dynatronicproxy.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
DYNATRONICS CORPORATION
(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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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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TABLE OF CONTENTS
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Page
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Invitation to Shareholders
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ii
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Notice of Meeting
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iii
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Proxy Statement
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1
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Questions and Answers About the Meeting
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2
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Voting of Shares
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5
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Proxy Solicitation
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5
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Directors, Executive Officers and Corporate Governance
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6
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Security Ownership of Certain Beneficial Owners and Management
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12
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Section 16(a) Beneficial Ownership Reporting Compliance
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14
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Review, Approval or Ratification of Transactions with Related Persons
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14
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Executive Compensation
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15
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Report of the Audit Committee
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20
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Overview of Proposals
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21
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Proposal One – Election of Directors
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21
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Proposal Two – Ratification of Independent Registered Public Accounting Firm
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23
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Proposal Three – Approval of 2015 Equity Incentive Award Plan
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24
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Proposal Four – Approval of (i) the issuance of Common Stock (or securities convertible into or exercisable for Common Stock) representing more than 19.99% of the outstanding Common Stock or voting power of the Company in connection with the Purchase Agreements, and (ii) the issuance of securities of the Company in connection with the Purchase Agreements that could result in a Nasdaq Change of Control
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28
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Other Business
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32
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Householding of Annual Meeting Materials
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32
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Proposals for the Next Annual Meeting
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32
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Annual Report
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32
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Appendix A – 2015 Equity Incentive Award Plan
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Appendix B – Articles of Amendment to the Articles of Incorporation of the Company Designating the Rights of the Series A 8% Convertible Preferred Stock
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Appendix C – Form of Securities Purchase Agreement
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Appendix D – Form of A-Warrant
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Appendix E – Form of B-Warrant
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Appendix F – Form of Registration Rights Agreement
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DYNATRONICS CORPORATION
7030 Park Centre Drive
Cottonwood Heights, Utah 84121
(801) 568-7000
May 18, 2015
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of Dynatronics Corporation that will be held on Monday, June 29, 2015 at 3:00 p.m., at our corporate headquarters located at 7030 Park Centre Drive, Cottonwood Heights, Utah.
An outline of the business to be conducted at the meeting is given in the accompanying Notice of Annual Meeting and Proxy Statement. In addition to the matters to be voted on, following the meeting there will be a report on our progress and an opportunity for shareholders to ask questions.
Please read and follow the voting instructions in the Proxy Statement to ensure that your shares will be represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE, AND RETURN A PROXY CARD, REGISTER YOUR VOTE BY TELEPHONE, OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of our Annual Report to Shareholders is available on the Company’s website at www.dynatronics.com. The Annual Report is not a part of the proxy solicitation materials, except to the extent it is incorporated by reference therein.
If you have any questions about the meeting, we invite you to communicate with Bob Cardon, our Vice President of Administration.
Sincerely yours,
/s/ Kelvyn H. Cullimore, Jr.
Kelvyn H. Cullimore, Jr.
Chairman, President and CEO
DYNATRONICS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held June 29, 2015
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders (“Annual Meeting”) of Dynatronics Corporation, a Utah corporation (the “Company”), will be held at the corporate headquarters of the Company located at 7030 Park Centre Drive, Cottonwood Heights, Utah, on Monday, June 29, 2015, at 3:00 p.m. Mountain Daylight Time for the following purposes, all as more fully described in the accompanying Proxy Statement:
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To elect five directors to hold office until the next annual meeting of the Company’s shareholders or until their respective successors have been elected or appointed and qualified (“Proposal One”);
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To ratify on an advisory basis the appointment of Mantyla McReynolds LLC as our independent registered public accounting firm for the fiscal year ending June 30, 2015 (“Proposal Two”);
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To ratify and approve the adoption of the 2015 Equity Incentive Award Plan and awards made under the 2015 Plan (the “2015 Plan”) (“Proposal Three”);
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To approve (i) the issuance of Common Stock (or securities convertible into or exercisable for Common Stock) representing more than 19.99% of the outstanding Common Stock or voting power of the Company in connection with the Purchase Agreements, and (ii) the issuance of securities of the Company in connection with the Purchase Agreements that could result in a Nasdaq Change of Control, as required by the rules of the NASDAQ Stock Market (the “Nasdaq Rules”), including Nasdaq Rules 5635(b) and 5635(d) (collectively, “Proposal Four,” the “Nasdaq Shareholder Approvals”); and
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To transact such other business that properly comes before the Annual Meeting or any adjournment or postponements thereof.
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Only shareholders of record at the close of business on May 4, 2015, are entitled to notice of, and to vote at, this Annual Meeting and any adjournment thereof. It is important that your shares be represented at the meeting. Please follow the voting instructions in the Proxy Statement, regardless of whether you plan to attend in person. Even if you have given your 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 from the record holder a proxy issued in your name. Your proxy is revocable in accordance with the procedures set forth in the Proxy Statement.
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BY ORDER OF THE BOARD OF DIRECTORS |
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/s/ Bob Cardon |
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Bob Cardon |
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Vice President of Administration |
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and Secretary/Treasurer |
Cottonwood Heights, Utah
May 18, 2015
DYNATRONICS CORPORATION
PROXY STATEMENT FOR
2014 ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 29, 2015
This Proxy Statement contains information regarding the Annual Meeting of Shareholders (“Annual Meeting”) of Dynatronics Corporation, a Utah corporation (“we,” “us,” “our,” the “Company” or “Dynatronics”), to be held at 3:00 p.m. Mountain Daylight Time on Monday, June 29, 2015, at our corporate headquarters, 7030 Park Centre Drive, Cottonwood Heights, Utah and at any postponements or adjournments thereof.
A form of proxy is furnished with this Proxy Statement to all shareholders for use at the Annual Meeting. This proxy is solicited on behalf of our Board of Directors (the “Board of Directors”). We will pay the cost of preparing and disseminating this information. In addition to the solicitation of proxies by use of the mail, our directors, officers and employees may solicit proxies personally or by telephone or facsimile or otherwise. Our directors, officers and employees will not be separately compensated for such solicitation services, although we may reimburse them for their out-of-pocket expenses, if any. We may make arrangements with brokerage firms and other custodians, nominees and fiduciaries for the forwarding of solicitation materials to the beneficial owners of the shares of our common stock, no par value (“Common Stock’) held by such persons, and we will reimburse such brokerage firms and others for their expenses incurred in connection therewith.
Please register your vote by following the voting instructions in this Proxy Statement or in the Notice of Internet Availability. Each proxy executed and returned by a shareholder prior to the Annual Meeting will be voted according to the instructions given in the proxy. Your execution of the enclosed proxy will not affect your right as a shareholder to attend the Annual Meeting and to vote in person. Any shareholder giving a proxy may revoke it at any time prior to its use at the Annual Meeting by giving written notice to our Vice President of Administration, by filing a revoking instrument or a duly executed proxy bearing a later date with our Vice President of Administration, or by attending the Annual Meeting and voting in person.
Important Notice Regarding Internet Availability of Proxy Materials
In accordance with rules approved by the Securities and Exchange Commission (“SEC”), instead of mailing a printed copy of the proxy materials to shareholders, we may now furnish proxy materials to shareholders on the Internet by providing to shareholders a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) when the materials are available on the Internet. If your shares are registered directly in your name with Interwest Transfer Company, our transfer agent, you are considered a shareholder of record. As a shareholder of record at the close of business on May 4, 2015 (the “Record Date”), you should receive either a Notice of Internet Availability, as described more fully below, or a “full set delivery” of our proxy materials, including this Proxy Statement, our Annual Report to Shareholders, and the form of proxy card (the “Full Set Delivery”), in which case you may vote in person at the Annual Meeting or you can complete and sign the enclosed proxy card, and return it to us by mail. If you submit a proxy card, we will vote your shares as you direct. If you submit a proxy card without giving specific voting instructions, those shares will be voted as recommended by the Board.
If your shares are held in a stock brokerage account or by another nominee, you are considered the beneficial owner of those shares, and your shares are held in “street name.” If you hold your shares in “street name,” you will receive instructions from your broker or other nominee describing how to vote your shares. If you do not instruct your broker or nominee how to vote such shares, they may vote your shares as they decide as to each matter for which they have discretionary authority under the rules of the NASDAQ Stock Market (“Nasdaq”). Note that this limitation on the nominees’ discretionary authority may preclude many of these nominees from voting your shares, absent your direction, on Proposal One (election of directors), Proposal Three (the 2015 Plan), and Proposal Four (the Nasdaq Shareholder Approvals).
As an alternative to Full Set Delivery described above, you may receive the Notice of Internet Availability, in which case you will not receive a printed copy of the proxy materials unless you specifically request one. Instead, the Notice of Internet Availability will instruct you on how you may access and review all of the proxy materials and the Annual Report to Shareholders over the Internet, and to register your vote. If you receive a Notice of Internet Availability and would still like to receive a printed copy of all of the proxy materials, including the Proxy Statement and Annual Report to Shareholders, you may request a printed copy by telephone at (800) 874-6251 or by sending an e-mail to our Vice President of Administration and Corporate Secretary, Bob Cardon, at BobC@dynatronics.com.
We intend to commence distribution of the proxy materials and/or the Notice of Internet Availability to shareholders on or about May 18, 2015 and we will first make available the proxy solicitation materials on or about that date at:
http://corp.dynatronics.com/assets/annualReports/2014.pdf
http://corp.dynatronics.com/assets/ProxyStatement.pdf
http://corp.dynatronics.com/assets/ProxyCard.pdf
QUESTIONS AND ANSWERS ABOUT THE MEETING
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Why am I receiving this Proxy Statement?
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You are receiving this material because you are the holder of shares of our Common Stock. Shareholders of record on the Record Date are entitled to receive notice of and to vote at our Annual Meeting, which will be held at 3:00 p.m. on June 29, 2015 at our headquarters.
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What will be decided at the Annual Meeting?
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At the Annual Meeting, shareholders will consider and vote on the following proposals:
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Election of five directors to the Board of Directors to serve until the next Annual Meeting of Shareholders or until their successors have been duly elected or appointed and qualified;
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Ratification on an advisory basis of the selection of Mantyla McReynolds LLC as our independent registered public accounting firm for fiscal year 2015;
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Approval and ratification of the Board’s adoption of the Company’s 2015 Equity Incentive Award Plan and awards made under such plan;
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Approval of (i) the issuance of Common Stock (or securities convertible into or exercisable for Common Stock) representing more than 19.99% of the outstanding Common Stock or voting power of the Company in connection with the Purchase Agreements, and (ii) the issuance of securities of the Company in connection with the Purchase Agreements that could result in a Nasdaq Change of Control; and
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To transact such other business as may properly come before the meeting or any adjournment or postponements thereof.
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What do I need to do now?
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You should carefully read and consider the information contained in this Proxy Statement. If applicable, you should then vote as soon as possible in accordance with the instructions provided in this Proxy Statement, by telephone, by returning a signed proxy card if you receive one as a shareholder of record, or by Internet if that option is available to you.
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What is the quorum requirement for the Annual Meeting?
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The holders of a majority of the shares entitled to vote at the Annual Meeting must be present at the Annual Meeting for the transaction of business. This is called a quorum. Your shares will be counted for purposes of determining if there is a quorum, whether representing votes for, against or abstained, if you:
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Are present and vote in person at the Annual Meeting; or
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Have voted by telephone or by properly submitting a proxy card or vote instruction form by mail (or via the Internet if available to you).
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If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained.
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How are proxies voted?
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All shares represented by valid proxies received prior to the Annual Meeting will be voted and, where a shareholder specifies by means of the proxy a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the shareholder’s instructions. If no instruction is given by the shareholder in a returned proxy card, our directors intend to vote the shares “For” each of the Proposals to be voted upon at the Annual Meeting.
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A: You can vote your shares using one of the following methods:
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Vote by telephone by following the instructions in the Notice of Internet Availability;
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For those shareholders of record who receive the Full Set Delivery of all printed proxy materials, including a form of proxy card for voting (meaning that you hold your shares in your own name, not in the name of a broker, bank, or nominee), you may complete and sign the proxy card, and return it to us by mail;
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If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you must follow the instructions received from your broker or nominee (the record holder of your shares) to vote your shares. Please refer to your proxy card or the voting instruction card delivered by your broker, bank or nominee to see if you may submit voting instructions using the Internet or telephone;
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You may request a printed copy of the proxy card, Proxy Statement, and Annual Report by following the instructions on the Notice of Internet Availability, then complete, sign, and return the proxy card to us by mail; or
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You may attend and vote your shares in person at the meeting.
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If you use telephone voting as your voting method, you do not need to return a proxy card or voting instruction card. Unless you are planning to vote in person at the meeting, your vote must be received by 11:59 p.m. Mountain Daylight Time, on June 25, 2015.
Even if you submit your vote by one of the first four methods mentioned above, you may still vote at the meeting if you are the record holder of your shares or hold a legal proxy from the record holder. Your vote at the meeting will constitute a revocation of any earlier delivered proxy or voting instructions.
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What happens if I do not vote?
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If you are a record holder of your shares and you do not submit a proxy card, vote at the Annual Meeting in person, or register your vote by telephone, your shares will not be counted as present for the purpose of determining the presence of a quorum, and your shares will not be voted at the meeting. If you submit a proxy card and affirmatively elect to abstain from voting, your shares will be counted as present for the purpose of determining the presence of a quorum but will not be voted at the Annual Meeting.
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If my Dynatronics shares are held in “street name,” will my broker, bank, or nominee vote my shares for me on all proposals?
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If you are a beneficial owner of shares held in street name and do not provide the organization that holds your shares with specific voting instructions, under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on routine matters but cannot vote on non-routine matters, as explained below.
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What are “broker non-votes”?
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If a broker or other financial institution holds your shares in its name and you do not provide voting instructions to it, the broker may vote your shares only on routine matters. When a firm votes a client’s shares on some but not all of the proposals, the missing votes are referred to as “broker non-votes.”
Q: How are broker non-votes and abstentions treated?
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Abstentions and broker non-votes are counted as present or represented for purposes of determining the presence or absence of a quorum. Broker non-votes and abstentions are counted for purposes of determining whether a quorum is present. In order to minimize the number of broker non-votes, we encourage you to provide voting instructions to the organization that holds your shares by carefully following the instructions provided in the Notice.
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Which ballot measures are considered “routine” or “non-routine”?
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The ratification of the appointment of Mantyla McReynolds LLC as the independent registered public accounting firm for the fiscal year ending June 30, 2015 (Proposal Two) is considered a routine matter under applicable rules. Therefore no broker non-votes are expected to exist in connection with this proposal. The remaining proposals (Proposals One, Three and Four) are considered non-routine matters under applicable rules. A broker or other nominee cannot vote without instructions on these non-routine matters.
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What vote is required to elect directors (Proposal One)?
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Under Utah law, a nominee who receives a plurality of the votes cast at the Annual Meeting will be elected as a director. The “plurality” standard means the five nominees who receive the largest number of “for” votes (also known as a “plurality” of the votes) will be elected. The number of shares not voted for the election of a nominee (and the number of “withhold” votes cast with respect to that nominee) are not counted and will not affect the determination of whether that nominee has received the necessary votes for election under Utah law. Votes that are withheld will not be included in the vote tally for the election of directors. Abstentions and broker “non-votes” will have no effect on the vote for election of directors.
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How many votes are required for approval of Proposals Two, Three and Four?
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Each of these proposals requires the affirmative vote of a majority of the votes cast by shareholders at the Annual Meeting.
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Can I change my vote after I have mailed my signed proxy or direction form?
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Yes. If you are a record holder, you can change your vote at any time before your proxy is voted at the Annual Meeting by:
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delivering to our Vice President of Administration a signed notice of revocation;
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granting a new, later-dated proxy, which must be signed and delivered to the Vice President of Administration; or
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attending the Annual Meeting and voting your shares in person; however, your attendance alone will not revoke your proxy.
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If your shares are held in street name and you have instructed your broker or nominee to vote your shares, you must follow your broker or nominee’s directions in order to change your vote or revoke your proxy.
Q: What should I do if I receive more than one set of voting materials?
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You may receive more than one set of voting materials, including multiple copies of this Proxy Statement and multiple proxy cards or voting instruction cards for a variety of reasons. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive.
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Who will serve as the inspector of election?
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A representative from the Company will serve as the inspector of election.
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Where can I find the voting results of the Annual Meeting?
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The preliminary voting results will be announced at the Annual Meeting. The final voting results will be tallied by the inspector of election and published by the Company in a Current Report on Form 8-K, which we are required to file with the SEC within four business days following the Annual Meeting.
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What if I have questions?
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If you have any questions about the meeting, require directions to the meeting, or need additional copies of this Proxy Statement or the enclosed proxy card, you should contact:
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Dynatronics Corporation
7030 Park Centre Drive
Cottonwood Heights, Utah 84121
Attn: Bob Cardon, Vice President of Administration
Email address: BobC@dynatronics.com
VOTING OF SHARES
Our Board of Directors has fixed the close of business on May 4, 2015 as the “Record Date” for determining the shareholders entitled to receive notice of, and to vote at the Annual Meeting. At the close of business on the Record Date there were 2,520,389 shares of our Common Stock, no par value, issued and outstanding, each such share entitled to one vote. Our common shares are held by approximately 2,200 shareholders of record.
Voting of Proxies
Your shares will be voted as you direct on your signed proxy card. If you do not specify on your proxy card how you want to vote your shares, we will vote signed returned proxies FOR each nominee for director and FOR Proposals Two, Three and Four. We do not know of any other business that may be presented at the meeting. If a proposal other than those listed in the Notice is presented at the Annual Meeting, your signed proxy card authorizes the persons named in the proxy to vote your shares on such matters in their discretion.
Vote Required for Approval
A plurality of the shares voting at the Annual Meeting is required to elect directors. This means that the five nominees receiving the highest number of affirmative votes of the shares entitled to be voted for them will be elected.
The affirmative vote of a majority of the shares of Common Stock by shareholders present at the Annual Meeting (in person or by proxy) and entitled to vote is required to approve Proposals Two, Three and Four.
Quorum
The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the meeting (a “quorum”) is required to transact business at the Annual Meeting. In general, shares of Common Stock represented by a properly signed and returned proxy card will be counted as shares present and entitled to vote at the meeting for purposes of determining a quorum. Abstentions will be counted as “represented” for the purpose of determining the presence or absence of a quorum, but will not be counted for any other purpose. Inasmuch as street name holders will have discretionary voting rights with respect to routine Proposal Two, ratification of our independent registered public accounting firm, broker non-votes will also be counted as “represented” for the purpose of determining the presence or absence of a quorum for all purposes of the Annual Meeting.
Voting
As an alternative to voting in person at the Annual Meeting, or voting by telephone, those shareholders who receive a paper proxy card and voting instructions by mail, and who elect to vote by mail, should sign and return the mailed proxy card in the pre-addressed envelope that will be enclosed with the proxy card, and your shares will be voted at the Annual Meeting in the manner you direct.
If your shares are registered in the name of a bank or brokerage firm or other nominee (your record holder), you will receive instructions from the record holder that must be followed in order for your record holder to vote your shares per your instructions. Many banks and brokerage firms have a process for their beneficial holders to provide instructions via the Internet or over the telephone. If you hold shares through a bank or brokerage firm and wish to be able to vote in person at the Annual Meeting, you must obtain a legal proxy from your brokerage firm, bank or other holder of record and present it to the inspector of elections with your ballot.
We are soliciting proxies from our shareholders for use by our Board of Directors at our Annual Meeting. We will pay the cost of solicitation of proxies from our shareholders, including preparation, assembly, printing and mailing of this Proxy Statement and the proxy cards. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of our Common Stock beneficially owned by others to forward to such beneficial owners. We may reimburse persons representing beneficial owners of our Common Stock for their costs of forwarding solicitation materials to such beneficial owners. In addition to solicitation by use of the mail, proxies may be solicited by our management (including our Board of Directors, officers and employees), in person or by telephone, electronic mail, or other means of communication. No additional compensation for soliciting proxies will be paid to Company management or employees for such services.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Listed below are the five nominees for election as directors. Each of the directors elected at the Annual Meeting will serve a one-year term expiring at the next annual meeting of shareholders or at such time as their successor has been elected or appointed. At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the five nominees named in this Proxy Statement.
The Board comprises experienced leaders in their respective fields. Many of the nominees for director hold or have held senior leadership positions in domestic and international companies. Most of them have also served for several years on our Board of Directors, gaining deep insight into our operations and our industry. In these positions with the Company and with other enterprises, the nominees have also gained significant and diverse management experience, including strategic and financial planning, public company financial reporting, compliance, risk management and leadership development. Several of the directors also have experience serving as executive officers, or on boards of directors and board committees of other public companies, and have an understanding of corporate governance practices and trends.
The following information describes the skills, qualities, attributes and experience of each of the nominees that led the Board to determine that these directors are qualified to serve as members of our Board of Directors in the capacities indicated.
Larry K. Beardall
Executive Vice President of Sales and Marketing
Age 59
Director since 1986
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Mr. Beardall was appointed as our Executive Vice President in December 1992. He has been a director and the Vice President of Sales and Marketing since July 1986. Mr. Beardall joined us in February 1986 as Director of Marketing. He graduated from Brigham Young University with a Bachelor’s degree in Finance in 1979. Prior to his employment with the Company, Mr. Beardall worked as Manager of Mergers and Acquisitions with GTE Corporation in Durham, North Carolina and then as National Sales Manager of Donzis Protective Equipment, a supplier of protective sports equipment in Houston, Texas. He also served on the board of directors of Nielsen & Nielsen, Inc., the marketing arm for Donzis. Based on Mr. Beardall’s experience and background in our industry, we believe that he is qualified to serve on our Board.
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Kelvyn H. Cullimore, Jr.
Chairman, Chief Executive Officer and President
Age 59
Director since 1983
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Mr. Cullimore has been our Chairman since January 2005 and President and Chief Executive Officer since 1992. He served as our Secretary/Treasurer from 1983 to 1992 and as Administrative Vice President from 1988 to 1992. Mr. Cullimore graduated cum laude from Brigham Young University in 1980 with a Bachelor’s degree in Financial and Estate Planning. In addition to his involvement with Dynatronics, Mr. Cullimore served as Executive Vice President and a director of our former parent company. Mr. Cullimore has served previously on the board of directors of a printing company, lumber company, theater and restaurant company and travel agency. Mr. Cullimore is a member of the board and serves as Secretary of the Medical Device Manufacturers Association, a national medical device trade association headquartered in Washington D.C. He also serves as the Mayor of Cottonwood Heights, Utah, a suburb of Salt Lake City, where our corporate headquarters are located. Based on his experience in management, his long association with and effective leadership of the Company, and his prominence in national associations in our industry, we believe Mr. Cullimore is well qualified to serve on our Board.
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Howard L. Edwards*
Director
Age 82
Director since 1997
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Since 1987, Mr. Edwards has served on the National Advisory Council of Dixie State University (St. George, Utah) and from 1974 to 1983 he served on the Alumni Board of Brigham Young University. From 1970 until 1996, Mr. Edwards served on the board of directors of Lerch Bates and Associates. From 1968 to 1995, Mr. Edwards served in various capacities at Atlantic Richfield Company (ARCO) and its predecessor, the Anaconda Company, including Corporate Secretary, Vice President, Treasurer and General Attorney. Mr. Edwards graduated from the George Washington University School of Law and holds a Bachelor’s degree in Finance and Banking from Brigham Young University. Based on Mr. Edwards’ substantial experience in operations of multi-national businesses and boards of directors, we believe that Mr. Edwards is well qualified to serve on our Board.
|
|
|
|
Richard J. Linder*
Director
Age 45
Director since 2015
|
Mr. Linder began his career in the medical device industry in 1991 with Merit Medical Systems after attending Brigham Young University and the University of Utah. In 1996, Mr. Linder co-founded Rubicon Medical, Inc. and served as President and Chief Executive Officer. Rubicon was acquired by Boston Scientific in 2005. In 2006, Mr. Linder became President/CEO and Director of Coherex Medical, a company dedicated to the minimally invasive treatment of structural heart disease. Mr. Linder is Chairman of the Board of Vital Access Corporation, a vascular access company. He is a Co-Founder and Director of CoNextions, an orthopedics company, and serves as President/CEO. Mr. Linder is a co-founder and board member of BIO-Utah. Mr. Linder holds numerous U.S. and international issued patents and pending patent applications for medical technologies in the treatment of coronary artery disease, peripheral vascular interventions, neuro-interventional radiology, structural heart disease, and heart failure. Based on Mr. Linder’s experience developing new medical technologies and managing medical products companies, we believe that Mr. Linder is well qualified to serve as a member of our Board of Directors.
|
R. Scott Ward, Ph.D.*
Director
Age 57
Director since 2013
|
Dr. Ward serves as the chairman of the Department of Physical Therapy at the University of Utah. He is the past president of the American Physical Therapy Association, a position he held from 2006 to 2012. In addition, Dr. Ward served as chair of the rehabilitation committee of the American Burn Association. He has published extensive research studies related to wound care and burn rehabilitation. Dr. Ward received a Bachelor of Arts degree in Physical Therapy and a Doctor of Philosophy degree in Physiology from the University of Utah. Based on Dr. Ward’s prominence in his field, and his extensive experience and expertise in physical therapy, we believe that Dr. Ward is well qualified to serve as a member of our Board of Directors.
|
* Denotes member of the Audit and Compensation Committees of our Board of Directors.
Preferred Directors
Under the terms of the Securities Purchase Agreements (the “Purchase Agreements”) entered into by the Company and the investors (the “Preferred Investors”) purchasing shares of our Series A 8% Convertible Preferred Stock (“the Series A Preferred”) and A-Warrants and B-Warrants (collectively, the “Warrants”), all as described further in Proposal Four, upon the closing of the transactions contemplated by the Purchase Agreements: (i) the Board of Directors of the Company shall be increased from five members to up to seven members, and (ii) the Preferred Investors shall be granted the right to appoint up to three members (each a “Preferred Director”) of such seven-member Board of Directors (“Director Rights”) for so long as the Preferred Investors own or would beneficially own at least 28.6% of the Common Stock of the Company (either directly, or indirectly, through ownership of Common Stock or Series A Preferred convertible into Common Stock, but excluding any Warrants exercisable for Common Stock) (the “Threshold Ownership Percentage”). In compliance with Nasdaq Rule 5640, the number of Preferred Directors shall be reduced pro ratably with any reduction in ownership by the Preferred Investors below the Threshold Ownership Percentage, so that the number of Preferred Directors is approximately equal to the Preferred Investors’ direct or indirect ownership of the Common Stock of the Company. The Director Rights may be exercised at the discretion of certain affiliates of Prettybrook Partners, LLC (collectively, “Prettybrook”) for so long as Prettybrook owns at least fifty percent (50%) of the outstanding Series A Preferred.
Notwithstanding anything set forth above, the Preferred Investors shall not have any rights to elect any Preferred Directors unless the Preferred Investors own or would beneficially own at least 10% of the Common Stock of the Company either directly, or indirectly, through ownership of Common Stock or Series A Preferred convertible into Common Stock, but excluding any Warrants exercisable for Common Stock) (the “Director Rights Period”).
Common Stock of the Company has no voting, nomination, election or other rights with respect to the Preferred Directors.
Each Preferred Director appointed will serve as a member of the Board during the Director Rights Period or until the Preferred Investors shall appoint their successors during such period.
Upon the closing of the transactions contemplated by the Purchase Agreements, in accordance with the terms set forth above, the Preferred Investors have indicated that they will appoint Erin S. Enright as a Preferred Director. The other two Preferred Directors are yet to be named and will be appointed at a later date, in compliance with the limitations set forth above. Upon the appointment of a third Preferred Director one of the five non-Preferred Directors will resign and be replaced by such third Preferred Director.
Biographical information, work experience and other qualifications regarding Erin S. Enright are as follows:
Erin S. Enright. Ms. Enright, 53, is a Managing Member of Prettybrook Partners, LLC, a private investment firm, and a general partner and member of the Board of Tigerlabs, a Princeton-based business accelerator. She was the President of Lee Medical, a medical device manufacturer based in Plainsboro, New Jersey, from 2004-13. She served on the Board of Directors and the Audit Committee of Biolase, Inc. (NASDAQ: BIOL) during 2013, and from 2010 to 2013, served on the Board of Directors of Ceelite Technologies, LLC. She served as Chief Financial Officer of InfuSystem, Inc. from 2005 to 2007. From 1993 to 2003, Ms. Enright was with Citigroup, most recently as a Managing Director in its Equity Capital Markets group. While at Citigroup, Ms. Enright was Chairperson of the firm’s Institutional Investors’ Committee, responsible for screening and approving the firm’s participation in equity underwritings and a member of the Citigroup Global Equity Commitment Committee, responsible for reviewing and approving the firm’s underwritings. From 1989 until 1993, Ms. Enright was an attorney with Wachtell, Lipton, Rosen & Katz in the firm’s New York office. Ms. Enright received her A.B. from the Woodrow Wilson School of Public and International Affairs at Princeton University and a J.D. from the University of Chicago Law School.
Independence
Our Common Stock is listed on Nasdaq and we evaluate the independence of our directors in accordance with the Nasdaq Rules. Our Board of Directors assesses director independence on an annual basis. Our Board of Directors has determined, after considering all of the relevant facts and circumstances, that each of Ms. Enright, Mr. Edwards, Mr. Linder and Dr. Ward is independent within the meaning of the applicable Nasdaq Rules. This means that the Board of Directors has determined that each of these directors (1) is not an officer or employee of Dynatronics or its subsidiary, and (2) has no direct or indirect relationship with Dynatronics that would interfere with the exercise of his independent judgment in carrying out his responsibilities of a director. As a result, the Board of Directors has determined that we have a majority of independent directors as required by the Nasdaq Marketplace Rules. The Board also has determined that each independent director also qualifies as “independent” as the term is used in Item 407 of Regulation S-K as promulgated by the SEC and as that term is defined under Nasdaq Rule 5605(a)(2). In addition, each member of the Audit Committee is independent as required under Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Involvement in Certain Legal Proceedings
None of our directors has been, during the past 10 years:
(i)
|
involved in any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;
|
(ii)
|
named in as a defendant or counter-claimant in any civil litigation;
|
(iii)
|
convicted or plead nolo contendere in any criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
|
(iv)
|
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities, futures, commodities or banking activities;
|
(v)
|
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
(vi)
|
involved in any judicial or administrative proceeding resulting from involvement in mail or wire fraud or fraud in connection with any business entity;
|
(vii)
|
involved in any judicial or administrative proceedings based on violations of federal or state securities , commodities, banking or insurance laws and regulations , or any settlement to such actions ( other than settlements of civil proceedings among private parties);
|
(viii)
|
involved in any disciplinary sanction or orders imposed by a stock, commodities or derivatives exchange or other similar self- regulatory organization.
|
Committees
Our Board of Directors has two standing committees: the Compensation Committee and the Audit Committee. Each of these committees is comprised solely of independent directors. The Board of Directors does not have a standing nominating committee or other committee that recommends qualified candidates to the Board of Directors for nomination or election as directors.
Upon the closing of the transactions contemplated by the Purchase Agreements, as described further elsewhere in this Proxy Statement (Proposal Four), and during the Director Rights Period, as determined by the full Board of Directors, and provided that such Preferred Directors are “independent” as determined pursuant to Nasdaq Rule 5605(a)(2), at least one Preferred Director shall serve on each committee of the Board of Directors (or shall decline to serve in writing).
Compensation Committee
The Compensation Committee is responsible for reviewing and approving, where required, the compensation, as well as evaluating the performance, of our principal executive officer and other executive officers, and advising and assisting management in developing our overall compensation strategy to assure that it promotes shareholder interests, supports our strategic and tactical objectives, and provides for appropriate rewards and incentives for our management and employees. In exercising its responsibilities, the Compensation Committee establishes and monitors policies governing the compensation of executive officers, reviews the performance of and determines salaries and incentive compensation for executive officers, and makes option awards to those individuals. Additionally, the Compensation Committee administers our stock plans and reviews and approves the structure of our bonus plans. The Compensation Committee has a written charter, a copy of which is available on our corporate Web site, www.dynatronics.com, under “Company Information, Investor Relations, Company Policies.”
The following independent directors are members of the Compensation Committee: Howard L. Edwards (chair), Rich Linder and R. Scott Ward. Joseph Barton served as a member of this committee during fiscal year 2014 and until his death in November 2014. Mr. Linder was appointed to this committee upon joining the Board of Directors in March 2015. The Compensation Committee held no meetings during fiscal year 2014.
Audit Committee
The Audit Committee, which has been established in accordance with requirements of Section 3(a)(58)(A) of the Exchange Act, is comprised of the following independent directors: Howard L. Edwards (committee chairman), Rich Linder and R. Scott Ward. Mr. Barton was a member of this committee at the time of his death and Mr. Linder was appointed to the committee when he joined the Board of Directors in March 2015. The Board of Directors has determined that each member of the Audit Committee: (i) is independent, (ii) meets the financial literacy requirements of the Nasdaq Rules, and (iii) meets the enhanced independence standards established by the SEC. In addition, the Board has determined that Mr. Edwards qualifies as an “audit committee financial expert” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Exchange Act by the SEC.
The Audit Committee is primarily concerned with the integrity of our financial statements, the independence, qualifications and performance of our independent registered public accounting firm, and our compliance with legal requirements. The Audit Committee operates under a written charter approved by the Board of Directors and the Audit Committee that reflects standards and requirements adopted by the SEC and Nasdaq. The Audit Committee Charter can be found on our website, www.dynatronics.com, under “Company Information, Investor Relations, Company Policies.” The Audit Committee held four meetings during fiscal year 2014. Each member of the Audit Committee attended at least 75% of the Audit Committee’s meetings.
As indicated in its charter, the Audit Committee’s duties include selecting and engaging our independent registered public accounting firm; reviewing the scope of the audit to be conducted by our independent registered public accounting firm; overseeing our independent registered public accounting firm and reviewing the results of its audit; reviewing our financial reporting processes, including the accounting principles and practices followed and the financial information provided to shareholders and others; overseeing our internal control over financial reporting and disclosure controls and procedures; and serving as our legal compliance committee.
Meetings of the Board of Directors
There were 10 meetings of the Board of Directors held during fiscal year 2014. No director attended fewer than 75% of these meetings.
Executive Sessions of Independent Directors
During the year ended June 30, 2014, the independent directors did not meet in executive session.
Board Leadership Structure and Role in Risk Oversight
Kelvyn H. Cullimore, Jr. serves as the Chairman of our Board of Directors and as our Chief Executive Officer. We do not have a formal policy with respect to separation of the offices of chairman of the board and chief executive officer, and the Board of Directors believes that flexibility in appointing the Chairman and Chief Executive Officer allows the Board of Directors to make a determination as to such positions from time to time and in a manner that it believes is in the best interest of the Company and its shareholders.
The Board of Directors believes that the traditional practice of combining the roles of Chairman of the Board and Chief Executive Officer currently provides the preferred form of leadership for the Company. Given Mr. Cullimore’s long tenure and vast experience with the Company and our industry, the tremendous respect which he has earned from employees, business partners and shareholders, as well as other members of the medical device manufacturers industry, and his proven leadership skills, the Board of Directors believes the best interests of our shareholders are met by Mr. Cullimore’s continued service in both capacities. The Board of Directors also believes that Mr. Cullimore’s performance of both responsibilities encourages clear accountability and effective decision-making, and provides strong leadership for our employees and other stakeholders.
Given the experience and qualifications our directors contribute to the Board’s activities, we have implemented a number of practices designed to encourage effective corporate governance. These practices include:
·
|
the requirement that at least a majority of the directors meet the standards of independence applicable to the Company;
|
·
|
the appointment of Howard L. Edwards as lead independent director, empowered to schedule and conduct meetings of the independent directors, communicate with the Chairman of the Board, disseminate information to the Board and raise issues with management on behalf of the independent directors when appropriate;
|
·
|
executive sessions of the independent members of the Board of Directors and committee meetings which include individual sessions with representatives of the Company’s independent registered public accounting firm, as well as the CFO and CEO; and
|
·
|
completion of performance evaluations of the CEO by the Compensation Committee.
|
Our management is primarily responsible to manage risk and inform the Board of Directors regarding the most material risks confronting us and our business. The Board of Directors has oversight responsibility of the processes established to monitor and manage such risks. The Board of Directors believes that such oversight function is the responsibility of the entire Board of Directors through frequent reports and discussions at regularly scheduled Board meetings. In addition, the Board has delegated specific risk management oversight responsibility to the Audit Committee and to the independent members of the Board of Directors. In particular, the Audit Committee oversees management of risks related to accounting, auditing and financial reporting and maintaining effective internal controls for financial reporting. The independent members of the Board of Directors oversee risk management related to corporate governance practices and executive compensation plans and arrangements. These specific risk categories and our risk management practices are reviewed by the entire Board of Directors in the ordinary course of regular Board meetings.
Communications with the Board of Directors
Shareholders may communicate directly with our Board of Directors by writing to them at Board of Directors, c/o Vice President of Administration, Dynatronics Corporation, 7030 Park Centre Drive, Cottonwood Heights, Utah 84121. All communications received in this manner will be opened by the Secretary of the Company for the sole purpose of determining whether the contents represent a message to our directors; after which they will be forwarded to the director or directors to whom addressed, except for communications that are (1) advertisements, promotions of a product or service, patently offensive material or matters deemed inappropriate for the Board of Directors, (2) solely related to complaints with respect to ordinary course of business customer service and satisfaction issues, or (3) clearly unrelated to our business, industry, management, Board of Directors, or related committee matters.
Code of Conduct and Ethics
We have established a Code of Business Ethics that applies to our officers, directors and employees. The Code of Business Ethics contains general guidelines for conducting our business consistent with the highest standards of business ethics, and is intended to qualify as a “code of ethics” within the meaning of the Exchange Act and as a “code of business conduct and ethics” within the meaning of the Nasdaq Rules.
All of our directors, officers and employees must act in accordance with our Code of Business Ethics. Employees and directors are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Business Conduct and Ethics. In addition, our Audit Committee has established procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls, or auditing matters, and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
The Code of Business Ethics is available on our website at www.dynatronics.com, in the “Company Information, Investor Relations, Company Policies” section. A copy may also be obtained by writing to the Vice President of Administration, Dynatronics Corporation, 7030 Park Centre Drive, Cottonwood Heights, Utah 84121.
Compensation Committee Interlocks and Insider Participation
Kelvyn H. Cullimore, Jr. (President and Chief Executive Officer) and Larry K. Beardall (Executive Vice President) are employees of the Company. None of our executive officers serves on the board of directors of another entity whose executive officers serve on the Compensation Committee of our Board of Directors. No officer or employee of Dynatronics participated in deliberations of our Compensation Committee concerning executive officer compensation.
Director Compensation in Fiscal Year 2014
Non-employee, non-executive directors are paid an annual fee of $14,000. In addition, independent directors receive $1,000 annually for participating on each board committee and receive $2,000 in restricted stock awards annually. The Chairman of the Audit Committee receives an additional $2,000 for serving as the Committee Chairman and as “financial expert.” Our directors are reimbursed for their out-of-pocket expenses related to their services as directors or attendance at Board of Directors and committee meetings.
The following table summarizes the compensation paid during the fiscal year ended June 30, 2014 to our non-employee directors.
Director Compensation Fiscal Year 2014 (1)
Name
(a)
|
|
Fees earned
or paid in cash
($)
(b)
|
|
|
Stock awards
($)
(c)
|
|
|
Total
($)
(h)
|
|
Howard L. Edwards
|
|
$
|
18,000
|
|
|
$
|
2,000
|
|
|
$
|
20,000
|
|
R. Scott Ward, PhD
|
|
$
|
16,000
|
|
|
$
|
2,000
|
|
|
$
|
18,000
|
|
Joseph H. Barton
|
|
$
|
16,000
|
|
|
$
|
2,000
|
|
|
$
|
18,000
|
|
(1)
|
Columns (d) through (g) are omitted from this table as no items of compensation referenced in those columns were paid to the directors during the period covered by the table.
|
Family Relationships
None of the directors or executive officers is related to any other director or executive officer of the Company by blood, marriage or adoption.
Executive Officers
The following table sets forth information concerning our executive officers. Similar information regarding Mr. Cullimore and Mr. Beardall, each of whom is also a member of our Board of Directors, may be found on page 6, above.
|
|
Officer
|
Position
|
Name
|
Age
|
Since
|
with Company
|
|
|
|
|
Kelvyn H. Cullimore, Jr.
|
59
|
1983
|
President, and CEO
|
|
|
|
|
Larry K. Beardall
|
59
|
1986
|
Executive Vice President of Sales and Marketing
|
|
|
|
|
Douglas G. Sampson
|
60
|
2009
|
Vice President of Production and R&D
|
|
|
|
|
Terry M. Atkinson, CPA, CGMA
|
61
|
2005
|
Chief Financial Officer
|
|
|
|
|
Robert J. Cardon
|
51
|
1992
|
Vice President of Administration, Secretary & Treasurer
|
|
|
|
|
Bryan D. Alsop
|
52
|
2011
|
Vice President of Information Technology
|
Douglas G. Sampson was appointed Vice President of Production and Research and Development in September 2009. Prior to joining Dynatronics, Mr. Sampson worked for Philips for 29 years. His positions included executive and management responsibilities in various Philips subsidiaries in Asia and the United States. From 2002 to 2007, he was Country Manager and Managing Director of NXP Semiconductor, Philips Semiconductor Thailand, where he was primarily responsible for all aspects of the manufacturing and sales operations of that subsidiary. Most recently, from 2007 to 2008, he served as Vice President of Outsourced Manufacturing for Fairchild Semiconductors in Singapore. Mr. Sampson earned a Master of Business Administration degree from the University of New Mexico, Anderson School of Management. He also holds a Bachelor of Science degree in electronics engineering technology from Brigham Young University, and an Associate’s Degree in electronics engineering technology from Brigham Young University Idaho (formerly Ricks College).
Terry M. Atkinson, CPA was appointed Chief Financial Officer in January 2005. He previously served as our Controller from 1994 to 2004. Prior to joining Dynatronics, Mr. Atkinson worked as the Controller of Southern American Insurance Company from 1988 to 1994. From 1985 to 1988, he served as the Controller at Doxey-Hatch Medical Center. From 1980 to 1985, Mr. Atkinson worked as a certified public accountant with the accounting firms of Gothard and Company and Wursten Lewis & Bunker in Salt Lake City. He received his CPA license in Utah in 1983.
Robert J. (Bob) Cardon was appointed Vice President of Administration in March 2007. He has served as our Corporate Secretary since 1992 and was named Treasurer in 2004. From 1992 until 2005, Mr. Cardon was the Secretary/Treasurer of ITEC Attractions, Inc., which owns Branson’s IMAX Entertainment Complex in Branson, MO. From 1987 to 1988, Mr. Cardon was employed as a registered representative of Stuart-James Investment Bankers. He received his Bachelor of Arts degree in 1987 and his Master of Business Administration degree in 1990, both from Brigham Young University.
Bryan D. Alsop was appointed Vice President of Information Technology in July 2011. He served as a consultant to Dynatronics in early 2009 and joined the Company later that year as the director of information technology. From 2000 to 2008, Mr. Alsop was director of information technology at Bear River Mutual Insurance, where he was responsible for all aspects of the IT department as a member of the executive management team. Previously, he worked for such companies as Aetna Healthcare, McKesson, ITT Defense, Evans & Sutherland, and Sony Pictures Entertainment. He received his Bachelor of Arts degree in 1991 from California State University – Northridge.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Voting Securities and Principal Shareholders
The following tables contain information as of May 5, 2015 (the “Table Date”) with respect to beneficial ownership of shares of our Common Stock, for (1) all persons known to be holders of more than 5% of our voting securities based solely on our review of SEC filings, (2) each director and nominee for director, (3) each of our Chief Executive Officer, Chief Financial Officer and the two other most highly-compensated executive officers as of the end of fiscal year 2014 (collectively, the “Named Executive Officers”) holding office on the Table Date, and (4) all executive officers and directors as a group. As of the Table Date, 2,520,389 shares of Common Stock were issued and outstanding. Unless noted otherwise, we believe each person named below has sole voting and investment power with respect to the shares indicated. In addition, unless otherwise indicated, the address of the shareholder is the address of our principal executive office, 7030 Park Centre Drive, Cottonwood Heights, Utah 84121. Note, for purposes of the tables, “beneficial ownership” is determined in accordance with the rules of the SEC. Included in the computation of the number of shares beneficially owned by a person and the percentage ownership of that person are shares of Common Stock subject to options, warrants, or other convertible instruments held by that person that are exercisable or that become exercisable at the Table Date or within 60 days thereafter. Such shares, however, are not deemed outstanding for purposes of computing the percentage ownership of any other person.
Security Ownership of Holders of More than 5% of Voting Securities
Name of Beneficial Owner
|
|
Number
of Shares
|
|
|
Percent
of Class
|
|
|
|
|
|
|
|
|
AJB Investment Fund II LP
|
|
|
126,297
|
(1)
|
|
|
5.01
|
%
|
and Adam Bradley
|
|
|
|
|
|
|
|
|
1604 Rutherford Hill Court
|
|
|
|
|
|
|
|
|
Wake Forest, NC 27587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen Cyman
|
|
|
148,408
|
|
|
|
5.9 |
% |
50760 Metzen Dr.
|
|
|
|
|
|
|
|
|
Chesterfield, MI 4805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Rajala/Rajala Family Trust
|
|
|
142,492
|
(2) |
|
|
5.7 |
% |
12 Red Maple Place
|
|
|
|
|
|
|
|
|
Danville, CA 9450
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes 105,237 shares owned of record by AJB Investment Fund II, LP and 21,060 shares owned of record by Adam Bradley. The general partner of AJB Investment Fund II, LP is AJB Capital LLC, and Mr. Bradley is the manager of AJB Capital, LLC (as reported on Form 13D, as amended, filed August 12, 2014).
|
|
(2)
|
Includes 140,000 shares owned by a family trust.
|
Security Ownership of Management and Directors
Name of Beneficial Owner
|
|
Number
of Shares
|
|
|
Percent
of Class
|
|
|
|
|
|
|
|
|
Directors & Exec. Officers
|
|
|
|
|
|
|
Kelvyn H. Cullimore, Jr. (CEO/Director)
|
|
|
211,058
|
(1)
|
|
|
8.3
|
%
|
Larry K. Beardall(Exec. VP/Director)
|
|
|
88,118
|
(2)
|
|
|
3.5
|
%
|
Howard L. Edwards (Director)
|
|
|
25,472
|
(3)
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
Other Executive Officers
|
|
|
|
|
|
|
|
|
Douglas G. Sampson (VP of Operations)
|
|
|
5,000
|
(4)
|
|
|
*
|
|
Robert J. Cardon (VP of Administration)
|
|
|
18,700
|
(5)
|
|
|
*
|
|
Terry M. Atkinson (CFO)
|
|
|
10,000
|
(6)
|
|
|
*
|
|
Bryan D. Alsop (VP of Information
|
|
|
5,000
|
(7)
|
|
|
*
|
|
Technology)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a group (9 persons)
|
|
|
377,326
|
|
|
|
14.6
|
%
|
|
*Represents less than one percent of the issued and outstanding shares of Common Stock as of the Table Date.
|
(1)
|
Includes 115,258 shares owned directly, 72,000 shares of restricted Common Stock that vest upon retirement, change of control or death, 10,000 shares owned by Mr. Cullimore’s wife, and options for the purchase of 14,000 shares.
|
|
|
(2)
|
Includes 43,118 shares owned directly, 32,000 shares of restricted Common Stock that vest upon retirement, change of control or death, and options for the purchase of 13,000 shares.
|
|
|
(3)
|
Includes 20,672 shares owned directly and options for the purchase of 4,800 shares.
|
|
|
(4)
|
Includes options for the purchase of 5,000 shares.
|
|
|
(5)
|
Includes 8,700 shares owned directly and options for the purchase of 10,000 shares.
|
|
|
(6)
|
Includes 2,000 shares owned directly and options for the purchase of 8,000 shares.
|
|
|
(7)
|
Includes options for the purchase of 5,000 shares.
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of securities ownership and changes in such ownership with the SEC. Officers, directors and greater than ten percent shareholders also are required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of the Forms 3, 4 and 5 (and amendments thereto) furnished to us during and with respect to the fiscal year ended June 30, 2014, we believe that during the fiscal year ended June 30, 2014 all Section 16(a) filings applicable to these Reporting Persons were timely filed.
REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS
We have adopted a policy that any transactions with directors, executive officers or entities of which they are also officers or directors or in which they have a financial interest, will only be on terms consistent with industry standards and approved by a majority of the disinterested directors of our Board of Directors. Our bylaws provide that no such transactions by us shall be either void or voidable solely because of such relationship or interest of directors or officers or solely because such directors are present at the meeting of our Board of Directors or a committee thereof which approves such transactions, or solely because their votes are counted for such purpose if:
·
|
The fact of such common directorship or financial interest is disclosed or known by our Board of Directors or committee and noted in the minutes, and our Board of Directors or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote for that purpose without counting the vote or votes of such interested directors; or
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·
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The fact of such common directorship or financial interest is disclosed to or known by the shareholders entitled to vote, and they approve or ratify the contract or transaction in good faith by a majority vote or written consent of shareholders holding a majority of the shares of Common Stock entitled to vote (the votes of the interested directors or officers shall be counted in any such vote of shareholders); or
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·
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The contract or transaction is fair and reasonable to us at the time it is authorized or approved.
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In addition, interested directors may be counted in determining the presence of a quorum at a meeting of our Board of Directors or a committee thereof that approves such transactions. If there are no disinterested directors, we shall obtain a majority vote of the shareholders approving the transaction.
Transactions with Related Parties
During fiscal year 2014, the office and warehouse spaces in Detroit, Michigan and Hopkins, Minnesota were leased on an annual/monthly basis from employees/shareholders, or entities controlled by shareholders, who were previously principals of the dealers acquired in 2007. During fiscal year 2013, we also leased office and warehouse space in Pleasanton, California from certain shareholders or entities controlled by such shareholders, who were previously principals of the dealers acquired by the Company in 2007. That arrangement was terminated in December 2012 and the operation was relocated to a facility in Livermore, California, subject to a lease agreement with an unrelated third party.
The above related-party transactions are with three employees and shareholders. We believe the lease agreements were entered into on terms that represent an arms-length basis and that are similar to those that would be available to the Company in transactions with unrelated third parties. The expense associated with these related-party transactions totaled $69,900 and $93,300 for the years ended June 30, 2014 and 2013.
In 2010 we agreed to repurchase up to $100,000 of Common Stock from John Rajala and Tony Trolio annually for three years at the market value of the stock on the date of purchase. These agreements became effective on July 1, 2010 and expired June 30, 2013. Pursuant to these agreements, we purchased $100,000 of Common Stock from each of these shareholders during the year ended June 30, 2011. In addition, we purchased $100,000 of Common Stock from Mr. Rajala during each of the years ended June 30, 2012 and 2013. Mr. Rajala and Mr. Trolio originally acquired their shares of Common Stock in connection with the sale of their respective distribution companies in 2007.
Except as described above and in this Proxy Statement under executive employment contracts, during the two years ended June 30, 2014, we were not a party to any transaction in which any director, executive officer or shareholder holding more than 5% of the issued and outstanding Common Stock had a direct or indirect material interest.
EXECUTIVE COMPENSATION
Compensation Committee Report
The following report of the Compensation Committee shall not be deemed to be “soliciting material” or to otherwise be considered “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act except to the extent that the Company specifically incorporates it by reference into such filing.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for the Annual Meeting.
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Respectfully submitted, |
|
|
|
|
|
Howard L. Edwards |
|
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Joseph H. Barton |
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R. Scott Ward |
Compensation Discussion and Analysis
The Compensation Committee oversees our executive compensation program and reviews all compensation decisions relating to our Named Executive Officers. The following Compensation Discussion and Analysis describes the material elements of the compensation and benefit programs for our Named Executive Officers. The Compensation Committee evaluates both performance and compensation to ensure that we are able to attract and retain the best possible employees in key positions and that the compensation provided to key employees remains competitive.
Compensation Program Objectives
Executive compensation is determined by several factors. The following are the main objectives of our executive compensation program as determined by the Compensation Committee:
·
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Retention of qualified officers.
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·
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Providing overall corporate direction for the officers and also to provide direction that is specific to officer’s respective areas of authority. The level of compensation amongst the officer group, in relation to one another, is also considered in order to maintain a high level of satisfaction within the leadership group. We consider the relationship that the officers maintain to be one of the most important elements of the leadership group.
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·
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Providing a performance incentive for the officers.
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The compensation program is designed to reward the officers in the following areas:
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Achievement of specific goals
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·
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Creativity in the form of innovative ideas and analysis for new programs and projects
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·
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New program implementation
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·
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Attainment of company goals, budgets, and objectives
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·
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Results-oriented determination and organization
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·
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Positive and supportive direction for company personnel
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The Compensation Committee determines the portion of compensation allocated to each element for each individual executive officer. The discussions of compensation practices and policies are of historical practices and policies. Our Board of Directors and the Compensation Committee expect to continue these policies and practices, but will reevaluate the practices and policies as they consider advisable.
The principal elements of our executive compensation program include:
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Stock options and stock awards
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·
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Employee benefits in the form of:
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o
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health and dental insurance
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·
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Other benefits including use of Company automobile and cell phone
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Base salary
Base salary is intended to provide competitive compensation for job performance and to attract and retain qualified executive officers. The base salary level is determined by considering several factors inherent in the market place such as: the size of the company; the prevailing salary levels for the particular office or position; prevailing salary levels in a given geographic locale; and the qualifications and experience of the executive officer. In determining the salary of the executive officers, the Compensation Committee considered the comparable salary levels provided by various published executive compensation survey reports for the medical device industry.
Performance bonus
Bonuses are based on company performance. A percentage formula based on our pre-tax profit is used in determining the performance bonus for the executive officers.
Stock options and stock awards
Stock ownership is provided to enable executive officers to participate in our success. The direct or potential ownership of stock is expected to provide the incentive to expand the involvement of the executive officer to include, and therefore be mindful of, the perspective of our shareholders.
Employee benefits
Employee benefits for the executive officers are selected to provide security. Most notably, insurance coverage for health, life, and disability are intended to provide a level of protection that will enable the executive officers to function without having the distraction of having to manage undue risk. The health insurance also provides access to preventative medical care which will help the executive officers function at a high energy level, manage job related stress, and contribute to the overall well being of the executive officers, all of which contribute to an enhanced job performance.
Other benefits
Other employee benefits such as cell phones and automobile usage are directly related to job functions and contain a personal use element which is considered to be a goodwill gesture that contributes to enhanced job performance.
As discussed above, the Compensation Committee determines the portion of compensation allocated to each element for each individual executive officer. As a general rule, base salary is competitively based while giving consideration to employee retention, qualifications, performance, and general market conditions. Typically, stock options are based on the current market value of the underlying common shares and how that will contribute to the overall compensation of the executive officer. Consideration is also given to the fact that the option has the potential for an appreciated future value. As such, this future value may in fact be the most significant factor of the option, but it is also more difficult to quantify as a benefit to the executive officer.
Accordingly, in determining our compensation program, as well as setting the compensation for each executive officer, the Compensation Committee attempts to attract the interest of the executive officer within the constraints of a compensation package that is fair and equitable to all parties involved.
Employment Agreements and Potential Payments upon Termination or Change in Control
We believe it is in our best interests to secure the services of key executives and that it is appropriate to provide these executives with protection should their employment with Dynatronics be terminated under certain circumstances.
Effective May 1, 2015, we entered into new written employment agreements with Larry K. Beardall, our Executive Vice President and Kelvyn H. Cullimore, Jr., our Chairman, President and CEO. These agreements reflect substantially the same terms of, but supersede and replace agreements entered into in 2012, as subsequently amended. The agreements were approved by the Compensation Committee.
The compensation package underlying each of these agreements includes (i) a base salary ($200,000 per year for Mr. Cullimore and $175,000 per year for Mr. Beardall), (ii) an automobile allowance,(iii) a discretionary annual bonus (as determined by the Compensation Committee), (iv) restricted stock awards and/or stock options granted under our equity compensation plans, as amended and restated, and (v) other welfare and employee benefits that are standard in such agreements, including, by way of example, life and disability insurance, health insurance, and paid vacation. These agreements also contain a provision granting the executives a single cash lump-sum payment ($500,000 for Mr. Cullimore and $400,000 for Mr. Beardall) within 30 days following an event of a change in control occurring after the effective date of the agreements (May 1, 2015). As defined in these employment contracts, a “change of control” is defined as follows:
(a) any person or group of persons together with its affiliates, but excluding (i) the Company or any of its subsidiaries, (ii) any employee benefit plans of the Company or (iii) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities (not including in the securities beneficially owned by such person any securities acquired directly from the Company);
(b) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on May 1, 2015, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended;
(c) the consummation of a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation or entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company, such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or
(d) the shareholders of the Company approve a plan of complete liquidation or winding-up of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.
Notwithstanding the foregoing, for purposes of these agreements, a “Change of Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the holders of the Common Stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions, and a “Change of Control” shall not occur for purposes of this Agreement as a result of any primary or secondary offering of Company Common Stock to the general public through a registration statement filed with the SEC.
In addition, notwithstanding the foregoing, to the extent that any payment under the agreements is payable solely upon or following the occurrence of a Change of Control and such payment is treated as “deferred compensation” for purposes of §409A of the Code, no event that would not qualify as a “change in the ownership of the Company,” a “change in the effective control of the Company,” or a “change in the ownership of a substantial portion of the assets of the Company” as such terms are defined in §1.409A-3(i)(5) of the Treasury Regulations, shall be treated as a “Change of Control” under the agreements.
If a change of control occurs the executive’s stock options, stock awards, warrants and other similar rights granted by us to each executive prior to termination will immediately and entirely vest and will be immediately delivered to the executive without restriction or limitation of any kind (except for normal transfer restrictions required by law). In the event of termination prior to the expiration of the term, we are also obligated to pay the executive a separation payment equal to twelve (12) months’ salary.
Each agreement also provides that upon termination of the executive’s employment we will transfer to him title, free and clear of all encumbrances, to either (i) the Company-owned vehicle used by the executive at the time of termination, or (ii) a vehicle of substantially similar market value.
These employment agreements terminate upon the executive’s death or disability or termination of their employment for cause. The employment contracts also contain covenants against competition by each executive during the term of his employment and for eighteen months after the termination of his employment for any reason.
401(k) Plan
Dynatronics has adopted a 401(k) plan. Employees who are 20 years of age or older and have completed at least six months of service with us are eligible to participate in the 401(k) plan.
Eligible employees may make contributions to the 401(k) plan in the form of salary deferrals of up to 20% of total compensation, not to exceed $17,000, the maximum allowable amount of salary deferrals for calendar year 2014. We match annual employee contributions at 25% of employee contributions, up to a maximum of $500 per employee per year.
Participants in the 401(k) plan are fully vested in their salary deferral contributions and vest 20% per year after two years of participation in matching contributions. Amounts deferred by Named Executive Officers in the 401(k) plan, along with the 25% matching contributions, are included under “Other Compensation” in the Summary Compensation Table.
Section 162(m) Treatment Regarding Performance-Based Equity Awards
Under Section 162(m) of the Code, a public company is generally denied deductions for compensation paid to the chief executive officer and the next four most highly compensated executive officers to the extent the compensation for any such individual exceeds $1,000,000 for the taxable year. Our executive compensation programs are designed to preserve the deductibility of compensation payable to executive officers, although deductibility is just one among a number of factors considered in determining appropriate levels or types of compensation.
Consideration of Shareholder Advisory Votes
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), required that we include in our proxy statement last year for our 2014 Annual Meeting of Shareholders (the “2014 Annual Meeting”) a non-binding, advisory shareholder vote to approve the compensation of our Named Executive Officers. At the 2013 Annual Meeting, our shareholders voted for approval of the compensation of our Named Executive Officers (85% of votes cast). In addition, at the 2013 Annual Meeting, the Compensation Committee recommended, and the shareholders approved (69% of votes cast) the Company’s determination to include a shareholder advisory vote on executive compensation in its future proxy materials once every three years. The Compensation Committee has affirmed its recommendation to the Board that this advisory vote be held once every three years and the Board has approved the committee’s recommendation. This will be the frequency of such advisory votes until the next required vote on the frequency of advisory votes on executive compensation, which will occur at the Company's Annual Meeting of shareholders in 2016, or until the Compensation Committee or Board of Directors otherwise determines a different frequency for such shareholder advisory votes.
Named Executive Compensation for 2014 and 2013
The following table summarizes information concerning the compensation awarded to, earned by or paid to, our Named Executive Officers who were serving in such capacities as of June 30, 2014 (note, columns (e) through (h) are omitted from this table, as no compensation of the types referred to in those columns was paid to the Named Executive Officers during the periods indicated).
Summary Compensation Table
Name
and
principal position
|
Year
ended
June 30,
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Salary
($)
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Bonus
($)
|
All other compensation ($) (Note 1) (i)
|
Total
($)
|
(a)
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(b)
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(c)
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(d)
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(i)
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(j)
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|
|
|
|
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Kelvyn H. Cullimore, Jr., Chairman, President/CEO
|
2014
2013
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$175,600
$175,600
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$ 0
$ 13,652
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$27,745
$25,667
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$203,345
$214,919
|
Larry K Beardall, Executive Vice President
|
2014
2013
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$160,600
$160,600
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$ 0
$ 7,782
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$24,427
$22,739
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$185,027
$191,121
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Bryan D. Alsop
VP Information Technology
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2014
2013
|
$128,000
$128,000
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$ 0
$ 2,456
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$13,389
$13,322
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$141,389
$143,778
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(1)
|
For each of the individuals listed in the table above, “All Other Compensation” includes but is not limited to perquisites including the dollar value of insurance premiums paid with respect to health and dental insurance, use of Company paid automobile, and cellular phone.
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Outstanding Equity Awards as of Fiscal Year-End 2014
The following table summarizes the outstanding equity awards held by our Named Executive Officers as of June 30, 2014:
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Option Awards
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Stock Awards
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Name
(a)
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Number of securities underlying unexercised options
(#) exercisable
(b)
|
Number of securities underlying unexercised options
(#)
unexercisable
(c)
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Equity incentive plan awards: number of securities underlying unexercised unearned options
(#)
(d)
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Option exercise price
($)
(e)
|
Option expiration date
(f)
|
|
Number of
shares
or units of stock that
have
not vested (#)
(g)
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Market value of shares or units of stock that have not vested ($)
(h)
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Equity incentive plan awards: number of unearned shares, units, or other rights that have not vested
(#)
(i)
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Equity incentive plan awards: market or payout value of unearned shares, units, or other
rights
that have not
vested
($)
(j)
|
Kelvyn H. Cullimore, Jr.
Principal Executive Officer
|
-
8,000
6,000
|
-
-
-
|
-
-
-
|
-
$8.60
$7.10
|
-
5/24/15
11/22/15
|
|
72,000
-
-
|
$267,840
-
-
|
-
-
-
|
-
-
-
|
Larry K. Beardall
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-
8,000
5,000
|
-
-
|
-
-
|
-
$8.60
$7.10
|
-
5/24/15
11/22/15
|
|
32,000
-
-
|
$119,040
-
-
|
-
-
-
|
-
-
-
|
|
|
|
|
|
|
|
|
|
|
|
Bryan D. Alsop
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2,500
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2,500
|
-
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$4.15
|
7/28/19
|
|
-
|
-
|
-
|
-
|
Equity Compensation Plans
As of June 30, 2014, we had equity awards outstanding under the 2005 Plan. The 2005 plan was approved by our shareholders and expires this year. Outstanding awards under the 2005 Plan expire (if not exercised) on the expiration date indicated in the respective awards, or, if no expiration date is indicated in such award, on the tenth anniversary of the grant date of the award. Nonqualified and incentive stock options and other awards have been granted to our employees, officers, directors and consultants under this plan. The Board of Directors also has approved the 2015 Plan and the shareholders are requested to ratify and approve the 2015 Plan at the Annual Meeting (see Proposal Three). The Compensation Committee administers both of these plans.
As of June 30, 2014, options for the purchase of 137,804 shares were exercisable and a total of 155,604 shares were outstanding under the 2005 Plan. Also as of June 30, 2014, a total of 117,451 shares were available for issuance through options or awards yet to be granted under the 2005 Plan. During the fiscal year ended June 30, 2014, each of the three independent directors received 495 shares of restricted Common Stock under the 2005 Plan. The following table sets forth information as of June 30, 2014 about our stock option plans and our non-plan options under which our equity securities are authorized for issuance.
Equity Compensation Plan Information
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)
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Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
(a))
(c)
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Equity compensation plans approved by security holders
|
259,604
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$3.87
|
117,451
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Equity compensation plans
not approved by security holders
|
-
|
-
|
-
|
Total
|
259,604
|
|
117,451
|
REPORT OF THE AUDIT COMMITTEE
The following is the report of the Audit Committee with respect to the Company’s audited financial statements for the year ended June 30, 2014. The information contained in this report shall not be deemed “soliciting material” or otherwise considered “filed” with the SEC, and such information shall not be incorporated by reference into any future filing under the Securities Act or the Exchange Act except to the extent that the Company specifically incorporates such information by reference in such filing.
To the Board of Directors:
The Audit Committee consists of three members: Messrs. Edwards, Barton and Ward. All of the members are independent directors under the Nasdaq and SEC audit committee structure and membership requirements. The Audit Committee has certain duties and powers as described in its written charter adopted by the Board. A copy of the charter can be found on the Company’s website.
The Audit Committee is responsible primarily for assisting the Board in fulfilling its oversight responsibility of reviewing the financial information that will be provided to shareholders and others, appointing the independent registered public accounting firm, reviewing the services performed by the Company’s independent registered public accounting firm and internal audit department, evaluating the Company’s accounting policies and the Company’s system of internal controls that management and the Board have established, and reviewing significant financial transactions. The Audit Committee does not itself prepare financial statements or perform audits, and its members are not auditors or certifiers of the Company’s financial statements.
In fulfilling its oversight responsibility of appointing and reviewing the services performed by the Company’s independent registered public accounting firm, the Audit Committee carefully reviews the policies and procedures for the engagement of the independent registered public accounting firm, including the scope of the audit, audit fees, auditor independence matters and the extent to which the independent registered public accounting firm may be retained to perform non-audit related services.
The Company maintains an auditor independence policy that bans its auditors from performing non-financial consulting services, such as information technology consulting and internal audit services. This policy mandates that the Audit Committee approve the audit and non-audit services and related budget in advance, and that the Audit Committee be provided with quarterly reporting on actual spending. This policy also mandates that the Company may not enter into auditor engagements for non-audit services without the express approval of the Audit Committee.
The Audit Committee reviewed and discussed Dynatronics’ audited financial statements for the fiscal year ended June 30, 2014 with our management. The Audit Committee discussed with Mantyla McReynolds LLC, our independent registered public accounting firm for the fiscal year ended June 30, 2014, the matters required to be discussed by Statement on Auditing Standards No. 114, The Auditors Communication with Those Charged with Governance. The Audit Committee also received the written communication from Mantyla McReynolds LLC required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, and the Audit Committee has discussed the independence of Mantyla McReynolds LLC with them.
Based on the Audit Committee’s review and discussions noted above, the Audit Committee recommended to our Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014 filed with the SEC on September 28, 2014.
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Respectfully submitted: |
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THE AUDIT COMMITTEE |
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Howard L. Edwards, Chairman |
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R. Scott Ward, PhD |
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Joseph Barton |
OVERVIEW OF PROPOSALS
This Proxy Statement contains four proposals requiring shareholder action. Proposal One requests the election of five incumbent directors to the Board. Proposal Two requests ratification of the appointment of Mantyla McReynolds LLC as our independent registered public accounting firm for the year ending June 30, 2015. Proposal Three requests ratification and approval of the 2015 Plan. Proposal Four requests shareholder approval of the issuance of shares of Common Stock upon conversion of the Series A Preferred and exercise of the Warrants, in excess of 19.99% of our issued and outstanding Common Stock, and shares of Common Stock in an amount that may result in a Nasdaq Change of Control. Each of the proposals is discussed in more detail in the pages that follow.
PROPOSAL ONE – ELECTION OF DIRECTORS
Summary
Our Board of Directors currently consists of five members. Five directors will be elected at the Annual Meeting. Except as discussed below, directors are elected at each annual meeting of the shareholders and serve one-year terms until the next annual meeting or until their respective successors are duly elected and qualified. The persons named as proxies in the enclosed proxy intend to vote for the election of each of the following five nominees, unless instructions to the contrary are given in the proxy. The five nominees for director are:
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Kelvyn H. Cullimore, Jr.
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Each of the five nominees has indicated that he is able and willing to continue to serve as a director of the Company. Our Board of Directors has no reason to believe that any nominee named herein will be unable or unwilling to serve. However, if some unexpected occurrence should require the substitution of some other person or persons for any one or more of the nominees, the proxy holders will vote for such nominee or nominees as the Board of Directors may select.
Upon the closing of the transactions contemplated by the Purchase Agreements, as described further elsewhere in this Proxy Statement (Proposal Four) and during the Director Rights Period: (i) the Board of Directors of the Company shall be increased from five members to seven members and (ii) the Preferred Investors shall appoint up to three Preferred Directors in accordance with the Directors Rights and subject to the terms and conditions of the Designation of Rights. Upon the appointment of a third Preferred Director one of the five non-Preferred Directors will resign and be replaced by such third Preferred Director. The Preferred Directors are to be elected to the Board solely by the Preferred Investors and serve their terms subject to removal or replacement by the Preferred Investors at any time during the Directors Rights Period and subject to the terms and conditions of the Designation of Rights.
Director Nominations
Our Board of Directors does not have a nominating committee or other committee that recommends qualified candidates to the Board of Directors for nomination or election as directors. The Board of Directors has adopted a nominations process that provides that the independent directors, acting by a majority vote, are authorized to recommend individuals as nominees to the Board of Directors.
The independent directors are responsible for reviewing and interviewing qualified candidates to serve on the Board of Directors, for making recommendations to the full Board of Directors for nominations to fill vacancies on the Board of Directors, and for selecting the nominees to be elected by our shareholders at each annual meeting.
Director Qualifications
The independent directors have established certain criteria they consider as guidelines in considering nominations to the Board of Directors. These criteria include: (a) personal characteristics, including such matters as integrity, age, education, diversity of background and experience, absence of potential conflicts of interest with us or our operations, and the availability and willingness to devote sufficient time to the duties of a director; (b) experience in corporate management, such as serving as a director, officer or former officer of a publicly held company; (c) experience in our industry and with relevant social policy concerns; (d) academic expertise in an area of our operations; and (e) practical and mature business judgment. The criteria are not exhaustive and the independent directors and the full Board of Directors may consider other qualifications and attributes they believe are appropriate in evaluating the ability of an individual to serve as a member of the Board of Directors. The independent directors seek to assemble a board of directors that brings a variety of perspectives and skills derived from high-quality business and professional experience.
Board Diversity
In identifying nominees, the independent directors do not have a formal policy regarding the consideration of gender, race, religion, and other traits typically associated with the term “diversity.” As described in “Director Qualifications” above and “Identification and Evaluation of Nominees” below, the independent directors consider it important that the Board be composed of directors with a diverse range of experience, areas of expertise and skills, but has not adopted any formal policy.
Identification and Evaluation of Nominees
The independent directors may use multiple sources for identifying and evaluating nominees for directors, including referrals from current directors and management as well as input from third parties, including executive search firms retained by the Board of Directors. The independent directors will obtain background information about candidates, which may include information from questionnaires and background and reference checks, and will interview qualified candidates. Our other directors will also have an opportunity to meet and interview qualified candidates. The independent directors will then determine, based on the background information and the information obtained in the interviews, whether to recommend to the Board of Directors that a candidate be nominated to the Board of Directors.
Shareholder Nominations
The independent directors may from time to time consider qualified nominees recommended by shareholders, who may submit recommendations to the independent directors through a written notice as described under “Shareholder Proposals” below. Nominees for director who are recommended by shareholders will be evaluated in the same manner as any other nominee for director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH DIRECTOR NOMINEE.
PROPOSAL TWO – RATIFICATION OF
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected Mantyla McReynolds LLC (“Mantyla McReynolds”) to act as our independent registered public accounting firm for the fiscal year ending June 30, 2015. Mantyla McReynolds has been the Company’s independent registered public accounting firm since December 2013.
Larson & Company PC (“Larson & Co.”) conducted the audit of the Company’s financial statements for the year ended June 30, 2013. The audit reports of Larson & Co. on the financial statements of the Company of and for the year ended June 30, 2013 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. From July 1, 2013 through December 6, 2013, there were (i) no disagreements (as such term is used in Item 304(a)(1)(iv) of Regulation S-K) between the Company and Larson & Co. on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Larson & Co., would have caused Larson & Co. to make reference to the subject matter of the disagreements in connection with its report on the Company’s financial statements for the year ending June 30, 2013 or for any subsequent reporting period and (ii) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
The Audit Committee appointed Mantyla McReynolds as our independent registered public accounting firm on December 6, 2013. During the fiscal year ended June 30, 2013, and through December 6, 2013, the Company did not consult with Mantyla McReynolds regarding any of the matters set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
The shareholders have been asked to ratify this appointment of Mantyla McReynolds on an advisory basis. Ratification of the selection or appointment of the independent auditors of the Company is not required. However, if the shareholders fail to ratify its selection, the Audit Committee may reconsider its decision. Even if the selection of the independent registered public accounting firm is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in our best interests.
Fees Paid to Auditors
Financial Information Systems Design and Implementation Fees
During fiscal years 2013 and 2014, we did not engage Larson & Co. or Mantyla McReynolds to provide any professional services in connection with (i) operating or supervising the operation of our information system or managing our local area network or (ii) designing or implementing a hardware or software system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements taken as a whole.
Audit Fees
The aggregate fees billed by Mantyla McReynolds for professional services rendered for the fiscal year ended June 30, 2014 in connection with (i) the audit of our annual financial statements set forth in our Annual Report on Form 10-K for the fiscal year then ended, and (ii) the reviews of our quarterly financial statements set forth in our Quarterly Reports on Form 10-Q for each of our fiscal quarters during the periods then ended, totaled approximately $59,000. No fees were billed and no professional services were rendered by Mantyla McReynolds for fiscal year 2013.
The aggregate fees billed by Larson & Co. for professional services rendered for the fiscal year ended June 30, 2013 in connection with (i) the audit of our annual financial statements set forth in our Annual Report on Form 10-K for the fiscal year then ended, and (ii) the reviews of our quarterly financial statements set forth in our Quarterly Reports on Form 10-Q for each of our fiscal quarters during the periods then ended, totaled approximately $70,000. The aggregate fees billed by Larson & Co. for professional services rendered for the fiscal year ended June 30, 2014 in connection with the review of our quarterly financial statements set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, totaled approximately $9,233.
Audit-Related Fees
No fees were billed by Mantyla McReynolds or Larson & Co. in each of the last two fiscal years for other assurance and related services.
Audit Committee Policy Regarding Pre-Approval of Audit and Permissible Non-Audit Services of the Company’s Independent Registered Public Accounting Firm
The Audit Committee has established a policy that all audit and permissible non-audit services provided by the independent registered public accounting firm will be pre-approved by the Audit Committee. These services may include audit services, audit-related services, tax services and other services. The Audit Committee considers whether the provision of each non-audit service is compatible with maintaining the independence of the independent registered public accounting firm. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and our management are required to periodically report to the Audit Committee regarding the extent of services provided in accordance with this pre-approval, and the fees for the services performed to date.
Representatives of Mantyla McReynolds will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” PROPOSAL TWO
RATIFYING THE SELECTION OF MANTYLA MCREYNOLDS LLC AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2015.
PROPOSAL THREE – APPROVAL OF THE
2015 EQUITY INCENTIVE AWARD PLAN
The Board of Directors has adopted, subject to shareholder approval, the Dynatronics Corporation 2015 Equity Incentive Award Plan (the “2015 Plan” or the “Plan”). The 2015 Plan is being adopted in anticipation of the expiration of the Company’s 2005 Equity Incentive Award Plan (the “2005 Plan”) and will allow us to continue to provide equity awards to directors, executive officers, employees and consultants in connection with the Company’s long-term incentive compensation philosophy. Our directors and Named Executive Officers may have an interest in the approval of the 2015 Plan because they are eligible for awards under the 2015 Plan.
If approved by the shareholders at the Annual Meeting, the 2015 Plan would govern future grants of stock-based awards (“stock awards”) to our employees, directors, and consultants. This proposal will not affect existing equity awards granted under our 2005 Plan. All outstanding options under the 2005 Plan will remain outstanding, but no further grants will be made under the 2005 Plan if the 2015 Plan is approved. As of May 4, 2015, there were awards covering a total of 152,352 shares of Common Stock outstanding under the 2005 Plan.
Under the Nasdaq Rules, we are required to obtain shareholder approval of the 2015 Plan. Shareholder approval of the 2015 Plan also will constitute approval of (i) the performance criteria upon which performance-based awards that are intended to be deductible by us under Section 162(m) may be based under the 2015 Plan; (ii) the one-year per participant limit of 150,000 shares of Common Stock underlying stock options and stock appreciation rights awards that may be made under the 2015 Plan; (iii) the one-year per participant limit of $500,000 for awards that are intended to be “performance based compensation” under Section 162(m) of the Code; and (v) the one-year per director limit of $100,000 for awards granted to directors under the 2015 Plan.
Shareholders are requested in this Proposal Three to approve the 2015 Plan. The affirmative vote of a majority of the shares cast on this Proposal Three either present in person or represented by proxy and entitled to vote at the meeting will be required to approve this Proposal Three. Shares present but not voted because of abstention will have the same effect on the results of this vote as a vote against. Shares subject to a broker non-vote will not be considered entitled to vote with respect to this Proposal and will have no effect on the outcome. The Board believes that the adoption of the 2015 Plan is in the best interest of the Company. The appropriate use of equity awards remains an essential component of our overall compensation philosophy. The Board believes that the 2015 Plan is necessary for us to continue to attract and retain well-qualified employees and directors who will contribute to our success, and to provide incentives to motivate such employees and directors that are directly linked to increases in shareholder value and will therefore benefit all of our shareholders.
A summary of the principal features of the 2015 Plan is provided below, but is qualified in its entirety by reference to the full text of the Plan as proposed to be amended, which is attached as Appendix A to this Proxy Statement.
Summary of the 2015 Plan
Administration
The Compensation Committee of the Board of Directors administers the 2015 Plan. The Compensation Committee may delegate to a committee of one or more members of the Board the authority to grant or amend awards to participants other than senior executives of the Company who are subject to Section 16 of the Exchange Act, or employees who are “covered employees” within the meaning of Section 162(m) of the Code. The Compensation Committee includes at least two directors, each of whom qualifies as a non-employee director pursuant to Rule 16b-3 of the Exchange Act, and as an “outside director” pursuant to Section 162(m).
The Compensation Committee has the exclusive authority to administer the 2015 Plan, including the power to determine eligibility, the types and sizes of awards, the price and timing of awards and the acceleration or waiver of any vesting restriction, provided that the Compensation Committee does not have the authority to accelerate vesting or waive the forfeiture of any performance-based awards.
Eligibility
Persons eligible to participate in the 2015 Plan include non-employee members of the Board, consultants to the Company, and all of the employees of the Company (including executive officers) and its subsidiaries, as determined by the Compensation Committee.
Limitation on Awards and Shares Available
If approved by the shareholders at the Annual Meeting, the maximum number of shares of Common Stock available for issuance under the 2015 Plan is 500,000 shares (the “Available Shares”). To the extent that an award terminates, expires or lapses for any reason, any shares subject to the award may be used again for new grants under the 2015 Plan. Shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any of its subsidiaries will not be counted against the shares available for issuance under the 2015 Plan. Notwithstanding the foregoing, no shares will become available (a) upon the cancellation of existing awards or any similar transactions following the 10th anniversary of shareholder approval of the 2015 Plan or (b) if the return of shares would require additional shareholder approval of the 2015 Plan pursuant to applicable Nasdaq Rules.
Awards
The 2015 Plan provides for the grant of incentive stock options as defined under §422 of the Code and nonqualified stock options, restricted stock, stock appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, restricted stock units, other stock-based awards and performance-based awards. The Compensation Committee has the discretion to determine the types and amounts of awards that will be granted to specific individuals pursuant to the 2015 Plan.
The option exercise price of all stock options granted pursuant to the 2015 Plan will be at least 100% of the fair market value of the Common Stock on the date of grant. Stock options may be exercised as determined by the Compensation Committee, but in no event earlier than six months after the date of grant or after the 10th anniversary of the date of grant. The aggregate fair market value of the shares with respect to which options intended to be incentive stock options are exercisable for the first time by an employee in any calendar year may not exceed $100,000, or such other amount as the Code provides.
Upon the exercise of a stock option, the purchase price must be paid in full in either cash or its equivalent, by delivering a promissory note bearing interest at no less than such rate as shall then preclude the imputation of interest under the Code, or by tendering previously acquired shares of Common Stock with a fair market value at the time of exercise equal to the exercise price or other property acceptable to the Compensation Committee (including through the delivery of a notice that the participant has placed a market sell order with a broker with respect to shares then issuable upon exercise of the option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the option exercise price, provided that payment of such proceeds is then made to the Company upon settlement of such sale). However, no participant who is a member of the Board or an executive officer of the Company will be permitted to pay the exercise price of an option in any method in violation of Section 13(k) of the Exchange Act.
Restricted stock may be granted pursuant to the 2015 Plan. A restricted stock award is the grant of shares of Common Stock that is nontransferable and may be subject to substantial risk of forfeiture until specific conditions are met. Conditions may be based on continuing employment or achieving performance goals. During the period of restriction, participants holding shares of restricted stock may have full voting and dividend rights with respect to such shares. The restrictions will lapse in accordance with a schedule or other conditions determined by the Compensation Committee.
A stock appreciation right (an “SAR”) is the right to receive payment of an amount equal to the excess of the fair market value of a share of Common Stock on the date of exercise of the SAR over the fair market value of a share of Common Stock on the date of grant of the SAR. Payments will be made by the Company in cash or Common Stock.
The other types of awards that may be granted under the 2015 Plan include performance shares, performance stock units, deferred stock, restricted stock units, and other stock-based awards.
Approved Awards
The Compensation Committee has approved the grant of a nonqualified stock option pursuant to the 2015 Plan to Kelvyn H. Cullimore, Jr. for the purchase of 40,000 shares of Common Stock. The exercise price for such options shall be the fair market price of the Common Stock as determined by the closing price of the Common Stock quoted on the Nasdaq Stock Market at the close of the fifteenth trading day following the annual shareholder meeting at which approval of this Proposal Three is sought.
The Compensation Committee has approved the grant of a nonqualified stock option pursuant to the 2015 Plan to Larry K. Beardall for the purchase of 40,000 shares of Common Stock. The exercise price for such options shall be the fair market price of the Common Stock as determined by the closing price of the Common Stock quoted on the Nasdaq Stock Market at the close of the fifteenth trading day following the annual shareholder meeting at which approval of this Proposal Three is sought.
Changes in Capital Structure
In the event of a stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off, recapitalization, distribution of assets or any other corporate event affecting the Common Stock or the share price of the Common Stock in a manner that causes dilution or enlargement of benefits or potential benefits under the 2015 Plan, then the Compensation Committee will make proportionate adjustments to: (i) the aggregate number of, and types of, shares of stock subject to the 2015 Plan, (ii) the terms and conditions of any outstanding awards (including any applicable performance targets) and (iii) the grant or exercise price for any outstanding awards. In addition, in such a case or in the event of any unusual or nonrecurring transactions or events affecting the Company or of changes in applicable laws, the Compensation Committee, may, subject to the terms of the 2015 Plan, take any of the following actions if it determines that such action is appropriate in order to prevent the dilution or enlargement of benefits or potential benefits intended to be made available under the 2015 Plan or with respect to any award: (i) provide for either the termination, purchase or replacement of the awards, (ii) provide that the awards shall be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, (iii) make adjustments in the number and type of shares of stock (or other securities or property) subject to outstanding awards and/or in the terms and conditions of (including the exercise price), and the criteria included in, outstanding awards which may be granted in the future, (iv) provide for the acceleration of vesting or exercisability of the awards and (v) provide that the awards cannot vest or be exercised after the event that triggers the action.
Amendment and Termination
The Compensation Committee, subject to approval of the Board, may terminate, amend, or modify the 2015 Plan at any time; provided, however, that shareholder approval must be obtained for any amendment to the extent necessary or desirable to comply with any applicable law, regulation or stock exchange rule, to increase the number of shares available under the 2015 Plan or to allow a material increase in the benefits or change the eligibility requirements under the 2015 Plan. In addition, without approval of the Company’s shareholders, no option or SAR may be amended to reduce the per share exercise price of the shares subject to such option or SAR below the per share exercise price as of the date the option or SAR was granted and, except to the extent permitted by the 2015 Plan in connection with changes in the Company’s capital structure, no option or SAR may be granted in exchange for, or in connection with, the cancellation or surrender of an option or SAR having a higher per share exercise price.
In no event may an award be granted pursuant to the 2015 Plan on or after the 10th anniversary of the effectiveness of the Plan.
Securities Law
The 2015 Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated by the SEC thereunder, including without limitation Rule 16b-3. The 2015 Plan will be administered, and awards will be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the 2015 Plan and all awards granted thereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
Federal Income Tax Consequences
The tax consequences of the 2015 Plan under current federal law are summarized in the following discussion which deals with the general tax principles applicable to the 2015 Plan, and is intended for general information only. Alternative minimum tax and state and local income taxes are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality. The tax information summarized is not tax advice.
Nonqualified Stock Options. For federal income tax purposes, an optionee generally will not recognize taxable income on the grant of a nonqualified stock option under the 2015 Plan, but upon the exercise of a nonqualified stock option will recognize ordinary income, and the Company generally will be entitled to a deduction. The amount of income recognized (and the amount deductible by the Company) generally will be equal to the excess, if any, of the fair market value of the shares at the time of exercise over the aggregate exercise price paid for the shares, regardless of whether the exercise price is paid in cash or in shares or other property. An optionee’s basis for the stock for purposes of determining his or her gain or loss upon a subsequent disposition of the shares generally will be the fair market value of the stock on the date of exercise of the nonqualified stock option, and any subsequent gain or loss will generally be taxable as capital gains or losses.
Incentive Stock Options. An optionee generally will not recognize taxable income upon either the grant or exercise of an incentive stock option (or “ISO”); however, the amount by which the fair market value of the shares at the time of exercise exceeds the exercise price will be an “item of tax preference” for the optionee for purposes of the alternative minimum tax. Generally, upon the sale or other taxable disposition of the shares of the Common Stock acquired upon exercise of an ISO, the optionee will recognize income taxable as capital gains in an amount equal to the excess, if any, of the amount realized in such disposition over the option exercise price, provided that no disposition of the shares has taken place within either (a) two years from the date of grant of the ISO or (b) one year from the date of exercise. If the shares of Common Stock are sold or otherwise disposed of before the end of the one-year and two-year periods specified above, the difference between the ISO exercise price and the fair market value of the shares on the date of exercise generally will be taxable as ordinary income; the balance of the amount realized from such disposition, if any, generally will be taxed as capital gain. If the shares of Common Stock are disposed of before the expiration of the one-year and two-year periods and the amount realized is less than the fair market value of the shares at the date of exercise, the optionee’s ordinary income generally is limited to excess, if any, of the amount realized in such disposition over the option exercise price paid. The Company (or other employer corporation) generally will be entitled to a tax deduction with respect to an ISO only to the extent the optionee has ordinary income upon sale or other disposition of the shares of Common Stock.
Stock Appreciation Rights. No taxable income is generally recognized upon the receipt of an SAR, but upon exercise of the SAR the fair market value of the shares (or cash in lieu of shares) received generally will be taxable as ordinary income to the recipient in the year of such exercise. The Company generally will be entitled to a compensation deduction for the amount the recipient recognizes as ordinary income.
Restricted Stock and Deferred Stock. A participant to whom restricted or deferred stock is issued generally will not recognize taxable income upon such issuance and the Company generally will not then be entitled to a deduction, unless, in the case of restricted stock, an election is made by the participant under Section 83(b) of the Code. However, when restrictions on shares of restricted stock lapse, such that the shares are no longer subject to a substantial risk of forfeiture, the employee generally will recognize ordinary income and the Company generally will be entitled to a deduction for an amount equal to the excess of the fair market value of the shares at the date such restrictions lapse over the purchase price therefore. Similarly, when deferred stock vests and is issued to the employee, the employee generally will recognize ordinary income and the Company generally will be entitled to a deduction for the amount equal to the fair market value of the shares at the date of issuance. If an election is made under Section 83(b) with respect to restricted stock, the employee generally will recognize ordinary income at the date of issuance equal to the excess, if any, of the fair market value of the shares at that date over the purchase price therefore and the Company will be entitled to a deduction for the same amount. The Code does not permit a Section 83(b) election to be made with respect to deferred stock.
Dividend Equivalents. A recipient of a dividend equivalent award generally will not recognize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time. When a dividend equivalent is paid, the participant generally will recognize ordinary income, and the Company will be entitled to a corresponding deduction.
Performance Awards. A participant who has been granted a performance award generally will not recognize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time. When an award is paid, whether in cash or Common Stock, the participant generally will recognize ordinary income, and the Company will be entitled to a corresponding deduction.
Stock Payments. A participant who receives a stock payment in lieu of a cash payment that would otherwise have been made will generally be taxed as if the cash payment has been received, and the Company generally will be entitled to a deduction for the same amount.
Section 162(m) Limitation. In general, under Section 162(m), income tax deductions of publicly held corporations may be limited to the extent total compensation (including base salary, annual bonus, stock option exercises, transfers of property and benefits paid under nonqualified retirement plans) for certain executive officers exceeds $1 million (less the amount of any “excess parachute payments” as defined in Section 280G of the Code) in any one year. However, under Section 162(m), the deduction limit does not apply to certain “performance-based compensation.” Under Section 162(m), stock options and SARs will satisfy the “performance-based compensation” exception if the awards of the options or SARs are made by a committee of the Board of Directors consisting solely of two or more “outside directors,” the plan sets the maximum number of shares that can be granted to any person within a specified period, and the compensation is based solely on an increase in the stock price after the grant date (i.e., the option or SAR exercise price is equal to or greater than the fair market value of the stock subject to the award on the grant date). Other types of awards may only qualify as “performance-based compensation” if such awards are granted or payable only to the recipients based upon the attainment of objectively determinable and pre-established performance targets established by a qualifying committee of the Board and related to performance goals approved by our shareholders.
The 2015 Plan has been designed in order to permit the Compensation Committee to grant stock options and SARs that will qualify as “performance-based compensation” under Section 162(m). In addition, in order to permit awards other than stock options and SARs to qualify as “performance-based compensation,” the 2015 Plan allows the Compensation Committee to designate as “Section 162(m) Participants” employees whose compensation for a given fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m). The Compensation Committee may grant awards to Section 162(m) Participants that vest or become exercisable upon the attainment of specific performance targets that are related to one or more of the performance goals set forth in the 2015 Plan.
New Plan Benefits
If the 2015 Plan under Proposal Three is approved by our shareholders, the Compensation Committee in its sole discretion will determine the number and types of awards that will be granted under the Plan going forward and will also determine the persons to whom awards will be granted. Therefore, the number of shares to be issued under the 2015 Plan and the net values to be realized upon such issuances are discretionary, and therefore, not determinable.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE COMPANY’S 2015 EQUITY INCENTIVE AWARD PLAN.
PROPOSAL FOUR –APPROVAL OF (I) THE ISSUANCE OF COMMON STOCK (OR SECURITIES CONVERTIBLE INTO OR EXERCISABLE FOR COMMON STOCK) REPRESENTING MORE THAN 19.99% OF THE OUTSTANDING COMMON STOCK OR VOTING POWER OF THE COMPANY IN CONNECTION WITH THE PURCHASE AGREEMENTS, AND (II) THE ISSUANCE OF SECURITIES OF THE COMPANY IN CONNECTION WITH THE PURCHASE AGREEMENTS THAT COULD RESULT IN A NASDAQ CHANGE OF CONTROL
Our Board of Directors is seeking the approval of our shareholders under applicable Nasdaq Rules, including Rules 5635(b) and 5635(d) with respect to: (i)(a) the issuance of shares of Common Stock upon the conversion of the Series A Preferred, the payment of Series A Preferred Dividends in Common Stock and the exercise of the Warrants (including shares issuable pursuant to the anti-dilution provisions of those securities due to certain adjustments to the conversion price of the Series A Preferred and the exercise price of the Warrants) exceeding 19.99% of the Company’s outstanding Common Stock on the date of issuance of the Series A Preferred (the “Issuance Date”), (i)(b) the ability of the holders of the Series A Preferred to vote, in the aggregate, more than 19.99% of the aggregate voting power of all of the outstanding shares of Common Stock on the Issuance Date, and (ii) the issuance of Series A Preferred, the conversion of Series A Preferred, the payment of Series A Preferred Dividends in Common Stock or the exercise of Warrants which may be deemed a Nasdaq Change of Control, as that phrase is defined below.
Proposal Four is not seeking authorization or approval of our shareholders to enter into the Purchase Agreements and consummate the Series A Financing (as defined below). Purchase Agreements for the sale of $4,000,000 of Series A Preferred have already been signed by the Company and are binding obligations on the Company. In addition, Purchase Agreements for the sale of an additional $1,000,000 may yet be entered into with the Company prior to closing, such that total offering proceeds to the Company may be $5,000,000. In their discretion, the Preferred Investors may choose to close the Purchase Agreements and consummate the Series A Financing even if this Proposal Four is not approved by the shareholders of the Company. If the Company does not receive approval of this Proposal Four, and if the Preferred Investors choose to proceed with closing the Series A Financing, the conversion, exercise and voting limitations applicable to the Series A Preferred and the Warrants, as described below, will remain in effect.
Background and Reasons for the Series A Financing
On May 1, 2015, we entered into Purchase Agreements with certain accredited investors (the “Preferred Investors”), pursuant to which the Company agreed to (i) issue and sell an aggregate of 1,600,000 shares of Series A Preferred, (ii) issue A-Warrants to purchase an aggregate of 1,200,000 shares of Common Stock, and (iii) issue B-Warrants to purchase an aggregate of 1,200,000 shares of Common Stock. Each investment unit consists of one share of Series A Preferred, convertible into one share of Common Stock, together with Warrants to purchase 1.5 shares of Common Stock. The price per unit is $2.50.
As of the date of this Proxy Statement, Purchase Agreements representing offering proceeds to the Company of $4,000,000, had been signed with investors. The Company’s offering of Series A Preferred contemplates offering proceeds of up to $5,000,000. Accordingly, prior to closing the offering, the Company may sell additional shares of Series A Preferred and related Warrants, such that if the offering is completely subscribed, the Company will issue a total of 2,000,000 shares of Series A Preferred, together with A Warrants to purchase a total of 1,500,000 shares of Common Stock at $2.75 per share, and B Warrants to purchase an aggregate of 1,500,000 shares of Common Stock at $2.75 per share.
The issuance and sale of shares of Series A Preferred and the Warrants pursuant to the Purchase Agreements for offering proceeds of up to $5,000,000 are collectively referred to in this Proxy Statement as the “Series A Financing.” Upon the closing of the Series A Financing, the Preferred Investors shall be granted the right to appoint up to three directors to the Company’s Board of Directors, subject to the terms and conditions described in the Designation of Rights. In addition, the Company shall enter into a registration rights agreement (the “Registration Rights Agreement”) obligating us to file a registration statement with the SEC to register all shares of Common Stock issuable upon conversion of the Series A Preferred and the exercise of the Warrants, within 30 days of the closing of the Series A Financing.
Our Board of Directors determined that the Series A Financing was advisable and in our best interest and in the best interest of our shareholders. We entered into the Series A Financing in order to raise funds necessary for general working capital purposes.
Description of the Series A Preferred
The following is a summary of the terms of the Series A Preferred under the Articles of Amendment to the Articles of Incorporation of the Company Designating the Preferences, Rights and Limitations of Series A 8% Convertible Preferred Stock (the “Designation of Rights”) that we intend to file with the Utah Division of Corporations and Commercial Code in connection with the closing of the Series A Financing. A copy of the Designation of Rights is included with these proxy materials as Appendix B. We encourage you to read the Designation of Rights thoroughly; the following summary is qualified by the terms contained in the Designation of Rights.
Voting. The Series A Preferred votes on an as-converted basis, one vote for each share of Common Stock issuable upon conversion of the Series A Preferred, provided, however, that no holder of Series A Preferred shall be entitled to cast votes for the number of shares of Common Stock issuable upon conversion of such Series A Preferred held by such holder that exceeds the quotient of (x) the aggregate purchase price paid by such holder of Series A Preferred for its Series A Preferred, divided by (y) the greater of (i) $2.50 and (ii) the market price of the Common Stock (the “Voting Cutback”). However, until such time as the shareholders of the Company approve this Proposal Four, the aggregate voting rights of the Series A Preferred shall not exceed 19.99% of the aggregate voting power of all of the outstanding shares of Common Stock on the Issuance Date (the “Voting Cap”). Upon receipt of shareholder approval of Proposal Four, the Voting Cap will no longer apply to the Series A Preferred.
Without the consent of holders of at least a majority of the then outstanding shares of Series A Preferred, we may not: (i) amend or repeal the Designation of Rights or our Articles of Incorporation or Bylaws in any manner that adversely affects the rights, preferences, privileges or the restrictions provided for the benefit of the Series A Preferred; (ii) reclassify or amend any of our securities in a manner that adversely affects the designations, preferences, powers and/or the relative participating, optional or other special rights, or the restrictions provided for the benefit of the Series A Preferred; (iii) authorize, issue or sell any (A) class or series of capital stock (including shares of treasury stock) that would be classified as senior to or pari passu with the Series A Preferred or (B) rights, options, warrants or other securities (including debt securities) convertible into or exercisable or exchangeable for capital stock or any equity security or having any other equity feature, in each case, that would be classified as either senior to or pari passu with the Series A Preferred; (iv) purchase or redeem or pay or declare any dividend on any shares of our capital stock, other than redemptions of or dividends on the Series A Preferred; (v) increase the number of authorized shares of Series A Preferred; or (vi) enter into any agreement to do any of the foregoing that is not expressly made conditional on obtaining the consent of the holders of at least a majority of the then outstanding shares of Series A Preferred.
Dividends. Prior to conversion, each share of Series A Preferred carries an annual dividend at a rate of 8.0% of $2.50, plus all accrued but unpaid dividends thereon (“Series A Dividends”). Series A Dividends may be paid at the discretion of the Company in cash or in shares of the Company’s Common Stock, subject to shareholder approval sought by this Proposal Four. If the Board of Directors declares a dividend payable upon the Common Stock, whether in cash, in kind or in other securities or property, the holders of the outstanding shares of Series A Preferred are entitled to the amount of dividends that would be payable in respect of the number of shares of Common Stock into which the shares of Series A Preferred could be converted.
Liquidation. The Series A Preferred ranks senior to the Common Stock with respect to distributions upon our deemed dissolution, liquidation or winding-up, and has a per share liquidation preference equal to $2.50 plus all accrued but unpaid dividends thereon.
Conversion. Each share of Series A Preferred is convertible into one share of Common Stock; provided, however, that prior to receipt of shareholder approval of this Proposal Four, the Series A Preferred in the aggregate shall not be convertible into more than 19.99% of the number of shares of Common Stock outstanding as of the Issuance Date.
At the election of a particular Preferred Investor, the Series A Preferred held by that Preferred Investor is subject to a provision prohibiting the conversion of such Series A Preferred to the extent that, after giving effect to such conversion, the holder of such Series A Preferred (together with the holder’s affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% of the outstanding Common Stock. Again, such restriction does not apply to a Preferred Investor unless that Preferred Investor elects to be bound by the 4.99% limitation.
Forced Conversion. The Company has the right to convert one-half of the then outstanding Series A Preferred into Common Stock on a 1:1 basis if all of the following conditions have been met: (1) the Common Stock has a bid price of at least $7.50 per share on each of the 40 trading days prior to the date in question; (2) the daily trading volume for the prior 90 trading days exceeds 30,000 shares; and (3) the Company is listed in good compliance on the Nasdaq (or another national exchange) at the time of conversion, and certain other conditions have been met. The Company will have the right to convert the remaining outstanding Series A Preferred into Common Stock on a 1:1 basis if all of the following conditions have been met: (1) the Common Stock has a bid price of at least $10.00 per share on each of the 40 trading days prior to the date in question; (2) the daily trading volume for the prior 90 trading days exceeds 50,000 shares; and (3) the Company is listed in good compliance on the Nasdaq (or another national exchange) at the time of conversion and certain other conditions have been met.
Description of the Warrants
Each A-Warrant entitles the holder thereof to purchase one share of Common Stock for cash at an exercise price of $2.75 per share, subject to customary anti-dilution adjustments. Each B-Warrant entitles the holder thereof to purchase one share of Common Stock, exercisable by means of a “cashless exercise”. The Warrants become exercisable upon receipt of shareholder approval of this Proposal Four, for a period of 72 months. Each holder’s A-Warrants must be exercised before any of its B-Warrants may be exercised.
At the election of a particular Preferred Investor, the Warrants held by that Preferred Investor are subject to a provision prohibiting the exercise of such Warrants to the extent that, after giving effect to such exercise, the holder of such Warrant (together with the holder’s affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% of the outstanding Common Stock. Again, such restriction does not apply to a Preferred Investor unless that Preferred Investor elects to be bound by the 4.99% limitation.
Reasons for Shareholder Approval
Our Common Stock is listed on The Nasdaq Capital Market and, as such, we are subject to the Nasdaq Listing Rules. Nasdaq Listing Rule 5635(d) (the “20% Rule”) requires that an issuer obtain shareholder approval prior to the issuance of Common Stock if such issuance is for less than the greater of book or market value of the Common Stock and would equal 20% or more of the Common Stock or voting power of the issuer outstanding before the issuance. The maximum conversion price of the Series A Preferred is less than the greater of the book or market value of our Common Stock immediately before we entered into the Purchase Agreements. In addition, the terms of the Series A Preferred include anti-dilution adjustments that could result in a reduction of the conversion price in the future. Furthermore, if this Proposal Four is approved, the issuance of our Common Stock upon conversion of the Series A Preferred and exercise of the Warrants will exceed 20% of our Common Stock currently outstanding. We seek your approval of this Proposal Four in order to satisfy the requirements of the 20% Rule with respect to the issuance of the Common Stock upon conversion of the Series A Preferred and exercise of the Warrants.
In addition, Nasdaq Listing Rule 5635(b) requires prior shareholder approval for issuances of securities that could result in a “change of control” of the issuer (the “Change of Control Rule”). Nasdaq may deem a change of control to occur when, as a result of an issuance, an investor or a group would own, or have the right to acquire, 20% or more of the outstanding shares of Common Stock or voting power, and such ownership or voting power of an issuer would be the largest ownership position of the issuer (a “Nasdaq Change of Control”). Upon obtaining shareholder approval of this Proposal Four effecting the removal of the Voting Cap, Prettybrook, as one of the Preferred Investors, would own 880,000 shares of Series A Preferred, such securities, in the hands of Prettybrook, would represent approximately 34.92% (subject to the Voting Cutback) of all the voting power of our outstanding Common Stock (based on 2,520,389 shares of Common Stock outstanding as of May 4, 2015). We seek your approval of this Proposal Four in order to satisfy the requirements of the Change of Control Rule, as that rule would be triggered by adoption of Proposal Four and the resulting removal of the Voting Cap on the Series A Preferred, the issuance of Common Stock upon conversion of the Series A Preferred in excess of the Conversion Cap, the receipt of Series A Preferred Dividends in the form of Common Stock, and the exercise of the Warrants. Removal of these restrictions would result in Prettybrook, or potentially could result in other Preferred Investors, securing ownership of the Company that would constitute a Nasdaq Change of Control.
We did not seek advance shareholder approval of the Purchase Agreements and do not seek shareholder approval of the closing of the transactions contemplated by the Purchase Agreements and consummation of the Series A Financing. In the discretion of the Preferred Investors, the Series A Financing may occur without shareholder approval of Proposal Four. If our shareholders do not approve Proposal Four at the Annual Meeting, and if the Preferred Investors choose to proceed with closing the Series A Financing, the conversion, exercise and voting limitations, as applicable to the Series A Preferred and the Warrants, all as described above, will remain in effect.
The Purchase Agreements require us to submit this Proposal Four to our shareholders at the Annual Meeting. Approval of this Proposal Four will constitute approval pursuant to the 20% Rule and the Change of Control Rule. The information set forth in this Proposal Four is qualified in its entirety by reference to the actual terms of the Purchase Agreements (substantially in the form of Appendix C), the Designation of Rights (substantially in the form of Appendix D), and the form of Warrants (substantially in the form of Appendices E and F), attached hereto, and which are incorporated herein by reference. Shareholders are urged to carefully read these documents.
Potential Adverse Effects of the Proposal
The Board of Directors is not seeking the approval of our shareholders to authorize our entry into the Purchase Agreements. Purchase Agreements and related agreements for the sale of up to $4,000,000 are binding obligations on us. In addition, Purchase Agreements for the sale of an additional $1,000,000 may yet be entered into with the Company prior to closing, such that total offering proceeds to the Company in the Series A Financing may be $5,000,000. If the Preferred Investors choose to close the Series A Financing without the approval sought in this Proposal Four, the Series A Preferred will be issued as an authorized class of our capital stock, and the terms of the Series A Preferred and Warrants will become outstanding obligations of the Company in favor of the Preferred Investors. The failure of our shareholders to approve this Proposal Four will only mean that we cannot issue all the shares of Common Stock issuable upon the full conversion of the Series A Preferred, the payment of the Series A Dividends in the form of Common Stock, and the exercise of the Warrants. In addition the Voting Cap (as described above) of the Series A Preferred would remain in effect. Accordingly, if the Series A Financing closes, we will continue to be required to pay Series A Dividends and we will be required to continue to comply with negative covenants granted to the Preferred Investors that limit our ability to issue securities, incur debt, pay dividends and amend our charter documents, among other things, which could materially adversely impact our operations. If shareholder approval of this Proposal Four is not obtained, or if the Company fails to meet any of its other closing conditions contained in the Purchase Agreements and the Series A Financing is not consummated, the Company will be required to reimburse the Preferred Investors for all legal fees, consulting expenses, and general expenses related to the Series A Financing and the due diligence performed in connection therewith.
If this Proposal Four is approved, existing shareholders will suffer significant dilution in ownership interests and voting rights as a result of the issuance of shares of the Series A Preferred, the issuance of shares of our Common Stock upon the conversion of the Series A Preferred, and the exercise of the Warrants. Upon conversion in full of the shares of Series A Preferred (assuming a conversion ratio of 1:1) and full exercise of the Warrants, an aggregate of 5,000,000 additional shares of Common Stock will be outstanding, and the ownership interest of our existing shareholders would be correspondingly reduced. The number of shares of Common Stock described above does not give effect to (i) the issuance of additional shares of Common Stock due to potential future anti-dilution adjustments on the Series A Preferred and Warrants, (ii) the issuance of additional shares of Common Stock in payment of the Series A Dividends, (iii) the issuance of shares of Common Stock pursuant to other outstanding options and warrants or (iv) any other future issuances of our Common Stock. The sale into the public market of these shares also could materially and adversely affect the market price of our Common Stock.
Required Vote
This Proposal Four will be approved if a majority of the total votes cast on the proposal in person or by proxy are voted “FOR” such approval.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A “FOR” VOTE IN FAVOR OF PROPOSAL FOUR.
OTHER BUSINESS
We know of no other matters that will be presented at the Annual Meeting. If, however, any further business should properly come before the Annual Meeting, the persons named as proxies in the accompanying form will vote on such business in accordance with their best judgment.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our Proxy Statement or Annual Report to Shareholders may have been sent to multiple shareholders in each household. We will promptly deliver a separate copy of either document to any shareholder upon written request to Investor Relations, Dynatronics Corporation, 7030 Park Centre Drive, Cottonwood Heights, Utah 84121 or BobC@dynatronics.com.
Any shareholder who wants to receive separate copies of our Proxy Statement or Annual Report in the future, or any shareholder who is receiving multiple copies and would like to receive only one copy per household, should contact the shareholder’s bank, broker, or other nominee record holder, or the shareholder may contact us at the above address.
SHAREHOLDER PROPOSALS
Shareholders who, in accordance with Rule 14a-8 of the Exchange Act, wish to present proposals at our next annual meeting in connection with our fiscal year ending June 30, 2015 and wish to have those proposals included in the proxy materials to be distributed by us in connection with that meeting must submit their proposals to Dynatronics Corporation, 7030 Park Centre Drive, Cottonwood Heights, Utah 84121 on or before August 1, 2015. Any such proposal must meet the requirements set forth in the rules and regulations of the SEC, including Rule 14a-8, in order for such proposal to be eligible for inclusion in our proxy statement.
We will provide, without charge, to each shareholder to whom this Proxy Statement is delivered, upon written or oral request, a copy of our Annual Report on Form 10-K for the year ended June 30, 2014, including the financial statements, as filed with the SEC. The requested document will be sent by first class mail or other equally prompt means. Written or oral requests for such information should be directed to Mr. Bob Cardon, Vice President of Administration, Dynatronics Corporation, 7030 Park Centre Drive, Cottonwood Heights, Utah 84121.
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DYNATRONICS CORPORATION |
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By order of the Board of Directors |
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/s/ Bob Cardon |
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Bob Cardon |
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Vice President of Administration, Secretary, Treasurer |
Appendix A
_____________________________________________________________
DYNATRONICS CORPORATION
2015 EQUITY INCENTIVE AWARD PLAN
_____________________________________________________________
TABLE OF CONTENTS
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ARTICLE 1 PURPOSE
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1 |
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ARTICLE 2 DEFINITIONS AND CONSTRUCTION
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1 |
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ARTICLE 3 SHARES SUBJECT TO THE PLAN
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5 |
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3.1. Number of Shares
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5 |
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3.2. Stock Distributed
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6 |
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3.3. Limitation on Number of Shares Subject to Awards
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6 |
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ARTICLE 4 ELIGIBILITY AND PARTICIPATION
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6 |
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4.1. Eligibility
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6 |
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4.2. Participation
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6 |
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4.3. Foreign Participants
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6 |
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ARTICLE 5 STOCK OPTIONS
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6 |
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5.1. General
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6 |
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5.2. Incentive Stock Options
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7 |
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5.3. Substitution of Stock Appreciation Rights
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8 |
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5.4. Paperless Exercise
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8 |
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5.5. Granting of Options to Independent Directors
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8 |
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ARTICLE 6 RESTRICTED STOCK AWARDS
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8 |
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6.1. Grant of Restricted Stock
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8 |
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6.2. Issuance and Restrictions
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8 |
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6.3. Forfeiture
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9 |
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6.4. Certificates for Restricted Stock
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9 |
ARTICLE 7 STOCK APPRECIATION RIGHTS |
9 |
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7.1. Grant of Stock Appreciation Rights
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9 |
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7.2. Coupled Stock Appreciation Rights
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10 |
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7.3. Independent Stock Appreciation Rights [IN
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10 |
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7.4. Payment and Limitations on Exercise
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11 |
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ARTICLE 8 OTHER TYPES OF AWARDS
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11 |
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8.1. Performance Share Awards
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11 |
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8.2. Performance Units
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11 |
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8.3. Dividend Equivalents
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11 |
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8.4. Stock Payments
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11 |
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8.5. Deferred Stock
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12 |
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8.6. Restricted Stock Units
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12 |
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8.7. Other Stock-Based Awards
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12 |
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8.8. Term
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12 |
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8.9. Exercise or Purchase Price
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12 |
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8.10. Exercise Upon Termination of Employment or Service
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13 |
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8.11. Form of Payment
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13 |
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8.12. Award Agreement
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13 |
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ARTICLE 9 PERFORMANCE-BASED AWARDS
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13 |
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9.1. Purpose
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13 |
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9.2. Applicability
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13 |
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9.3. Procedures with Respect to Performance-Based Awards
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14 |
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9.4. Payment of Performance-Based Awards
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14 |
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9.5. Additional Limitations
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14 |
ARTICLE 10 PROVISIONS APPLICABLE TO AWARDS
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14 |
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10.1. Stand-Alone and Tandem Awards
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14 |
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10.2. Award Agreement
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14 |
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10.3. Limits on Transfer
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14 |
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10.4. Death of Optionee
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15 |
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10.5. Retirement or Disability
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15 |
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10.6. Termination for Other Reasons
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15 |
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10.7. Leaves of Absence and Performance Targets
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15 |
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10.8. Newly Eligible Employees
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15 |
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10.9. Stock Certificates; Book Entry Procedures
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15 |
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ARTICLE 11 CHANGES IN CAPITAL STRUCTURE
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16 |
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11.1. Adjustments
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16 |
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11.2. Outstanding Awards—Other Changes
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17 |
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11.3. No Other Rights
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17 |
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ARTICLE 12 ADMINISTRATION
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17 |
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12.1. Committee
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17 |
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12.2. Committee Appointee Duration
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17 |
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12.3. Action by the Board
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18 |
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12.4. Action by the Committee
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18 |
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12.5. Authority of Committee
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18 |
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12.6. Decisions Binding
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19 |
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12.7. Delegation of Authority
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19 |
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12.8. Committee Administration
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19 |
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12.9. Liability
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19 |
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ARTICLE 13 EFFECTIVE AND EXPIRATION DATE
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20 |
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13.1. Effective Date
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20 |
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13.2. Expiration Date
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20 |
ARTICLE 14 AMENDMENT, MODIFICATION, AND TERMINATION
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20 |
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14.1. Amendment, Modification, and Termination
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20 |
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14.2. Awards Previously Granted
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20 |
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ARTICLE 15 COMPLIANCE WITH SECTION 409A OF THE CODE
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20 |
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15.1. Awards Subject to §409A of the Code
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20 |
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15.2. Distributions under a Section 409A Award
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21 |
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15.3. Prohibition on Acceleration of Benefits
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21 |
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15.4. Elections under Section 409A Awards
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22 |
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15.5. Compliance in Form and Operation
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22 |
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ARTICLE 16 GENERAL PROVISIONS
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23 |
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16.1. No Rights to Awards
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23 |
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16.2. No Shareholder Rights
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23 |
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16.3. Withholding
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23 |
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16.4. No Right to Employment or Services
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23 |
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16.5. Unfunded Status of Awards
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23 |
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16.6. Indemnification
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23 |
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16.7. Relationship to other Benefits
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24 |
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16.8. Expenses
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24 |
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16.9. Titles and Headings
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24 |
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16.10. Fractional Shares
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24 |
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16.11. Limitations Applicable to Section 16 Persons
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24 |
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16.12. Government and Other Regulations
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24 |
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16.13. Governing Law
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25 |
DYNATRONICS CORPORATION
2015 EQUITY INCENTIVE AWARD PLAN
ARTICLE 1
PURPOSE
The purposes of the Dynatronics Corporation 2015 Equity Incentive Award Plan (the “Plan”) are to:
(1) Closely associate the interests of management, Employees, directors and Consultants of Dynatronics Corporation, a Utah corporation (the “Company”), with the shareholders of the Company by reinforcing the relationship between participants’ rewards and shareholder gains;
(2) Provide management and employees with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value;
(3) Maintain competitive compensation levels; and
(4) Provide an incentive to management and employees to remain in continuing employment with the Company and to put forth maximum efforts for the success of its business.
The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
2.1. “Award” means an Option, a Restricted Stock award, a Stock Appreciation Right award, a Performance Share award, a Performance Unit award, a Dividend Equivalents award, a Stock Payment award, a Deferred Stock award, a Restricted Stock Unit award, an Other Stock-Based Award, or a Performance-Based Award granted to a Participant pursuant to the Plan.
2.2. “Award Agreement” means any written agreement, contract, or other instrument or document evidencing an Award.
2.3. “Board” means the Board of Directors of the Company.
2.4. “Change in Control” means the occurrence of any of the following in one or a series of related transactions: (i) consummation of a merger or consolidation of the Company or any Subsidiary or a sale of more than one-half of the assets of the Company in one or a series of related transactions, unless following such transaction or series of transactions, the holders of the Company’s securities prior to the first such transaction continue to hold at least one-half of the voting rights and equity interests of the surviving entity or acquirer of such assets; (ii) a recapitalization, reorganization or other transaction involving the Company or any Subsidiary that constitutes or results in a transfer of more than one-half of the voting rights or equity interests in the Company to persons who were not holders of the Company’s securities prior to such transaction; or (iii) consummation of a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act with respect to the Company, unless following such transaction, the holders of the Company’s securities prior to such transaction continue to hold at least one-half of the voting rights and equity interests of the Company.
2.5. “Code” means the Internal Revenue Code of 1986, as amended.
2.6. “Committee” means the committee of the Board described in Article 12.
2.7. “Consultant” means any consultant or adviser if:
(a) The consultant or adviser renders bona fide services to the Company;
(b) The services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and
(c) The consultant or adviser is a natural person who has contracted directly with the Company to render such services.
2.8. “Covered Employee” means an Employee who is, or may be, as determined by the Committee, a “covered employee” within the meaning of §162(m) of the Code.
2.9. “Deferred Stock Award” means a right to receive a specified number of shares of Stock during specified time periods pursuant to Article 8.
2.10. “Disability” means that the Participant qualifies to receive long-term disability payments under the Company’s long-term disability insurance program, if any, as it may be amended from time to time.
2.11. “Dividend Equivalents” means a right granted to a Participant pursuant to Article 8 to receive the equivalent value (in cash or Stock) of dividends paid on Stock.
2.12. “Effective Date” shall have the meaning set forth in Section 13.1.
2.13. “Eligible Individual” means any person who is an Employee, a Consultant or a member of the Board, as determined by the Committee.
2.14. “Employee” means any officer or other employee (as defined in accordance with §3401(c) of the Code) of the Company or any Subsidiary.
2.15. “Exchange Act” means the Securities Exchange Act of 1934, as amended.
2.16. “Fair Market Value” means, as of any given date, the fair market value of a share of Stock on the date determined by such methods or procedures as may be established from time to time by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of a share of Stock as of any date shall be (i) the closing selling price of a share of Common Stock on the principal exchange on which shares of Common Stock are then trading, if any, on such date, or if shares were not traded on such date, then on the closest preceding date on which a trade occurred; or (ii) if Common Stock is not traded on an exchange, the closing selling price of a share of Common Stock on such date as reported by the Nasdaq Capital Market, or if not then in existence, by their successor quotation system; or (iii) if Common Stock is not publicly traded, the Fair Market Value of a share of Common Stock as established by the Committee acting in good faith.
2.17. “Grant Date” means the date on which the Committee adopts a resolution, or takes other appropriate action, expressly granting an Award to a Participant that specifies the key terms and conditions of the Award or, if a later date is set forth in such resolution, then such date as is set forth in such resolution.
2.18. “Incentive Stock Option” means an Option that is intended to meet the requirements of §422 of the Code or any successor provision thereto.
2.19. “Independent Director” means a member of the Board who is not an Employee of the Company.
2.20. “Non-Employee Director” means a member of the Board who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board.
2.21. “Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option.
2.22. “Option” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.
2.23. “Other Stock-Based Award” means an Award granted or denominated in Stock or units of Stock pursuant to Section 8.7 of the Plan.
2.24. “Participant” means any Eligible Individual who, as a member of the Board or Employee or Consultant, has been granted an Award pursuant to the Plan.
2.25. “Performance-Based Award” means an Award granted to selected Covered Employees pursuant to Articles 6 and 8, but which is subject to the terms and conditions set forth in Article 9. All Performance-Based Awards are intended to qualify as Qualified Performance-Based Compensation.
2.26. “Performance Criteria” means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria that will be used to establish Performance Goals are limited to the following: net earnings (either before or after interest, taxes, depreciation and amortization), economic value-added (as determined by the Committee), sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on capital, return on net assets, return on shareholders’ equity, return on assets, return on capital, shareholder returns, return on sales, gross or net profit margin, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings per share, price per share of Stock, and market share, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The Committee shall, within the time prescribed by §162(m) of the Code, define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period for such Participant.
2.27. “Performance Goals” means, for a Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. The Committee, in its discretion, may adjust or modify the calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development, or (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions.
2.28. “Performance Period” means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance-Based Award.
2.29. “Performance Share” means a right granted to a Participant pursuant to Article 8, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.
2.30. “Performance Unit” means a right granted to a Participant pursuant to Article 8, to receive units of value, including dollar value of shares of Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.
2.31. “Plan” means this Dynatronics Corporation 2015 Equity Incentive Award Plan, as it may be amended from time to time.
2.32. “Qualified Performance-Based Compensation” means any compensation that is intended to qualify as “qualified performance-based compensation” as described in §162(m)(4)(C) of the Code.
2.33. “Restricted Stock” means Stock awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture.
2.34. “Restricted Stock Unit” means an Award granted pursuant to Section 8.6.
2.35. “Section 409A Award” shall have the meaning set forth in Section 15.1.
2.36. “Securities Act” shall mean the Securities Act of 1933, as amended.
2.37. “Stock” or “Common Stock” means the common stock of the Company, no par value per share, and such other securities of the Company that may be substituted for Stock pursuant to Article 11.
2.38. “Stock Appreciation Right” or “SAR” means a right granted pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Stock on the date the SAR is exercised over the Fair Market Value on the date the SAR was granted as set forth in the applicable Award Agreement.
2.39. “Stock Payment” means (a) a payment in the form of shares of Stock, or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to Article 8.
2.40. “Subsidiary” means any “subsidiary corporation” as defined in §424(f) of the Code and any applicable regulations promulgated thereunder or any other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company.
ARTICLE 3
SHARES SUBJECT TO THE PLAN
3.1. Number of Shares.
(a) Subject to Article 11 and Section 3.1(b), the aggregate number of shares of Stock which may be issued, transferred or reserved for issuance pursuant to Awards under the Plan shall be 450,000 shares. In order that the applicable regulations under the Code relating to Incentive Stock Options be satisfied, the maximum number of shares of Stock that may be delivered upon exercise of Incentive Stock Options shall be the number specified in this Section 3.1(a). In the absence of an effective registration statement under the Securities Act, all Options granted and shares of Common Stock subject to their exercise will be restricted as to subsequent resale or transfer, pursuant to the provisions of Rule 144 promulgated under the Securities Act.
(b) To the extent that an Award terminates, expires, or lapses for any reason, any shares of Stock subject to the Award shall again be available for the grant of an Award pursuant to the Plan. To the extent permitted by applicable law or any exchange rule, shares of Stock issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any Subsidiary shall not be counted against shares of Stock available for grant pursuant to this Plan.
3.2. Stock Distributed. Any Stock distributed pursuant to an Award will consist of authorized and unissued Stock of the Company.
3.3. Limitation on Number of Shares Subject to Awards. Notwithstanding any provision in the Plan to the contrary, and subject to Article 11, (a) the maximum number of shares of Stock with respect to one or more Awards that may be granted to any one Participant during a one-year period (measured from the date of any grant) shall be 150,000 shares, and (b) the maximum dollar value payable to any one Participant during a one-year period with respect to awards of Performance Units shall be $500,000.
ARTICLE 4
ELIGIBILITY AND PARTICIPATION
4.1. Eligibility. Each Eligible Individual shall be eligible to be granted one or more Awards pursuant to the Plan.
4.2. Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all Eligible Individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No Eligible Individual shall have any right to be granted an Award pursuant to this Plan.
4.3. Foreign Participants. In order to assure the viability of Awards granted to Participants employed in foreign countries, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements, or alternative versions of, the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such supplements, amendments, restatements, or alternative versions shall increase the share limitations contained in Sections 3.1 and 3.3 of the Plan.
ARTICLE 5
STOCK OPTIONS
5.1. General. The Committee is authorized to grant Options to Participants on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock subject to an Option shall be not less than 100% of the Fair Market Value of a share of Stock on the Grant Date.
(b) Time and Conditions of Exercise. Each Option shall be fully exercisable at any time within the period beginning not earlier than six months after the date of the option grant and ending not later than ten (10) years after the date of such grant (the “Option Term”), unless the Committee specifies otherwise. In no event, however, shall the Option Term extend beyond ten (10) years after the Grant Date. No Option shall be exercisable after the expiration of the Option Term. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised.
(c) Payment. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation: (i) cash, (ii) promissory note bearing interest at no less than such rate as shall preclude the imputation of interest under the Code, (iii) shares of Stock having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, or (iv) other property acceptable to the Committee (including through the delivery of a notice that the Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option by means of a personal loan or other credit extended by the Company or in any other method which would violate Section 13(k) of the Exchange Act.
(d) Evidence of Grant. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include the number of shares of Common Stock subject to the Option, the exercise price, the exercise date, the Option Term, and such additional provisions as may be specified by the Committee.
5.2. Incentive Stock Options. The terms of any Incentive Stock Options granted pursuant to the Plan must comply with the conditions and limitations contained Section 13.2 and this Section 5.2.
(a) Eligibility. The Committee may grant one or more Incentive Stock Options to Employees of the Company or any “subsidiary corporation” thereof (within the meaning of §424(f) of the Code and the applicable regulations promulgated thereunder). The date an Incentive Stock Option is granted shall be the Grant Date.
(b) Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the Grant Date) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by §422(d) of the Code, or any successor provision. Multiple Incentive Stock Options may be granted to an Optionee in any calendar year.
(c) Ten-Percent Owners. The Committee may determine to grant an Incentive Stock Option to an Employee who is also an individual who owns, as of the Grant Date, directly or indirectly according to the stock ownership attribution rules of §424(d) of the Code, Stock possessing more than ten percent (10%) of the total combined voting power of all classes of Stock of the Company. However, the exercise price of such Option granted shall not be less than 110% of Fair Market Value on the Grant Date. Furthermore, the Option may be exercisable for no more than five (5) years from the Grant Date.
(d) Notice of Disposition. The Participant shall give the Company prompt notice of any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (i) two (2) years from the Grant Date of such Incentive Stock Option or (ii) one (1) year after the transfer of such shares of Stock to the Participant.
(e) Right to Exercise. During a Participant’s lifetime, an Incentive Stock Option shall not be transferable by the Participant and may be exercised only by the Participant.
5.3. Substitution of Stock Appreciation Rights. The Committee may provide in the Award Agreement evidencing the grant of an Option that the Committee, in its sole discretion, shall have the right to substitute a Stock Appreciation Right for such Option at any time prior to or upon exercise of such Option, subject to the provisions of Section 7.2 hereof; provided that such Stock Appreciation Right shall be exercisable with respect to the same number of shares of Stock for which such substituted Option would have been exercisable.
5.4. Paperless Exercise. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Options by a Participant may be permitted through the use of such an automated system.
5.5. Granting of Options to Independent Directors. The Board may from time to time, in its sole discretion, and subject to the limitations of the Plan:
(a) Select from among the Independent Directors (including Independent Directors who have previously been granted Options under the Plan) such of them as in its opinion should be granted Options;
(b) Subject to Section 3.3, determine the number of shares of Stock that may be purchased upon exercise of the Options granted to such selected Independent Directors; and
(c) Subject to the provisions of this Article 5, determine the terms and conditions of such Options, consistent with the Plan.
Options granted to Independent Directors shall be Non-Qualified Stock Options.
ARTICLE 6
RESTRICTED STOCK AWARDS
6.1. Grant of Restricted Stock. The Committee is authorized to make Awards of Restricted Stock to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. All Awards of Restricted Stock shall be evidenced by a written Restricted Stock Award Agreement.
6.2. Issuance and Restrictions. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.
6.3. Forfeiture. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may (a) provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.
6.4. Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any Participant selected by the Committee. A Stock Appreciation Right may be granted (a) in connection and simultaneously with the grant of an Option, (b) with respect to a previously granted Option, or (c) independent of an Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement.
7.2. Coupled Stock Appreciation Rights.
(a) A Coupled Stock Appreciation Right (“CSAR”) shall be related to a particular Option and shall be exercisable only when and to the extent the related Option is exercisable, provided, however, that the exercise price for any CSAR shall not be less than 100% of the Fair Market Value on the Grant Date; and provided, further, that, the Committee in its sole and absolute discretion may provide that the CSAR may be exercised subsequent to a termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant’s retirement, death or disability, or otherwise.
(b) A CSAR may be granted to a Participant for no more than the number of shares subject to the simultaneously or previously granted Option to which it is coupled.
(c) A CSAR shall entitle the Participant (or other person entitled to exercise the Option pursuant to the Plan) to surrender to the Company the unexercised portion of the Option to which the CSAR relates (to the extent then exercisable pursuant to its terms) and to receive from the Company in exchange therefor an amount determined by multiplying the difference obtained by subtracting the Option exercise price from the Fair Market Value of a share of Stock on the date of exercise of the CSAR by the number of shares of Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Committee may impose.
7.3. Independent Stock Appreciation Rights
(a) An Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option and shall have a term set by the Committee. An ISAR shall be exercisable in such installments as the Committee may determine. An ISAR shall cover such number of shares of Stock as the Committee may determine. The exercise price per share of Stock subject to each ISAR shall be set by the Committee; provided, however, that the exercise price for any ISAR shall not be less than 100% of the Fair Market Value on the Grant Date; and provided, further, that, the Committee in its sole and absolute discretion may provide that the ISAR may be exercised subsequent to a termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant’s retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Participant (or other person entitled to exercise the ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Stock on the date of exercise of the ISAR by the number of shares of Stock with respect to which the ISAR shall have been exercised, subject to any limitations the Committee may impose.
7.4. Payment and Limitations on Exercise
(a) Subject to Section 7.4(b) and (c), payment of the amounts determined under Sections 7.2(c) and 7.3(b) above shall be in cash, in Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee.
(b) To the extent payment for a Stock Appreciation Right is to be made in cash, the Award Agreement shall, to the extent necessary to comply with the requirements of §409A of the Code, specify the date of payment, which may be different than the date of exercise of the Stock Appreciation Right. If the date of payment for a Stock Appreciation Right is later than the date of exercise, the Award Agreement may specify that the Participant be entitled to earnings on such amount until paid.
(c) To the extent any payment under Section 7.2(c) or 7.3(b) is effected in Stock it shall be made subject to satisfaction of any applicable provisions of Sections 5.1, 5.4, and 5.5 above pertaining to Options.
ARTICLE 8
OTHER TYPES OF AWARDS
8.1. Performance Share Awards. Any Participant selected by the Committee may be granted one or more Performance Share awards which shall be denominated in a number of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.
8.2. Performance Units. Any Participant selected by the Committee may be granted one or more Performance Unit awards which shall be denominated in units of value, including dollar value of shares of Stock, and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.
8.3. Dividend Equivalents.
(a) Any Participant selected by the Committee may be granted Dividend Equivalents based on the dividends declared on the shares of Stock that are subject to any Award (other than Restricted Stock Units under Section 8.6, below), to be credited as of dividend payment dates, during the period between the Grant Date of the Award and the date the Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Committee. Notwithstanding the foregoing, Dividend Equivalents credited in connection with an Award that vests based on the achievement of Performance Criteria or other specific performance criteria shall be subject to restrictions and risk of forfeiture to the same extent as the Award with respect to which such Dividend Equivalents have been credited.
(b) Dividend Equivalents granted with respect to Options or SARs, with respect to pre-exercise periods, regardless of whether such Option or SAR is subsequently exercised.
8.4. Stock Payments. Any Participant selected by the Committee may receive Stock Payments in the manner determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter.
8.5. Deferred Stock. Any Participant selected by the Committee may be granted an award of Deferred Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the Performance Criteria or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Participant awarded Deferred Stock shall have no rights as a Company shareholder with respect to such Deferred Stock until such time as the Deferred Stock Award has vested and the Stock underlying the Deferred Stock Award has been issued.
8.6. Restricted Stock Units. The Committee is authorized to make Awards of Restricted Stock Units to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. At the time of grant, the Committee shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate. At the time of grant, the Committee shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the grantee. On the maturity date, the Company shall, subject to Section 10.5(b), transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited. The Committee shall specify the purchase price, if any, to be paid by the grantee to the Company for such shares of Stock.
8.7. Other Stock-Based Awards. Any Participant selected by the Committee may be granted one or more Awards that provide Participants with shares of Stock or the right to purchase shares of Stock or that have a value derived from the value of, or an exercise or conversion privilege at a price related to, or that are otherwise payable in shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of Award) the contributions, responsibilities and other compensation of the particular Participant.
8.8. Term. Except as otherwise provided herein, the term of any Award of Performance Shares, Performance Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted Stock Units or Other Stock-Based Award shall be set by the Committee in its discretion.
8.9. Exercise or Purchase Price. The Committee may establish the exercise or purchase price, if any, of any Award of Performance Shares, Performance Units, Deferred Stock, Stock Payments, Restricted Stock Units or Other Stock-Based Award; provided, however, that such price shall not be less than the par value of a single share of Stock on the Grant Date, unless otherwise permitted by applicable state law.
8.10. Exercise Upon Termination of Employment or Service. An Award of Performance Shares, Performance Units, Dividend Equivalents, Deferred Stock, Stock Payments, Restricted Stock Units and Other Stock-Based Award shall only be exercisable or payable while the Participant is an Employee, a Consultant, or a member of the Board, as applicable; provided, however, that the Committee in its sole and absolute discretion may provide that an Award of Performance Shares, Performance Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted Stock Units or Other Stock-Based Award may be exercised or paid subsequent to a termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant’s retirement, death or disability, or otherwise; provided, however , that any such provision with respect to Performance Shares or Performance Units shall be subject to the requirements of §162(m) of the Code that apply to Qualified Performance-Based Compensation.
8.11. Form of Payment. Payments with respect to any Awards granted under this Article 8 shall be made in cash, in Stock or a combination of both, as determined by the Committee.
8.12. Award Agreement. All Awards under this Article 8 shall be subject to such additional terms and conditions as determined by the Committee and shall be evidenced by a written Award Agreement.
ARTICLE 9
PERFORMANCE-BASED AWARDS
9.1. Purpose. The purpose of this Article 9 is to provide the Committee the ability to qualify Awards other than Options and SARs and that are granted pursuant to Articles 6 and 8 as Qualified Performance-Based Compensation. If the Committee, in its discretion, decides to grant a Performance-Based Award to a Covered Employee, the provisions of this Article 9 shall control over any contrary provision contained in Articles 6 or 8; provided, however, that the Committee may in its discretion grant Awards to Covered Employees that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 9.
9.2. Applicability. This Article 9 shall apply only to those Covered Employees selected by the Committee to receive Performance-Based Awards. The designation of a Covered Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to receive an Award for the period. Moreover, designation of a Covered Employee as a Participant for a particular Performance Period shall not require designation of such Covered Employee as a Participant in any subsequent Performance Period and designation of one Covered Employee as a Participant shall not require designation of any other Covered Employees as a Participant in such period or in any other period.
9.3. Procedures with Respect to Performance-Based Awards. To the extent necessary to comply with the Qualified Performance-Based Compensation requirements of §162(m)(4)(C) of the Code, with respect to any Award granted under Articles 6 and 8 which may be granted to one or more Covered Employees, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by §162(m) of the Code), the Committee shall, in writing, (a) designate one or more Covered Employees, (b) select the Performance Criteria applicable to the Performance Period, (c) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (d) specify the relationship between Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned by a Covered Employee, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period.
9.4. Payment of Performance-Based Awards. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the Company or a Subsidiary on the day a Performance-Based Award for such Performance Period is paid to the Participant. Furthermore, a Participant shall be eligible to receive payment pursuant to a Performance-Based Award for a Performance Period only if the Performance Goals for such period are achieved.
9.5. Additional Limitations. Notwithstanding any other provision of the Plan, any Award which is granted to a Covered Employee and is intended to constitute Qualified Performance-Based Compensation shall be subject to any additional limitations set forth in §162(m) of the Code (including any amendment to §162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as qualified performance-based compensation as described in §162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.
ARTICLE 10
PROVISIONS APPLICABLE TO AWARDS
10.1. Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.
10.2. Award Agreement. Awards under the Plan shall be evidenced by written Award Agreements that shall set forth the terms, conditions, limitations and award type for each Award which may include the term of an Award, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.
10.3. Limits on Transfer. Except as otherwise provided by the Committee, no right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided by the Committee, during the life of the recipient, such award shall be exercisable only by such person or by such person’s guardian or legal representative.
10.4. Death of Optionee. Notwithstanding Section 10.3, if the Optionee dies while employed by the Company or within ninety (90) days after termination of Optionee’s employment, any Option exercisable on the date of death may be exercised by the Optionee’s estate or by a person who acquires the right to exercise such Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining Option Term of the Option and one (1) year after the Optionee’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.
10.5. Retirement or Disability. Upon termination of the Optionee’s employment by reason of retirement or permanent disability, the Optionee may, within ninety (90) days from the date of termination, exercise any Options to the extent such Options are exercisable during such 90-day period.
10.6. Termination for Other Reasons. Except as provided herein or except as otherwise determined by the Committee, all Options shall terminate on the earlier of the Option Term or ninety (90) days after the termination of the Optionee’s employment with the Company.
10.7. Leaves of Absence and Performance Targets. The Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by the recipient of any award. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan and (ii) the impact, if any, of such leave of absence on awards under the Plan theretofore made to any recipient who takes such leave of absence. The Committee shall also be entitled to make such determination of performance targets, if any, as it deems appropriate.
10.8. Newly Eligible Employees. The Committee shall be entitled to make such rules, regulations, determinations and awards as it deems appropriate in respect of any employee who becomes eligible to participate in the Plan or any portion thereof, after the commencement of an award or incentive period.
10.9. Stock Certificates; Book Entry Procedures. As soon as practicable after receipt of payment, the Company shall deliver to the Optionee a certificate(s) for such shares of Common Stock. Upon receipt of such certificate(s), the Optionee shall become a shareholder of the Company with respect to Common Stock represented by share certificates so issued and as such shall be fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.
ARTICLE 11
CHANGES IN CAPITAL STRUCTURE
11.1. Adjustments
(a) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off, recapitalization, distribution of Company assets to shareholders (other than normal cash dividends), or any other corporate event affecting the Stock or the share price of the Stock, the Committee may make such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such changes with respect to (i) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 3.1 and 3.3); (ii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (iii) the grant or exercise price per share for any outstanding Awards under the Plan. Any adjustment affecting an Award intended as Qualified Performance-Based Compensation shall be made consistent with the requirements of §162(m) of the Code.
(b) In the event of any transaction or event described in Section 11.1(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate (including without limitation any Change in Control), or of changes in applicable laws, regulations or accounting principles, and whenever the Committee determines that action is appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles, the Committee, in its sole discretion and on such terms and conditions as it deems appropriate, either by amendment of the terms of any outstanding Awards or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions:
(i) To provide for either (A) termination of any such Award in exchange for an amount of cash and/or other property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 11.1(b) the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Committee in its sole discretion;
(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; and
(iii) To make adjustments in the number and type of shares of Stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future;
(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Award Agreement; and
(v) To provide that the Award cannot vest, be exercised or become payable after such event.
11.2. Outstanding Awards—Other Changes. In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 11, the Committee may, in its absolute discretion, make such adjustments in the number and kind of shares or other securities subject to Awards outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Committee may consider appropriate to prevent dilution or enlargement of rights.
11.3. No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Award or the grant or exercise price of any Award.
ARTICLE 12
ADMINISTRATION
12.1. Committee. Pursuant to Utah Revised Business Corporation Act, and consistent with the provisions of Section 12.3 below, the Board may appoint a Committee consisting of three (3) or more Non-Employee Directors or the Compensation Committee of the Board to administer the Plan.
12.2. Committee Appointee Duration. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase or change the size of the Committee, and appoint new members thereof, remove members (with or without cause) and appoint new members in substitution, fill vacancies, however caused, or remove all members of the Committee; provided, however, that subject to Section 12.3, below, at no time shall any person administer the Plan who is not otherwise a Non-Employee Director.
12.3. Action by the Board. Unless and until the Board delegates administration of the Plan to a Committee as set forth below, the Plan shall be administered by the full Board, and for such purposes the term “Committee” as used in this Plan shall be deemed to refer to the Board. The Board, at its discretion or as otherwise necessary to comply with the requirements of §162(m) of the Code, Rule 16b-3 promulgated under the Exchange Act or to the extent required by any other applicable rule or regulation, shall delegate administration of the Plan to a Committee. The Committee shall consist solely of two or more members of the Board each of whom is both an “outside director,” within the meaning of §162(m) of the Code and any other applicable rules and regulations, and a Non-Employee Director. Notwithstanding the foregoing: (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to all Awards granted to Independent Directors and, for purposes of such Awards, the term “Committee” as used in this Plan shall be deemed to refer to the Board and (b) the Committee may delegate its authority hereunder to the extent permitted by Section 12.5. Appointment of Committee members shall be effective upon acceptance of appointment. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may only be filled by the Board.
12.4. Action by the Committee. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
12.5. Authority of Committee. Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:
(a) Designate Participants to receive Awards;
(b) Determine the type or types of Awards to be granted to each Participant;
(c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any reload provision, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines;
(e) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant;
(g) Decide all other matters that must be determined in connection with an Award;
(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;
(i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and
(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.
The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable.
12.6. Decisions Binding. The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.
12.7. Delegation of Authority. To the extent permitted by applicable law, the Committee may from time to time delegate to a committee of one or more members of the Committee or the Board or one or more officers of the Company the authority to grant or amend Awards to Participants other than (a) senior executives of the Company who are subject to Section 16 of the Exchange Act, (b) Covered Employees, or (c) officers of the Company (or members of the Board) to whom authority to grant or amend Awards has been delegated hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation, and the Committee may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 12.7 shall serve in such capacity at the pleasure of the Committee.
12.8. Committee Administration. One member of the Committee shall be elected by the Committee as chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings.
12.9. Liability. No member of the Board or Committee shall be liable for any action taken or decision or determination made in good faith with respect to any Option, the Plan, or any award thereunder.
ARTICLE 13
EFFECTIVE AND EXPIRATION DATE
13.1. Effective Date. The Plan is effective as of the date the Plan is approved by a majority of the Board (the “Effective Date”). The Plan, however, shall be subject to approval by the shareholders. The Plan will be deemed to be approved by the shareholders if it receives the affirmative vote of the holders of a majority of the shares of stock of the Company present or represented and entitled to vote at a meeting duly held in accordance with the applicable provisions of the Company’s Bylaws, but, in any event, held no later than twelve (12) months after adoption on the Effective Date.
13.2. Expiration Date. The Plan will expire on, and no Incentive Stock Option or other Award may be granted pursuant to the Plan after, the tenth anniversary of the Effective Date. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.
ARTICLE 14
AMENDMENT, MODIFICATION, AND TERMINATION
14.1. Amendment, Modification, and Termination. The Committee may at any time and from time to time terminate or modify or amend the Plan in any respect, except that (a) to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain shareholder approval of any Plan amendment or any modification of any Options that would be deemed a re-pricing under applicable rules, in such a manner and to such a degree as required, and (b) without shareholder approval the Committee may not (i) increase the maximum number of shares of Common Stock which may be issued under the Plan (other than increases pursuant to Section 11.1), (ii) extend the period during which any Award may be granted or exercised, (iii) amend to the Plan to permit the Committee to grant Options with an exercise price that is below Fair Market Value on the Grant Date, or (iv) extend the term of the Plan. The termination or any modification or amendment of the Plan, except as provided in subsection (a), shall not without the consent of a participant, affect his or her other rights under an award previously granted to him or her.
14.2. Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.
ARTICLE 15
COMPLIANCE WITH SECTION 409A OF THE CODE
15.1. Awards Subject to §409A of the Code. Any Award that constitutes, or provides for, a deferral of compensation subject to §409A of the Code (a “Section 409A Award”) shall satisfy the requirements of §409A of the Code and this Article 15, to the extent applicable. The Award Agreement with respect to a Section 409A Award shall incorporate the terms and conditions required by §409A of the Code and this Article 15 to the extent possible to cause the Award to not constitute deferred compensation within the meaning of §409A of the Code.
15.2. Distributions under a Section 409A Award.
(a) Subject to subsection (b), any shares of Stock or other property or amounts to be paid or distributed upon the grant, issuance, vesting, exercise or payment of a Section 409A Award shall be distributed in accordance with the requirements of §409A(a)(2) of the Code, and shall not be distributed earlier than:
(i) the Participant’s separation from service, as determined by the Secretary of the Treasury;
(ii) the date the Participant becomes disabled;
(iii) the Participant’s death;
(iv) a specified time (or pursuant to a fixed schedule) specified under the Award Agreement at the date of the deferral compensation;
(v) to the extent provided by the Secretary of the Treasury, a change in the ownership or effective control of the Company or a Parent or Subsidiary, or in the ownership of a substantial portion of the assets of the Company or a Parent or Subsidiary; or
(vi) the occurrence of an unforeseeable emergency with respect to the Participant.
(b) In the case of a Participant who is a “specified employee,” the requirement of subsection (a)(i) shall be met only if the distributions with respect to the Section 409A Award may not be made before the date which is six (6) months after the Participant’s separation from service (or, if earlier, the date of the Participant’s death). For purposes of this subsection (b), a Participant shall be a “specified employee” if such Participant is a key employee (as defined in §416(i) of the Code without regard to paragraph (5) thereof) of a corporation any stock of which is publicly traded on an established securities market or otherwise, as determined under §409A(a)(2)(B)(i) of the Code and the Treasury Regulations thereunder.
(c) The requirement of subsection (a)(vi) shall be met only if, as determined under Treasury Regulations under §409A(a)(2)(B)(ii) of the Code, the amounts distributed with respect to the unforeseeable emergency do not exceed the amounts necessary to satisfy such unforeseeable emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such unforeseeable emergency is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).
(d) For purposes of this Section 15.2, the terms specified herein shall have the respective meanings ascribed thereto under §409A of the Code and the Treasury Regulations thereunder.
15.3. Prohibition on Acceleration of Benefits. The time or schedule of any distribution or payment of any shares of Stock or other property or amounts under a Section 409A Award shall not be accelerated, except as otherwise permitted under §409A(a)(3) of the Code and the Treasury Regulations thereunder.
15.4. Elections under Section 409A Awards.
(a) Any deferral election provided under or with respect to an Award to any Eligible Individual, or to the Participant holding a Section 409A Award, shall satisfy the requirements of §409A(a)(4)(B) of the Code, to the extent applicable, and, except as otherwise permitted under subsection (i) or (ii) below, any such deferral election with respect to compensation for services performed during a taxable year shall be made not later than the close of the preceding taxable year, or at such other time as provided in Treasury Regulations.
(i) In the case of the first year in which an Eligible Individual or a Participant holding a Section 409A Award, becomes eligible to participate in the Plan, any such deferral election may be made with respect to services to be performed subsequent to the election with thirty days after the date the Eligible Individual, or the Participant holding a Section 409A Award, becomes eligible to participate in the Plan, as provided under §409A(a)(4)(B)(ii) of the Code.
(ii) In the case of any performance-based compensation based on services performed by an Eligible Individual, or the Participant holding a Section 409A Award, over a period of at least twelve (12) months, any such deferral election may be made no later than six (6) months before the end of the period, as provided under §409A(a)(4)(B)(iii) of the Code.
(b) In the event that a Section 409A Award permits, under a subsequent election by the Participant holding such Section 409A Award, a delay in a distribution or payment of any shares of Stock or other property or amounts under such Section 409A Award, or a change in the form of distribution or payment, such subsequent election shall satisfy the requirements of §409A(a)(4)(C) of the Code, and:
(i) such subsequent election may not take effect until at least twelve (12) months after the date on which the election is made,
(ii) in the case such subsequent election relates to a distribution or payment not described in Section 15.2(a)(ii), (iii) or (vi), the first payment with respect to such election may be deferred for a period of not less than five (5) years from the date such distribution or payment otherwise would have been made, and
(iii) in the case such subsequent election relates to a distribution or payment described in Section 15.2(a)(iv), such election may not be made less than twelve months prior to the date of the first scheduled distribution or payment under Section 15.2(a)(iv).
15.5. Compliance in Form and Operation. A Section 409A Award, and any election under or with respect to such Section 409A Award, shall comply in form and operation with the requirements of §409A of the Code and the Treasury Regulations thereunder. Notwithstanding the foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent the assessment of any excise tax or penalty on any Participant under §409A of the Code and neither the Company nor the Committee will have any liability to any Participant for such tax or penalty.
ARTICLE 16
GENERAL PROVISIONS
16.1. No Rights to Awards. No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Eligible Individuals, Participants or any other persons uniformly.
16.2. No Shareholder Rights. The recipient of any award under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him or her.
16.3. Withholding. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award within six (6) months (or such other period as may be determined by the Committee) after such shares of Stock were acquired by the Participant from the Company) in order to satisfy the Participant’s federal, state, local and foreign income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income.
16.4. No Right to Employment or Services. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Subsidiary.
16.5. Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.
16.6. Indemnification. To the extent allowable pursuant to applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
16.7. Relationship to other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
16.8. Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
16.9. Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
16.10. Fractional Shares. No fractional shares of Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.
16.11. Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
16.12. Government and Other Regulations. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant to the Securities Act, as amended, any of the shares of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act, as amended, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.
16.13. Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Utah.
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I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of Dynatronics Corporation on March 23, 2015.
Executed on this __ day of __________, 2015.
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I hereby certify that the foregoing Plan was approved by the shareholders of Dynatronics Corporation on [DATE], 2015.
Executed on this [DATE], 2015.
DYNATRONICS CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (this “Agreement”) is made and entered into between Dynatronics Corporation, a Utah corporation (the “Company”), and _________________________________________ (the “Optionee”), pursuant to the Company’s 2015 Equity Incentive Plan (the “Plan”). Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to them in the Plan. The Company and the Optionee agree as follows:
1. Option Grant. The Company grants to the Optionee on the terms and conditions of this Agreement the right and the option (the “Option”) to purchase all or any part of a total of _________________ (________) shares of the Company’s common stock, no par value per share (the “Common Stock”), at a purchase price of ________________ ($_______) per share. The terms and conditions of the Option grant set forth in the Exhibit “A” attached hereto, are incorporated into and made a part of this Agreement. The Option is intended to be an Incentive Stock Option as defined in Section 422 of the Internal Revenue Code of 1986, as amended.
2. Grant Date; Expiration Date. The grant date for this Option is __________, 20___ (the “Grant Date”). The Option shall continue in effect until the [tenth (10th)] anniversary of the Grant Date (the “Expiration Date”) unless earlier terminated as provided in Sections 2, 7 or 8 of Exhibit “A” attached hereto. The Option shall not be exercisable on or after the Expiration Date.
3. Exercise of Option. The vesting reference date of this Option is __________, 20__ (the “Vesting Reference Date”). The Option will become exercisable in accordance with Section 1 of Exhibit “A” attached hereto.
The parties have executed this Agreement in duplicate as of the Grant Date.
THE COMPANY:
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OPTIONEE:
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By:
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By: __________________________________
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Name:
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Name: _______________________________
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Title:
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Title: ________________________________
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Address:
7030 Park Centre Drive
Salt Lake City, Utah 84121
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Address:
_____________________________________
_____________________________________
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Phone: (801) 568-7000
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Phone: (___) __________________________
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Fax: (801) 568-7711
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Fax: (___) ____________________________
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E-mail: kelvyn@dynatronics.com
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E-mail:
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DYNATRONICS CORPORATION
EXHIBIT “A” TO
STOCK OPTION AGREEMENT
1. Time of Exercise of Option. Until it expires or is terminated as provided in Sections 2, 7 or 8 hereto, the Option may be exercised from time to time to purchase whole shares in accordance with the following schedule: [twenty-five percent (25%)] of the Options shall vest [twelve (12)] months after the Vesting Reference Date, and [one-thirty-sixth (1/36th)] of the Options shall vest on each monthly anniversary of the Vesting Reference Date over the three-year period thereafter. For purpose of this Exhibit “A”, the term “vest” shall mean with respect to any portion of the Options that portion thereof that may be exercised pursuant to the terms of the Plan.
2. Separation from Service.
2.1 General Rule. Except as provided in this Section 2, the Option may not be exercised unless at the time of exercise the Optionee is employed by or in the service of the Company and shall have been so employed or provided such service continuously since the Grant Date. For purposes of this Exhibit “A”, the Optionee is considered to be employed by or in the service of the Company if the Optionee is employed by or in the service of the Company or any parent or subsidiary of the Company (an “Employer”).
2.2 Separation from Service Generally. If the Optionee’s employment or service with the Company terminates (a “Separation from Service”) for any reason other than for cause as provided in Section 2.3 hereto, or because of total disability or death as provided in Sections 2.4 and 2.5 hereto, respectively, the Option may be exercised at any time before the Expiration Date or the expiration of thirty (30) days after the date of Separation from Service, whichever is the shorter period, but only if and to the extent the Optionee was entitled to exercise the Option at the date of Separation from Service.
2.3 Separation from Service For Cause. Upon Optionee’s Separation from Service for cause, the Option, whether vested or unvested, shall terminate on the date of such Separation from Service.
2.4 Separation from Service Because of Total Disability. Upon Optionee’s Separation from Service because of total disability (as that term is defined in the Plan), the Option may be exercised at any time before the Expiration Date or before the date that is twelve (12) months after the date of Separation from Service, whichever is the shorter period, but only if and to the extent the Optionee was entitled to exercise the Option at the date of Separation from Service.
2.5 Separation from Service Because of Death. If the Optionee dies while employed by or in the service of the Company, the Option may be exercised at any time before the Expiration Date or before the date that is twelve (12) months after the date of death, whichever is the shorter period, but only if and to the extent the Optionee was entitled to exercise the Option at the date of death and only by the person or persons to whom the Optionee’s rights under the Option shall pass by the Optionee’s will or by the laws of descent and distribution of the state or country of the Optionee’s domicile at the time of death.
2.6 Leaves of Absence. Absence on leave approved by the Employer or on account of illness or disability shall not be deemed a Separation from Service or interruption of employment or service. Vesting of the Option shall continue during a medical, family or military leave of absence, whether paid or unpaid, and vesting of the Option shall be suspended during any other unpaid leave of absence.
2.7 Failure to Exercise Option. To the extent that following the Optionee’s Separation from Service, the Option is not exercised within the applicable periods described above, all further rights to purchase shares of Common Stock pursuant to the Option shall cease and terminate.
3. Method of Exercise of Option. The Option may be exercised only by notice in writing from the Optionee to the Company of the Optionee’s binding commitment to purchase shares of Common Stock, specifying the number of shares the Optionee desires to purchase under the Option and the date on which the Optionee agrees to complete the transaction, which may not be more than thirty (30) days after delivery of the notice, and, if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the Optionee’s intention to acquire the shares for investment and not with a view to distribution (and such other representations as the Company may deem appropriate in light of applicable securities laws). On or before the date specified for completion of the purchase, the Optionee must pay the Company the full purchase price of those shares in cash or by check, or in whole or in part in shares of Common Stock of the Company valued at their fair market value, provided such Common Stock has been previously acquired and held by the Optionee for at least six (6) months. The fair market value of Common Stock provided in payment of the purchase price shall be the closing price of the Common Stock last reported before the time payment in shares of Common Stock is made or, if earlier, committed to be made, if the Common Stock is publicly traded, or another value of the Common Stock as specified by the Company. No shares of Common Stock shall be issued until full payment for the shares has been made, including all amounts owed for tax withholding, if any. The Optionee shall, immediately upon notification of the amount due, if any, pay to the Company in cash or by check amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required (as a result of the exercise of the Option or as a result of the disposition of shares acquired pursuant to the exercise of the Option) beyond any amount deposited before delivery of the certificate(s) evidencing such shares, the Optionee shall pay such amount to the Company, in cash or by check, on demand. If the Optionee fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the Optionee, including compensation, subject to applicable law.
4. Disqualifying Disposition. If the Option is an Incentive Stock Option and if within two (2) years after the Grant Date or within twelve (12) months after the exercise of the Option, the Optionee sells or otherwise disposes of the Common Stock acquired upon exercise of the Option, the Optionee shall within thirty (30) days of the sale or disposition notify the Company in writing of (i) the date of the sale or disposition, (ii) the amount realized on the sale or disposition and (iii) the nature of the disposition (e.g., sale, gift, etc.).
5. Nontransferability. The Optionee shall not sell, assign, pledge or in any manner transfer any shares of the Common Stock of the Company acquired by the Optionee upon exercise of this Option, or any right or interest in the Common Stock, whether voluntarily or by operation of law, or by gift, bequest or otherwise. Any sale or transfer, or purported sale or transfer of Common Stock, or any right or interest in Common Stock, in violation of this Section 5 shall be null and void.
6. Stock Splits and Stock Dividends. In accordance with Article 11 of the Plan, if the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares, dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Committee in (i) the number and kind of shares subject to the Option, or the unexercised portion thereof, and (ii) the Option price per share, so that the Optionee’s proportionate interest before and after the occurrence of the event is maintained.
7. Mergers, Reorganizations, Etc. In the event of a merger, consolidation, plan of exchange, acquisition of property or stock, split-up, split-off, spin-off, reorganization or liquidation to which the Company is a party or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company (each, a “Transaction”), the Committee shall, in its sole discretion and to the extent possible under the structure of the Transaction, select one of the following alternatives for treating the Option:
7.1 The Option shall remain in effect in accordance with its terms.
7.2 The Option shall be converted into an option to purchase stock in one or more of the corporations, including the Company, that are the surviving or acquiring corporations in the Transaction. The amount, type of securities subject thereto and exercise price of the converted Options shall be determined by the Committee, taking into account the relative values of the companies involved in the Transaction and the exchange rate, if any, used in determining shares of the surviving corporation(s) to be held by holders of shares of the Company following the Transaction and the requirements of any applicable laws and regulations. The converted Option shall be vested only to the extent that the vesting requirements relating to the Option have been satisfied at the time of the Transaction.
7.3 The Committee shall provide a period of ten (10) days or less before the completion of the Transaction during which the Option may be exercised to the extent then exercisable, and upon the expiration of that period, the Option shall immediately terminate. The Committee may, in its sole discretion, accelerate the exercisability of the Option so that the Option is exercisable in full during that period.
8. Dissolution. In the event of the dissolution of the Company, the Company shall provide a period of thirty (30) days or less before the dissolution of the Company during which the Option may be exercised to the extent then exercisable, and upon the expiration of that period, the Option shall immediately terminate. The Company may, in its sole discretion, accelerate the exercisability of the Option so that the Option is exercisable in full during that period.
9. Conditions on Obligations. The Company shall not be obligated to issue shares of Common Stock upon exercise of the Option if the Company is advised by its legal counsel that such issuance would violate applicable state or federal laws, including applicable securities laws. The Company will use its best efforts to take steps required by state or federal law or applicable regulations in connection with the issuance of shares of Common Stock upon exercise of the Option.
10. No Right to Employment or Service. Nothing in the Plan or this Agreement shall (i) confer upon the Optionee any right to be continued in the employment of an Employer or interfere in any way with the Employer’s right to terminate the Optionee’s employment at will or at any time, for any reason whatsoever, with or without cause, or to decrease the Optionee’s compensation or benefits, or (ii) confer upon the Optionee any right to be retained or employed by an Employer or to the continuation, extension, renewal or modification of any compensation, contract or arrangement with or by an Employer.
11. Successors of Company. This Agreement shall be binding upon and inure to the benefit of any successor of the Company but, except as provided herein, the Option may not be assigned or otherwise transferred by the Optionee.
12. Notices. Unless otherwise provided in writing, any notice required or permitted under this Agreement shall be given in writing and shall be conclusively deemed to have been duly given (a) when hand-delivered to the other party; (b) when sent by facsimile to the number set forth on the signature page below if sent between 8:00 a.m. and 5:00 p.m. recipient’s local time on a business day, or on the next business day if sent by facsimile to the number set forth on the signature page below if sent other than between 8:00 a.m. and 5:00 p.m. recipient’s local time on a business day; (c) three (3) business days after deposit in the U.S. mail, certified or registered mail, return receipt requested, postage prepaid and addressed to the other party at the address set forth on the signature page below; or (d) the next business day after deposit with a nationally recognized overnight delivery service, postage prepaid, addressed to the parties as set forth on the signature page below with next business day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. Any party making a communication hereunder by facsimile shall promptly confirm by telephone to the party to whom such communication was addressed each communication made by it by facsimile pursuant hereto, but the absence of such confirmation shall not affect the validity of any such communication. Either party may change or supplement the address set forth on the signature page of this Agreement, or designate a new address, for purposes of this Section 12 by giving the other party written notice of the new address in the manner set forth above.
13. Rights as a Shareholder. The Optionee shall have no rights as a shareholder with respect to any shares of Common Stock of the Company until the date the Optionee becomes the holder or record of those shares. No adjustment shall be made for dividends or distributions or other rights for which the record date occurs before the date the Optionee becomes a holder of record.
14. Amendments. The Committee may at any time amend this Agreement, provided that no such amendment shall be made without the written consent of the Optionee if the amendment would materially adversely affect the Optionee.
15. Governing Law; Jurisdiction and Venue. This Agreement shall be construed in accordance with and governed by the internal laws of the State of Utah, without giving effect to any choice of law rule that would cause the application of the laws of any state or jurisdiction other than the internal laws of the State of Utah to the rights and duties of the parties hereto. All disputes and controversies arising out of or in connection with this Agreement shall be resolved exclusively by the state and federal courts located in Salt Lake City, Salt Lake County, State of Utah, and each party hereto agrees to submit to the jurisdiction of said courts and agrees that venue shall lie exclusively with such courts.
16. Entire Agreement. This Agreement and the Plan constitute and contain the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements (whether written or oral), understandings, duties or obligations between the parties respecting the subject matter hereof.
17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (e-mail) or other transmission method, and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
DYNATRONICS CORPORATION
NON-STATUTORY STOCK OPTION AGREEMENT
THIS NON-STATUTORY STOCK OPTION AGREEMENT (this “Agreement”) is made and entered into between Dynatronics Corporation, a Utah corporation (the “Company”), and _________________________________________ (the “Optionee”), pursuant to the Company’s 2015 Equity Incentive Plan (the “Plan”). Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to them in the Plan. The Company and the Optionee agree as follows:
1. Option Grant. The Company grants to the Optionee on the terms and conditions of this Agreement the right and the option (the “Option”) to purchase all or any part of a total of _________________ (________) shares of the Company’s common stock, no par value per share (the “Common Stock”), at a purchase price of ________________ ($_______) per share. The terms and conditions of the Option grant set forth in the Exhibit “A” attached hereto, are incorporated into and made a part of this Agreement. The Option will not be treated as an Incentive Stock Option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and is therefore a Non-Statutory Stock Option.
2. Grant Date; Expiration Date. The grant date for this Option is __________, 20___ (the “Grant Date”). The Option shall continue in effect until the [tenth (10th)] anniversary of the Grant Date (the “Expiration Date”) unless earlier terminated as provided in Sections 2, 7 or 8 of Exhibit “A” attached hereto. The Option shall not be exercisable on or after the Expiration Date.
3. Exercise of Option. The vesting reference date of this Option is __________, 20__ (the “Vesting Reference Date”). The Option will become exercisable in accordance with Section 1 of Exhibit “A” attached hereto.
The parties have executed this Agreement in duplicate as of the Grant Date.
THE COMPANY:
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OPTIONEE:
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By:
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By: __________________________________
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Name:
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Name: _______________________________
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Title:
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Title: ________________________________
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Address:
7030 Park Centre Drive
Salt Lake City, Utah 84121
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Address:
_____________________________________
_____________________________________
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Phone: (801) 568-7000
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Phone: (___) __________________________
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Fax: (801) 568-7711
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Fax: (___) ____________________________
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E-mail: kelvyn@dynatronics.com
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E-mail:
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DYNATRONICS CORPORATION
EXHIBIT “A” TO
STOCK OPTION AGREEMENT
1. Time of Exercise of Option. Until it expires or is terminated as provided in Sections 2, 7 or 8 hereto, the Option may be exercised from time to time to purchase whole shares in accordance with the following schedule: [twenty-five percent (25%)] of the Options shall vest [twelve (12)] months after the Vesting Reference Date, and [one-thirty-sixth (1/36th)] of the Options shall vest on each monthly anniversary of the Vesting Reference Date over the three-year period thereafter. For purpose of this Exhibit “A”, the term “vest” shall mean with respect to any portion of the Options that portion thereof that may be exercised pursuant to the terms of the Plan.
2. Separation from Service.
2.1 General Rule. Except as provided in this Section 2, the Option may not be exercised unless at the time of exercise the Optionee is employed by or in the service of the Company and shall have been so employed or provided such service continuously since the Grant Date. For purposes of this Exhibit “A”, the Optionee is considered to be employed by or in the service of the Company if the Optionee is employed by or in the service of the Company or any parent or subsidiary of the Company (an “Employer”).
2.2 Separation from Service Generally. If the Optionee’s employment or service with the Company terminates (a “Separation from Service”) for any reason other than for cause as provided in Section 2.3 hereto, or because of total disability or death as provided in Sections 2.4 and 2.5 hereto, respectively, the Option may be exercised at any time before the Expiration Date or the expiration of thirty (30) days after the date of Separation from Service, whichever is the shorter period, but only if and to the extent the Optionee was entitled to exercise the Option at the date of Separation from Service.
2.3 Separation from Service For Cause. Upon Optionee’s Separation from Service for cause, the Option, whether vested or unvested, shall terminate on the date of such Separation from Service.
2.4 Separation from Service Because of Total Disability. Upon Optionee’s Separation from Service because of total disability (as that term is defined in the Plan), the Option may be exercised at any time before the Expiration Date or before the date that is twelve (12) months after the date of Separation from Service, whichever is the shorter period, but only if and to the extent the Optionee was entitled to exercise the Option at the date of Separation from Service.
2.5 Separation from Service Because of Death. If the Optionee dies while employed by or in the service of the Company, the Option may be exercised at any time before the Expiration Date or before the date that is twelve (12) months after the date of death, whichever is the shorter period, but only if and to the extent the Optionee was entitled to exercise the Option at the date of death and only by the person or persons to whom the Optionee’s rights under the Option shall pass by the Optionee’s will or by the laws of descent and distribution of the state or country of the Optionee’s domicile at the time of death.
2.6 Leaves of Absence. Absence on leave approved by the Employer or on account of illness or disability shall not be deemed a Separation from Service or interruption of employment or service. Vesting of the Option shall continue during a medical, family or military leave of absence, whether paid or unpaid, and vesting of the Option shall be suspended during any other unpaid leave of absence.
2.7 Failure to Exercise Option. To the extent that following the Optionee’s Separation from Service, the Option is not exercised within the applicable periods described above, all further rights to purchase shares of Common Stock pursuant to the Option shall cease and terminate.
3. Method of Exercise of Option. The Option may be exercised only by notice in writing from the Optionee to the Company of the Optionee’s binding commitment to purchase shares of Common Stock, specifying the number of shares the Optionee desires to purchase under the Option and the date on which the Optionee agrees to complete the transaction, which may not be more than thirty (30) days after delivery of the notice, and, if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the Optionee’s intention to acquire the shares for investment and not with a view to distribution (and such other representations as the Company may deem appropriate in light of applicable securities laws). On or before the date specified for completion of the purchase, the Optionee must pay the Company the full purchase price of those shares in cash or by check, or in whole or in part in shares of Common Stock of the Company valued at their fair market value, provided such Common Stock has been previously acquired and held by the Optionee for at least six (6) months. The fair market value of Common Stock provided in payment of the purchase price shall be the closing price of the Common Stock last reported before the time payment in shares of Common Stock is made or, if earlier, committed to be made, if the Common Stock is publicly traded, or another value of the Common Stock as specified by the Company. No shares of Common Stock shall be issued until full payment for the shares has been made, including all amounts owed for tax withholding, if any. The Optionee shall, immediately upon notification of the amount due, if any, pay to the Company in cash or by check amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required (as a result of the exercise of the Option or as a result of the disposition of shares acquired pursuant to the exercise of the Option) beyond any amount deposited before delivery of the certificate(s) evidencing such shares, the Optionee shall pay such amount to the Company, in cash or by check, on demand. If the Optionee fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the Optionee, including compensation, subject to applicable law.
4. Disqualifying Disposition. If the Option is an Incentive Stock Option and if within two (2) years after the Grant Date or within twelve (12) months after the exercise of the Option, the Optionee sells or otherwise disposes of the Common Stock acquired upon exercise of the Option, the Optionee shall within thirty (30) days of the sale or disposition notify the Company in writing of (i) the date of the sale or disposition, (ii) the amount realized on the sale or disposition and (iii) the nature of the disposition (e.g., sale, gift, etc.).
5. Nontransferability. The Optionee shall not sell, assign, pledge or in any manner transfer any shares of the Common Stock of the Company acquired by the Optionee upon exercise of this Option, or any right or interest in the Common Stock, whether voluntarily or by operation of law, or by gift, bequest or otherwise. Any sale or transfer, or purported sale or transfer of Common Stock, or any right or interest in Common Stock, in violation of this Section 5 shall be null and void.
6. Stock Splits and Stock Dividends. In accordance with Article 11 of the Plan, if the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares, dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Committee in (i) the number and kind of shares subject to the Option, or the unexercised portion thereof, and (ii) the Option price per share, so that the Optionee’s proportionate interest before and after the occurrence of the event is maintained.
7. Mergers, Reorganizations, Etc. In the event of a merger, consolidation, plan of exchange, acquisition of property or stock, split-up, split-off, spin-off, reorganization or liquidation to which the Company is a party or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company (each, a “Transaction”), the Committee shall, in its sole discretion and to the extent possible under the structure of the Transaction, select one of the following alternatives for treating the Option:
7.1 The Option shall remain in effect in accordance with its terms.
7.2 The Option shall be converted into an option to purchase stock in one or more of the corporations, including the Company, that are the surviving or acquiring corporations in the Transaction. The amount, type of securities subject thereto and exercise price of the converted Options shall be determined by the Committee, taking into account the relative values of the companies involved in the Transaction and the exchange rate, if any, used in determining shares of the surviving corporation(s) to be held by holders of shares of the Company following the Transaction and the requirements of any applicable laws and regulations. The converted Option shall be vested only to the extent that the vesting requirements relating to the Option have been satisfied at the time of the Transaction.
7.3 The Committee shall provide a period of ten (10) days or less before the completion of the Transaction during which the Option may be exercised to the extent then exercisable, and upon the expiration of that period, the Option shall immediately terminate. The Committee may, in its sole discretion, accelerate the exercisability of the Option so that the Option is exercisable in full during that period.
8. Dissolution. In the event of the dissolution of the Company, the Company shall provide a period of thirty (30) days or less before the dissolution of the Company during which the Option may be exercised to the extent then exercisable, and upon the expiration of that period, the Option shall immediately terminate. The Company may, in its sole discretion, accelerate the exercisability of the Option so that the Option is exercisable in full during that period.
9. Conditions on Obligations. The Company shall not be obligated to issue shares of Common Stock upon exercise of the Option if the Company is advised by its legal counsel that such issuance would violate applicable state or federal laws, including applicable securities laws. The Company will use its best efforts to take steps required by state or federal law or applicable regulations in connection with the issuance of shares of Common Stock upon exercise of the Option.
10. No Right to Employment or Service. Nothing in the Plan or this Agreement shall (i) confer upon the Optionee any right to be continued in the employment of an Employer or interfere in any way with the Employer’s right to terminate the Optionee’s employment at will or at any time, for any reason whatsoever, with or without cause, or to decrease the Optionee’s compensation or benefits, or (ii) confer upon the Optionee any right to be retained or employed by an Employer or to the continuation, extension, renewal or modification of any compensation, contract or arrangement with or by an Employer.
11. Successors of Company. This Agreement shall be binding upon and inure to the benefit of any successor of the Company but, except as provided herein, the Option may not be assigned or otherwise transferred by the Optionee.
12. Notices. Unless otherwise provided in writing, any notice required or permitted under this Agreement shall be given in writing and shall be conclusively deemed to have been duly given (a) when hand-delivered to the other party; (b) when sent by facsimile to the number set forth on the signature page below if sent between 8:00 a.m. and 5:00 p.m. recipient’s local time on a business day, or on the next business day if sent by facsimile to the number set forth on the signature page below if sent other than between 8:00 a.m. and 5:00 p.m. recipient’s local time on a business day; (c) three (3) business days after deposit in the U.S. mail, certified or registered mail, return receipt requested, postage prepaid and addressed to the other party at the address set forth on the signature page below; or (d) the next business day after deposit with a nationally recognized overnight delivery service, postage prepaid, addressed to the parties as set forth on the signature page below with next business day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. Any party making a communication hereunder by facsimile shall promptly confirm by telephone to the party to whom such communication was addressed each communication made by it by facsimile pursuant hereto, but the absence of such confirmation shall not affect the validity of any such communication. Either party may change or supplement the address set forth on the signature page of this Agreement, or designate a new address, for purposes of this Section 12 by giving the other party written notice of the new address in the manner set forth above.
13. Rights as a Shareholder. The Optionee shall have no rights as a shareholder with respect to any shares of Common Stock of the Company until the date the Optionee becomes the holder or record of those shares. No adjustment shall be made for dividends or distributions or other rights for which the record date occurs before the date the Optionee becomes a holder of record.
14. Amendments. The Committee may at any time amend this Agreement, provided that no such amendment shall be made without the written consent of the Optionee if the amendment would materially adversely affect the Optionee.
15. Governing Law; Jurisdiction and Venue. This Agreement shall be construed in accordance with and governed by the internal laws of the State of Utah, without giving effect to any choice of law rule that would cause the application of the laws of any state or jurisdiction other than the internal laws of the State of Utah to the rights and duties of the parties hereto. All disputes and controversies arising out of or in connection with this Agreement shall be resolved exclusively by the state and federal courts located in Salt Lake City, Salt Lake County, State of Utah, and each party hereto agrees to submit to the jurisdiction of said courts and agrees that venue shall lie exclusively with such courts.
16. Entire Agreement. This Agreement and the Plan constitute and contain the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements (whether written or oral), understandings, duties or obligations between the parties respecting the subject matter hereof.
17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (e-mail) or other transmission method, and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
Appendix B
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
DYNATRONICS CORPORATION
DESIGNATING THE
PREFERENCES, RIGHTS AND LIMITATIONS
OF
SERIES A 8% CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 16-10a-602 OF THE
UTAH REVISED BUSINESS CORPORATION ACT
1.
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The name of the corporation is Dynatronics Corporation, a Utah corporation (the “Corporation”).
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2.
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The text of the Amendment adopted by the board of directors of the Corporation pursuant to Section 16-10a-602(1) of the Utah Revised Business Corporation Act (the “Act”) is as set forth in Exhibit A attached hereto by this this reference incorporation herein.
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3.
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The Amendment was adopted by the board of directors of the Corporation on ___________, 2015.
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4.
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The Amendment was duly adopted by the board of directors without shareholder action, pursuant to Section 16-10a-602 of the Act and Article III of the Articles of Incorporation of the Corporation, and shareholder action was not required to adopt the Amendment.
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IN WITNESS WHEREOF, these Articles of Amendment to the Articles of Incorporation of the Corporation are executed as of the ____ day of __________________, 2015.
Dynatronics Corporation,
a Utah corporation
By ____________________________
Name: Kelvyn H. Cullimore, Jr.
Title: President and CEO
EXHIBIT A
TO
ARTICLES OF AMENDMENT
DATED __________, 2015
TO THE
ARTICLES OF INCORPORATION
OF
DYNATRONICS CORPORATION
The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”) on ____________, 2015:
WHEREAS, the Articles of Incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of Five Million (5,000,000) shares, no par value per share, issuable from time to time in one or more series;
WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of up to Two Million (2,000,000) shares of the preferred stock which the Corporation has the authority to issue.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property, and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock, as follows.
RESOLVED, FURTHER, that the President and CEO, or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file this Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Utah law.
TABLE OF CONTENTS
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Section 1. Definitions
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2 |
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Section 2. Designation, Amount and Par Value
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9 |
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Section 3. Dividends
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9 |
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(a) Dividends in Cash or in Kind
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9 |
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(b) Corporation’s Ability to Pay Dividends in Cash or Kind
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10 |
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(c) Dividend Calculations
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10 |
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(d) Late Fees
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11 |
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(e) Other Securities
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11 |
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Section 4. Voting Rights
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11 |
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(a) General Voting Rights
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11 |
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(b) Class Voting Rights
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12 |
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(c) Director Rights
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12 |
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Section 5. Liquidation
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13 |
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Section 6. Conversion
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14 |
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(a) Conversions at Option of Holder
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14 |
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(b) Conversion Price
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14 |
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(c) Mechanics of Conversion
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14 |
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(d) Beneficial Ownership Limitation at Option of Holder.
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Section 7. Certain Adjustments
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(a) Stock Dividends and Stock Splits
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19 |
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(b) [RESERVED]
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20 |
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(c) Subsequent Rights Offerings
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20 |
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(d) Pro Rata Distributions
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20 |
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(e) Fundamental Transaction
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21 |
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(f) Calculations
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22 |
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(g) Notice to the Holders
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22 |
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Section 8. Forced Conversion
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24 |
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(a) Limited Forced Conversion
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24 |
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(b) Full Forced Conversion
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24 |
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(c) Application of Force Conversion
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24 |
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Section 9. Redemption Upon Triggering Events
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(a) Triggering Event
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Section 10. Miscellaneous
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27 |
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(a) Notices
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(b) Absolute Obligation
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27 |
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(c) Lost or Mutilated Preferred Stock Certificate
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28 |
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(d) Governing Law
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(e) Severability
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(f) Next Business Day
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(g) Headings
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28 |
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(h) Status of Converted or Redeemed Preferred Stock
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(i) Nasdaq Compliance
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TERMS OF PREFERRED STOCK
Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.
“Alternate Consideration” shall have the meaning set forth in Section 7(e).
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(d).
“Beneficial Ownership Limitation Notice” shall have the meaning set forth in Section 6(d).
“Board of Directors” shall have the meaning set forth in Section 4(c).
“Bid Price” means, for any share of Common Stock as of the particular time of determination, the price determined by the first of the following clauses that applies: (a) the bid price for the Common Stock on a Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), or (b) if the OTC Bulletin Board is not a Trading Market, the bid price of the Common Stock as of the particular time of determination on the OTC Bulletin Board, or, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the bid price per share of the Common Stock as of such time of determination.
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Buy-In” shall have the meaning set forth in Section 6(c)(iv).
“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d 5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of conversion or exercise of Preferred Stock and the Securities issued together with the Preferred Stock), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the shareholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, (c) the Corporation sells or transfers all or substantially all of its assets to another Person and the shareholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.
“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1 of the Purchase Agreement.
“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder’s obligations to pay the Subscription Amount and (ii) the Corporation’s obligations to deliver the Securities have been satisfied or waived.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the Corporation’s common stock, no par value per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Conversion Amount” means the sum of the Stated Value at issue.
“Conversion Cap” shall have the meaning set forth in Section 6(a).
“Conversion Date” shall have the meaning set forth in Section 6(a).
“Conversion Price” shall have the meaning set forth in Section 6(b).
“Conversion Shares” means, collectively, the shares of Common Stock issued and issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.
“Conversion Shares Registration Statement” means a registration statement that registers the resale of all Conversion Shares (and shares issued and issuable in lieu of cash payments of dividends) of the Holders, who shall be named as “selling shareholders” therein and meets the requirements of the Registration Rights Agreement.
“Directors Rights Period” shall have the meaning set forth in Section (4)(c)(ii).
“Dividend Conversion Rate” means the lesser of (a) the Conversion Price or (b) the lesser of (i) the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Dividend Payment Date or (ii) the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Dividend Conversion Shares are issued and delivered if such delivery is after the Dividend Payment Date.
“Dividend Conversion Shares” shall have the meaning set forth in Section 3(a).
“Dividend Notice Period” shall have the meaning set forth in Section 3(a).
“Dividend Payment Date” shall have the meaning set forth in Section 3(a).
“Dividend Share Amount” shall have the meaning set forth in Section 3(a).
“Effective Date” means the date that the Conversion Shares Registration Statement filed by the Corporation pursuant to the Registration Rights Agreement is first declared effective by the Commission.
“Equity Conditions” means, during the period in question, (a) the Corporation shall have duly honored all conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the applicable Holder on or prior to the dates so requested or required, if any, (b) the Corporation shall have paid all liquidated damages and other amounts owing to the applicable Holder in respect of the Preferred Stock, (c)(i) there is an effective Conversion Shares Registration Statement pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issued and issuable pursuant to the Transaction Documents (and shares issued and issuable in lieu of cash payments of dividends) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) the issuance of the shares in question (or, in the case of a redemption, the shares issuable upon conversion in full of the redemption amount) to the applicable Holder would not violate the limitations set forth in Section 6(d) herein, (g) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated and (h) the applicable Holder is not in possession of any information provided by the Corporation that constitutes, or may constitute, material non-public information.
“Escrow Agent” means Signature Bank, a New York State chartered bank and having an office at 261 Madison Avenue, New York, New York 10016.
“Escrow Agreement” means the escrow agreement entered into prior to the date of the Purchase Agreement, by and among the Corporation and the Escrow Agent pursuant to which the Holder shall deposit Subscription Amounts with the Escrow Agent to be applied to the transactions contemplated hereunder.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any securities issued pursuant to the Purchase Agreement and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of the Purchase Agreement, provided that such securities have not been amended since the date of the Purchase Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of any such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Corporation, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Corporation and shall provide to the Corporation additional benefits in addition to the investment of funds, but shall not include a transaction in which the Corporation is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
“Forced Conversion Amount” means the sum of (a) 100% of the aggregate Stated Value then outstanding, (b) accrued but unpaid dividends and (c) all liquidated damages and other amounts due in respect of the Preferred Stock.
“Forced Conversion Notice” shall mean a Limited Forced Conversion Notice or a Full Forced Conversion Notice.
“Full Forced Conversion Date” shall have the meaning set forth in Section 8(a).
“Full Forced Conversion Notice” shall have the meaning set forth in Section 8(a).
“Full Forced Conversion Notice Date” shall have the meaning set forth in Section 8(a).
“Fundamental Transaction” shall have the meaning set forth in Section 7(e).
“GAAP” means United States generally accepted accounting principles.
“Holder” shall have the meaning given such term in Section 2.
“Junior Securities” means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securities which are explicitly senior or pari passu to the Preferred Stock in dividend rights or liquidation preference.
“Limited Forced Conversion Date” shall have the meaning set forth in Section 8(a).
“Limited Forced Conversion Notice” shall have the meaning set forth in Section 8(a).
“Limited Forced Conversion Notice Date” shall have the meaning set forth in Section 8(a).
“Liquidation” shall have the meaning set forth in Section 5.
“New York Courts” shall have the meaning set forth in Section 10(d).
“Notice of Conversion” shall have the meaning set forth in Section 6(a).
“Original Issue Date” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Preferred Director” shall have the meaning set forth in Section (4)(c)(i).
“Preferred Stock” shall have the meaning set forth in Section 2.
“Prettybrook” shall have the meaning set forth in Section (4)(c)(i).
“Purchase Agreement” means the Securities Purchase Agreement, dated as of May 1, 2015, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, among the Corporation and the original Holders, in the form of Exhibit D attached to the Purchase Agreement.
“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.