions, the method of exercise, method of settlement,
form of consideration payable in settlement, method by or forms in which Shares will be delivered or deemed to be delivered to
Participants, whether or not a Stock Appreciation Right shall be in tandem or in combination with any other Award, and any other
terms and conditions of any Stock Appreciation Right.
iii.
Tandem Stock Appreciation Rights
. Any Tandem Stock Appreciation Right may be granted at the same time as the
related Option is granted or, for Options that are not Incentive Stock Options, at any time thereafter before exercise or expiration
of such Option. Any Tandem Stock Appreciation Right related to an Option may be exercised only when the related Option would be
exercisable and the Fair Market Value of the Shares subject to the related Option exceeds the exercise price at which Shares can
be acquired pursuant to the Option. In addition, if a Tandem Stock Appreciation Right exists with respect to less than the full
number of Shares covered by a related Option, then an exercise or termination of such Option shall not reduce the number of Shares
to which the Tandem Stock Appreciation Right applies until the number of Shares then exercisable under such Option equals the number
of Shares to which the Tandem Stock Appreciation Right applies. Any Option related to a Tandem Stock Appreciation Right shall no
longer be exercisable to the extent the Tandem Stock Appreciation Right has been exercised, and any Tandem Stock Appreciation Right
shall no longer be exercisable to the extent the related Option has been exercised.
(d)
Restricted Stock Awards
. The Committee is authorized to grant Restricted Stock Awards to any Eligible Person
on the following terms and conditions:
i.
Grant and Restrictions
. Restricted Stock Awards shall be subject to such restrictions on transferability,
risk of forfeiture and other restrictions, if any, as the Committee may impose, or as otherwise provided in this Plan during the
Restriction Period. The terms of any Restricted Stock Award granted under the Plan shall be set forth in a written Award Agreement
which shall contain provisions determined by the Committee and not inconsistent with the Plan. The restrictions may lapse separately
or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service
requirements), in such installments or otherwise, as the Committee may determine at the date of grant or thereafter. Except to
the extent restricted under the terms of the Plan and any Award Agreement relating to a Restricted Stock Award, a Participant granted
Restricted Stock shall have all of the rights of a shareholder, including the right to vote the Restricted Stock and the right
to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Committee). During the
period that the Restriction Stock Award is subject to a risk of forfeiture, subject to Section 10(b) below and except as otherwise
provided in the Award Agreement, the Restricted Stock may not be sold, transferred, pledged, hypothecated, margined or otherwise
encumbered by the Participant.
ii.
Forfeiture
. Except as otherwise determined by the Committee, upon termination of a Participant’s Continuous
Service during the applicable Restriction Period, the Participant’s Restricted Stock that is at that time subject to a risk
of forfeiture that has not lapsed or otherwise been satisfied shall be forfeited and reacquired by the Company; provided that,
subject to the limitations set forth in Section 6(j)(ii) hereof, the Committee may provide, by rule or regulation or in any
Award Agreement, or may determine in any individual case, that forfeiture conditions relating to Restricted Stock Awards shall
be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases
waive in whole or in part the forfeiture of Restricted Stock.
iii.
Certificates for Stock
. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee
shall determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Committee may
require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such
Restricted Stock, that the Company retain physical possession of the certificates, and that the Participant deliver a stock power
to the Company, endorsed in blank, relating to the Restricted Stock.
iv.
Dividends and Splits
. As a condition to the grant of a Restricted Stock Award, the Committee may require or
permit a Participant to elect that any cash dividends paid on a Share of Restricted Stock be automatically reinvested in additional
Shares of Restricted Stock or applied to the purchase of additional Awards under the Plan. Unless otherwise determined by the Committee,
Shares distributed in connection with a stock split or stock dividend, and other property distributed as a dividend, shall be subject
to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Shares or other
property have been distributed.
(e)
Deferred Stock Award
. The Committee is authorized to grant Deferred Stock Awards to any Eligible Person on
the following terms and conditions:
i.
Award and Restrictions
. Satisfaction of a Deferred Stock Award shall occur upon expiration of the deferral
period specified for such Deferred Stock Award by the Committee (or, if permitted by the Committee, as elected by the Participant).
In addition, a Deferred Stock Award shall be subject to such restrictions (which may include a risk of forfeiture) as the Committee
may impose, if any, which restrictions may lapse at the expiration of the deferral period or at earlier specified times (including
based on achievement of performance goals and/or future service requirements), separately or in combination, in installments or
otherwise, as the Committee may determine. A Deferred Stock Award may be satisfied by delivery of Shares, cash equal to the Fair
Market Value of the specified number of Shares covered by the Deferred Stock, or a combination thereof, as determined by the Committee
at the date of grant or thereafter. Prior to satisfaction of a Deferred Stock Award, a Deferred Stock Award carries no voting or
dividend or other rights associated with Share ownership.
ii.
Forfeiture
. Except as otherwise determined by the Committee, upon termination of a Participant’s Continuous
Service during the applicable deferral period or portion thereof to which forfeiture conditions apply (as provided in the Award
Agreement evidencing the Deferred Stock Award), the Participant’s Deferred Stock Award that is at that time subject to a
risk of forfeiture that has not lapsed or otherwise been satisfied shall be forfeited; provided that, subject to the limitations
set forth in Section 6(j)(ii) hereof, the Committee may provide, by rule or regulation or in any Award Agreement, or may determine
in any individual case, that forfeiture conditions relating to a Deferred Stock Award shall be waived in whole or in part in the
event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture
of any Deferred Stock Award.
iii.
Dividend Equivalents
. Unless otherwise determined by the Committee at the date of grant, any Dividend Equivalents
that are granted with respect to any Deferred Stock Award shall be either (A) paid with respect to such Deferred Stock Award
at the dividend payment date in cash or in Shares of unrestricted stock having a Fair Market Value equal to the amount of such
dividends, or (B) deferred with respect to such Deferred Stock Award and the amount or value thereof automatically deemed
reinvested in additional Deferred Stock, other Awards or other investment vehicles, as the Committee shall determine or permit
the Participant to elect. The applicable Award Agreement shall specify whether any Dividend Equivalents shall be paid at the dividend
payment date, deferred or deferred at the election of the Participant. If the Participant may elect to defer the Dividend Equivalents,
such election shall be made within 30 days after the grant date of the Deferred Stock Award, but in no event later than 12 months
before the first date on which any portion of such Deferred Stock Award vests.
(f)
Bonus Stock and Awards in Lieu of Obligations
. The Committee is authorized to grant Shares to any Eligible
Persons as a bonus, or to grant Shares or other Awards in lieu of obligations to pay cash or deliver other property under the Plan
or under other plans or compensatory arrangements, provided that, in the case of Eligible Persons subject to Section 16 of
the Exchange Act, the amount of such grants remains within the discretion of the Committee to the extent necessary to ensure that
acquisitions of Shares or other Awards are exempt from liability under Section 16(b) of the Exchange Act. Shares or Awards
granted hereunder shall be subject to such other terms as shall be determined by the Committee.
(g)
Dividend Equivalents
. The Committee is authorized to grant Dividend Equivalents to any Eligible Person entitling
the Eligible Person to receive cash, Shares, other Awards, or other property equal in value to the dividends paid with respect
to a specified number of Shares, or other periodic payments. Dividend Equivalents may be awarded on a free-standing basis or in
connection with another Award. The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or
shall be deemed to have been reinvested in additional Shares, Awards, or other investment vehicles, and subject to such restrictions
on transferability and risks of forfeiture, as the Committee may specify. Any such determination by the Committee shall be made
at the grant date of the applicable Award.
(h)
Performance Awards
. The Committee is authorized to grant Performance Awards to any Eligible Person payable
in cash, Shares, or other Awards, on terms and conditions established by the Committee, subject to the provisions of Section 8
if and to the extent that the Committee shall, in its sole discretion, determine that an Award shall be subject to those provisions.
The performance criteria to be achieved during any Performance Period and the length of the Performance Period shall be determined
by the Committee upon the grant of each Performance Award; provided, however, that a Performance Period shall not be shorter than
12 months nor longer than 5 years. Except as provided in Section 9 or as may be provided in an Award Agreement, Performance
Awards will be distributed only after the end of the relevant Performance Period. The performance goals to be achieved for each
Performance Period shall be conclusively determined by the Committee and may be based upon the criteria set forth in Section 8(b),
or in the case of an Award that the Committee determines shall not be subject to Section 8 hereof, any other criteria that
the Committee, in its sole discretion, shall determine should be used for that purpose. The amount of the Award to be distributed
shall be conclusively determined by the Committee. Performance Awards may be paid in a lump sum or in installments following the
close of the Performance Period or, in accordance with procedures established by the Committee, on a deferred basis.
(i)
Other Stock-Based Awards
. The Committee is authorized, subject to limitations under applicable law, to grant
to any Eligible Person such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Shares, as deemed by the Committee to be consistent with the purposes of the Plan. Other Stock-Based
Awards may be granted to Participants either alone or in addition to other Awards granted under the Plan, and such Other Stock-Based
Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan. The Committee shall
determine the terms and conditions of such Awards. Shares delivered pursuant to an Award in the nature of a purchase right granted
under this Section 6(i) shall be purchased for such consideration, (including without limitation loans from the Company or
a Related Entity provided that such loans are not in violation of Section 13(k) of the Exchange Act, or any rule or regulation
adopted thereunder or any other applicable law) paid for at such times, by such methods, and in such forms, including, without
limitation, cash, Shares, other Awards or other property, as the Committee shall determine.
7.
Certain Provisions Applicable to Awards
.
(a)
Stand-Alone, Additional, Tandem, and Substitute Awards
. Awards granted under the Plan may, in the discretion
of the Committee, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award
or any award granted under another plan of the Company, any Related Entity, or any business entity to be acquired by the Company
or a Related Entity, or any other right of a Participant to receive payment from the Company or any Related Entity. Such additional,
tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another
Award or award, the Committee shall require the surrender of such other Award or award in consideration for the grant of the new
Award. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans
of the Company or any Related Entity, in which the value of Shares subject to the Award is equivalent in value to the cash compensation
(for example, Deferred Stock or Restricted Stock), or in which the exercise price, grant price or purchase price of the Award in
the nature of a right that may be exercised is equal to the Fair Market Value of the underlying Shares minus the value of the cash
compensation surrendered (for example, Options or Stock Appreciation Right granted with an exercise price or grant price “discounted”
by the amount of the cash compensation surrendered), provided that any such determination to grant an Award in lieu of cash compensation
must be made in compliance with Section 409A of the Code.
(b)
Term of Awards
. The term of each Award shall be for such period as may be determined by the Committee; provided
that in no event shall the term of any Option or Stock Appreciation Right exceed a period of ten years (or in the case of an Incentive
Stock Option such shorter term as may be required under Section 422 of the Code).
(c)
Form and Timing of Payment Under Awards; Deferrals
. Subject to the terms of the Plan and any applicable Award
Agreement, payments to be made by the Company or a Related Entity upon the exercise of an Option or other Award or settlement of
an Award may be made in such forms as the Committee shall determine, including, without limitation, cash, Shares, other Awards
or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis, provided that any
determination to pay in installments or on a deferred basis shall be made by the Committee at the date of grant. Any installment
or deferral provided for in the preceding sentence shall, however, be subject to the Company’s compliance with applicable
law and all applicable rules of the Listing Market, and in a manner intended to be exempt from or otherwise satisfy the requirements
of Section 409A of the Code. Subject to Section 7(e) hereof, the settlement of any Award may be accelerated, and cash
paid in lieu of Shares in connection with such settlement, in the sole discretion of the Committee or upon occurrence of one or
more specified events (in addition to a Change in Control). Any such settlement shall be at a value determined by the Committee
in its sole discretion, which, without limitation, may in the case of an Option or Stock Appreciation Right be limited to the amount
if any by which the Fair Market Value of a Share on the settlement date exceeds the exercise or grant price. Installment or deferred
payments may be required by the Committee (subject to Section 7(e) of the Plan, including the consent provisions thereof in
the case of any deferral of an outstanding Award not provided for in the original Award Agreement) or permitted at the election
of the Participant on terms and conditions established by the Committee. The Committee may, without limitation, make provision
for the payment or crediting of a reasonable interest rate on installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments denominated in Shares.
(d)
Exemptions from Section 16(b) Liability
. : If the It is the intent of the Company that the grant of any
Awards to or other transaction by a Participant who is subject to Section 16 of the Exchange Act shall be exempt from Section 16
pursuant to an applicable exemption (except for transactions acknowledged in writing to be non-exempt by such Participant). Accordingly,
if any provision of this Plan or any Award Agreement does not comply with the requirements of Rule 16b-3 then applicable to any
such transaction, such provision shall be construed or deemed amended to the extent necessary to conform to the applicable requirements
of Rule 16b-3 so that such Participant shall avoid liability under Section 16(b).
(e)
Code Section 409A
.
i.
The Award Agreement for any Award that the Committee reasonably determines to constitute a Section 409A Plan, and the
provisions of the Plan applicable to that Award, shall be construed in a manner consistent with the applicable requirements of
Section 409A, and the Committee, in its sole discretion and without the consent of any Participant, may amend any Award Agreement
(and the provisions of the Plan applicable thereto) if and to the extent that the Committee determines that such amendment is necessary
or appropriate to comply with the requirements of Section 409A of the Code.
ii.
If any Award constitutes a “nonqualified deferred compensation plan” under Section 409A of the Code (a
“Section 409A Plan”), then the Award shall be subject to the following additional requirements, if and to the extent
required to comply with Section 409A of the Code:
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(A)
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Payments under the Section 409A Plan may not be made earlier than the first to occur of (u) the Participant’s
“separation from service”, (v) the date the Participant becomes “disabled”, (w) the Participant’s
death, (x) a “specified time (or pursuant to a fixed schedule)” specified in the Award Agreement at the date of
the deferral of such compensation, (y) a “change in the ownership or effective control of the corporation, or in the
ownership of a substantial portion of the assets” of the Company, or (z) the occurrence of an “unforeseeble emergency”;
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(B)
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The time or schedule for any payment of the deferred compensation may not be accelerated, except to the extent provided in
applicable Treasury Regulations or other applicable guidance issued by the Internal Revenue Service;
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(C)
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Any elections with respect to the deferral of such compensation or the time and form of distribution of such deferred compensation
shall comply with the requirements of Section 409A(a)(4) of the Code; and
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(D)
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In the case of any Participant who is “specified employee”, a distribution on account of a “separation from
service” may not be made before the date which is six months after the date of the Participant’s “separation
from service” (or, if earlier, the date of the Participant’s death).
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For purposes of the foregoing, the terms in quotations
shall have the same meanings as those terms have for purposes of Section 409A of the Code, and the limitations set forth herein
shall be applied in such manner (and only to the extent) as shall be necessary to comply with any requirements of Section 409A
of the Code that are applicable to the Award. The Company does not make any representation to the Participant that any Awards awarded
under this Plan will be exempt from, or satisfy, the requirements of Section 409A, and the Company shall have no liability
or other obligation to indemnify or hold harmless any Participant or Beneficiary for any tax, additional tax, interest or penalties
that any Participant or Beneficiary may incur in the event that any provision of this Plan, any Award Agreement, or any amendment
or modification thereof, or any other action taken with respect thereto, is deemed to violate any of the requirements of Section 409A.
iii.
Notwithstanding the foregoing, the Company does not make any representation to any Participant or Beneficiary that any Awards
made pursuant to this Plan are exempt from, or satisfy, the requirements of Section 409A, and the Company shall have no liability
or other obligation to indemnify or hold harmless the Participant or any Beneficiary for any tax, additional tax, interest or penalties
that the Participant or any Beneficiary may incur in the event that any provision of this Plan, or any Award Agreement, or any
amendment or modification thereof, or any other action taken with respect thereto, is deemed to violate any of the requirements
of Section 409A.
8.
Code Section 162(m) Provisions
.
(a)
Covered Employees
. Unless otherwise specified by the Committee, the provisions of this Section 8 shall
be applicable to any Performance Award granted to an Eligible Person who is, or is likely to be, as of the end of the tax year
in which the Company would claim a tax deduction in connection with such Award, a Covered Employee.
(b)
Performance Criteria
. If a Performance Award is subject to this Section 8, then the payment or distribution
thereof or the lapsing of restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as applicable,
shall be contingent upon achievement of one or more objective performance goals. Performance goals shall be objective and shall
otherwise meet the requirements of Section 162(m) of the Code and regulations thereunder including the requirement that the
level or levels of performance targeted by the Committee result in the achievement of performance goals being “substantially
uncertain.” One or more of the following business criteria for the Company, on a consolidated basis, and/or for Related Entities,
or for business or geographical units of the Company and/or a Related Entity (except with respect to the total shareholder return
and earnings per share criteria), shall be used by the Committee in establishing performance goals for such Awards: (1) earnings
per share; (2) revenues or margins; (3) cash flow; (4) operating margin; (5) return on net assets, investment,
capital, or equity; (6) economic value added; (7) direct contribution; (8) net income; pretax earnings; earnings
before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings after interest expense and
before extraordinary or special items; operating income or income from operations; income before interest income or expense, unusual
items and income taxes, local, state or federal and excluding budgeted and actual bonuses which might be paid under any ongoing
bonus plans of the Company; (9) working capital; (10) management of fixed costs or variable costs; (11) identification
or consummation of investment opportunities or completion of specified projects in accordance with corporate business plans, including
strategic mergers, acquisitions or divestitures; (12) total shareholder return; (13) debt reduction; (14) market
share; (15) entry into new markets, either geographically or by business unit; (16) customer retention and satisfaction;
(17) strategic plan development and implementation, including turnaround plans; and/or (18) the Fair Market Value of
a Share. Any of the above goals may be determined on an absolute or relative basis or as compared to the performance of a published
or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor’s 500 Stock
Index or a group of companies that are comparable to the Company. In determining the achievement of the performance goals, the
Committee shall exclude the impact of any (i) restructurings, discontinued operations, extraordinary items, and other unusual
or non-recurring charges, (ii) event either not directly related to the operations of the Company or not within the reasonable
control of the Company’s management, or (iii) change in accounting standards required by generally accepted accounting
principles.
(c)
Performance Period; Timing For Establishing Performance Goals
. Achievement of performance goals in respect
of Performance Awards shall be measured over a Performance Period no shorter than 12 months and no longer than 5 years, as specified
by the Committee. Performance goals shall be established not later than 90 days after the beginning of any Performance Period applicable
to such Performance Awards, or at such other date as may be required or permitted for “performance-based compensation”
under Section 162(m) of the Code.
(d)
Adjustments
. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made
in connection with Awards subject to this Section 8, but may not exercise discretion to increase any such amount payable to
a Covered Employee in respect of an Award subject to this Section 8. The Committee shall specify the circumstances in which
such Awards shall be paid or forfeited in the event of termination of Continuous Service by the Participant prior to the end of
a Performance Period or settlement of Awards.
(e)
Committee Certification
. No Participant shall receive any payment under the Plan that is subject to this Section 8
unless the Committee has certified, by resolution or other appropriate action in writing, that the performance criteria and any
other material terms previously established by the Committee or set forth in the Plan, have been satisfied to the extent necessary
to qualify as “performance based compensation” under Section 162(m) of the Code.
9.
Change in Control
.
(a)
Effect of “Change in Control.”
If and only to the extent provided in any employment or other agreement
between the Participant and the Company or any Related Entity, or in any Award Agreement, or to the extent otherwise determined
by the Committee in its sole discretion and without any requirement that each Participant be treated consistently, upon the occurrence
of a “Change in Control,” as defined in Section 9(b):
i.
Any Option or Stock Appreciation Right that was not previously vested and exercisable as of the time of the Change in Control,
shall become immediately vested and exercisable, subject to applicable restrictions set forth in Section 10(a) hereof.
ii.
Any restrictions, deferral of settlement, and forfeiture conditions applicable to a Restricted Stock Award, Deferred Stock
Award or an Other Stock-Based Award subject only to future service requirements granted under the Plan shall lapse and such Awards
shall be deemed fully vested as of the time of the Change in Control, except to the extent of any waiver by the Participant and
subject to applicable restrictions set forth in Section 10(a) hereof.
iii.
With respect to any outstanding Award subject to achievement of performance goals and conditions under the Plan, the Committee
may, in its discretion, deem such performance goals and conditions as having been met as of the date of the Change in Control.
(b)
Definition of “Change in Control”
. Unless otherwise specified in any employment agreement between
the Participant and the Company or any Related Entity, or in an Award Agreement, a “Change in Control” shall mean the
occurrence of any of the following:
i.
The acquisition by any Person of Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of more than fifty percent (50%) of either (A) the value of then outstanding equity securities of the Company (the “Outstanding
Company Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the “Outstanding Company Voting Securities) (the foregoing Beneficial Ownership
hereinafter being referred to as a “Controlling Interest”); provided, however, that for purposes of this Section 9(b),
the following acquisitions shall not constitute or result in a Change in Control: (v) any acquisition directly from the Company;
(w) any acquisition by the Company; (x) any acquisition by any Person that as of the Effective Date owns Beneficial Ownership
of a Controlling Interest; (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by
the Company or any Related Entity; or (z) any acquisition by any entity pursuant to a transaction which complies with clauses
(A), (B) and (C) of subsection (iii) below; or
ii.
During any period of three (3) consecutive years (not including any period prior to the Effective Date) individuals
who constitute the Board on the Effective Date (the “Incumbent Board”) cease for any reason to constitute at least
a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election,
or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
iii.
Consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the
Company or any of its Related Entities, a sale or other disposition of all or substantially all of the assets of the Company, or
the acquisition of assets or equity of another entity by the Company or any of its Related Entities (each a “Business Combination”),
in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who
were the Beneficial Owners, respectively, of the Outstanding Company Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the value of
the then outstanding equity securities and the combined voting power of the then outstanding voting securities entitled to vote
generally in the election of members of the board of directors (or comparable governing body of an entity that does not have such
a board), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity
which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly
or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination
or any Person that as of the Effective Date owns Beneficial Ownership of a Controlling Interest) beneficially owns, directly or
indirectly, fifty percent (50%) or more of the value of the then outstanding equity securities of the entity resulting from
such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent
that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the Board of Directors
or other governing body of the entity resulting from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
iv.
Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
10.
General Provisions
.
(a)
Compliance With Legal and Other Requirements
. The Company may, to the extent deemed necessary or advisable
by the Committee, postpone the issuance or delivery of Shares or payment of other benefits under any Award until completion of
such registration or qualification of such Shares or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to the Listing Market, or compliance with any other obligation of the Company, as
the Committee, may consider appropriate, and may require any Participant to make such representations, furnish such information
and comply with or be subject to such other conditions as it may consider appropriate in connection with the issuance or delivery
of Shares or payment of other benefits in compliance with applicable laws, rules, and regulations, listing requirements, or other
obligations.
(b)
Limits on Transferability; Beneficiaries
. No Award or other right or interest granted under the Plan shall
be pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such Participant to any party,
or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution or to a Beneficiary
upon the death of a Participant, and such Awards or rights that may be exercisable shall be exercised during the lifetime of the
Participant only by the Participant or his or her guardian or legal representative, except that Awards and other rights (other
than Incentive Stock Options and Stock Appreciation Rights in tandem therewith) may be transferred to one or more Beneficiaries
or other transferees during the lifetime of the Participant, and may be exercised by such transferees in accordance with the terms
of such Award, but only if and to the extent such transfers are permitted by the Committee pursuant to the express terms of an
Award Agreement (subject to any terms and conditions which the Committee may impose thereon). A Beneficiary, transferee, or other
person claiming any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan
and any Award Agreement applicable to such Participant, except as otherwise determined by the Committee, and to any additional
terms and conditions deemed necessary or appropriate by the Committee.
(c)
Adjustments
.
i.
Adjustments to Awards
. In the event that any extraordinary dividend or other distribution (whether in the
form of cash, Shares, or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other similar corporate transaction or event affects the Shares
and/or such other securities of the Company or any other issuer such that a substitution, exchange, or adjustment is determined
by the Committee to be appropriate, then the Committee shall, in such manner as it may deem equitable, substitute, exchange or
adjust any or all of (A) the number and kind of Shares which may be delivered in connection with Awards granted thereafter,
(B) the number and kind of Shares by which annual per-person Award limitations are measured under Section 4 hereof, (C) the
number and kind of Shares subject to or deliverable in respect of outstanding Awards, (D) the exercise price, grant price
or purchase price relating to any Award and/or make provision for payment of cash or other property in respect of any outstanding
Award, and (E) any other aspect of any Award that the Committee determines to be appropriate.
ii.
Adjustments in Case of Certain Transactions
. In the event of any merger, consolidation or other reorganization
in which the Company does not survive, or in the event of any Change in Control, any outstanding Awards may be dealt with in accordance
with any of the following approaches, without the requirement of obtaining any consent or agreement of a Participant as such, as
determined by the agreement effectuating the transaction or, if and to the extent not so determined, as determined by the Committee:
(a) the continuation of the outstanding Awards by the Company, if the Company is a surviving entity, (b) the assumption
or substitution for, as those terms are defined in Section 9(a)(iv) hereof, the outstanding Awards by the surviving entity
or its parent or subsidiary, (c) full exercisability or vesting and accelerated expiration of the outstanding Awards, or (d) settlement
of the value of the outstanding Awards in cash or cash equivalents or other property followed by cancellation of such Awards (which
value, in the case of Options or Stock Appreciation Rights, shall be measured by the amount, if any, by which the Fair Market Value
of a Share exceeds the exercise or grant price of the Option or Stock Appreciation Right as of the effective date of the transaction).
The Committee shall give written notice of any proposed transaction referred to in this Section 10(c)(ii) at a reasonable
period of time prior to the closing date for such transaction (which notice may be given either before or after the approval of
such transaction), in order that Participants may have a reasonable period of time prior to the closing date of such transaction
within which to exercise any Awards that are then exercisable (including any Awards that may become exercisable upon the closing
date of such transaction). A Participant may condition his exercise of any Awards upon the consummation of the transaction.
iii.
Other Adjustments
. The Committee (and the Board if and only to the extent such authority is not required to
be exercised by the Committee to comply with Section 162(m) of the Code) is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including Performance Awards, or performance goals and conditions relating
thereto) in recognition of unusual or nonrecurring events (including, without limitation, acquisitions and dispositions of businesses
and assets) affecting the Company, any Related Entity or any business unit, or the financial statements of the Company or any Related
Entity, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee’s assessment of the business strategy of the Company, any Related Entity or business
unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant,
and any other circumstances deemed relevant; provided that no such adjustment shall be authorized or made if and to the extent
that such authority or the making of such adjustment would cause Options, Stock Appreciation Rights, Performance Awards granted
pursuant to Section 8(b) hereof to Participants designated by the Committee as Covered Employees and intended to qualify as
“performance-based compensation” under Code Section 162(m) and the regulations thereunder to otherwise fail to
qualify as “performance-based compensation” under Code Section 162(m) and regulations thereunder. Adjustments
permitted hereby may include, without limitation, increasing the exercise price of Options and Stock Appreciation Rights, increasing
performance goals, or other adjustments that may be adverse to the Participant.
(d)
Taxes
. The Company and any Related Entity are authorized to withhold from any Award granted, any payment relating
to an Award under the Plan, including from a distribution of Shares, or any payroll or other payment to a Participant, amounts
of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable the Company or any Related Entity and Participants to satisfy obligations
for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to
withhold or receive Shares or other property and to make cash payments in respect thereof in satisfaction of a Participant’s
tax obligations, either on a mandatory or elective basis in the discretion of the Committee.
(e)
Changes to the Plan and Awards
. The Board may amend, alter, suspend, discontinue or terminate the Plan, or
the Committee’s authority to grant Awards under the Plan, without the consent of shareholders or Participants, except that
any amendment or alteration to the Plan shall be subject to the approval of the Company’s shareholders not later than the
annual meeting next following such Board action if such shareholder approval is required by any federal or state law or regulation
(including, without limitation, Rule 16b-3 or Code Section 162(m)) or the rules of the Listing Market, and the Board may otherwise,
in its discretion, determine to submit other such changes to the Plan to shareholders for approval; provided that, except as otherwise
permitted by the Plan or Award Agreement, without the consent of an affected Participant, no such Board action may materially and
adversely affect the rights of such Participant under the terms of any previously granted and outstanding Award. The Committee
may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award theretofore granted and
any Award Agreement relating thereto, except as otherwise provided in the Plan; provided that, except as otherwise permitted by
the Plan or Award Agreement, without the consent of an affected Participant, no such Committee or the Board action may materially
and adversely affect the rights of such Participant under terms of such Award.
(f)
Limitation on Rights Conferred Under Plan
. Neither the Plan nor any action taken hereunder or under any Award
shall be construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant
or in the employ or service of the Company or a Related Entity; (ii) interfering in any way with the right of the Company
or a Related Entity to terminate any Eligible Person’s or Participant’s Continuous Service at any time, (iii) giving
an Eligible Person or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants
and Employees, or (iv) conferring on a Participant any of the rights of a shareholder of the Company including, without limitation,
any right to receive dividends or distributions, any right to vote or act by written consent, any right to attend meetings of shareholders
or any right to receive any information concerning the Company’s business, financial condition, results of operation or prospects,
unless and until such time as the Participant is duly issued Shares on the stock books of the Company in accordance with the terms
of an Award. None of the Company, its officers or its directors shall have any fiduciary obligation to the Participant with respect
to any Awards unless and until the Participant is duly issued Shares pursuant to the Award on the stock books of the Company in
accordance with the terms of an Award. Neither the Company nor any of the Company’s officers, directors, representatives
or agents is granting any rights under the Plan to the Participant whatsoever, oral or written, express or implied, other than
those rights expressly set forth in this Plan or the Award Agreement.
(g)
Unfunded Status of Awards; Creation of Trusts
. The Plan is intended to constitute an “unfunded”
plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant or obligation to deliver
Shares pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater
than those of a general creditor of the Company; provided that the Committee may authorize the creation of trusts and deposit therein
cash, Shares, other Awards or other property, or make other arrangements to meet the Company’s obligations under the Plan.
Such trusts or other arrangements shall be consistent with the “unfunded” status of the Plan unless the Committee otherwise
determines with the consent of each affected Participant. The trustee of such trusts may be authorized to dispose of trust assets
and reinvest the proceeds in alternative investments, subject to such terms and conditions as the Committee may specify and in
accordance with applicable law.
(h)
Nonexclusivity of the Plan
. Neither the adoption of the Plan by the Board nor its submission to the shareholders
of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to
adopt such other incentive arrangements as it may deem desirable including incentive arrangements and awards which do not qualify
under Section 162(m) of the Code.
(i)
Payments in the Event of Forfeitures; Fractional Shares
. Unless otherwise determined by the Committee, in
the event of a forfeiture of an Award with respect to which a Participant paid cash or other consideration, the Participant shall
be repaid the amount of such cash or other consideration. No fractional Shares shall be issued or delivered pursuant to the Plan
or any Award. The Committee shall determine whether cash, other Awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
(j)
Governing Law
. The validity, construction and effect of the Plan, any rules and regulations under the Plan,
and any Award Agreement shall be determined in accordance with the laws of the State of Nevada without giving effect to principles
of conflict of laws, and applicable federal law.
(k)
Non-U.S. Laws
. The Committee shall have the authority to adopt such modifications, procedures, and subplans
as may be necessary or desirable to comply with provisions of the laws of foreign countries in which the Company or its Related
Entities may operate to assure the viability of the benefits from Awards granted to Participants performing services in such countries
and to meet the objectives of the Plan.
(l)
Plan Effective Date and Shareholder Approval; Termination of Plan
. The Plan shall become effective on the
Effective Date, subject to subsequent approval, within 12 months of its adoption by the Board, by shareholders of the Company eligible
to vote in the election of directors, by a vote sufficient to meet the requirements of Code Sections 162(m) (if applicable) and
422, Rule 16b-3 under the Exchange Act (if applicable), applicable requirements under the rules of any stock exchange or automated
quotation system on which the Shares may be listed or quoted, and other laws, regulations, and obligations of the Company applicable
to the Plan. Awards may be granted subject to shareholder approval, but may not be exercised or otherwise settled in the event
the shareholder approval is not obtained. The Plan shall terminate at the earliest of (a) such time as no Shares remain available
for issuance under the Plan, (b) termination of this Plan by the Board, or (c) the tenth anniversary of the Effective
Date. Awards outstanding upon expiration of the Plan shall remain in effect until they have been exercised or terminated, or have
expired.
3PEA INTERNATIONAL, INC.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
annual
meeting OF STOCKHOLDERS – may 23, 2019 at 2:30 PM Local time
CONTROL ID:
REQUEST ID:
The undersigned appoints Mark Newcomer, Robert Strobo and Mark
Attinger and each of them, as proxies, each with the power of substitution, and authorizes each of them to represent and to vote,
as designated on the reverse hereof, all of the shares of common stock of 3Pea International, Inc. held of record by the undersigned
at the close of business on March 24, 2019 at the 2019 Annual Meeting of stockholders to be held at M Resort Spa Casino, located
at 12300 Las Vegas Blvd. S, Henderson, Nevada 89044 on May 23, 2019 at 2:30 p.m. (local time) or at any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE
SIDE.)
VOTING INSTRUCTIONS
If you vote by phone, fax or internet,
please DO NOT mail your proxy card.
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MAIL:
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Please mark, sign, date, and return this Proxy Card promptly using the enclosed envelope.
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FAX:
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Complete the reverse portion of this Proxy Card and Fax to
202-521-3464.
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INTERNET:
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https://www.iproxydirect.com/TPNL
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PHONE:
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1-866-752-VOTE( 8683)
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ANNUAL MEETING OF THE STOCKHOLDERS OF
3PEA INTERNATIONAL, INC.
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PLEASE COMPLETE, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE:
ý
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PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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Proposal 1
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The Board of Directors recommends a vote “FOR” the listed nominees.
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à
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FOR
ALL
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WITHHOLD
ALL
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FOR ALL
EXCEPT
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Election of Directors:
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¨
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¨
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Control
ID:
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Mark R. Newcomer
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¨
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REQUEST ID:
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Daniel H. Spence
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¨
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Joan M. Herman
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¨
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Dan R. Henry
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¨
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Bruce Mina
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¨
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Quinn Williams
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¨
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Dennis Triplett
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¨
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Proposal 2
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à
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FOR
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AGAINST
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ABSTAIN
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A proposal to approve the 2018 Incentive Compensation Plan. The Board of Directors recommends a vote “FOR” this proposal.
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¨
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¨
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¨
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Proposal 3
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à
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FOR
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AGAINST
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ABSTAIN
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A proposal to ratify the appointment of Squar Milner LLP as the independent registered public accounting firm to audit the financial statements for the 2019 fiscal year. The Board of Directors recommends a vote “FOR” this proposal.
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¨
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¨
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¨
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MARK “X” HERE IF YOU PLAN TO ATTEND THE MEETING:
¨
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THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
INDICATED FOR THE PROPOSALS, EACH PROPOSAL WILL BE VOTED “FOR” THE PROPOSAL.
MARK
HERE FOR ADDRESS CHANGE
¨
New
Address (if applicable):
________________________
________________________
________________________
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IMPORTANT:
Please sign exactly as
your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name
by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized
person.
Dated: ________________________, 2019
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_______________________________________________________________
(Print Name of Stockholder and/or Joint Tenant)
_________________________________________________________________________
(Signature of Stockholder)
_______________________________________________________________
(Second Signature if held jointly)
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