UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
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Soliciting
Material Pursuant to §240.14a-12
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CLEVELAND
BIOLABS, INC.
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(Name
of Registrant as Specified In Its Charter)
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(Name
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Registrant)
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CLEVELAND
BIOLABS, INC.
ANNUAL
MEETING OF STOCKHOLDERS
April
29,
2008
__________
NOTICE
AND PROXY STATEMENT
CLEVELAND
BIOLABS, INC.
April
1,
2008
Dear
Stockholder:
On
behalf
of the Board of Directors, I cordially invite you to attend the 2008 Annual
Meeting of Stockholders of Cleveland BioLabs, Inc. (the “Company” or “CBLI”) to
be held at the Holiday Inn-Buffalo Downtown, 620 Delaware Ave., Buffalo,
NY
14202 on April 29, 2008, at 10:00 a.m., Eastern Time.
The
attached Notice of Annual Meeting of Stockholders and Proxy Statement describe
in detail the matters that we expect to be acted upon at the Annual Meeting.
Summarized briefly, they consist of the proposals listed below.
·
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First,
to elect each of the Company’s seven directors to an additional one-year
term expiring at the 2009 Annual Meeting;
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·
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Second,
to ratify the appointment of Meaden & Moore, Ltd. by the Audit
Committee of the Board of Directors as the Company’s independent auditor
for the fiscal year ending December 31,
2008;
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·
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Third,
to approve the amendment and restatement of the Cleveland BioLabs,
Inc.
2006 Equity Incentive Plan, a copy of which, as amended and restated,
is
attached as
Appendix
A
to
the Proxy Statement; and
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·
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Fourth,
to transact such other business as may properly come before the
meeting.
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The
Board of Directors of the Company recommends that you vote “FOR” each proposal
set forth in this Notice and Proxy Statement.
A
copy of
the Company’s annual report to stockholders is enclosed for your information.
During the Annual Meeting, stockholders will view a presentation by CBLI’s
management and have the opportunity to ask questions.
Whether
or not you plan to attend the Annual Meeting, it is important that your shares
be represented. Regardless of the number of shares you own, please vote your
shares as soon as possible. For your convenience, you may vote by telephone
by
calling toll-free at 1-866-894-0537
or
via
the Internet at www.continentalstock.com and following the instructions on
the
enclosed voting instruction card. Alternatively, you may sign and date the
enclosed proxy card and promptly return it to us in the enclosed postage
paid
envelope. If you sign and return your proxy card without specifying your
choices, your shares will be voted in accordance with the recommendations
of the
Board of Directors contained in the Proxy Statement.
We
look
forward to seeing you on April 29, 2008.
Sincerely,
/s/
Bernard L.
Kasten
BERNARD
L. KASTEN
Chairman
of the Board
CLEVELAND
BIOLABS, INC.
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON APRIL 29, 2008
To
the
Stockholders of
Cleveland
BioLabs, Inc.:
The
Annual Meeting of Stockholders of Cleveland BioLabs, Inc. (“CBLI”) will be held
at 10:00 a.m., Eastern Time, on April 29, 2008, at the Holiday Inn-Buffalo
Downtown, 620 Delaware Ave., Buffalo, NY 14202 for the following
purposes:
1.
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To
elect seven directors to CBLI’s Board of
Directors;
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2.
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To
ratify the appointment of Meaden & Moore, Ltd. by the Audit Committee
of the Board of Directors as the independent auditor of CBLI’s financial
statements for the fiscal year ending December 31,
2008;
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3.
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To
approve the amendment and restatement of the Cleveland BioLabs, Inc.
2006
Equity Incentive Plan, a copy of which, as amended and restated,
is
attached as
Appendix
A
to
the Proxy Statement; and
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4.
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To
transact such other business as may properly come before the
meeting.
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The
Board
of Directors has fixed the close of business on March 18, 2008, as the record
date for determining stockholders entitled to notice of, and to vote at,
the
Annual Meeting. This Notice of Annual Meeting of Stockholders, the Proxy
Statement and accompanying form of proxy are first being mailed to stockholders
entitled to notice of and to vote at the Annual Meeting on or about April
1,
2008.
By
order
of the Board of Directors,
/s/
Yakov
Kogan
Yakov
Kogan
Chief
Operating Officer and Secretary
Buffalo,
NY
April
1,
2008
All
stockholders are urged to attend the meeting in person or by proxy. Whether
or
not you expect to be present at the meeting, please either (1) vote your
shares
by telephone or on the Internet by following the instructions on the voting
instruction card, or (2) complete, sign and date the enclosed proxy card
and
return it promptly in the enclosed postage paid envelope furnished for that
purpose.
Cleveland
BioLabs, Inc.
73
High Street
Buffalo,
NY 14203
PROXY
STATEMENT
Why
did I receive these proxy materials?
We
are
providing these proxy materials in connection with the solicitation by the
Board
of Directors of Cleveland BioLabs, Inc., a Delaware corporation (“CBLI,” the
“Company,” “we,” “us” or “our”), of proxies to be voted at our 2008 Annual
Meeting of Stockholders and at any adjournments or postponements
thereof.
You
are
invited to attend our 2008 Annual Meeting of Stockholders on April 29, 2008,
beginning at 10:00 a.m., Eastern Time. The Annual Meeting will be held at
the
Holiday Inn-Buffalo Downtown, 620 Delaware Ave., Buffalo, NY 14202. During
the
Annual Meeting, stockholders will view a presentation by our management and
have
the opportunity to ask questions. Representatives from our auditor, Meaden
&
Moore, Ltd., will also be available to answer questions.
This
Notice of Annual Meeting of Stockholders, Proxy Statement and accompanying
form
of proxy are first being mailed to stockholders starting on or about April
1,
2008.
Who
is entitled to vote at the Annual Meeting?
Holders
of CBLI common stock, par value $0.005 per share (the “Common Stock”), as of the
close of business on March 18, 2008 (the “Record Date”) are entitled to receive
notice of, and to vote at, the Annual Meeting or any adjournments or
postponements thereof. Holders of CBLI Series B Convertible Preferred Stock
(the
“Series B Preferred”) as of the close of business on the Record Date are also
entitled to receive notice of, and to vote at, the Annual Meeting or any
adjournments or postponements thereof, except that holders of Series B Preferred
are not eligible to vote their Series B Preferred if and to the extent that
giving effect to such voting rights would result in the holder being deemed
to
beneficially own in excess of 9.99% of the number of the shares of Common
Stock
outstanding immediately after giving effect to the voting rights. The shares
of
Series B Preferred that are not affected by this limitation and that are
therefore entitled to vote are referred to herein as the “Eligible Series B
Preferred.” As of the Record Date, CBLI had
outstanding 13,233,477 shares of Common Stock, 3,541,867 shares of
Series B Preferred, and 2,929,758 shares of Eligible Series B Preferred.
Each
share of Common Stock and each share of Eligible Series B Preferred is entitled
to one vote.
Who
can attend the Annual Meeting?
All
stockholders as of the Record Date, or their duly appointed proxies, may
attend
the Annual Meeting. Seating will be limited.
What
do I need to present for admission to the Annual Meeting?
You
will
need to present proof of your record or beneficial ownership of Common Stock
or
Series B Preferred, such as a bank or brokerage account statement, and a
form of
personal identification to be admitted to the Annual Meeting.
No
cameras, recording equipment, electronic devices, large bags, briefcases
or
packages will be permitted in the Annual Meeting.
What
is the difference between holding shares as a stockholder of record and as
a
beneficial owner?
If
your
shares are registered directly in your name with CBLI’s transfer agent,
Continental Stock Transfer & Trust Company, you are considered, with respect
to those shares, a “stockholder of record.” The Notice of Annual Meeting of
Stockholders, Proxy Statement and accompanying form of proxy have been sent
directly to you by CBLI.
If
your
shares are held in a stock brokerage account or by a bank or other holder
of
record, you are considered the “beneficial owner” of shares held in street name.
The Notice of Annual Meeting of Stockholders, Proxy Statement and accompanying
form of proxy have been forwarded to you by your broker, bank or other holder
of
record who is considered, with respect to those shares, the stockholder of
record. As the beneficial owner, you have the right to direct your broker,
bank
or other holder of record on how to vote your shares by using the voting
instruction card included in the mailing or by following their instructions
for
voting by telephone or on the Internet.
What
constitutes a quorum?
The
required quorum for transaction of business at the Annual Meeting will be
a
majority of the shares of Common Stock and Eligible Series B Preferred issued
and outstanding as of the Record Date. Votes cast by proxy or in person and
entitled to be cast at the Annual Meeting will be tabulated by the election
inspector appointed for the meeting and will determine whether or not a quorum
is present.
What
is the Board of Directors’ recommendation with respect to each
proposal?
The
Board
of Directors recommends that you:
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§
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vote
FOR all of the Board of Directors’ nominees for election as
directors;
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§
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vote
FOR the ratification of the appointment of Meaden & Moore, Ltd. as the
independent auditor of our financial statements for the year ending
December 31, 2008; and
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§
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vote
FOR approval of the amendment and restatement of the Cleveland
BioLabs,
Inc. 2006 Equity Incentive Plan (the “2006 Plan”), a copy of which, as
amended and restated, is attached hereto as
Appendix
A
(the “Amended Plan”).
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What
vote is required to approve each proposal?
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§
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Election
of Directors. A plurality of all the votes cast at the Annual Meeting
shall be sufficient to elect a director, which means that the seven
persons receiving the highest number of “FOR” votes will be elected. Each
share may be voted for as many individuals as there are directors
to be
elected and for whose election the share is entitled to be voted.
Since
the seven nominees for the Board of Directors are running uncontested,
each of the nominees will be elected, regardless of how many votes
are
withheld with respect to such
nominee.
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§
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Ratification
of Auditor. The affirmative vote of a majority of the shares of
Common
Stock and Eligible Series B Preferred represented in person or
by proxy
and entitled to be cast at the Annual Meeting is required to ratify
the
appointment by the Audit Committee of Meaden & Moore, Ltd. as the
independent auditor of CBLI’s financial statements for the year ending
December 31, 2008.
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§
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Amendment
to Equity Plan. The affirmative vote of a majority of the shares
of Common
Stock and Eligible Series B Preferred represented in person or
by proxy
and entitled to be cast at the Annual Meeting is required to approve
the
Amended Plan.
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How
do I vote?
If
you
complete and properly sign and return the accompanying proxy card, it will
be
voted as directed on such proxy card. You may also vote by telephone or via
the
Internet by following the instructions on the voting instruction card
accompanying this Proxy Statement. The deadline for voting by telephone or
via
the Internet is 7:00 p.m., Eastern Time, on April 28, 2008.
If
you
are a stockholder of record and attend the Annual Meeting, you may deliver
your
completed proxy card in person. If, however, you hold your shares in “street
name” and wish to vote at the annual meeting, you will need to obtain a proxy
from the bank, broker or other nominee that holds your shares and present
it at
the Annual Meeting.
Who
are the persons selected by CBLI’s Board of Directors to serve as
proxies?
Michael
Fonstein and John A. Marhofer, Jr., the persons named as proxies on the proxy
card accompanying this Proxy Statement, were selected by the Board of
Directors to serve in such capacity. Michael Fonstein is the Chief Executive
Officer and President of the Company and John A. Marhofer, Jr. is the Chief
Financial Officer of the Company.
Who
will count the vote?
At
the
Annual Meeting, the results of stockholder voting will be tabulated by the
inspector of elections appointed by CBLI for the meeting.
Will
abstentions and broker non-votes affect the voting
results?
Abstentions
will be counted by the election inspector towards determining whether a quorum
is present. With respect to Proposals 2 and 3, which require approval of
a
majority of shares entitled to vote and represented in person or by proxy,
abstentions will have the same effect as voting against the proposal. With
respect to Proposal 1, for which each nominee must receive a plurality of
shares
entitled to vote and represented in person or by proxy, abstentions will
have no
legal effect on the outcome of the vote.
Broker
non-votes are proxies received from brokers or nominees when the broker or
nominee has neither received instructions from the beneficial owner or other
persons entitled to vote nor has discretionary power to vote on a particular
matter. Brokers only possess discretionary power over matters that are
considered routine, such as the uncontested election of directors described
in
Proposal 1 or the approval of auditors described in Proposal 2. In contrast,
brokers do not have discretionary authority to vote shares held in “street name”
on non-routine matters, such as the amendment to the 2006 Plan described
under
Proposal 3, without your instructions.
Broker
non-votes will be counted by the election inspector towards determining whether
a quorum is present. Broker non-votes will not be counted as present and
entitled to vote on a particular proposal and therefore will have no effect
on
the outcome of the vote on any proposal.
Stockholders
are advised to forward their voting instructions promptly so as to afford
brokers sufficient time to process such instructions.
Can
I change my vote or revoke my proxy after I return my proxy card or vote
by
telephone or Internet?
Yes.
Even
after you have submitted your proxy, whether by sending in a proxy card,
or
voting by telephone or on the Internet, you may change your vote at any time
before the proxy is exercised by filing with CBLI’s Secretary a notice of
revocation or by submitting another proxy, whether by sending in a proxy
card,
or voting by telephone or on the Internet, which proxy bears a later date.
If
you vote in person at the Annual Meeting, a previously granted proxy will
be
revoked. However, attendance at the Annual Meeting will not by itself revoke
a
previously granted proxy. For shares held in “street name,” you may revoke your
previously granted proxy by submitting new voting instructions to your bank,
broker or other nominee or contacting the person responsible for your account
and instructing that person to execute on your behalf the proxy card as soon
as
possible.
Could
other matters be decided at the Annual Meeting?
Yes.
As
of the date of this Proxy Statement, we did not know of any matters to be
raised
at the Annual Meeting other than those referred to in this Proxy Statement.
If
any other items or matters properly come before the Annual Meeting, the proxies
received will be voted on those items or matters in accordance with the
discretion of the proxy holders.
Is
there a list of stockholders entitled to vote at the Annual
Meeting?
Yes.
A
list of stockholders entitled to vote at the Annual Meeting, arranged in
alphabetical order, showing the address of, and number of shares registered
in
the name of, each stockholder, will be open to the examination of any
stockholder, for any purpose germane to the Annual Meeting, during ordinary
business hours, commencing April 19, 2008, and continuing through the date
of
the Annual Meeting, at the principal offices of CBLI, 73 High Street, Buffalo,
New York 14203.
Can
I access the Notice of Annual Meeting of Stockholders, Proxy Statement and
Annual Report to Stockholders on the Internet?
CBLI’s
Annual Report to Stockholders for the year ended December 31, 2007, containing
financial and other information pertaining to CBLI, is being furnished to
stockholders with this Proxy Statement. The Notice of Annual Meeting of
Stockholders, Proxy Statement, Form 10-K and Annual Report to Stockholders
are
available on the Company’s website at www.cbiolabs.com under the link “Investor
Information.”
ELECTION
OF DIRECTORS
CBLI’s
Board of Directors consists of seven directors, each of whom is a nominee
in the
current election. If elected, the seven nominees for election as directors
at
CBLI’s 2008 Annual Meeting of Stockholders will serve for one year terms
expiring at CBLI’s 2009 Annual Meeting of Stockholders.
The
Board
of Directors recommends that the stockholders vote in favor of the election
of
the nominees named in this Proxy Statement to serve as directors of CBLI.
See
“Nominees” below.
In
accordance with NASDAQ Marketplace Rule 4350(c), and the standard of
independence defined in NASDAQ Marketplace Rule 4200(a)(15), a majority of
CBLI’s Board of Directors are "independent directors.” CBLI’s independent
directors are James J. Antal, Paul E. DiCorleto, Bernard L. Kasten, and H.
Daniel Perez. In making the determination of independence with respect to
Dr.
DiCorleto, the Nominating and Corporate Governance Committee of the Board
of
Directors, with Dr. DiCorleto abstaining from the determination, considered
Dr.
DiCorleto’s affiliation with the Cleveland Clinic and satisfied itself that this
affiliation does not detract or interfere with Dr. DiCorleto’s ability to
exercise independent judgment in carrying out his responsibilities as director
and serving the best interests of our stockholders.
Messrs.
DiCorleto, Kasten and Perez make up our Nominating and Corporate Governance
Committee. Messrs. Antal, Kasten and Perez make up our Compensation Committee
and Audit Committee. As members of CBLI’s Audit Committee, Messrs. Antal,
Kasten, and Perez meet the additional independence requirements for audit
committee members under NASDAQ Marketplace Rule 4350(d). Specifically, Messrs.
Antal, Kasten, and Perez satisfy the criteria for independence set forth
in Rule
10a-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and have not participated in the preparation of the financial statements
of the Company or any current subsidiary of the Company at any time during
the
past three years.
The
Nominating and Corporate Governance Committee of the Board has reviewed the
performance of all current directors, and has recommended that all nominees
be
approved for reelection. If at the time of the Annual Meeting, any of the
Board
of Directors’ nominees should be unable or decline to serve, the persons named
as proxies on the proxy card will vote for such substitute nominee or nominees
as the Board of Directors recommends, or vote to allow the vacancy created
thereby to remain open until filled by the Board of Directors, as the Board
of
Directors recommends. The Board of Directors has no reason to believe that
any
of the nominees will be unable or decline to serve as a director if
elected.
NOMINEES
The
names
of the nominees for the office of director, together with certain information
concerning such nominees, are set forth below:
Name
|
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Age
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Positions
with CBLI
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Bernard
L. Kasten (1)(2)(3)
|
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61
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Chairman
of the Board
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James
J. Antal (1)(3)
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57
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Director
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Paul
E. DiCorleto (2)(3)
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56
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Director
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Michael
Fonstein, Ph.D.
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48
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Director,
Chief Executive Officer, President
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Andrei
Gudkov, Ph.D.
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51
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Director,
Chief Scientific Officer
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Yakov
Kogan, Ph.D.
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34
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Director,
Chief Operating Officer, Secretary
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H.
Daniel Perez (1)(2)(3)
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58
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Director
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(1)
Member
of
the Audit Committee and Compensation Committee.
(2)
Member
of
the Nominating and Corporate Governance Committee.
(3)
Determined
to be independent, in accordance with NASDAQ Marketplace Rules.
Bernard
L. Kasten, M.D
.
Dr.
Kasten became a member of our board on July 20, 2006 and was appointed Chairman
of the Board on August 30, 2006. From 1995 to 2004, Dr. Kasten served at
Quest
Diagnostics Incorporated where he was Chief Laboratory Officer and most recently
Vice President of Medical Affairs of its MedPlus Inc. subsidiary. Dr.
Kasten served as a director of SIGA Technologies from May 2003 to December
2006, and as SIGA’s Chief Executive Officer from July 2004 through April 2006.
Dr. Kasten currently serves as a director of Enzo BioChem Inc., GeneLink
Inc.,
and SeraCare Life Sciences Inc. Dr. Kasten is also a director of several
privately held companies. Dr. Kasten is a graduate of the Ohio State University
College of Medicine. His residency was served at the University of Miami,
Florida, and he was awarded fellowships at the National Institutes of Health
Clinical Center and NCI, Bethesda, Maryland. He is a diplomat of the American
Board of Pathology with certification in anatomic and clinical pathology
with
sub-specialty certification in Medical Microbiology.
James J. Antal
Mr.
Antal became a member of our board on July 20, 2006. Mr. Antal served as
Chief
Financial Officer of Experian from 1996 to 2001 and as Chief Investment Officer
of Experian from 2001 to 2002. Experian is a leading global provider of consumer
and business credit information, direct marketing information services, and
integrated customer relationship management processes. He also served on
the
Board of Directors of First American Real Estate Solutions, an Experian joint
venture with First American Financial Corp. Mr. Antal earned a Bachelor of
Science degree in Business Administration with an Accounting major from The
Ohio
State University in 1973. He became a Certified Public Accountant (Ohio)
in
1975. Starting in 2002, Mr. Antal served as an advisor to the board of directors
for Plexus Vaccine, Inc., a biotech company, until it was acquired by SIGA
Technologies in 2004. In December 2004, he joined the SIGA board of directors,
and also currently serves on its audit and corporate governance committees.
From May 2004 to August 2005, he was engaged as the Chief Financial Advisor
to
the Black Mountain Gold Coffee Co. In July 2005, he joined Pathway Data Inc,
a
privately held company engaged in consumer credit notification and identity
theft assistance services, as its part-time Chief Financial
Officer.
Paul E. DiCorleto, Ph.D.
Dr.
DiCorleto has served as one of our directors since 2004. He is the Chairman
of
the Lerner Research Institute of the Cleveland Clinic and Chairman of the
Department of Molecular Medicine at the Case School of Medicine. Dr. DiCorleto
received his undergraduate training in chemistry at Rensselaer Polytechnic
Institute and his doctorate in biochemistry from Cornell University. Dr.
DiCorleto’s research focuses on the molecular and cellular basis of
atherosclerosis. He has been with the Cleveland Clinic since 1981, having
served
previously as Chairman of the Department of Cell Biology, as an Associate
Chief
of Staff, and as a member of the Clinic’s Board of Governors and Board of
Trustees. Dr. DiCorleto is currently serving, as the most recent past president,
on the Executive Committee of the North American Vascular Biology Organization,
as chair of the Vascular Biology study section of the national American Heart
Association, and as a member of the Association of American Medical Colleges’
Advisory Panel on Research.
Michael Fonstein, Ph.D
.
Dr.
Fonstein has served as our Chief Executive Officer, President, and as one
of our
directors since our inception in June 2003. He served as Director of the
DNA
Sequencing Center at the University of Chicago from its creation in 1994
to
1998, when he left to found Integrated Genomics, Inc. located in Chicago,
Illinois. He served as CEO and President of Integrated Genomics from 1997
to
2003. Dr. Fonstein has won several business awards, including the Incubator
of
the Year Award from the Association of University Related Research Parks.
He was
also the winner of a coveted KPMG Illinois High Tech Award.
Andrei Gudkov, Ph.D., D. Sci.
Dr.
Gudkov has served as one of our directors and as our Chief Scientific Officer
since our inception in June 2003. Prior to 1990, he worked at The National
Cancer Research Center in Moscow, where he led a broad research program focused
on virology and cancer drug resistance. In 1990, he reestablished his lab
at the
University of Illinois at Chicago where he became a tenured faculty member
in
the Department of Molecular Genetics. His lab concentrated on the development
of
new functional gene discovery methodologies and the identification of new
candidate cancer treatment targets. In 1999, he defined p53 as a major
determinant of cancer treatment side effects and suggested this protein as
a
target for therapeutic suppression. In 2001, Dr. Gudkov moved his laboratory
to
the Lerner Research Institute at the Cleveland Clinic where he became Chairman
of the Department of Molecular Biology and Professor of Biochemistry at Case
Western Reserve University. In May 2007, Dr. Gudkov became Senior Vice President
of Research Programming and Development for Roswell Park Cancer Institute.
He
continues in his capacity as a consultant with CBLI.
Yakov Kogan, Ph.D.
Dr.
Kogan has served as one of our directors since our inception in June 2003,
as
Secretary since March 2006, and as Chief Operating Officer since February
2008.
Dr. Kogan also served as our Executive Vice President of Business Development
from our inception until February 2008. From 2002 to 2003, as Director for
Business Development at Integrated Genomics, he was responsible for commercial
sales and expansion of the company’s capital base. Prior to his tenure in
business development, Dr. Kogan worked as a Group Leader/Senior Scientist
at
Integrated Genomics and ThermoGen, Inc. and as Research Associate at the
University of Chicago. Dr. Kogan holds a Ph.D. degree in Molecular Biology
from
All-Union Research Institute of Genetics and Selection of Industrial
Microorganisms (VNIIGenetika) (Moscow, Russia), as well as an MBA degree
from
the University of Chicago Graduate School Of Business.
H. Daniel Perez, M.D.
Dr.
Perez became a member of our board on July 20, 2006. Dr. Perez is currently
a
Venture Partner at Bay City Capital, LLC, a venture firm located in San
Francisco. From 2001 until 2006, Dr. Perez was the President and CEO of Berlex
Biosciences. He joined Berlex Biosciences in 1993. Berlex Biosciences combined
biotechnology and pharmaceutical discovery and development technologies to
deliver innovative treatments for cardiovascular, cancer and immuno-based
disorders. He earned his undergraduate degree at Mariano Moreno School,
Argentina and graduated from Buenos Aires University Medical School. After
completing an internship and residency in internal medicine at Beth Israel
Medical Center in New York, Dr. Perez was a Fellow in Rheumatology at New
York
University-Bellevue Medical Center. He served on the NYU faculty until he
was
recruited by the University of California at San Francisco (UCSF) Medical
School
to start the Rosalind Russell Arthritis Center at San Francisco General Hospital
under the direction of Dr. Ira Goldstein. Dr. Perez is currently a Professor
of
Medicine at UCSF.
The
Board of Directors recommends that stockholders vote FOR all of the Board
of
Directors’ nominees for election as directors.
For
their
service during the one-year term following the 2007 Annual Meeting, each
of our
independent directors received an annual retainer of $50,000. In addition,
the
chairperson of the Audit Committee (Mr. Antal) received an annual fee of
$15,000
and the other members of the Audit Committee (Messrs. Kasten and Perez) each
received an annual fee of $10,000. The chairperson of the Compensation Committee
(Mr. Kasten) received an annual fee of $7,500 and the other members of the
Compensation Committee (Messrs. Antal and Perez) each received $5,000. Each
member of the Nominating and Corporate Governance Committee (Messrs. Kasten,
DiCorleto,and Perez), including the chairperson, received an annual fee of
$2,500. For the year ending December 31, 2007, we granted to each of our
independent directors options to purchase 35,000 shares of Common Stock at
an
exercise price of $9.40 per share. All of those options were awarded on June
12,
2007, vested immediately upon grant and are exercisable for ten years. Each
of
our independent directors is also reimbursed for reasonable out-of-pocket
expenses incurred in attending Board or Committee meetings.
The
total
compensation of our directors (other than those directors whose compensation
is
disclosed herein under the heading “Executive Compensation”) for the year ended
December 31, 2007 in their capacity as directors is shown in the table
below.
|
|
Fees
Earned or
Paid
in Cash
(1)
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
(2)
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All Other Compensation
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard
L. Kasten
|
|
$
|
97,500
|
|
|
-
|
|
$
|
237,300
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
334,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H.
Daniel Perez
|
|
$
|
98,125
|
|
|
-
|
|
$
|
237,300
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
335,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
J. Antal
|
|
$
|
100,000
|
|
|
-
|
|
$
|
237,300
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
337,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
E. DiCorleto
|
|
$
|
39,375
|
|
|
-
|
|
|
237,300
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
276,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrei
Gudkov
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
0
|
|
(1)
|
For
services for the one-year term preceding the 2007 Annual Meeting,
Messrs.
Kasten, Perez and Antal were paid $45,000, $47,500 and $47,500
respectively in February and May 2007. Dr. DiCorleto was not paid
for
services preceding the 2007 Annual Meeting. The remaining portions
of the
amounts listed in this column reflect compensation for services
rendered
during the one-year term after the 2007 Annual Meeting that was
paid in
2007.
|
(2)
|
On
June 12, 2007, following their election at the 2007 Annual Meeting,
Messrs. Kasten, Perez, Antal, and DiCorleto each received options
to
purchase 35,000 shares of Common Stock at an exercise price of
$9.40 per
share. All of those options vested immediately upon grant and are
exercisable for ten years. Award amounts are calculated using the
provisions of Statement of Financial Accounting Standards (“SFAS”) No.
123R, Share-Based Payment.
|
Board
Meetings—
During
the year ended December 31, 2007, the Board of Directors held twelve meetings,
and each director
attended
at least 75% of the aggregate of the total number of Board of Directors meetings
and the total number of Committee meetings on which he served. Directors
are
expected to attend the Annual Meeting, absent unusual circumstances. All
seven
directors attended the 2007 Annual Meeting of Stockholders.
COMMITTEES
OF THE BOARD OF DIRECTORS
The
Board
of Directors has established an Audit Committee, a Compensation Committee,
and a
Nominating and Corporate Governance Committee, each comprised entirely of
directors who are “independent” as that concept is defined in the corporate
governance listing requirements of The NASDAQ Global Market.
Each
Committee has a written charter that is posted on the Company’s website,
www.cbiolabs.com, under the link “Investor Information.” Each of Messrs. Antal,
DiCorleto, Kasten, and Perez is independent under The NASDAQ Marketplace
Rules
and the Exchange Act. The members of the Audit Committee are Messrs. Antal
(Chairperson), Kasten, and Perez. The members of the Compensation Committee
are
Messrs. Kasten (Chairperson), Antal, and Perez. The members of the Nominating
and Corporate Governance Committee are Messrs. Kasten (Chairperson), DiCorleto,
and Perez. Executive sessions of the independent directors are to be held
at
least twice per year.
Audit
Committee—
The
Audit Committee generally has direct responsibility and oversight for CBLI’s
accounting policies and internal controls, financial reporting practices,
and
legal and regulatory compliance. More specifically, the Audit Committee has
responsibility to review and discuss the annual audited financial statements
and
disclosures with management and the independent auditor; review the financial
statements and disclosures provided in CBLI’s quarterly and periodic reports
with management and the independent auditor; and oversee the external audit
coverage, including appointment and replacement of the independent auditor
and
pre-approval of all audit and non-audit services to be performed by the
independent auditor. The Board of Directors has determined that Mr. Antal
is an
“audit committee financial expert,” as that term is defined in the Securities
and Exchange Commission (the “SEC”) rules adopted pursuant to the Sarbanes-Oxley
Act. During the year ended December 31, 2007, the Audit Committee held five
meetings. See “Report of the Audit Committee of the Board of
Directors.”
Compensation
Committee—
The
Compensation Committee determines and approves the compensation level of
executive officers based on an evaluation of their performance in light of
CBLI’s goals and objectives. When determining the long-term incentive component
of executive compensation, the Compensation Committee considers CBLI’s
performance and relative stockholder return, the value of similar incentive
awards to executive officers in comparable positions at comparable companies,
and awards given to executive officers in past years. The Compensation Committee
makes recommendations to the full Board of Directors with respect to the
adoption, amendment, termination, or replacement of both incentive compensation
plans and equity-based plans. The Compensation Committee has the power to
retain
professionals to assist in the evaluation of director and executive
compensation, and has the sole authority to retain and terminate any such
professional and to approve the professional’s fees. The Compensation Committee
may also establish subcommittees of entirely independent directors to evaluate
special or unique matters. During the year ended December 31, 2007, the
Compensation Committee held six meetings.
Nominating
and Corporate Governance Committee—
The
Nominating and Corporate Governance Committee generally has responsibility
for
identifying candidates who are eligible under the qualification standards
set
forth in CBLI’s Corporate Governance Guidelines and recommending such eligible
individuals to serve as members of the Board of Directors. It also makes
recommendations to the Board of Directors concerning the structure and
membership of other Board committees. The Nominating and Corporate Governance
Committee is also charged with considering matters of corporate governance
generally and reviewing and recommending to the Board of Directors,
periodically, CBLI’s corporate governance principles. During the year ended
December 31, 2007, the Nominating and Governance Committee held three
meetings.
Corporate
Governance Guidelines—
In May
2006, the Board of Directors adopted Corporate Governance Guidelines to assist
the Board of Directors in fulfilling its responsibility to exercise its business
judgment in what it believes to be the best interests of CBLI’s stockholders.
The Corporate Governance Guidelines are posted on the Company’s website,
www.cbiolabs.com, under the link “Investor Information.”
Code
of Ethics for Senior Executives and Code of Conduct—
In May
2006, the Board of Directors adopted a Code of Ethics for Senior Executives
that
is specifically applicable to its executive officers and senior financial
officers, including its principal executive officer and its principal financial
officer. The Code of Ethics for Senior Executives is posted on the Company’s
website, www.cbiolabs.com, under the link “Investor Information.” CBLI has also
adopted a Code of Conduct in order to promote honest and ethical conduct
and
compliance with the laws and governmental rules and regulations to which
the
Company is subject. The Code of Conduct is applicable to all of CBLI’s
employees, officers and directors, and is posted on the Company’s website,
www.cbiolabs.com, under the link “Investor Information.”
Nominating
Procedures—
As
described above, the Company has a standing Nominating and Corporate Governance
Committee and its charter is posted on the Company’s website, www.cbiolabs.com,
under the link “Investor Information.”
The
Nominating and Corporate Governance Committee considers many factors when
considering candidates for the Board of Directors and strives for the Board
to
be comprised of directors with a variety of experience and backgrounds, who
have
high-level managerial experience in a complex organization, and who represent
the balanced interest of stockholders as a whole rather than those of special
interest groups. Other important factors in Board composition include strength
of character, mature judgment, specialized expertise, relevant scientific
and
technical skills, diversity, level of education, broad-based business acumen,
experience and understanding of strategy and policy-setting and the extent
to
which the candidate would fill a present need on the Board. Depending upon
the
current needs of the Board, certain factors may be weighed more or less heavily
by the Nominating and Corporate Governance Committee.
In
considering candidates for the Board, the Nominating and Corporate Governance
Committee considers the entirety of each candidate’s credentials and does not
have any specific minimum qualifications that must be met by a Nominating
and
Corporate Governance Committee or stockholder-recommended nominee. However,
the
Nominating and Corporate Governance Committee does believe that all members
of
the Board should have the highest character and integrity, a reputation for
working constructively with others, sufficient time to devote to Board matters,
and no conflict of interest that would interfere with their performance as
a
director. In the case of current Directors being considered for renomination,
the Nominating and Corporate Governance Committee will also take into account
the director’s history of attendance at meetings of the Board of Directors or
its committees, the Director’s tenure as a member of the Board of Directors, and
the Director’s preparation for and participation in such meetings.
The
Nominating and Corporate Governance Committee considers candidates for the
Board
from any reasonable source, including stockholder recommendations. The
Nominating and Corporate Governance Committee does not evaluate candidates
differently based on who has made the proposal. The Nominating and Governance
Committee has the authority under its charter to hire consultants or search
firms to assist in the process of identifying and evaluating candidates.
Candidates are recommended to the Board of Directors after consultation with
the
Chairman of the Board.
Stockholders
who wish to suggest qualified candidates should write to the Office of the
Secretary, Cleveland BioLabs, Inc., 73 High Street, Buffalo, New York 14203
specifying the name of the candidates and stating in detail the qualifications
of such persons for consideration by the Nominating and Corporate Governance
Committee. A written statement from the candidate consenting to be named
as a
candidate and, if nominated and elected, to serve as a director should accompany
any such recommendation. Stockholders who wish to nominate a director for
election at an annual meeting of the stockholders of the Company must comply
with the Company’s By-Laws regarding stockholder proposals and nominations. See
“Proposals of Stockholders” contained herein under “Miscellaneous and Other
Matters.”
Communications
with the Board of Directors—
Stockholders or other interested parties may communicate with the Board of
Directors by sending a letter to CBLI Board of Directors, c/o Office of the
Secretary, 73 High Street, Buffalo, New York 14203. The Office of the Secretary
will receive the correspondence and forward it to the Director or Directors
to
whom the communication is addressed. From time to time, the Board of Directors
may change the process or means by which stockholders may communicate with
the
Board or its members. Please refer to CBLI’s website, www.cbiolabs.com, for any
changes in this process.
Transactions
with Related Parties—
Pursuant
to the Company’s Code of Conduct, the Audit Committee must approve in advance
any transaction that could involve an actual, potential or perceived conflict
of
interest, including transactions where employees or directors have a substantial
financial interest in a competitor, customer or supplier of the Company,
or
where gifts or loans of value in excess of $200 are received in a year from
suppliers, customers or competitors of CBLI. The policy also requires disclosure
or approval where an employee or director owns a substantial interest in
an
entity that has a prospective business relationship with, or is a competitor
of,
CBLI.
On
or
around May 31, 2006, we entered into a Collaboration Agreement with one of
our
stockholders, ChemBridge Corporation (“ChemBridge”), which at the time
beneficially owned approximately 6.12% of our Common Stock and which, as
of
December 31, 2007, beneficially owned approximately 5.1% of our Common Stock.
Pursuant to the Collaboration Agreement, we and ChemBridge agreed to collaborate
on efforts to research and develop pharmaceutical compounds targeting renal
cell
carcinoma (a highly fatal form of kidney disease) and other cancers. The
financial commitment from each party depends on the success of each step
of the
project. As part of the agreement, ChemBridge has agreed to provide 5.25
full-time equivalent personnel in exchange for a 50% interest in all developed
pharmaceutical compounds.
Pursuant
to our existing license agreement with The Cleveland Clinic Foundation (“CCF”),
we had paid as of December 31, 2007, $300,000 in milestone payments. Since
our
inception, we have subcontracted with CCF for grants, and lab and other
services, in the approximate amount of $2,545,000, of which approximately
$876,000 was paid in 2007. As of December 31, 2007, CCF beneficially owned
approximately 10.4% of our Common Stock.
In
connection with our private placement offering in March 2007, we issued
securities to Sunrise Securities Corp. (“SSC”) and Sunrise Equity Partners, LP.
(“SEP”), affiliated entities that collectively owned more than 10% of the
Company’s outstanding Common Stock at the time of the private placement. In the
transaction,
SEP
purchased Series B Preferred convertible into 600,000 shares of Common Stock
and
received Series B Warrants to purchase 300,000 shares of Common Stock. We
also
issued Series B Preferred convertible into 290,298 shares of Common Stock,
Series B Warrants to purchase an aggregate of 145,149 shares of Common Stock,
and Series C Warrants to purchase 267,074 shares of Common Stock to SSC and
its
designees in consideration for SSC’s services as lead placement agent. We
also engaged SSC as our exclusive management agent regarding all exercises
of
the Series B Warrants, for which we will pay SSC a fee equal to 3.5% of the
aggregate exercise price of each Series B Warrant, payable in cash if the
exercise is in cash or in shares of Common Stock if the exercise is
cashless.
SSC’s
role as lead placement agent in the private placement along with SEP’s role as a
buyer presented a potential conflict of interest. As such, it was subject
to a
detailed review, and subsequent approval by both the Audit Committee and
our
Board of Directors.
EXECUTIVE
OFFICERS
Set
forth
below is a table identifying the executive officer of CBL who is not identified
in the table entitled “Election of Directors—Nominees.”
Name
|
|
Age
|
|
Position
|
John
A. Marhofer, Jr.
|
|
45
|
|
Chief
Financial Officer
|
John
(Jack) A. Marhofer, Jr., CMA, CFM
Mr.
Marhofer joined us as Controller and General Manager in February 2005 and
was
subsequently appointed to be our Chief Financial Officer in August 2005.
He was
Corporate Controller of Litehouse Products, Inc. from June 2001 to February
2005. Mr. Marhofer earned his Bachelor of Science in Accounting and Marketing
from Miami University in Ohio in 1984, and his Masters in Business
Administration in Finance from Akron University in Ohio in 1997, where he
was
named to the National Honor Society of the Financial Management
Association.
The
Board
of Directors elects officers annually and such officers serve at the discretion
of the Board of Directors. There are no family relationships among any of
the
directors or officers of CBLI.
Section
16(a) Beneficial Ownership Reporting Compliance
—
Section
16 of the Exchange Act requires CBLI’s officers (as defined under Section 16),
directors and persons who beneficially own greater than 10% of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the SEC. Based solely on a review of the forms it has received
and written representations or the absence of written representations received
in response to its inquiries, CBLI believes that, during 2007, all Section
16
filing requirements applicable to our officers, directors and greater than
10%
beneficial owners were complied with by such persons.
EXECUTIVE
COMPENSATION
The
following table provides information concerning compensation for services
rendered to us for the year ended December 31, 2007, paid to Michael Fonstein,
who served as our principal executive officer, and our two most highly
compensated executive officers (other than the principal executive officer),
Messrs. Kogan and Gudkov (collectively, the “Named Officers”).
SUMMARY
COMPENSATION TABLE
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
(1)
($)
|
Non-
Equity
Incentive
Plan
Compens-
ation
($)
|
Non-
Qualified
Deferred
Compens
-ation
Earnings
($)
|
All
Other
Compens-
ation
($)
|
Total
($)
|
Michael
Fonstein
Chief
Executive Officer
|
2007
2006
|
230,208
191,667
|
104,507
(2)
35,375
|
-
-
|
198,375
(3)
-
|
-
-
|
-
-
|
22,040
(4)
-
|
555,130
227,042
|
|
|
|
|
|
|
|
|
|
|
Yakov
Kogan
Executive
Vice President of Business Development
(5)
|
2007
2006
|
180,000
166,667
|
97,645
(6)
34,500
|
-
-
|
198,375
(7)
-
|
-
-
|
-
-
|
181,374
(8)
48,855
(9)
|
657,394
250,022
|
|
|
|
|
|
|
|
|
|
|
John
A. Marhofer, Jr.
Chief
Financial Officer
|
2007
2006
|
133,333
9
0,000
|
83,920
(10)
17,750
|
-
-
|
152,372
(11)
49,559
|
-
-
|
-
-
|
7,786
(12)
-
|
377,411
157,309
|
(1)
|
Option
award amounts are calculated using the provisions of Statement
of
Financial Accounting Standards (“SFAS”) No. 123R, Share-Based
Payment.
|
(2)
|
Consists
of $40,000 paid in April 2007 as a bonus for completing the Company’s
Series B Preferred transaction consummated on March 16, 2007, and
a
$64,507 bonus for performance during 2007 paid in March
2008.
|
(3)
|
Represents
(i) options to purchase 37,500 shares of the Company’s Common Stock,
granted on April 6, 2007 for completing the Company’s Series B Preferred
transaction consummated on March 16, 2007, which vested immediately
and
have an exercise price of $8.36 per share (the market price of
our Common
Stock on the date of the grant), and (ii) options to purchase 137,250
shares of the Company’s Common Stock, granted on February 4, 2008 for
performance during 2007, which vested immediately and have an exercise
price of $4.00 per share (the market price of our Common Stock
on the date
immediately after
the
grant).
|
(4)
|
Consists
of $12,929 in reimbursements for commuting from primary residence
in
Chicago, Illinois and $9,111 in reimbursements for relocation costs
to
Buffalo, New York.
|
(5)
|
Dr.
Kogan served as our Executive Vice President of Business Development
from
our inception until February 2008, at which time Dr. Kogan was
appointed
to the position of Chief Operating Officer.
|
(6)
|
Consists
of $40,000 paid in April 2007 as a bonus for completing the Company’s
Series B Preferred transaction consummated on March 16, 2007, and
a
$57,645 bonus for performance during 2007 paid in March
2008.
|
(7)
|
Represents
(i) options to purchase 37,500 shares of the Company’s Common Stock,
granted on April 6, 2007 for completing the Company’s Series B Preferred
transaction consummated on March 16, 2007, which vested immediately
and
have an exercise price of $8.36 per share (the market price of
our Common
Stock on the date of the grant), and (ii) options to purchase 137,250
shares of the Company’s Common Stock, granted on February 4, 2008 for
performance during 2007, which vested immediately and have an exercise
price of $4.00 per share (the market price of our Common Stock
on the date
immediately after
the
grant).
|
(8)
|
Consists
of $97,720 in tuition reimbursement for masters in business administration
program and $83,654 in reimbursements for relocation costs to Buffalo,
New
York.
|
(9)
|
Tuition
reimbursement for masters in business administration
program.
|
(10)
|
Consists
of $40,000 paid in April 2007 as a bonus for completing the Company’s
Series B Preferred transaction consummated on March 16, 2007, and
a
$43,920 bonus for performance during 2007 paid in March
2008.
|
(11)
|
Represents
(i) options to purchase 37,500 shares of the Company’s Common Stock,
granted on April 6, 2007 for completing the Company’s Series B Preferred
transaction consummated on March 16, 2007, which vested immediately
and
have an exercise price of $8.36 per share (the market price of
our Common
Stock on the date of the grant), and (ii) options to purchase 91,500
shares of the Company’s Common Stock, granted on February 4, 2008 for
performance during 2007, which vested immediately and have an exercise
price of $4.00 per share (the market price of our Common Stock
on the date
immediately after
the
grant).
|
(12)
|
Consists
of $7,786 in reimbursements for relocation costs to Buffalo, New
York.
|
CBLI
entered into employment agreements dated as of August 1, 2004 with each of
Michael Fonstein, CBLI’s Chief Executive Officer, and Yakov Kogan, CBLI’s Chief
Operating Officer. For the year ended December 31, 2007, Dr. Fonstein’s annual
base salary was $230,208 and Dr. Kogan’s annual base salary was $180,000. These
agreements had three-year initial terms and are renewed pursuant to their
terms
for successive one-year periods, unless earlier terminated in accordance
with
their terms. If either executive is terminated by CBLI without cause as
described in the agreements, he would be entitled to severance pay equal
to nine
months of his annual salary. The agreements also contain confidentiality,
assignment of inventions, non-competition and non-solicitation provisions
to
help protect the value of CBLI’s intellectual property. Our Chief Scientific
Officer, Andrei Gudkov, serves in such capacity pursuant to a consulting
agreement, pursuant to which he was paid $119,256 and $101,250 in compensation
for 2007 and 2006, respectively, and received options to purchase 37,500
and 0
shares of Common Stock in 2007 and 2006, respectively.
On
May
11, 2007, the Compensation Committee of the Board of Directors approved an
executive compensation program designed to reward each of our executive officers
for the achievement of certain pre-determined milestones. The purpose of
the
program is to link each executive officer's compensation to the achievement
of
key Company initiatives that the Compensation Committee believes have a strong
potential to create long-term stockholder value.
Under
the
terms of this program, after each fiscal year, each component of our executive
officers’ compensation packages - base salary, cash bonus and stock option
awards - will be measured against the Company's achievement of (1) stock
performance milestones, (2) scientific milestones, (3) business milestones
and
(4) financial milestones. The milestones will be set at the beginning of
each
fiscal year. Each set of milestones has a threshold level, a target level
and a
high performance level. For base salary, increases will range between 2%
for
threshold performance to 6% for high performance. For cash bonuses, increases
will range between 15% for threshold performance and 60% for high performance.
For stock option awards, awards will range between 50,000 stock options for
threshold performance and 300,000 for high performance.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
Below
is
information relating to unexercised options held by the Named Officers as
of
December 31, 2007.
|
|
Option
Awards
|
|
|
|
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Fonstein
|
|
|
37,500
(1)
|
|
|
-
|
|
|
-
|
|
|
8.36
|
|
|
4/5/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yakov
Kogan
|
|
|
37,500
(1)
|
|
|
-
|
|
|
-
|
|
|
8.36
|
|
|
4/5/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
A. Marhofer, Jr.
|
|
|
25,000
(1)
10,000
(2)
17,388
(3)
|
|
|
10,000
(2)
5,796
(3)
|
|
|
|
|
|
8.36
4.50
0.67
|
|
|
4/5/2017
2/28/2016
6/30/2015
|
(1)
|
Immediately
vested on the grant date of
4/6/2007
|
(2)
|
Options
to acquire 5,000 shares of Common Stock immediately vested on grant
date
of 3/1/2006
Options
to acquire 5,000 shares of Common Stock vested on 3/1/2007
Options
to acquire 5,000 shares of Common Stock vest on 3/1/2008
Options
to acquire 5,000 shares of Common Stock vest on
3/1/2009
|
(3)
|
Options
to acquire 5,796 shares of Common Stock immediately vested on grant
date
of 7/1/2005
Options
to acquire 5,796 shares of Common Stock vested on 7/1/2006
Options
to acquire 5,796 shares of Common Stock vested on 7/1/2007
Options
to acquire 5,796 shares of Common Stock vest on
7/1/2008
|
REPORT
OF THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
The
Board
of Directors maintains an Audit Committee comprised of three non-employee
members of the Board of Directors. After reviewing the qualifications of
the
current members of the committee, and any relationships they may have with
CBLI
that might affect their independence from CBLI, the Board of Directors has
determined that (1) all current members of the Audit Committee are “independent”
as that concept is defined in Section 10A of the Exchange Act, (2) all current
members of the Audit Committee are “independent” as that concept is defined in
The NASDAQ Marketplace Rules, (3) all current members of the Audit Committee
are
financially literate, and (4) Mr. Antal qualifies as an audit committee
financial expert under the applicable rules promulgated pursuant to the Exchange
Act.
The
members of the Audit Committee are not professional auditors, and their
functions are not intended to duplicate or to certify the activities of
management or the independent auditors, nor can the Audit Committee certify
that
the independent auditors are “independent” under applicable rules. The Audit
Committee serves in a board-level oversight role in which it provides advice,
counsel and direction to management and the auditors based on the information
it
receives, on discussions with management and the auditors, and on the members
of
the Audit Committee’s experience in business, financial and accounting matters.
The Audit Committee has the authority to engage its own outside advisors,
apart
from counsel or advisors hired by management, as it determines appropriate,
including experts in particular areas of accounting. Management is responsible
for the reporting processes and preparation and presentation of financial
statements and the implementation and maintenance of internal controls. CBLI’s
independent auditors are responsible for expressing an opinion on the conformity
of CBLI’s audited financial statements to generally accepted accounting
principles in the United States.
The
Audit
Committee assists the Board of Directors with fulfilling its oversight
responsibility regarding the quality and integrity of the accounting, auditing,
and financial reporting practices of the Company. In discharging its oversight
responsibilities regarding the audit process, the Audit Committee:
(1)
|
Reviewed
and discussed the audited financial statements with
management;
|
(2)
|
Discussed
with Meaden & Moore, Ltd. the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended, including the
auditor’s judgments about the quality of the Company’s critical accounting
policies and practices; and
|
(3)
|
Received
and reviewed the written disclosures and the letters from Meaden
&
Moore, Ltd. required by Independence Standards Board Standard No.
1 and
discussed with Meaden & Moore any relationships that may impact Meaden
& Moore’s objectivity or
independence.
|
Based
upon the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements
be
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2007, as filed with the SEC on March 21, 2008.
AUDIT
COMMITTEE
James
J. Antal (Chairperson)
Bernard
L. Kasten
H.
Daniel Perez
Meaden
& Moore, Ltd. acts as the principal auditor for us and also provides certain
audit-related services. We have entered into an engagement agreement with
Meaden
& Moore that sets forth the terms by which Meaden & Moore will perform
audit services for us. That agreement is subject to alternative dispute
resolution procedures and an exclusion of punitive damages.
The
Audit
Committee pre-approves all services provided by Meaden & Moore to us. In
pre-approving services, the Audit Committee considers whether such services
are
consistent with the SEC’s rules on auditor independence. The fees for the
services provided by Meaden & Moore to us are set forth below:
Audit
Fees
Audit
Fees were $69,910 for the year ended December 31, 2007 and were $66,500 for
the
year ended December 31, 2006. Audit Fees consisted of audit work performed
in
the preparation of financial statements, quarterly financial statement reviews,
statutory audits, consultation regarding financial accounting and/or reporting
standards and filings with the SEC.
Audit-Related
Fees
There
were no fees billed by Meaden & Moore for Audit-Related Fees during the
years ended December 31, 2007 and December 31, 2006.
Tax
Fees
Tax
Fees
were $7,915 and $8,080 for the years ended December 31, 2007, and December
31,
2006, respectively. Tax Fees consisted of all services performed by the
independent auditor’s tax personnel, except those related to the audit of
financial statements, and included tax compliance, tax consulting, tax planning
and non-recurring projects. All Tax Fees were approved by the Audit
Committee.
All
Other Fees
There
were no fees billed by Meaden & Moore for Other Fees during the years ended
December 31, 2007, and December 31, 2006.
SECURITY
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The
following tables set forth information with respect to the beneficial ownership
of Common Stock and Series B Preferred, our two classes of voting stock,
as of
March 1, 2008, by (i) each person or entity known by CBLI to own beneficially
more than 5% of the outstanding shares of Common Stock or Series B Preferred,
(ii) each CBLI director, (iii) each CBLI executive officer, and (iv) all
Company
executive officers and directors as a group. Beneficial ownership percentages
are based on
|
·
|
13,213,477
shares of Common Stock outstanding,
and
|
|
·
|
3,561,867
shares of Series B Preferred outstanding, each as of March 1,
2008.
|
Beneficial
ownership is determined in accordance with Rule 13d-3 under the Exchange
Act. In
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares subject to options, warrants or conversion
rights held by that person that are currently exercisable or will become
exercisable within 60 days after March 1, 2008 are deemed outstanding. These
shares are not deemed outstanding for the purpose of computing the percentage
ownership of any other person or entity. Unless otherwise indicated, to the
Company’s knowledge, each person or entity has sole voting power and dispositive
control over the shares shown as owned.
COMMON
STOCK
Name
and Address
|
|
Number
of
Shares
of
Registrant
Common
Stock
Beneficially
Owned
|
|
|
|
Percentage of
Class
Beneficially
Owned
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
Bernard
L. Kasten
|
|
|
50,000
|
|
|
(1
|
)
|
|
*
|
|
Director,
Chairman of the Board
|
|
|
|
|
|
|
|
|
|
|
James
J. Antal
|
|
|
50,000
|
|
|
(2
|
)
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
Paul
E. DiCorleto
|
|
|
35,000
|
|
|
(3
|
)
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
Michael
Fonstein
|
|
|
1,485,950
|
|
|
(4
|
)
|
|
11.10
|
%
|
Director,
Chief Executive Officer, President
|
|
|
|
|
|
|
|
|
|
|
Andrei
Gudkov
|
|
|
1,724,350
|
|
|
(5
|
)
|
|
12.88
|
%
|
Director,
Chief Scientific Officer
|
|
|
|
|
|
|
|
|
|
|
Yakov
Kogan
|
|
|
889,950
|
|
|
(6
|
)
|
|
6.65
|
%
|
Director,
Chief Operating Officer, Secretary
|
|
|
|
|
|
|
|
|
|
|
H.
Daniel Perez
|
|
|
50,000
|
|
|
(7
|
)
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
John
A. Marhofer, Jr.
|
|
|
148,888
|
|
|
(8
|
)
|
|
1.11
|
%
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and officers as a group (eight people)
|
|
|
4,434,138
|
|
|
|
|
|
31.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
|
|
|
|
|
|
The
Cleveland Clinic Foundation(9)
|
|
|
1,341,000
|
|
|
(10
|
)
|
|
10.15
|
%
|
Sunrise
Equity Partners, LP(11)
|
|
|
1,285,962
|
|
|
(12
|
)
|
|
9.66
|
%
|
Sunrise
Securities Corp.(13)
|
|
|
1,285,962
|
|
|
(14
|
)
|
|
9.66
|
%
|
*
Less
than 1%.
(1)
Includes options to purchase 50,000 shares of Common Stock, which are currently
exercisable.
(2)
Includes options to purchase 50,000 shares of Common Stock, which are currently
exercisable.
(3)
Includes options to purchase 35,000 shares of Common Stock, which are currently
exercisable.
(4)
Includes options to purchase 174,750 shares of Common Stock, which are currently
exercisable.
(5)
Includes options to purchase 174,750 shares of Common Stock, which are currently
exercisable.
(6)
Includes options to purchase 174,750 shares of Common Stock, which are currently
exercisable.
(7)
Includes options to purchase 50,000 shares of Common Stock, which are currently
exercisable.
(8)
Includes options to purchase 148,888 shares of Common Stock, which are currently
exercisable.
(9)
9500
Euclid Avenue, Cleveland, Ohio 44195.
(10)
The
Cleveland Clinic Foundation is an Ohio non-profit corporation. The power
to
dispose of and vote these shares is controlled by corporate governance
procedures pursuant to the Code of Regulations adopted by The Cleveland Clinic
Foundation. Pursuant to these Regulations, the power to dispose of these
shares
is vested with the Board of Trustees and the power to vote these shares is
vested in the (i) Chairman of the Board of Trustees, currently A. Malachi
Mixon,
II, (ii) President of the Board of Trustees, currently Delos M. Cosgrove,
M.D.,
(iii) Vice President of the Board of Trustees, currently Stephen R. Hardis,
and
(iv) Vice Chairman of the Board of Trustees, which office is currently vacant.
Any vote so exercised by these officers is deemed to have been exercised
by and
on behalf of The Cleveland Clinic Foundation.
(11)
641
Lexington Ave., 25th Floor, New York, New York 10022.
(12)
Includes 1,185,962 shares of Common Stock owned by Sunrise Equity Partners,
LP,
and 100,000 shares of Common Stock underlying a warrant, which is currently
exercisable, owned by Sunrise Securities Corp. Does not include 300,000 shares
of Common Stock underlying a Series B Warrant owned by Sunrise Equity Partners,
LP, 26,087 shares of Common Stock underlying a Series B Warrant owned by
Sunrise
Securities Corp., or 48,000 shares of Common Stock underlying a Series C
Warrant
owned by Sunrise Securities Corp., none of which can be exercised to the
extent
that after giving effect to such exercise, the owner and its affiliates would
beneficially own in excess of 9.99% of the shares of Common Stock outstanding
immediately after giving effect to such exercise. Also does not include 600,000
shares of Common Stock underlying Series B Preferred owned by Sunrise Equity
Partners, LP, or 52,174 shares of Common Stock underlying Series B Preferred
owned by Sunrise Securities Corp., conversion of which is also limited to
the
extent that it would result in the owner and its affiliates beneficially
owning
in excess of 9.99% of the shares of Common Stock outstanding immediately
after
giving effect to such conversion. Ownership of shares of Series B Preferred
is
set forth separately in the table titled “Series B Preferred” below. Level
Counter LLC is the general partner of Sunrise Equity Partners, LP. The three
managing members of Level Counter LLC are Nathan Low, the sole stockholder
of
Sunrise Securities Corp. and its president, Amnon Mandelbaum, one of the
Managing Directors of Investment Banking at Sunrise Securities Corp., and
Marilyn Adler, who is otherwise unaffiliated with Sunrise Securities Corp.,
and
a unanimous vote of all three persons is required to dispose of the securities
of Sunrise Equity Partners, LP. Accordingly, each of such persons may be
deemed
to have shared beneficial ownership of the securities owned by Sunrise Equity
Partners, LP. Such persons disclaim such beneficial ownership. As a result
of
the relationship of Mr. Low to Sunrise Securities Corp., Sunrise Equity
Partners, LP may be deemed to beneficially own the securities owned by Sunrise
Securities Corp. and/or Sunrise Securities Corp. may be deemed to beneficially
own the securities owned by Sunrise Equity Partners, LP. Sunrise Equity
Partners, LP disclaims any beneficial ownership of the securities owned by
Sunrise Securities Corp. and Sunrise Securities Corp. disclaims any beneficial
ownership of the securities owned by Sunrise Equity Partners, LP.
(13)
641
Lexington Ave., 25th Floor, New York, New York 10022.
(14)
Includes 100,000 shares of Common Stock underlying a warrant, which is currently
exercisable, owned by Sunrise Securities Corp., and 1,185,962 shares of Common
Stock owned by Sunrise Equity Partners, LP. Does not include 26,087 shares
of
Common Stock underlying a Series B Warrant owned by Sunrise Securities Corp.,
48,000 shares of Common Stock underlying a Series C Warrant owned by Sunrise
Securities Corp., or 300,000 shares of Common Stock underlying a Series B
Warrant owned by Sunrise Equity Partners, LP, none of which can be exercised
to
the extent that after giving effect to such exercise, the owner and its
affiliates would beneficially own in excess of 9.99% of the shares of Common
Stock outstanding immediately after giving effect to such exercise. Also
does
not include 52,174 shares of Common Stock underlying Series B Preferred owned
by
Sunrise Securities Corp., or 600,000 shares of Common Stock underlying Series
B
Preferred owned by Sunrise Equity Partners, LP, conversion of which is also
limited to the extent that it would result in the owner and its affiliates
beneficially owning in excess of 9.99% of the shares of Common Stock outstanding
immediately after giving effect to such conversion. Ownership of shares of
Series B Preferred is set forth separately in the table titled “Series B
Preferred” below. Level Counter LLC is the general partner of Sunrise Equity
Partners, LP. The three managing members of Level Counter LLC are Nathan
Low,
the sole stockholder of Sunrise Securities Corp. and its president, Amnon
Mandelbaum, one of the Managing Directors of Investment Banking at Sunrise
Securities Corp., and Marilyn Adler, who is otherwise unaffiliated with Sunrise
Securities Corp., and a unanimous vote of all three persons is required to
dispose of the securities of Sunrise Equity Partners, LP. Accordingly, each
of
such persons may be deemed to have shared beneficial ownership of the securities
owned by Sunrise Equity Partners, LP. Such persons disclaim such beneficial
ownership. As a result of the relationship of Mr. Low to Sunrise Securities
Corp., Sunrise Equity Partners, LP may be deemed to beneficially own the
securities owned by Sunrise Securities Corp. and/or Sunrise Securities Corp.
may
be deemed to beneficially own the securities owned by Sunrise Equity Partners,
LP. Sunrise Equity Partners, LP disclaims any beneficial ownership of the
securities owned by Sunrise Securities Corp. and Sunrise Securities Corp.
disclaims any beneficial ownership of the securities owned by Sunrise Equity
Partners, LP.
SERIES
B PREFERRED
Name
and Address
|
|
Number
of
Shares
of
Registrant
Series
B
Preferred
Beneficially
Owned
|
|
|
|
Percentage of
Class
Beneficially
Owned
|
|
|
|
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
|
|
|
SF
Capital Partners Ltd.(1)
|
|
|
354,000
|
|
|
(
|
2)
|
|
9.94
|
%
|
Enable
Growth Partners, L.P.(3)
|
|
|
500,000
|
|
|
(
|
4)
|
|
14.04
|
%
|
Enable
Opportunity Partners, L.P.(5)
|
|
|
500,000
|
|
|
(
|
6)
|
|
14.04
|
%
|
Pierce
Diversified Strategy Master Fund, LLC, Ena(7)
|
|
|
500,000
|
|
|
(
|
8)
|
|
14.04
|
%
|
Sunrise
Equity Partners, LP(9)
|
|
|
652,174
|
|
|
(
|
10)
|
|
18.31
|
%
|
Sunrise
Securities Corp.(11)
|
|
|
652,174
|
|
|
(
|
12)
|
|
18.31
|
%
|
TCMP
3
Partners(13)
|
|
|
202,000
|
|
|
(
|
14)
|
|
5.67
|
%
|
(1)
c/o
Stark Offshore Management LLC, 3600 South Lake Drive, St. Francis, Wisconsin
53235.
(2)
Michael A. Roth and Brian J. Stark have voting and investment control over
securities owned by SF Capital Partners Ltd., but Messrs. Roth and Stark
disclaim beneficial ownership of such securities.
(3)
One
Ferry Building, Suite 255, San Francisco, California 94111.
(4)
Includes 425,000 shares of Series B Preferred owned by Enable Growth Partners,
L.P., 50,000 shares of Series B Preferred owned by Enable Opportunity Partners,
L.P., and 25,000 shares of Series B Preferred owned by Pierce Diversified
Strategy Master Fund, LLC, Ena. Does not include 212,500 shares of Common
Stock
underlying Series B Warrants owned by Enable Growth Partners, L.P., 25,000
shares of Common Stock underlying Series B Warrants owned by Enable Opportunity
Partners, L.P., or 12,500 shares of Common Stock underlying Series B Warrants
owned by Pierce Diversified Strategy Master Fund, LLC, Ena. Mitch Levine,
Managing Partner, exercises voting and dispositive control over these shares.
(5)
One
Ferry Building, Suite 255, San Francisco, California 94111.
(6)
Includes 50,000 shares of Series B Preferred owned by Enable Opportunity
Partners, L.P., 425,000 shares of Series B Preferred owned by Enable Growth
Partners, L.P., and 25,000 shares of Series B Preferred owned by Pierce
Diversified Strategy Master Fund, LLC, Ena. Does not include 25,000 shares
of
Common Stock underlying Series B Warrants owned by Enable Opportunity Partners,
L.P., 212,500 shares of Common Stock underlying Series B Warrants owned by
Enable Growth Partners, L.P., or 12,500 shares of Common Stock underlying
Series
B Warrants owned by Pierce Diversified Strategy Master Fund, LLC, Ena. Mitch
Levine, Managing Partner, exercises voting and dispositive control over these
shares.
(7)
One
Ferry Building, Suite 255, San Francisco, California 94111.
(8)
Includes 25,000 shares of Series B Preferred owned by Pierce Diversified
Strategy Master Fund, LLC, Ena, 50,000 shares of Series B Preferred owned
by
Enable Opportunity Partners, L.P., and 425,000 shares of Series B Preferred
owned by Enable Growth Partners, L.P. Does not include 12,500 shares of Common
Stock underlying Series B Warrants owned by Pierce Diversified Strategy Master
Fund, LLC, Ena, 25,000 shares of Common Stock underlying Series B Warrants
owned
by Enable Opportunity Partners, L.P., or 212,500 shares of Common Stock
underlying Series B Warrants owned by Enable Growth Partners, L.P. Mitch
Levine,
Managing Partner, exercises voting and dispositive control over these shares.
(10)
Includes 600,000 shares of Series B Preferred owned by Sunrise Equity Partners,
L.P. and 52,174 shares of Series B Preferred owned by Sunrise Securities
Corp.
40,065
of
these
shares are Eligible Series B Preferred, as defined in this Proxy Statement,
for
purposes of voting at the 2008 Annual Meeting of Stockholders. Level Counter
LLC
is the general partner of Sunrise Equity Partners, LP. The three managing
members of Level Counter LLC are Nathan Low, the sole stockholder of Sunrise
Securities Corp. and its president, Amnon Mandelbaum, one of the Managing
Directors of Investment Banking at Sunrise Securities Corp., and Marilyn
Adler,
who is otherwise unaffiliated with Sunrise Securities Corp., and a unanimous
vote of all three persons is required to dispose of the securities of Sunrise
Equity Partners, LP. Accordingly, each of such persons may be deemed to have
shared beneficial ownership of the securities owned by Sunrise Equity Partners,
LP. Such persons disclaim such beneficial ownership. As a result of the
relationship of Mr. Low to Sunrise Securities Corp., Sunrise Equity Partners,
LP
may be deemed to beneficially own the securities owned by Sunrise Securities
Corp., and/or Sunrise Securities Corp. may be deemed to beneficially own
the
securities owned by Sunrise Equity Partners, LP. Sunrise Equity Partners,
LP
disclaims any beneficial ownership of the securities owned by Sunrise Securities
Corp., and Sunrise Securities Corp. disclaims any beneficial ownership of
the
securities owned by Sunrise Equity Partners, LP.
(11)
641
Lexington Ave., 25th Floor, New York, New York 10022.
(12)
Includes 52,174 shares of Series B Preferred owned by Sunrise Securities
Corp.
and 600,000 shares of Series B Preferred owned by Sunrise Equity Partners,
L.P.
40,065
of
these
shares are Eligible Series B Preferred, as defined in this Proxy Statement,
for
purposes of voting at the 2008 Annual Meeting of Stockholders. Level Counter
LLC
is the general partner of Sunrise Equity Partners, LP. The three managing
members of Level Counter LLC are Nathan Low, the sole stockholder of Sunrise
Securities Corp. and its president, Amnon Mandelbaum, one of the Managing
Directors of Investment Banking at Sunrise Securities Corp., and Marilyn
Adler,
who is otherwise unaffiliated with Sunrise Securities Corp., and a unanimous
vote of all three persons is required to dispose of the securities of Sunrise
Equity Partners, LP. Accordingly, each of such persons may be deemed to have
shared beneficial ownership of the securities owned by Sunrise Equity Partners,
LP. Such persons disclaim such beneficial ownership. As a result of the
relationship of Mr. Low to Sunrise Securities Corp., Sunrise Equity Partners,
LP
may be deemed to beneficially own the securities owned by Sunrise Securities
Corp., and/or Sunrise Securities Corp. may be deemed to beneficially own
the
securities owned by Sunrise Equity Partners, LP. Sunrise Equity Partners,
LP
disclaims any beneficial ownership of the securities owned by Sunrise Securities
Corp., and Sunrise Securities Corp. disclaims any beneficial ownership of
the
securities owned by Sunrise Equity Partners, LP.
(13)
7
Century Drive, Suite 201, Parsippany, New Jersey 07054.
(14)
Walter Schenker and Steven Slawson exercise voting and dispositive control
over
these shares.
PROPOSAL
2
RATIFICATION
OF AUDITOR
The
Audit
Committee of the Board of Directors has appointed Meaden & Moore, Ltd.,
independent registered public accountants, as the independent auditor of
CBLI’s
financial statements for the year ending December 31, 2008.
If
our
stockholders fail to ratify the appointment, the Audit Committee will reconsider
this appointment. Even if the appointment 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
determines that such a change would be in the best interests of CBLI and
its
stockholders.
Meaden
& Moore, Ltd. has been CBLI’s independent registered public accounting firm
since May 2005. Representatives of Meaden & Moore, Ltd. are expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if they desire to do so and to respond to appropriate questions.
The
Board of Directors recommends that stockholders vote FOR the appointment
of
Meaden & Moore, Ltd. as the independent auditor of CBLI’s financial
statements for the year ending December 31, 2008.
PROPOSAL
3
APPROVAL
OF AMENDED PLAN
At
the
2008 Annual Meeting, our stockholders will be requested to approve the amendment
and restatement of our 2006 Plan in the form of the Amended Plan. Among its
modifications, the Amended Plan, a copy of which is attached as
Appendix
A
hereto,
increases
the number of shares of Common Stock authorized to be issued by 2,000,000
shares
and makes certain other modifications described below
.
As of
the Record Date, we had approximately 354,716 shares reserved and available
for
issuance under the 2006 Plan.
The
Board
of Directors recommends approval of the Amended Plan to permit the issuance
of
the increased number of shares of Common Stock thereunder. The Board of
Directors believes that this proposed increase is in the best interests of
the
Company and the stockholders. In the event this proposal is not approved
by our
stockholders, and as a consequence we are unable to continue to grant equity
awards at competitive levels, the Board of Directors believes that it will
negatively affect our ability to meet our need for highly qualified personnel
and our ability to manage future growth. In addition, stockholder approval
of
the Amended Plan is necessary in order for us to be able to grant
performance-based awards that qualify for the exception to the deductibility
limit set forth in Section 162(m) of the Internal Revenue Code of 1986, as
amended (the “Code”).
KEY
CHANGES REFLECTED IN AMENDED PLAN
On
March
14, 2008, the Board of Directors, acting on the recommendation of the
Compensation Committee, unanimously adopted the Amended Plan, subject to
approval by the stockholders, primarily for the purpose of increasing the
total
number of shares of Common Stock reserved for issuance under the 2006 Plan
by
2,000,000 shares and allowing the Company to deduct performance-based awards
granted pursuant to the Amended Plan. If approved, the Amended Plan would
have
approximately 2,354,716
shares
reserved and available for issuance under the Amended Plan, which consists
of
the additional 2,000,000 shares plus the 354,716 shares reserved and available
for issuance under the 2006 Plan as of the Record Date.
The
Company’s philosophy on employee compensation is to provide employees and
management with equity participation linked to long-term stock price
performance, while at the same time remaining sensitive to the potential
impact
on our other stockholders. We believe that offering broad-based equity
compensation helps to attract and retain employees, motivates participants
to
achieve long-term Company goals, and further aligns participants’ interests with
those of the Company’s other stockholders. Employees with a stake in the future
success of our business are motivated to achieve long-term growth and thus
maximize stockholder value.
A
key
purpose of this proposal is to provide sufficient reserves of shares, based
on
our current business plans, to ensure the Company’s ability to continue to
provide new hires, employees and management with an equity stake in the Company.
The Amended Plan also incorporates various other important modifications
designed to improve or clarify certain aspects of the 2006 Plan, and to reflect
changes or developments in Federal tax law, which are as follows:
|
§
|
a
provision has been added to the Amended Plan that would prohibit
the
repricing of stock options (i.e., lowering the exercise price of
previously granted stock options);
|
|
§
|
a
provision has been added to the Amended Plan that would permit
the
Compensation Committee to grant substitute awards (as described
below),
and any such awards will be in addition to the number of shares
authorized
for issuance under the Amended
Plan;
|
|
§
|
holders
of outstanding stock options who are terminated involuntarily by
the
Company without cause will have 90 days after their termination
to
exercise those options under the Amended Plan, instead of the 30
days
provided under the 2006 Plan;
|
|
§
|
the
Amended Plan contains provisions described in more detail below
(e.g., a
list of performance measures and individual award limits) that
will allow
the Compensation Committee to grant performance-based compensation
intended to comply with Section 162(m) of the Code;
and
|
|
§
|
the
Amended Plan reflects certain technical changes and clarifications,
including changes intended to address recent changes in Federal
tax law
related to deferred compensation arrangements under Section 409A of
the Code.
|
The
description of the changes set forth above is just a summary. Likewise, the
description below of other material terms of the Amended Plan is also just
a
summary. These summaries are subject to the specific provisions in the full
text
of the Amended Plan, which is attached as
Appendix
A
to
this
Proxy Statement
.
OTHER
MATERIAL FEATURES OF THE AMENDED PLAN
The
purpose of the Amended Plan is to enable the Company to grant equity or cash
awards to eligible officers, employees, directors and consultants at levels
we
believe will motivate superior performance, help us attract and retain
outstanding personnel, motivate participants to achieve long-term Company
goals,
and further align participants’ interests with those of the Company’s other
stockholders. Below is a summary of the key elements of the Amended Plan,
most
of which have been carried forward from the 2006 Plan.
Administration
The
Amended Plan will be administered by the Compensation Committee or another
committee appointed by the Board (generally referred to as the “Compensation
Committee” in this proposal) consisting of three or more members of the Board
all of whom are intended to be "non-employee directors" as defined by Section
16
of the Exchange Act and "outside directors" within the meaning of Section
162(m)
of the Code.
Stock
Subject to the Amended Plan
As
described above, if this proposal is approved by the stockholders, an additional
2,000,000 shares of Common Stock would be available for delivery upon exercise
of equity awards under the Amended Plan. Together with the 354,716 shares
reserved and available for issuance under the 2006 Plan as of the Record
Date,
which number of shares may decrease in the event of issuances after the Record
Date, this would leave a total of 2,354,716 shares available for issuance.
The
shares of Common Stock that may be delivered under the Amended Plan consist
of
authorized and unissued shares. If any person exercises a stock option under
the
Amended Plan by paying the exercise price with shares of Common Stock which
such
person already owns, only the number of shares in excess of the shares so
paid
by such person will count against the total number of shares that may be
delivered under the Amended Plan.
Eligibility
The
Compensation Committee may grant awards under the Amended Plan to our officers,
employees, directors (including non-employee directors) and consultants.
Types
of Awards
The
Amended Plan allows us to grant the following types of awards:
|
§
incentive
stock options;
|
§
restricted
stock;
|
|
§
nonqualified
stock options;
|
§
performance
awards; and
|
|
§
stock
appreciation rights or “SARs”;
|
§
substitute
awards.
|
|
§
stock
awards;
|
|
Stock
Options
.
A stock
option is the right to purchase a specified number of shares of our Common
Stock
in the future at a specified exercise price and subject to other terms and
conditions specified in the option agreement and the Amended Plan. Stock
options
granted under the Amended Plan will be either “incentive stock options,” which
are
intended to receive special tax treatment under the Code, or options other
than
incentive stock options (referred to as “non-qualified options”), as determined
by the Compensation Committee and stated in the applicable option agreement.
The
number of shares covered by each option will be determined by the Compensation
Committee, which will be set forth in the award agreement. The per-share
exercise price of a stock option must not be less than the fair market value
of
the Company’s Common Stock on the date of grant of the option. Each option may
be subject to limitations or conditions on its exercise as the Compensation
Committee may determine. Unless otherwise provided in the option agreement,
each
option may be exercised in cash or by “cashless exercise.” Each option granted
under the Amended Plan will generally expire on or before ten years following
the date such option was granted (five years for incentive stock options
granted
to stockholders who own greater than 10% of our voting stock). No incentive
stock option may be granted to an optionee, which, when combined with all
other
incentive stock options becoming exercisable in any calendar year that are
held
by that optionee, would have an aggregate fair market value in excess of
$100,000. In the event an optionee is awarded $100,000 in incentive stock
options in any calendar year, any incentive stock options in excess of $100,000
granted during the same year will be treated as non-qualified stock options.
Non-qualified stock options are generally transferable to family members
by gift
or by will or the laws of descent and distribution. The Amended Plan prohibits
the repricing of stock options. For this purpose, “repricing” means
(1) lowering of the exercise price of a stock option after it is granted,
(2) cancelling a stock option and re-granting a stock option with a lower
exercise price than the original exercise price of the cancelled stock option,
and (3) any other action, whether by amendment, cancellation or the making
of a replacement grant, that has the effect of repricing a stock
option.
Stock
Appreciation Rights or SARs
.
All
SARs must be granted on a stand-alone basis (i.e., not in conjunction with
stock
options granted under the Amended Plan). SARs are subject to the terms and
conditions set by the Compensation Committee. A SAR granted under the Amended
Plan entitles its holder to receive, at the time of exercise, an amount per
share equal to the excess of the fair market value (at the date of exercise)
of
a share of the Common Stock over a specified price, known as the strike price,
fixed by the Compensation Committee, which will not be less than 100% of
the
fair market value of the Common Stock on the grant date of the SAR. Payment
may
be made in cash, shares of the Common Stock, or in any combination of the
two,
as determined by the Compensation Committee.
Restricted
Stock
.
Restricted stock is Common Stock that is forfeitable until the restrictions
lapse. The Compensation Committee will determine the restrictions for each
award
and the purchase price in the case of restricted stock, if any. Restrictions
on
the restricted stock may include time-based restrictions or the achievement
of
specific performance goals. If the performance goals are not achieved or
the
restrictions do not lapse within the time period provided in the award
agreement, the participant will forfeit his or her restricted
stock.
Performance
Awards
.
The
Amended Plan includes performance awards. The Compensation Committee will
determine the amounts and terms of all performance awards, including any
applicable performance goals. In the case of performance awards intended
to
satisfy Section 162(m) of the Code, the Compensation Committee will designate
individuals eligible for performance awards within the first 90 days of the
year
for which the annual incentive award will apply, with certain exceptions,
and
will certify in writing the attainment of performance goals following the
end of
the applicable performance period. In addition, the Compensation Committee
may
establish threshold, target and maximum performance award opportunities for
each
participant. Annual incentive awards may be paid in cash, shares of Common
Stock, restricted stock, options, any other award under the Amended Plan
or
other property.
Substitute
Awards
.
Substitute awards are awards that may be granted in replacement of stock
or
stock-based awards from another business held by current and former employees
or
non-employee directors of, or consultants to, such business that is, or whose
stock is, acquired by us, in order to preserve the economic value of all
or a
portion of a substituted award on such terms and conditions (including price)
as
the Compensation Committee determines.
Vesting
Unless
otherwise provided in a particular award agreement, stock options, stock
appreciation rights and restricted stock will vest over four years in
annual increments of 25% of the total award amount.
Performance-Based
Compensation
The
Compensation Committee may grant stock-based or cash-based awards that are
subject to the attainment of certain performance goals, which are described
as
performance awards above. The objective performance criteria for such awards
(other than stock options and SARs) granted under the Amended Plan are designed
to qualify for the performance-based exception from the tax deductibility
limitations of Section 162(m) of the Code and are to be based on one or more
of
the following:
|
§
Earnings
before interest, tax, depreciation or amortization (“EBITDA”) (actual and
adjusted and either in the aggregate or on a per-share
basis);
§
Earnings
(either in the aggregate or on a per-share basis);
§
Net
income or loss (either in the aggregate or on a per-share
basis);
§
Operating
profit;
§
Growth
or rate of growth in cash flow;
§
Cash
flow provided by operations (either in the aggregate or on a
per-share
basis);
§
Free
cash flow (either in the aggregate on a per-share basis);
§
Costs;
§
Gross
revenues;
§
Reductions
in expense levels;
§
Operating
and maintenance cost management and employee productivity;
§
Stockholder
returns (including return on assets, investments, equity, or
gross
sales);
§
Return
measures (including return on assets, equity, or sales);
§
Growth
or rate of growth in return measures;
|
|
§
Share
price (including growth measures and total stockholder return
or
attainment by the shares of a specified value for a specified
period of
time);
§
Net
economic value;
§
Economic
value added;
§
Aggregate
product unit and pricing targets;
§
Strategic
business criteria, consisting of one or more objectives based
on meeting
specified revenue, market share, market penetration, geographic
business
expansion goals, objectively identified project milestones, production
volume levels, cost targets, and goals relating to acquisitions
or
divestitures;
§
Achievement
of business or operational goals such as market share and/or
business
development;
§
Achievement
of diversity objectives;
§
Results
of customer satisfaction surveys;
§
Debt
ratings, debt leverage and debt service
§
Safety
performance;
§
Business
unit and site accomplishments;
§
Achievement
of scientific milestones;
§
Corporate
governance objectives; and
§
Adherence
to budget levels.
|
In
any
calendar year, no participant may be granted awards for options, SARs, stock
awards and performance awards payable in stock that exceed, in the aggregate,
400,000 underlying shares of Common Stock. No participant may be granted
a
performance award payable in cash for any calendar year, the maximum payout
for
which exceeds $1,000,000. No participant may be granted a performance award
payable in cash for a performance period of more than one year, the maximum
payout for which exceeds $2,500,000. These limits are higher than we expect
to
be needed for awards under the Amended Plan, and are included in the Amended
Plan to comply with the requirements for deductibility of awards subject
to
Section 162(m) of the Code.
Effect
of Certain Events on Awards
In
the
event of any change in the outstanding shares of Common Stock by reason of
any
stock dividend or split, combination or exchange of shares, recapitalization
or
other change in the capital structure of the Company, the Compensation Committee
shall make such substitution or adjustment as may be deemed equitable as
to (a)
the number and kind of securities to be delivered under the Amended Plan,
(b)
the maximum number or amount of awards that may be granted in a fiscal year,
(c)
the number and kind of securities subject to outstanding awards, (d) the
exercise price of any outstanding stock options or stock appreciation rights
or
(e) any other characteristics or terms of the awards as it may determine.
In
the
event of a change in control of the Company, outstanding stock options and
stock appreciation rights shall be deemed to fully vest and become fully
exercisable and any restrictions on outstanding restricted stock awards shall
lapse. In addition, any repurchase rights of the Company as to outstanding
awards may be terminated by the Compensation Committee upon a change in
control.
For
purposes of the Amended Plan, a “change in control” generally occurs when (1)
any corporation, person or group obtains Common Stock that represents 50%
or
more of the Company's voting power; (2) the majority of our Board of Directors
changes, subject to certain exceptions, over a two-year period; (3) a corporate
transaction or sale of all or substantially all of our assets, after which
the
Company no longer possesses a voting majority; or (4) the approval by the
Company’s stockholders of a liquidation or dissolution of the
Company.
Termination
of Employment
With
respect to stock options and SARs granted pursuant to an award agreement,
unless
the applicable award agreement provides otherwise, in the event of a
participant’s termination of employment or service due to his or her death or
disability, such participant’s stock options or SARs will vest and remain
exercisable until one year after such termination (but not beyond the original
term of the option), and thereafter will be cancelled and forfeited to us.
Unless the applicable award agreement provides otherwise, in the event of
a
participant’s termination of employment or service by the participant’s without
cause, such participant’s vested stock options or SARs (to the extent
exercisable at the time of such termination) will remain exercisable until
90
days after such termination (but not beyond the original term of the option)
and
thereafter will be cancelled and forfeited to us. Unless the applicable award
agreement provides otherwise, in the event of a participant’s termination of
employment due to retirement, such participant’s stock options or SARs will
continue to vest over the three (3) year period following such termination,
and,
to the extent vested, will remain exercisable during the three (3) year period
following such termination (but not beyond the original term of the option),
and
thereafter will be cancelled and forfeited to us. Unless the applicable award
agreement provides otherwise, in the event of a participant’s voluntary
termination of employment or service (and not due to such participant’s death,
disability or retirement), such participant’s stock options or SARs (to the
extent exercisable at the time of such termination) will remain exercisable
until 30 days after such termination (but not beyond the original term of
the
option) and thereafter will be cancelled and forfeited to us. In the event
of a
participant’s termination of employment or service for cause, such participant’s
outstanding stock options or SARs will immediately be cancelled and forfeited
to
us.
The
vesting and/or forfeiture of any other type of award in connection with a
termination of employment or service will be as provided for in the applicable
award agreement.
Amendment
and Termination
Our
Board
of Directors may amend, alter, suspend or terminate the Amended Plan provided
that no such amendment or termination of the Amended Plan or amendment of
outstanding awards may materially impair the previously accrued rights of
any
recipient of an option under the Amended Plan without his or her written
consent. However, the Board of Directors will be required to obtain approval
of
the stockholders of any amendment of the Amended Plan that:
|
§
|
is
required approval by law, rule or regulation;
or
|
|
§
|
relates
to any award intended to qualify for an exemption under Section
162(m) of
the Code if such approval is required under Section 162(m) of the
Code.
|
The
Amended Plan will terminate on April 29, 2018, unless the Amended Plan is
terminated earlier by our Board of Directors or due to delivery of all shares
of
Common Stock available under the Amended Plan; however, any options outstanding
when the Amended Plan terminates will remain outstanding until such options
terminate or expire.
Certain
Federal Income Tax Consequences
The
following is a brief summary of certain significant United States Federal
income
tax consequences, under the Code, as in effect on the date of this summary,
applicable to the Company and participants in connection with awards under
the
Amended Plan. This summary assumes that all awards will be exempt from, or
comply with, the rules under Section 409A of the Code regarding nonqualified
deferred compensation. If an award fails to comply with Section 409A of the
Code, the award may be subject to immediate taxation, interest and tax penalties
in the year the award vests or is granted. This summary is not intended to
be
exhaustive, and, among other things, does not describe state, local or foreign
tax consequences, or the effect of gift, estate or inheritance
taxes.
Options
.
The
grant of stock options under the Amended Plan will not result in taxable
income
to the recipient of the option or an income tax deduction for us. However,
the
transfer of Common Stock to an option holder upon exercise of his or her
options
may or may not give rise to taxable income to the option holder and tax
deductions for us, depending upon whether the options are “incentive stock
options” or non-qualified options.
The
exercise of a non-qualified option by an option holder generally results
in
immediate recognition of taxable ordinary income by the option holder and
a
corresponding tax deduction for us in the amount by which the fair market
value
of the shares of Common Stock purchased, on the date of such exercise, exceeds
the aggregate exercise price paid. Any appreciation or depreciation in the
fair
market value of those shares after the date of such exercise will generally
result in a capital gain or loss to the holder at the time he or she disposes
of
those shares.
In
general, the exercise of an incentive stock option is exempt from income
tax
(although not from the alternative minimum tax) and does not result in a
tax
deduction for us if the holder has been an employee of ours at all times
beginning with the option grant date and ending three months before the date
the
holder exercises the option (or twelve months in the case of termination
of
employment due to disability). If the holder has not been so employed during
that time, the holder will be taxed as described above for nonqualified stock
options. If the option holder disposes of the shares purchased more than
two
years after the incentive stock option was granted and more than one year
after
the option was exercised, then the option holder will recognize any gain
or loss
upon disposition of those shares as capital gain or loss. However, if the
option
holder disposes of the shares prior to satisfying these holding periods (known
as “disqualifying dispositions”), the option holder will be obligated to report
as taxable ordinary income for the year in which that disposition occurs
the
excess, with certain adjustments, of the fair market value of the shares
disposed of, on the date the incentive stock option was exercised, over the
exercise price paid for those shares. The Company would be entitled to a
tax
deduction equal to that amount of ordinary income reported by the option
holder.
Any additional gain realized by the option holder on the disqualifying
disposition of the shares would be capital gain. If the total amount realized
in
a disqualifying disposition is less than the exercise price of the incentive
stock option, the difference would be a capital loss for the option
holder.
Stock
Appreciation Rights
.
The
granting of SARs does not result in taxable income to the recipient of a
SAR or
a tax deduction for us. Upon exercise of an SAR, the amount of any cash the
participant receives and the fair market value as of the exercise date of
any
Common Stock received are taxable to the participant as ordinary income and
such
amount will be deductible by the Company.
Restricted
Stock
.
Unless
an election is made by the recipient under Section 83(b) of the Code, a
participant will not recognize any taxable income upon the award of shares
of
restricted stock that are not transferable and are subject to a substantial
risk
of forfeiture. Dividends paid with respect to restricted stock prior to the
lapse of restrictions applicable to that stock will be taxable as compensation
income to the participant. Generally the participant will recognize taxable
ordinary income at the first time those shares become transferable or are
no
longer subject to a substantial risk of forfeiture, in an amount equal to
the
fair market value of those shares when the restrictions lapse, less any amount
paid with respect to the award of restricted stock. The recipient's tax basis
will be equal to the sum of the amount of ordinary income recognized upon
the
lapse of restrictions and any amount paid for such restricted stock. The
recipient's holding period will commence on the date on which the restrictions
lapse.
As
indicated above, a participant may elect, under Section 83(b) of the Code,
to
recognize taxable ordinary income upon the award date of restricted stock
(rather than being taxed as described above) based on the fair market value
of
the shares of Common Stock subject to the award on the date of the award.
If a
participant makes that election, any dividends paid with respect to that
restricted stock will not be treated as compensation income, but rather as
dividend income, and the participant will not recognize additional taxable
income when the restrictions applicable to his or her restricted stock award
lapse. Assuming compliance with the applicable tax withholding and reporting
requirements, the Company will be entitled to a tax deduction equal to the
amount of ordinary income recognized by a participant in connection with
his or
her restricted stock award in the taxable year in which that participant
recognizes that ordinary income.
Other
Awards
.
The
granting of a performance award (whether payable in shares or cash) or a
stock-based award generally should not result in the recognition of taxable
income by the recipient or a tax deduction by us. The payment or settlement
of
these awards should generally result in immediate recognition of taxable
ordinary income by the recipient equal to the amount of any cash paid or
the
then-current fair market value of the shares of Common Stock received, and
a
corresponding tax deduction by the Company. If the shares covered by the
award
are not transferable and are subject to a substantial risk of forfeiture,
the
tax consequences to the participant and the Company will be similar to the
tax
consequences of restricted stock awards described above. If the award consists
of unrestricted shares of Common Stock, the recipient of those shares will
immediately recognize as taxable ordinary income the fair market value of
those
shares on the date of the award, and the Company will be entitled to a
corresponding tax deduction.
Section
162(m) of the Code
.
Under
Section 162(m) of the Code, we may be limited as to Federal income tax
deductions to the extent that total annual compensation in excess of $1 million
is paid to our Chief Executive Officer or any one of our other three highest
paid executive officers (other than the Chief Financial Officer) who are
employed by the Company on the last day of our taxable year. However, certain
“performance-based compensation,” the material terms of which are disclosed to
and approved by our stockholders, is not subject to this deduction
limitation.
Section
280G of the Code
.
Under
certain circumstances, accelerated vesting, exercise or payment of awards
under
the Amended Plan in connection with a “change in control” of the Company might
be deemed an “excess parachute payment” for purposes of the golden parachute
payment provisions of Section 280G of the Code. To the extent that it is
so
considered, the participant holding the award would be subject to an excise
tax
equal to 20% of the amount of the excess parachute payment, and the Company
would be denied a tax deduction for the amount of the excess parachute payment.
However, the Amended Plan provides for an automatic reduction of a participant’s
awards under the Amended Plan to the extent that an award would result in
any
excess parachute payment that would trigger such an excise tax, unless the
participant is party to a written agreement with the Company that provides
for
other treatment with respect to such excess parachute payments.
New
Plan Benefits
The
Company cannot determine the amounts of awards that will be granted under
the
Amended Plan or the benefits of any awards to the executive officers named
in
the Summary Compensation Table, the executive officers as a group, or employees
who are not executive officers as a group. Under the terms of the Amended
Plan,
the number of awards to be granted is within the discretion of the Compensation
Committee.
The
Board of Directors recommends that stockholders vote FOR the approval of
the
Amended Plan.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information as of December 31, 2007, regarding Common
Stock that may be issued under the Company’s equity compensation plans,
including the 2006 Plan. Information is included for both equity compensation
plans approved by the Company’s stockholders and not approved by the Company’s
stockholders (which date back to before the Company became a reporting company
under the Exchange Act).
Plan
Category
|
Number
of Securities to be issued upon exercise of outstanding options,
warrants,
and rights
|
Weighted
average exercise price of outstanding options, warrants, and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
a)
|
Equity
compensation plans approved by security holders
|
700,000
|
$9.47
|
1,105,000
|
Equity
compensation plans not approved by security holders
|
311,740
|
$2.08
|
-
|
Total
|
1,011,740
|
$7.20
|
1,105,000
|
Proposals
of Stockholders
—
In
accordance with Rule 14a-8 promulgated under the Exchange Act, proposals
of
stockholders intended to be considered for inclusion in the Company’s proxy
statement for the 2009 Annual Meeting of Stockholders must be received by
the
Secretary of CBLI not less than 120 days prior to April 1, 2009. In addition,
Article II, Section 4 of the Company’s By-Laws (the “Notice Provision”) provides
that for business to be properly brought before an annual meeting by a
stockholder, the stockholder must deliver written notice to, or mail such
notice
so that it is received by, the Secretary of the Company, at the principal
executive offices of the Company, not less than 90 days, nor more than 120
days,
prior to the first anniversary of the date of the previous year’s annual meeting
of stockholders. Proposals of stockholders intended to be considered at CBLI’s
2009 Annual Meeting of Stockholders must be received by the Secretary of
CBLI
not less than 90 days, nor more than 120 days, prior to April 29,
2009.
Cost
of Solicitation
—
The
cost of CBLI's proxy solicitation will be borne by CBLI. CBLI may request
banks,
brokers, fiduciaries, custodians, nominees and certain other record holders
to
send proxies, proxy statements and other materials to their principals at
CBLI's
expense. Such banks, brokers, fiduciaries, custodians, nominees and other
record holders will be reimbursed by CBLI for their reasonable out-of-pocket
expenses of solicitation. Original solicitation of proxies by mail may be
supplemented by telephone, facsimile or personal solicitation by directors,
officers or other employees of CBLI. No additional compensation will
be paid to directors, officers or other employees for such services. The
costs
of solicitation are not expected to exceed those that would typically be
incurred for an uncontested election of directors.
Delivery
to Security Holders Sharing an Address
—
Only
one Notice and Proxy Statement is being delivered to multiple security holders
sharing an address unless contrary instructions have been received from one
or
more of the security holders. A separate copy of the Notice and Proxy Statement
may be requested by writing to us at 73 High Street, Buffalo, NY 14203 or
by
calling us at (716) 849-6810.
APPENDIX
A
CLEVELAND
BIOLABS, INC.
EQUITY
INCENTIVE PLAN
(as
amended and restated effective April 29, 2008)
CLEVELAND
BIOLABS, INC.
EQUITY
INCENTIVE PLAN
1.
ESTABLISHMENT
AND PURPOSE
.
The
Cleveland BioLabs, Inc. Equity Incentive Plan (the “
Plan
”)
was
established under the name Cleveland BioLabs, Inc. 2006 Equity Incentive
Plan
(the “
2006
Plan
”)
by
Cleveland BioLabs, Inc., a Delaware corporation (the “
Compan
y”).
The
2006 Plan hereby is amended, restated and renamed as set forth herein, effective
April 29, 2008, subject to the approval of the Company’s stockholders. The
purpose of the Plan is to attract and retain persons eligible to participate
in
the Plan; motivate Participants to achieve long-term Company goals; and further
align Participants’ interests with those of the Company’s other stockholders. No
Awards that are settled in Stock shall be granted hereunder prior to the
approval of the Plan by the Company’s stockholders. Unless the Plan is
discontinued earlier by the Board as provided herein, no Award shall be granted
hereunder on or after the date 10 years after the Effective Date. The Plan
shall
terminate on April 29, 2018 or such earlier time as the Board may
determine.
Certain
terms used herein are defined as set forth in
Section
10
.
2.
ADMINISTRATION;
ELIGIBILITY
.
The
Plan
shall be administered by the Compensation Committee, or such other Committee,
appointed by the Board consisting of three (3) or more members of the Board
all
of whom are intended to be “non-employee directors” within the meaning of
Section 16 of the Securities Exchange Act of 1934 and the regulations
promulgated thereunder and “outside directors” within the contemplation of
Section 162(m) of the Code;
provided
,
however
,
that,
if at any time no Compensation Committee or other Committee has been appointed
or is eligible to act in the circumstances, the Plan shall be administered
by
the Board. The Plan may be administered by different Committees with respect
to
different groups of Eligible Individuals. As used herein, the term “
Administrator
”
means
the Board, the Compensation Committee or any of the Board’s other Committees as
shall be administering the Plan or any individual delegated authority to
act as
the Administrator in accordance with this
Section
2
.
A
majority of the members of the Compensation Committee, such other Committee
or
the Board, as applicable, shall constitute a quorum, and all determinations
shall be made by a majority of the members thereof.
The
Administrator shall have plenary authority to grant Awards pursuant to the
terms
of the Plan to Eligible Individuals. Participation shall be limited to such
persons as are selected by the Administrator.
Among
other things, the Administrator shall have the authority, subject to the
terms
of the Plan:
|
(a)
|
to
select the Eligible Individuals to whom Awards may from time to
time be
granted;
|
|
(b)
|
to
determine whether and to what extent Stock Options, Stock Appreciation
Rights, Stock Awards or any combination thereof are to be granted
hereunder;
|
|
(c)
|
to
determine the number of shares of Stock to be covered by each Award
granted hereunder;
|
|
(d)
|
to
approve forms of agreement for use under the
Plan;
|
|
(e)
|
to
determine the terms and conditions, not inconsistent with the terms
of
this Plan, of any Award granted hereunder (including, but not limited
to,
the option price, any vesting restriction or limitation, any vesting
acceleration or waiver of forfeiture, and any right of repurchase,
right
of first refusal or other transfer restriction regarding any Award
and the
shares of Stock relating thereto, based on such factors or criteria
as the
Administrator shall determine);
|
|
(f)
|
subject
to
Section
9(a)
,
to modify, amend or adjust the terms and conditions of any Award,
at any
time or from time to time, including, but not limited to, with
respect to
(i) performance goals and targets applicable to performance based
Awards
pursuant to the terms of the Plan and (ii) extension of the
post-termination exercisability period of Stock Options;
|
|
(g)
|
to
determine the Fair Market Value;
and
|
|
(h)
|
to
determine the type and amount of consideration to be received by
the
Company for any Stock Award issued under
Section
6
.
|
The
Administrator shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions
of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
In
order
to assure the viability of Awards granted to Participants employed in foreign
countries who are not subject to U.S. tax law, the Administrator 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 Administrator
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
Section
3
of the
Plan.
Except
to
the extent prohibited by applicable law, the Administrator may allocate all
or
any portion of its responsibilities and powers to any one or more of its
members
and may delegate all or any portion of its responsibilities and powers to
any
other person or persons selected by it. Any such allocation or delegation
may be
revoked by the Administrator at any time. The Administrator may authorize
any
one or more of their members or any officer of the Company to execute and
deliver documents on behalf of the Administrator.
Any
determination made by the Administrator or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be
made
in the sole discretion of the Administrator or such delegate at the time
of the
grant of the Award or, unless in contravention of any express term of the
Plan,
at any time thereafter. All decisions made by the Administrator or any
appropriately delegated officer pursuant to the provisions of the Plan shall
be
final and binding on all persons, including the Company and
Participants.
No
member
of the Administrator, and no officer of the Company, shall be liable for
any
action taken or omitted to be taken by such individual or by any other member
of
the Administrator or officer of the Company in connection with the performance
of duties under this Plan, except for such individual’s own willful misconduct
or as expressly provided by law.
3.
STOCK
SUBJECT TO PLAN
.
Subject
to adjustment as provided in this
Section
3
,
the
number of shares of Stock reserved for delivery under the Plan shall be the
sum
of (a) two million (2,000,000) shares, plus (b) the number of remaining shares
under the 2006 Plan (
i.e.
,
not
subject to outstanding Awards and not delivered out of shares reserved
thereunder) as of the date of the initial stockholder approval of this Plan,
plus (c) the number of shares that become available under the 2006 Plan after
the date of the initial stockholder approval of this Plan pursuant to
forfeiture, termination, lapse or satisfaction of an Award in cash or property
other than shares, application as payment for an Award, or, except with respect
to Restricted Stock, to satisfy withholding, plus (d) any shares required
to
satisfy Substitute Awards.
If
any
shares of Stock subject to an Award granted hereunder are forfeited or such
Award otherwise terminates without the delivery of such shares, the shares
subject to such Award, to the extent of any such forfeiture or termination,
shall again be available for grant under the Plan. If any shares of Stock
subject to an Award granted hereunder are withheld or applied as payment
in
connection with the exercise of an Award (including the withholding of shares
on
the exercise of a SAR that is settled in shares) or, except with respect
to
shares of Restricted Stock, the withholding or payment of taxes related thereto,
such shares of Stock shall again be available for grant under the
Plan.
Subject
to adjustment as provided in this
Section
3
,
the
maximum number of shares that may be covered by Stock Options, Stock
Appreciation Rights, Stock Awards and Performance Awards payable in Shares,
in
the aggregate, granted to any one Participant during any calendar year shall
be
four hundred thousand (400,000) shares. No Participant may be granted a
Performance Award payable in cash, the maximum payout for which would exceed
one
million dollars ($1,000,000) during any calendar year. No Participant may
be
granted a Performance Award for a Performance Period of more than one (1)
Year,
the maximum payout for which would exceed two and one-half million dollars
($2,500,000).
In
the
event of any Company stock dividend, special cash dividend, stock split,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
other
distribution to Company stockholders, other than a normal cash dividend),
sale
by the Company of all or a substantial portion of its assets (measured on
either
a stand-alone or consolidated basis), reorganization, rights offering, partial
or complete liquidation, merger or consolidation in which the Company is
the
surviving corporation, or any other corporate transaction, Company share
offering or other event involving the Company and having an effect similar
to
any of the foregoing, the Administrator shall make such substitution or
adjustments in the (a) number and kind of shares that may be delivered under
the
Plan, (b) additional maximums imposed in the immediately preceding paragraph,
(c) number and kind of shares subject to outstanding Awards, (d) exercise
price
of outstanding Stock Options and Stock Appreciation Rights and (e) other
characteristics or terms of the Awards as it may determine appropriate in
its
sole discretion to equitably reflect such corporate transaction, share offering
or other event;
provided
,
however
,
that
the number of shares subject to any Award shall always be a whole number.
The
Committee may, in its discretion and on such terms and conditions as the
Committee considers appropriate in the circumstances, grant Substitute Awards
under the Plan. For purposes of this Section 3, “Substitute Award” means an
Award granted under the Plan in substitution for stock and stock-based awards
(“
Acquired
Entity Awards
”)
held
by current and former employees or non-employee directors of, or consultants
to,
another corporation or entity who become Eligible Individuals as the result
of a
merger, consolidation or combination of the employing corporation or other
entity (the “
Acquired
Entity
”)
with
the Company, an Affiliate or Subsidiary or the acquisition by the Company,
an
Affiliate or Subsidiary of property or stock of the Acquired Entity immediately
prior to such merger, consolidation, acquisition or combination in order
to
preserve for such Eligible Individuals the economic value of all or a portion
of
such Acquired Entity Award at such price as the Committee determines necessary
to achieve preservation of economic value.
In
the
event of the dissolution or liquidation of the Company, or a merger,
reorganization or consolidation in which the Company is not the surviving
corporation, then, except as otherwise provided herein and/or in the discretion
of the Administrator, each Stock Option, to the extent not theretofore
exercised, shall terminate forthwith.
Notwithstanding
the foregoing, no adjustment pursuant to this Section 3 shall be made to
the
extent that such adjustment would result in liability under Section 409A
of the
Code.
4.
STOCK
OPTIONS
.
Stock
Options may be granted alone or in addition to other Awards granted under
the
Plan and may be of two types: Incentive Stock Options and Non-Qualified Stock
Options. Any Stock Option granted under the Plan shall be in such form as
the
Administrator may from time to time approve.
The
Administrator shall have the authority to grant any Participant Incentive
Stock
Options, Non-Qualified Stock Options or both types of Stock Options. Incentive
Stock Options may be granted only to employees of the Company and its
subsidiaries (within the meaning of Section 424(f) of the Code). To the extent
that any Stock Option is not designated as an Incentive Stock Option or,
even if
so designated, does not qualify as an Incentive Stock Option, it shall
constitute a Non-Qualified Stock Option. Incentive Stock Options may be granted
only within 10 years from the date the Plan is adopted, or the date the Plan
is
approved by the Company’s stockholders, whichever is earlier.
Stock
Options shall be evidenced by option agreements, each in a form approved
by the
Administrator. An option agreement shall indicate on its face whether it
is
intended to be an agreement for an Incentive Stock Option or a Non-Qualified
Stock Option. The grant of a Stock Option shall occur as of the date the
Administrator determines, subject to FASB Statement 123(R) and guidance
thereunder.
Anything
in the Plan to the contrary notwithstanding, no term of the Plan relating
to
Incentive Stock Options shall be interpreted, amended or altered, nor shall
any
discretion or authority granted under the Plan be exercised, so as to disqualify
the Plan under Section 422 of the Code or, without the consent of the Optionee
affected, to disqualify any Incentive Stock Option under Section 422 of the
Code.
To
the
extent that the aggregate Fair Market Value of Stock with respect to which
Incentive Stock Options are exercisable for the first time by a Participant
during any calendar year (under all plans of the Company and its subsidiaries
within the meaning of Section 424(f) of the Code) exceeds $100,000, such
Stock
Options shall be treated as Non-Qualified Stock Options.
Stock
Options granted under this
Section
4
shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions as the Administrator shall deem desirable:
|
(a)
|
Exercise
Price
.
The exercise price per share of Stock purchasable under a Stock
Option
shall be determined by the Administrator at the time of grant;
provided
,
however
,
that the exercise price per share shall be not less than the Fair
Market
Value per share on the date the Stock Option is granted, or in
the case of
an Incentive Stock Option granted to an individual who is a Ten
Percent
Holder, not less than 110% of such Fair Market Value per share
on the date
the Stock Option is granted.
|
|
(b)
|
Option
Term
.
The term of each Stock Option shall be fixed by the Administrator
at the
time of grant, but no Incentive Stock Option shall be exercisable
more
than 10 years (or five years in the case of an individual who is
a Ten
Percent Holder) after the date the Incentive Stock Option is
granted.
|
|
(c)
|
Vesting.
Except as otherwise provided in the applicable option agreement,
an
Optionee may not exercise a Stock Option during the period commencing
on
the date of the grant of such Stock Option to him or her and ending
on the
day immediately preceding the first anniversary of such date. Except
as
otherwise provided in the applicable option agreement, an Optionee
may (i)
during the period commencing on the first anniversary of the date
of the
grant of a Stock Option to him or her and ending on the day immediately
preceding the second anniversary of such date, exercise such Stock
Option
with respect to one-fourth of the shares granted thereby; (ii) during
the period commencing on the second anniversary of the date of
such grant
and ending on the day immediately preceding the third anniversary
of the
date of such grant, exercise such Stock Option with respect to
one-half of
the shares granted thereby; (iii) during the period commencing
on the
third anniversary of the date of such grant and ending on the day
immediately preceding the fourth anniversary of such date, exercise
such
Stock Option with respect to three-fourths of the shares granted
thereby
and (iv) during the period commencing on the fourth anniversary
of the
date of such grant and ending at the time the Stock Option expires
pursuant to the terms of the Plan, exercise such Stock Option with
respect
to all of the shares granted thereby.
|
|
(d)
|
Exercisability
.
Except as otherwise provided herein, Stock Options shall be subject
to
such terms and conditions, performance requirements, restrictions,
forfeiture provisions, contingencies and limitations, if any, as
shall be
determined by the Administrator and listed in the applicable Stock
Option
agreement. If any Stock Option is exercisable only in installments,
the
Administrator may at any time waive such installment exercise provisions,
in whole or in part, based on such factors as the Administrator
may
determine. In addition, the Administrator may at any time, in whole
or in
part, accelerate the exercisability of any Stock Option.
|
|
(e)
|
Method
of Exercise
.
Stock Options may be exercised, in whole or in part, by giving
written
notice of exercise to the Company specifying the number of shares
of Stock
subject to the Stock Option to be
purchased.
|
The
option price of any Stock Option shall be paid in full in cash (by certified
or
bank check or such other instrument as the Company may accept) or, unless
otherwise provided in the applicable option agreement, by one or more of
the
following: (i) in the form of mature shares of unrestricted Stock already
owned
by the Optionee, based on the Fair Market Value of the Stock on the date
the
Stock Option is exercised; (ii) by certifying ownership of shares of mature
Stock owned by the Optionee to the satisfaction of the Administrator for
later
delivery to the Company as specified by the Company; (iii) unless otherwise
prohibited by law for either the Company or the Optionee, by irrevocably
authorizing a third party to sell shares of Stock (or a sufficient portion
of
the shares) acquired upon exercise of the Stock Option and remit to the Company
a sufficient portion of the sale proceeds to pay the entire exercise price
and
any tax withholding resulting from such exercise; or (iv) by any combination
of
cash and/or any one or more of the methods specified in clauses (i), (ii)
and
(iii). Notwithstanding the foregoing, a form of payment shall not be permitted
to the extent it would cause the Company to recognize a compensation expense
(or
additional compensation expense) with respect to the Stock Option for financial
reporting purposes.
If
payment of the option exercise price of a Non-Qualified Stock Option is made
in
whole or in part in the form of Restricted Stock, the number of shares of
Stock
to be received upon such exercise equal to the number of shares of Restricted
Stock used for payment of the option exercise price shall be subject to the
same
forfeiture restrictions to which such Restricted Stock was subject, unless
otherwise determined by the Administrator.
No
shares
of Stock shall be issued upon exercise of a Stock Option until full payment
therefor has been made. Upon exercise of a Stock Option (or a portion thereof),
the Company shall have a reasonable time to issue the Stock for which the
Stock
Option has been exercised, and the Optionee shall not be treated as a
stockholder for any purposes whatsoever prior to such issuance. No adjustment
shall be made for cash dividends or other rights for which the record date
is
prior to the date such Stock is recorded as issued and transferred in the
Company’s official stockholder records, except as otherwise provided herein or
in the applicable option agreement.
|
(f)
|
Transferability
of Stock Options
.
Except as otherwise provided in the applicable option agreement,
a
Non-Qualified Stock Option (i) shall be transferable by the Optionee
to a
Family Member of the Optionee,
provided
that
(A) any such transfer shall be by gift with no consideration and
(B) no
subsequent transfer of such Stock Option shall be permitted other
than by
will or the laws of descent and distribution, and (ii) shall not
otherwise
be transferable except by will or the laws of descent and distribution.
An
Incentive Stock Option shall not be transferable except by will
or the
laws of descent and distribution. A Stock Option shall be exercisable,
during the Optionee’s lifetime, only by the Optionee or by the guardian or
legal representative of the Optionee, it being understood that
the terms
“holder” and “
Optionee
”
include the guardian and legal representative of the Optionee named
in the
applicable option agreement and any person to whom the Stock Option
is
transferred (X) pursuant to the first sentence of this
Section
4(f)
or
pursuant to the applicable option agreement or (Y) by will or the
laws of
descent and distribution. Notwithstanding the foregoing, references
herein
to the termination of an Optionee’s employment or provision of services
shall mean the termination of employment or provision of services
of the
person to whom the Stock Option was originally
granted.
|
|
(g)
|
Termination
by Death
.
Except as otherwise provided in the applicable option agreement,
if an
Optionee’s employment or provision of services terminates by reason of
death, any Stock Option held by such Optionee may thereafter be
exercised
for a period of one year from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period
is
shorter.
|
|
(h)
|
Termination
by Reason of Disability
.
Except as otherwise provided in the applicable option agreement,
if an
Optionee’s employment or provision of services terminates by reason of
Disability, any Stock Option held by such Optionee may thereafter
be
exercised by the Optionee for a period of one year from the date
of such
termination of employment or provision of services or until the
expiration
of the stated term of such Stock Option, whichever period is shorter.
|
|
(i)
|
Termination
by Reason of Retirement
.
Except as otherwise provided in the applicable option agreement,
if an
Optionee’s employment or provision of services terminates by reason of
Retirement, any Stock Option held by such Optionee may thereafter
be
exercised by the Optionee for a period of three years from the
date of
such termination of employment or provision of services or until
the
expiration of the stated term of such Stock Option, whichever period
is
shorter.
|
|
(j)
|
Involuntary
Termination Without Cause
.
Except as otherwise provided in the applicable option agreement,
if an
Optionee’s employment or provision of services terminates involuntarily
without Cause, and for reasons other than death, Disability or
Retirement,
any Stock Option held by such Optionee may thereafter be exercised,
to the
extent it was exercisable at the time of termination, for a period
of 90
days from the date of such termination of employment or provision
of
services or until the expiration of the stated term of such Stock
Option,
whichever period is shorter, and any Stock Option that is unvested
or
unexercisable at the date of termination shall thereupon terminate.
|
|
(k)
|
Involuntary
Termination for Cause.
Except as otherwise provided in the applicable option agreement,
if an
Optionee’s employment or provision of services terminates involuntarily
for Cause, vesting of all outstanding Stock Options held by such
Optionee
shall thereupon terminate and all Stock Options held by such Optionee
shall thereupon terminate.
|
|
(l)
|
Other
Termination.
Except as otherwise provided in the applicable option agreement,
if an
Optionee’s employment or provision of services is terminated by the
Optionee for any reason other than death, Disability or Retirement,
any
Stock Option held by such Optionee may thereafter be exercised,
to the
extent it was exercisable at the time of termination, for a period
of 30
days from the date of such termination of employment or provision
of
services or until the expiration of the stated term of such Stock
Option,
whichever period is shorter, and any Stock Option that is unvested
or
unexercisable at the date of termination shall thereupon terminate.
|
|
(m)
|
Exception
to Termination
.
If provision of services by the Optionee to the Company or an Affiliate
ceases as a result of a transfer of such Optionee from the Company
to an
Affiliate, or from an Affiliate to the Company, such transfer shall
not be
a termination of employment or provision of services for purposes
of this
Plan, unless expressly determined otherwise by the Administrator.
A
termination of employment or provision of services shall occur
for an
Optionee who is employed by, or provides services to, an Affiliate
of the
Company if the Affiliate shall cease to be an Affiliate and the
Optionee
shall not immediately thereafter be employed by, or provide services
to,
the Company or an Affiliate.
|
|
(n)
|
Notwithstanding
the foregoing, to the extent permitted under Section 409A of the
Code, the
exercise period following a termination described in subsection
(g), (h),
(i), (j) or (l) above shall be tolled for any applicable window/blackout
period restrictions under the Company’s insider trading
policy.
|
5.
STOCK
APPRECIATION RIGHTS
.
Stock
Appreciation Rights may be granted under the Plan on a stand-alone basis
only.
The Administrator shall have the authority to grant Stock Appreciation Rights
to
any Participant. Except as otherwise provided herein, a Stock Appreciation
Right
shall terminate and no longer be exercisable as determined by the
Administrator.
Stock
Appreciation Rights shall be evidenced by stock appreciation right agreements,
each in a form approved by the Administrator. The grant of a Stock Appreciation
Right shall occur as of the date the Administrator determines, subject to
FASB
Statement 123(R) and guidance thereunder.
A
Stock
Appreciation Right may be exercised by a Participant as determined by the
Administrator in accordance with this
Section
5
.
Upon
such exercise, the Participant shall be entitled to receive an amount determined
in the manner prescribed in this
Section
5
.
Stock
Appreciation Rights shall be subject to such terms and conditions as shall
be
determined by the Administrator, including the following:
|
(a)
|
Stock
Appreciation Right Term.
The term of each Stock Appreciation Right shall be fixed by the
Administrator at the time of grant.
|
|
(b)
|
Vesting.
Except as otherwise provided in the applicable stock appreciation
right
agreement, a Participant may not exercise a Stock Appreciation
Right
during the period commencing on the date of the grant of such Stock
Appreciation Right to him or her and ending on the day immediately
preceding the first anniversary of such date. Except as otherwise
provided
in the applicable stock appreciation right agreement, a Participant
may
(i) during the period commencing on the first anniversary of the
date of
the grant of a Stock Appreciation Right and ending on the day immediately
preceding the second anniversary of such date, exercise the Stock
Appreciation Right with respect to one-fourth of the shares to
which the
Stock Appreciation Right applies, (ii) during the period commencing
on the second anniversary of the date of such grant and ending
on the day
immediately preceding the third anniversary of the date of such
grant,
exercise the Stock Appreciation Right with respect to one-half
of the
shares to which the Stock Appreciation Right applies, (iii) during
the
period commencing on the third anniversary of the date of such
grant and
ending on the day immediately preceding the fourth anniversary
of such
date, exercise the Stock Appreciation Right with respect to three-fourths
of the shares to which the Stock Appreciation Right applies; and
(iv)
during the period commencing on the fourth anniversary of the date
of such
grant ending at the time the Stock Appreciation Right expires pursuant
to
the terms of the Plan, exercise the Stock Appreciation Right with
respect
to all the shares to which the Stock Appreciation Right applies.
|
|
(c)
|
Exercisability.
Notwithstanding
Section
5(a),
the Administrator may at any time, in whole or in part, accelerate
the
exercisability of any Stock Appreciation Right.
|
|
(d)
|
Method
of Exercise.
Subject to the provisions of this
Section
5,
Stock Appreciation Rights may be exercised, in whole or in part,
at such
time or times during the exercisability as determined by the Administrator
by giving written notice of exercise to the Company specifying
the number
of shares with respect to which the Stock Appreciation Right is
being
exercised.
|
|
(e)
|
Upon
the exercise of a Stock Appreciation Right, a Participant shall
be
entitled to receive an amount in cash or in shares of Stock, which
in the
aggregate are equal in value to the excess of the Fair Market Value
of one
share of Stock on the date of exercise over the Fair Market Value
of one
share of Stock on the date of grant, multiplied by the number of
shares in
respect of which the Stock Appreciation Right shall have been
exercised.
|
|
(f)
|
A
Stock Appreciation Right shall be transferable only to, and shall
be
exercisable only by, such persons permitted in accordance with
Section
4(f)
.
|
|
(g)
|
Termination
by Death
.
Except as otherwise provided in the applicable option agreement,
if a
Participant’s employment or provision of services terminates by reason of
death, any Stock Appreciation Right held by such Participant may
thereafter be exercised for a period of one year from the date
of such
death or until the expiration of the stated exercisability period
of such
Stock Appreciation Right, whichever period is shorter.
|
|
(h)
|
Termination
by Reason of Disability
.
Except as otherwise provided in the applicable option agreement,
if a
Participant’s employment or provision of services terminates by reason of
Disability, any Stock Appreciation Right held by such Participant
may
thereafter be exercised by the Participant for a period of one
year from
the date of such termination of employment or provision of services
or
until the expiration of the exercisability period of such Stock
Appreciation Right, whichever period is shorter.
|
|
(i)
|
Termination
by Reason of Retirement
.
Except as otherwise provided in the applicable option agreement,
if a
Participant’s employment or provision of services terminates by reason of
Retirement, any Stock Appreciation Right held by such Participant
may
thereafter be exercised by the Participant for a period of three
years
from the date of such termination of employment or provision of
services
or until the expiration of the exercisability period of such Stock
Appreciation Right, whichever period is shorter.
|
|
(j)
|
Involuntary
Termination Without Cause
.
Except as otherwise provided in the applicable option agreement,
if a
Participant’s employment or provision of services terminates involuntarily
without Cause, and for reasons other than death, Disability or
Retirement,
any Stock Appreciation Right held by such Participant may thereafter
be
exercised, to the extent it was exercisable at the time of termination,
for a period of 90 days from the date of such termination of employment
or
provision of services or until the expiration of the exercisability
period
of such Stock Appreciation Right, whichever period is shorter,
and any
Stock Appreciation Right that is unvested or unexercisable at the
date of
termination shall thereupon
terminate.
|
|
(k)
|
Termination
for Cause.
Except as otherwise provided in the applicable option agreement,
if a
Participant’s employment or provision of services terminates involuntarily
for Cause vesting of all outstanding Stock Appreciation Rights
held by
such Participant shall thereupon terminate and all Stock Appreciation
Rights held by such Participant shall thereupon
terminate.
|
|
(l)
|
Other
Termination.
Except as otherwise provided in the applicable option agreement,
if a
Participant’s employment or provision of services is terminated by the
Participant for any reason other than death, Disability or Retirement,
any
Stock Appreciation Right held by such Participant may thereafter
be
exercised, to the extent it was exercisable at the time of termination,
for a period of 30 days from the date of such termination of employment
or
provision of services or until the expiration of the exercisability
period
of such Stock Appreciation Right, whichever period is shorter,
and any
Stock Appreciation Right that is unvested or unexercisable at the
date of
termination shall thereupon
terminate.
|
|
(m)
|
Notwithstanding
the foregoing, to the extent permitted under Section 409A of the
Code, the
exercise period following a termination described in subsection
(g), (h),
(i), (j) or (l) above shall be tolled for any applicable window/blackout
period restrictions under the Company’s insider trading
policy.
|
6.
STOCK
AWARDS OTHER THAN OPTIONS
.
Stock
Awards may be directly issued under the Plan (without any intervening options),
subject to such terms, conditions, performance requirements, restrictions,
forfeiture provisions, contingencies and limitations as the Administrator
shall
determine. Subject to the provisions of this
Section
6,
Stock
Awards may be issued which vest in one or more installments over the
Participant’s period of employment and/or other service to the Company and/or
upon the attainment of specified performance objectives, and/or the Company
may
issue Stock Awards which entitle the Participant to receive a specified number
of vested shares of Stock upon the attainment of one or more performance
goals
and/or service requirements established by the Administrator.
Shares
representing a Stock Award shall be evidenced in such manner as the
Administrator may deem appropriate, including book-entry registration or
issuance of one or more certificates (which may bear appropriate legends
referring to the terms, conditions and restrictions applicable to such Award).
The Administrator may require that any such certificates be held in custody
by
the Company until any restrictions thereon shall have lapsed and that the
Participant deliver a stock power, endorsed in blank, relating to the Stock
covered by such Award.
A
Stock
Award may be issued in exchange for any consideration which the Administrator
may deem appropriate in each individual instance, including, without
limitation:
|
(a)
|
cash
or cash equivalents;
|
|
(b)
|
past
services rendered to the Company or any Affiliate;
or
|
|
(c)
|
future
services to be rendered to the Company or any Affiliate (
provided
that
,
in such case, the par value of the stock subject to such Stock
Award shall
be paid in cash or cash equivalents, unless the Administrator provides
otherwise).
|
A
Stock
Award that is subject to restrictions on transfer and/or forfeiture provisions
may be referred to as an award of “
Restricted
Stock.
”
Except
as provided in the applicable restricted stock agreement, the restrictions
on
any Stock Award shall terminate as follows: (a) as to one-fourth of the
restricted shares granted thereby, on the first anniversary of the date of
grant
of such Stock Award; (b) as to an additional one-fourth of the restricted
shares
granted thereby, on the second anniversary of the date of grant of such
Restricted Stock; (c) as to an additional one-fourth of the restricted shares
granted thereby, on the third anniversary of the date of grant of such
Restricted Stock; and (d) as to an additional one-fourth of the restricted
shares granted thereby, on the fourth anniversary of the date of grant of
such
Restricted Stock. A Participant, at his or her option, will be entitled to
make
the election permitted under Section 83(b) of the Code, to include in gross
income in the taxable year in which the Restricted Stock are transferred
to him
or her, the fair market value of such shares at the time of transfer,
notwithstanding that such shares are subject to a substantial risk of forfeiture
within the meaning of the Code, or he or she may elect to include in gross
income the Fair Market Value of the Restricted Stock as of the date or date
on
which such restrictions lapse. Notwithstanding the foregoing, the Administrator
shall adopt, from time to time, such rules with respect to the return of
executed Restricted Stock Agreements as it deems appropriate and failure
by a
Participant to comply with such rules shall, without limitation, terminate
the
grant of such Restricted Stock to such Participant and/or cause the forfeiture
of any Restricted Stock as to which restrictions have not yet lapsed.
7.
PERFORMANCE
AWARDS
.
|
(a)
|
Performance
Conditions
.
The right of a Participant to exercise or receive a grant or settlement
of
any Award, and its timing, may be subject to performance conditions
specified by the Administrator at the time of grant (except as
provided in
this
Section
7
).
The Administrator may use business criteria and other measures
of
performance it deems appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase
amounts
payable under any Award subject to performance conditions, except
as
limited under
Section
7(b)
hereof in the case of a Performance Award intended to qualify under
Section 162(m) of the Code.
|
|
(b)
|
Performance
Awards Granted to Designated Covered Employees
.
If the Administrator determines that a Performance Award to be
granted to
a person the Administrator regards as likely to be a Covered Employee
should qualify as “performance-based compensation” for purposes of Section
162(m) of the Code, the grant and/or settlement of such Performance
Award
shall be contingent upon achievement of pre-established performance
goals
and other terms set forth in this
Section
7(b)
|
(i)
Performance
Goals Generally
.
The
performance goals for such
Performance
Awards shall consist of one or more business criteria and a
targeted
level or levels of performance with respect to such criteria, as
specified
by the Administrator consistent with this
Section
7(b)
.
Performance
goals shall be objective and shall otherwise meet the
requirements
of Section 162(m) of the Code, including the requirement
that
the
level or levels of performance targeted by the Administrator result
in
the
performance goals being “substantially uncertain.” The
Administrator
may determine that more than one performance goals must
be
achieved as a condition to settlement of such Performance Awards.
Performance
goals may differ for Performance Awards granted to any one
Participant
or to different Participants.
|
.1
|
(ii)
Business
Criteria.
One or more of the following business criteria for the Company,
on a
consolidated basis, and/or for specified Subsidiaries or business
units of
the Company (except with respect to the total stockholder return
and
earnings per share criteria), shall be used by the Administrator
in
establishing performance goals for such Performance Awards and
set forth
in the applicable Performance Award Agreement (each a “Performance
Measure”):
|
(1)
|
Earnings
before interest, tax, depreciation or amortization (“EBITDA”) (actual and
adjusted and either in the aggregate or on a per-Share
basis);
|
(2)
|
Earnings
(either in the aggregate or on a per-Share
basis);
|
(3)
|
Net
income or loss (either in the aggregate or on a per-Share
basis);
|
(5)
|
Growth
or rate of growth in cash flow;
|
(6)
|
Cash
flow provided by operations (either in the aggregate or on a per-Share
basis);
|
(7)
|
Free
cash flow (either in the aggregate on a per-Share
basis);
|
(10)
|
Reductions
in expense levels;
|
(11)
|
Operating
and maintenance cost management and employee
productivity;
|
(12)
|
Stockholder
returns (including return on assets, investments, equity, or gross
sales);
|
(13)
|
Return
measures (including return on assets, equity, or
sales);
|
(14)
|
Growth
or rate of growth in return measures;
|
(15)
|
Share
price (including growth measures and total stockholder return or
attainment by the Shares of a specified value for a specified period
of
time);
|
(17)
|
Economic
value added;
|
(18)
|
Aggregate
product unit and pricing targets;
|
(19)
|
Strategic
business criteria, consisting of one or more objectives based on
meeting
specified revenue, market share, market penetration, geographic business
expansion goals, objectively identified project milestones, production
volume levels, cost targets, and goals relating to acquisitions or
divestitures;
|
(20)
|
Achievement
of business or operational goals such as market share and/or business
development;
|
(21)
|
Achievement
of diversity objectives;
|
(22)
|
Results
of customer satisfaction surveys;
|
(23)
|
Debt
ratings, debt leverage and debt service
|
(25)
|
Business
unit and site accomplishments;
|
(26)
|
Achievement
of scientific milestones;
|
(27)
|
Corporate
governance objectives; and
|
(28)
|
Adherence
to budget levels.
|
provided
that
applicable
Performance Measures may be applied on a pre- or post-tax basis; and
provided
further
that the
Committee may, on the grant date of an Award intended to comply with the
performance-based exception to the limitations of Section 162(m) of the Code,
and in the case of other Awards, at any time, provide that the formula for
such
Award may include or exclude items to measure specific objectives, such as
losses from discontinued operations, extraordinary gains or losses, the
cumulative effect of accounting changes, acquisitions or divestitures, foreign
exchange impacts and any unusual, nonrecurring gain or loss.
(iii)
Performance
Period: Timing For Establishing Performance Goals
.
Achievement
of performance goals in respect of such Performance
Awards
shall be measured over such periods of at least 12 months’
duration
as may be specified by the Administrator. Performance goals
shall
be
established on or before the dates that are required or permitted
for
"performance-based compensation" under Section 162(m) of the Code.
(iv)
Settlement
of Performance Awards; Other Terms
.
Settlement of Performance Awards may be in cash or Stock, or other Awards,
or
other property, in the discretion of the Administrator. The Administrator
may,
in its discretion, reduce the amount of a settlement otherwise to be made
in
connection with such Performance Awards, but may not exercise discretion
to
increase any such amount payable in respect of a Performance Award subject
to
this
Section
7(b)
.
The
Administrator shall specify the circumstances in which such Performance
Awards
shall be forfeited or paid in the event of a termination of employment
at least
six months prior to the end of a performance period or settlement of Performance
Awards, and other terms relating to such Performance Awards. Unless otherwise
provided in an award agreement, a Performance Award payable to a Participant
for
a performance period shall be paid in the calendar year immediately following
the calendar year in which the Performance Period ends, but no later than
March
15 of the calendar year immediately following the calendar year in which
the
performance period ends;
provided
,
that
except to the extent expressly otherwise required by a written agreement
by and
between the Participant and the Company, that the Participant is employed
by the
Company on the date such performance period ends. Except to the extent
expressly
otherwise required by a written agreement by and between the Participant
and the
Company, if a Participant is not employed with the Company on the date
such
performance period ends, such Performance Award shall be
forfeited.
8.
CHANGE
IN CONTROL PROVISIONS
.
|
(a)
|
Impact
of Event
.
Notwithstanding any other provision of the Plan to the contrary,
in the
event of a Change in Control:
|
|
(i)
|
Subject
to
Section
8(a)(iv)
hereof, the vesting and exercisability of any Stock Options and
Stock
Appreciation Rights outstanding as of the date such Change in Control
is
determined to have occurred and not then vested and exercisable
shall
become fully vested and
exercisable;
|
|
(ii)
|
Subject
to
Section
8(a)(iv)
hereof, any restrictions applicable to any outstanding Stock Awards
shall
lapse and the Stock relating to such Awards shall become free of
all
restrictions and fully vested and
transferable;
|
|
(iii)
|
Subject
to
Sections
8(a)(iv)
and
8(a)(v)
hereof, all outstanding repurchase rights of the Company with respect
to
any outstanding Awards may, in the discretion of the Administrator,
terminate;
|
|
(iv)
|
Outstanding
Awards shall, provided that no material modification of the Award
or any
liability results under Section 409A of the Code, be subject to
any
agreement of merger or reorganization that effects such Change
in Control
and that provides for:
|
|
(A)
|
The
continuation of the outstanding Awards by the Company, if the Company
is a
surviving corporation;
|
|
(B)
|
The
assumption of the outstanding Awards by the surviving corporation
or its
parent or subsidiary;
|
|
(C)
|
The
substitution by the surviving corporation or its parent or subsidiary
of
equivalent awards for the outstanding Awards;
or
|
|
(D)
|
Settlement
of each share of Stock subject to an outstanding Award for the
Change in
Control Price (less, to the extent applicable, the per share exercise
price), or, if the per share exercise price equals or exceeds the
Change
in Control Price, the outstanding Award shall terminate and be
canceled;
and
|
|
(v)
|
In
the absence of any agreement of merger or reorganization (if applicable)
which addresses the effects of such Change in Control and subject
to
Section 409A of the Code, each share of Stock subject to an outstanding
Award shall be settled for the Change in Control Price (less, to
the
extent applicable, the per share exercise price), or, if the per
share
exercise price equals or exceeds the Change in Control Price, the
outstanding Award shall terminate and be
canceled.
|
|
(b)
|
Definition
of Change in Control
.
|
|
(i)
|
For
purposes of the Plan, a “
Change
in Control
”
shall occur or be deemed to have occurred only if any of the following
events occur:
|
|
(A)
|
The
acquisition, directly or indirectly, by any person or group (as
those
terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Exchange
Act
and the rules thereunder) of beneficial ownership (as determined
pursuant
to Rule 13d-3 under the Exchange Act) of securities entitled to
vote
generally in the election of directors (voting securities) of the
Company
that represent 50% or more of the combined voting power of the
Company’s
then outstanding voting securities, other than:
|
|
(1)
|
An
acquisition by a trustee or other fiduciary holding securities
under any
employee benefit plan (or related trust) sponsored or maintained
by the
Company or any person controlled by the Company or by any employee
benefit
plan (or related trust) sponsored or maintained by the Company
or any
person controlled by the Company; or
|
|
(2)
|
An
acquisition of voting securities by the Company or a corporation
owned,
directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of the stock of the Company;
or
|
|
(3)
|
An
acquisition of voting securities pursuant to a transaction described
in
clause (C) below that would not be a Change of Control under clause
(C);
|
Notwithstanding
the foregoing, neither of the following events shall constitute an acquisition
by any person or group for purposes of this subsection (a): an acquisition
of
the Company’s securities by the Company which causes the Company’s voting
securities beneficially owned by a person or group to represent 50% or more
of
the combined voting power of the Company’s then outstanding voting securities;
provided,
however,
that if
a person or group shall become the beneficial owner of 50% or more of the
combined voting power of the Company’s then outstanding voting securities by
reason of share acquisitions by the Company as described above and shall,
after
such share acquisitions by the Company, become the beneficial owner of any
additional voting securities of the Company, then such acquisition shall
constitute a Change of Control; or
|
(B)
|
During
any period of two consecutive years, individuals who, at the beginning
of
such period, constitute the Board together with any new director(s)
(other
than a director designated by a person who shall have entered into
an
agreement with the Company to effect a transaction described in
clauses
(A) or (C) of this subsection (i)) whose election by the Board
or
nomination for election by the Company’s stockholders was approved by a
vote of at least two-thirds of the directors then still in office
who
either were directors at the beginning of the two year period or
whose
election or nomination for election was previously so approved,
cease for
any reason to constitute a majority thereof;
or
|
|
(C)
|
The
consummation by the Company (whether directly involving the Company
or
indirectly involving the Company through one or more intermediaries)
of
(x) a merger, consolidation, reorganization, or business combination
or
(y) a sale or other disposition of all or substantially all of
the
Company’s assets or (z) the acquisition of assets or stock of another
entity, in each case other than a transaction:
|
|
(1)
|
Which
results in the Company’s voting securities outstanding immediately before
the transaction continuing to represent (either by the remaining
outstanding or by being converted into voting securities of the
Company or
the person that, as a result of the transaction, controls, directly
or
indirectly, the Company or owns, directly or indirectly, all or
substantially all of the Company’s assets or otherwise succeeds to the
business of the Company (the Company or such person, the “
Successor
Entity”
))
directly or indirectly, at least a majority of the combined voting
power
of the Successor Entity’s outstanding voting securities immediately after
the transaction; and
|
|
(2)
|
After
which no person or group beneficially owns voting securities representing
50% or more of the combined voting power of the Successor Entity;
provided,
however,
that no person or group shall be treated for purposes of this clause
(2)
as beneficially owning 50% or more of combined voting power of
the
Successor Entity solely as a result of the voting power held in
the
Company prior to the consummation of the transaction;
or
|
|
(D)
|
The
Company’s stockholders approve a liquidation or dissolution of the
Company.
|
The
Committee shall have full and final authority, which shall be exercised in
its
discretion, to determine conclusively whether a Change of Control of the
Company
has occurred pursuant to the above definition, and the date of the occurrence
of
such Change of Control and any incidental matters relating thereto.
(ii)
|
For
purposes of
Section
8(b)
,
stock ownership is determined under Section 409A of the
Code.
|
|
(c)
|
Change
in Control Price
.
For purposes of the Plan, “
Change
in Control Price
”
means the lowest of (i) the highest reported sales price of a share
of
Stock in any transaction reported on the Nasdaq Capital Market,
the Nasdaq
National Stock Market, or other national securities exchange on
which such
shares are listed, as applicable, during the 60-day period prior
to and
including the date of a Change in Control, (ii) if the Change in
Control
is the result of a tender or exchange offer or a Corporate Transaction,
the highest price per share of Stock paid in such tender or exchange
offer
or Corporate Transaction, and (iii) the Fair Market Value of a
share of
Stock upon the Change in Control. To the extent that the consideration
paid in any such transaction described above consists all or in
part of
securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole
discretion
of the Board. The Participant shall receive the same form of consideration
as holders of common stock, subject to the same restrictions and
limitations and indemnification obligations as the holders of common
stock
and will execute any and all documents required by the Administrator
to
evidence the same.
|
9.
MISCELLANEOUS
.
|
(a)
|
Amendment.
The Board may at any time terminate, amend, alter, or discontinue
the
Plan, but no amendment, alteration or discontinuation shall be
made which
would adversely affect the rights of a Participant under an Award
theretofore granted without the Participant’s consent, except such an
amendment (i) made to avoid an expense charge to the Company or
an
Affiliate under applicable law or regulation, (ii) made to permit
the
Company or an Affiliate a deduction under the Code, or (iii) made
to avoid
liability under Section 409A of the Code. No such amendment or
alteration
shall be made without the approval of a majority vote of the Company’s
shareholders, present in person or by proxy at any special or annual
meeting of the shareholders (1) to the extent such approval is
required by
law, agreement or the rules of any stock exchange or market on
which the
Stock is listed
,
or (2) with respect to any Award that is intended to qualify for
an
exemption from the limitations of Section 162(m) of the Code, to
the
extent such approval is required under Section 162(m) to maintain
such
exemption.
|
The
Administrator may amend the terms of any Stock Option or other Award theretofore
granted, prospectively or retroactively, but except as provided in
Section
3
hereof
no such amendment shall adversely affect the rights of a Participant without
the
Participant’s consent. Notwithstanding anything in the Plan to the contrary,
neither the Board nor the Administrator will be permitted to (i) amend a
Stock
Option to reduce its exercise price, (ii) cancel a Stock Option and re-grant
a
Stock Option with a lower exercise price than the original exercise price
of the
cancelled Stock Option, or (iii) take any other action (whether in the form
of
an amendment, cancellation or replacement grant) that has the effect of
repricing a Stock Option.
|
(b)
|
Unfunded
Status of Plan.
It
is intended that this Plan be an “unfunded” plan for incentive and
deferred compensation. The Administrator may authorize the creation
of
trusts or other arrangements to meet the obligations created under
this
Plan to deliver Stock or make payments,
provided
that
,
unless the Administrator otherwise determines, the existence of
such
trusts or other arrangements is consistent with the “unfunded” status of
this Plan.
|
|
(i)
|
Unless
the shares to be issued in connection with an Award are registered
prior
to the issuance thereof under the Securities Act of 1933, as amended,
the
Administrator may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company
in writing
that such person is acquiring the shares for his or her own account
as an
investment without a view to or for sale in connection with, the
distribution thereof. The certificates for such shares may include
any
legend which the Administrator deems appropriate to reflect any
restrictions on transfer.
|
All
certificates for shares of Stock or other securities delivered under the
Plan
shall be subject to such stock transfer orders and other restrictions as
the
Administrator may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange or market on which the
Stock
is then listed and any applicable Federal or state securities law, and the
Administrator may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
|
(ii)
|
Nothing
contained in the Plan shall prevent the Company or any Affiliate
from
adopting other or additional compensation arrangements for its
employees.
|
|
(iii)
|
The
adoption of the Plan shall not confer upon any employee, director,
associate, consultant or advisor any right to continued employment,
directorship or service, nor shall it interfere in any way with
the right
of the Company or any Subsidiary or Affiliate to terminate the
employment
or service of any employee, consultant or advisor at any
time.
|
|
(iv)
|
No
later than the date as of which an amount first becomes includible
in the
gross income of the Participant for Federal income tax purposes
with
respect to any Award under the Plan, the Participant shall pay
to the
Company, or make arrangements satisfactory to the Company regarding
the
payment of, any Federal, state, local or foreign taxes of any kind
required by law to be withheld with respect to such amount. Unless
otherwise determined by the Administrator, withholding obligations
may be
settled with Stock, including Stock that is part of the Award that
gives
rise to the withholding requirement. The obligations of the Company
under
the Plan shall be conditional on such payment or arrangements,
and the
Company, its Subsidiaries and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from
any payment
otherwise due to the Participant. The Administrator may establish
such
procedures as it deems appropriate for the settlement of withholding
obligations with Stock.
|
|
(v)
|
The
Administrator shall establish such procedures as it deems appropriate
for
a Participant to designate a beneficiary to whom any amounts payable
in
the event of the Participant’s death are to be paid. In the event of the
death of a Participant, a condition of exercising any Award shall
be the
delivery to the Company of such tax waivers and other documents
as the
Administrator shall determine.
|
|
(vi)
|
Neither
any Participant nor his or her legal representatives, legatees
or
distributees shall be or be deemed to be the holder of any share
of Stock
covered hereby unless and until a certificate for such share has
been
issued. Upon payment of the purchase price thereof, a share shall
be fully
paid and non-assessable.
|
|
(vii)
|
The
grant of an Award shall in no way affect the right of the Company
to
adjust, reclassify, reorganize or otherwise change its capital
or business
structure or to merge, consolidate, dissolve, liquidate or sell
or
transfer all or any part of its business or assets, or issue bonds,
debentures, preferred or prior preference stock ahead of or affecting
the
Stock, or take any other corporate act or proceeding whether of
a similar
character or otherwise.
|
|
(viii)
|
If
any payment or right accruing to a Participant under this Plan
(without
the application of this
Section
9(c)(viii)
),
either alone or together with other payments or rights accruing
to the
Participant from the Company or an Affiliate (“
Total
Payments
”)
would constitute a “parachute payment” (as defined in Section 280G of the
Code and regulations thereunder), such payment or right shall be
reduced
to the largest amount or greatest right that will result in no
portion of
the amount payable or right accruing under this Plan being subject
to an
excise tax under Section 4999 of the Code or being disallowed as
a
deduction under Section 280G of the Code;
provided
,
however
,
that the foregoing shall not apply to the extent provided otherwise
in an
Award or in the event the Participant is party to an agreement
with the
Company or an Affiliate that explicitly provides for an alternate
treatment of payments or rights that would constitute “parachute
payments.” The determination of whether any reduction in the rights or
payments under this Plan is to apply shall be made by the Administrator
in
good faith after consultation with the Participant, and such determination
shall be conclusive and binding on the Participant. The Participant
shall
cooperate in good faith with the Administrator in making such
determination and providing the necessary information for this
purpose.
The foregoing provisions of this
Section
9(c)(viii)
shall apply with respect to any person only if, after reduction
for any
applicable Federal excise tax imposed by Section 4999 of the Code
and
Federal income tax imposed by the Code, the Total Payments accruing
to
such person would be less than the amount of the Total Payments
as
reduced, if applicable, under the foregoing provisions of this
Plan and
after reduction for only Federal income taxes.
|
|
(ix)
|
To
the extent that the Administrator determines that the restrictions
imposed
by the Plan preclude the achievement of the material purposes of
the
Awards in jurisdictions outside the United States, the Administrator
in
its discretion may modify those restrictions as it determines to
be
necessary or appropriate to conform to applicable requirements
or
practices of jurisdictions outside of the United
States.
|
|
(x)
|
The
headings contained in this Plan are for reference purposes only
and shall
not affect the meaning or interpretation of this
Plan.
|
|
(xi)
|
If
any provision of this Plan shall for any reason be held to be invalid
or
unenforceable, such invalidity or unenforceability shall not effect
any
other provision hereby, and this Plan shall be construed as if
such
invalid or unenforceable provision were
omitted.
|
|
(xii)
|
This
Plan shall inure to the benefit of and be binding upon each successor
and
assign of the Company. All obligations imposed upon a Participant,
and all
rights granted to the Company hereunder, shall be binding upon
the
Participant’s heirs, legal representatives and
successors.
|
|
(xiii)
|
This
Plan and each agreement granting an Award constitute the entire
agreement
with respect to the subject matter hereof and thereof,
provided
that
in
the event of any inconsistency between this Plan and such agreement,
the
terms and conditions of the Plan shall
control.
|
|
(xiv)
|
In
the event there is an effective registration statement under the
Securities Act pursuant to which shares of Stock shall be offered
for sale
in an underwritten offering, a Participant shall not, during the
period
requested by the underwriters managing the registered public offering,
effect any public sale or distribution of shares of Stock received,
directly or indirectly, as an Award or pursuant to the exercise
or
settlement of an Award.
|
|
(xv)
|
None
of the Company, an Affiliate or the Administrator shall have any
duty or
obligation to disclose affirmatively to a record or beneficial
holder of
Stock or an Award, and such holder shall have no right to be advised
of,
any material information regarding the Company or any Affiliate
at any
time prior to, upon or in connection with receipt or the exercise
of an
Award or the Company’s purchase of Stock or an Award from such holder in
accordance with the terms hereof.
|
|
(xvi)
|
This
Plan, and all Awards, agreements and actions hereunder, shall be
governed
by, and construed in accordance with, the laws of the state of
Delaware
(other than its law respecting choice of
law).
|
|
(xvii)
|
No
Award granted pursuant to this Plan is intended to constitute “deferred
compensation” as defined in Section 409A of the Code, and the Plan and the
terms of all Awards shall be interpreted accordingly. If any provision
of
the Plan or an Award contravenes any regulations or Treasury guidance
promulgated under Section 409A of the Code or could cause an Award
to be
subject to the penalties and interest under Section 409A of the
Code, such
provision of the Plan or Award shall be modified to maintain, to
the
maximum extent practicable, the original intent of the applicable
provision without resulting in liability under Section 409A of
the
Code.
|
10.
DEFINITIONS
.
For
purposes of this Plan, the following terms are defined as set forth
below:
|
(a)
|
“Affiliate”
means a corporation or other entity (i) controlled by the Company
and
which, in the case of grants of Stock Options and Stock Appreciation
Rights would, together with the Company, be classified as the “service
recipient” (as defined in the regulations under Section 409A of the Code)
with respect to an Eligible Individual, and (ii) is designated
by the
Administrator as such.
|
|
(b)
|
“Award”
means a Stock Appreciation Right, Stock Option or Stock Award.
|
|
(c)
|
“Board”
means the Board of Directors of the
Company.
|
|
(d)
|
“Cause”
means (i) the commission by the Participant of any act or omission
that
would constitute a felony or any crime of moral turpitude under
Federal
law or the law of the state or foreign law in which such action
occurred,
(ii) dishonesty, disloyalty, fraud, embezzlement, theft, disclosure
of
trade secrets or confidential information or other acts or omissions
that
result in a breach of fiduciary or other material duty to the Company
and/or a Subsidiary; or (iii) continued reporting to work or working
under
the influence of alcohol, an illegal drug, an intoxicant or a controlled
substance which renders Participant incapable of performing his
or her
material duties to the satisfaction of the Company and/or its
Subsidiaries. Notwithstanding the foregoing, if the Participant
and the
Company or the Affiliate have entered into an employment or services
agreement which defines the term “
Cause
”
(or a similar term), such definition shall govern for purposes
of
determining whether such Participant has been terminated for Cause
for
purposes of this Plan. The determination of Cause shall be made
by the
Administrator, in its sole
discretion.
|
|
(e)
|
“Code”
means the Internal Revenue Code of 1986, as amended from time to
time, and
any successor thereto.
|
|
(f)
|
“Commission”
means the Securities and Exchange Commission or any successor
agency.
|
|
(g)
|
“Committee”
means a committee of Directors appointed by the Board to administer
this
Plan. Insofar as the Committee is responsible for granting Awards
to
Participants hereunder, it shall consist solely of two or more
directors,
each of whom is a “non-employee director” within the meaning of Rule
16b-3, an “outside director” under Section 162(m) of the Code, an
“independent director” as defined by the Sarbanes-Oxley Act of 2002, and
“independent” as defined by the rules of any stock exchange or market on
which the Stock is listed.
|
|
(h)
|
“Covered
Employee”
means a person who is a “covered employee” within the meaning of Section
162(m) of the Code.
|
|
(i)
|
“Director”
means a member of the Company’s
Board.
|
|
(j)
|
“Disability”
means mental or physical illness that entitles the Participant
to receive
benefits under the long-term disability plan of the Company or
an
Affiliate, or if the Participant is not covered by such a plan
or the
Participant is not an employee of the Company or an Affiliate,
a mental or
physical illness that renders a Participant totally and permanently
incapable of performing the Participant’s duties for the Company or an
Affiliate;
provided
,
however
,
that a Disability shall not qualify under this Plan if it is the
result of
(i) a willfully self-inflicted injury or willfully self-induced
sickness;
or (ii) an injury or disease contracted, suffered or incurred while
participating in a criminal offense. Notwithstanding the foregoing,
if the
Participant and the Company or an Affiliate have entered into an
employment or services agreement which defines the term “
Disability
”
(or a similar term), such definition shall govern for purposes
of
determining whether such Participant suffers a Disability for purposes
of
this Plan. The determination of Disability shall be made by the
Administrator, in its sole discretion. The determination of Disability
for
purposes of this Plan shall not be construed to be an admission
of
disability for any other purpose.
|
|
(k)
|
“Effective
Date”
of
the amendment and restatement of the Plan means April 29, 2008.
The 2006
Plan was originally effective on July 1, 2006.
|
|
(l)
|
“Eligible
Individual”
means any (i) officer, employee, associate or director of the Company
or a
Subsidiary or Affiliate, (ii) any consultant or advisor providing
services
to the Company or a Subsidiary or Affiliate, or (iii) employees
of (x) a
corporation or other business enterprise which has been acquired
by the
Company or a Subsidiary, which, in the case of grants of Stock
Options and
Stock Appreciation Rights would, together with the Company and,
if
applicable, the Subsidiary, be classified as the “service recipient” (as
defined in the regulations under Section 409A of the Code) with
respect to
such employees and (y) who hold options with respect to the stock
of such
corporation which the Company has agreed to assume.
|
|
(m)
|
“Exchange
Act”
means the Securities Exchange Act of 1934, as amended from time
to time,
and any successor thereto.
|
|
(n)
|
“Fair
Market Value”
means, as of any given date, the fair market value of the Stock
as
determined by the Administrator or under procedures established
by the
Administrator, in accordance with Section 409A of the Code and
the
regulations issued thereunder. Unless otherwise determined by the
Administrator, the Fair Market Value per share on any date shall
be the
most recent closing sales price per share of the Stock on the Nasdaq
Capital Market, the Nasdaq National Stock Market, or the principal
stock
exchange or market on which the Stock is then traded on the business
day
preceding the date as of which such value is being determined or
the last
previous day on which a sale was reported if no sale of the Stock
was
reported on such date on such Exchange on such business day.
|
|
(o)
|
“Family
Member”
means any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law of a Participant (including adoptive relationships);
any
person sharing the Participant’s household (other than a tenant or
employee); any trust in which the Participant and any of these
persons
have all of the beneficial interest; any foundation in which the
Participant and any of these persons control the management of
the assets;
any corporation, partnership, limited liability company or other
entity in
which the Participant and any of these other persons are the direct
and
beneficial owners of all of the equity interests (
provided
the Participant and these other persons agree in writing to remain
the
direct and beneficial owners of all such equity interests); and
any
personal representative of the Participant upon the Participant’s death
for purposes of administration of the Participant’s estate or upon the
Participant’s incompetency for purposes of the protection and management
of the assets of the Participant.
|
|
(p)
|
“Incentive
Stock Option”
means any Stock Option intended to be and designated as an “incentive
stock option” within the meaning of Section 422 of the
Code.
|
|
(q)
|
“Non-Qualified
Stock Option”
means any Stock Option that is not an Incentive Stock
Option.
|
|
(r)
|
“Optionee”
means a person who holds a Stock
Option.
|
|
(s)
|
“Participant”
means a person granted an Award.
|
|
(t)
|
“
Performance
Award
”
means a right, granted to a Participant under
Section
7
,
to
receive
Awards based upon performance criteria specified by the
Administrator.
|
|
(u)
|
“Representative”
means (i) the person or entity acting as the executor or administrator
of
a Participant’s estate pursuant to the last will and testament of a
Participant or pursuant to the laws of the jurisdiction in which
the
Participant had his or her primary residence at the date of the
Participant’s death; (ii) the person or entity acting as the guardian
or temporary guardian of a Participant; (iii) the person or entity
which is the beneficiary of the Participant upon or following the
Participant’s death; or (iv) any person to whom an Option has been
transferred with the permission of the Administrator or by operation
of
law;
provided
that
only one of the foregoing shall be the Representative at any point
in time
as determined under applicable law and recognized by the
Administrator.
|
|
(v)
|
“Retirement”
means termination of employment or provision of services without
Cause,
death or Disability on or after age 65 with 5 years of
service.
|
|
(w)
|
“Stock”
means the common stock, par value $0.005 per share, of the
Company.
|
|
(x)
|
“Stock
Appreciation Right”
means a right granted under
Section
5
.
|
|
(y)
|
“Stock
Award”
means an Award, other than a Stock Option or Stock Appreciation
Right,
made in Stock or denominated in shares of
Stock.
|
|
(z)
|
“Stock
Option”
means an option granted under
Section
4
.
|
|
(aa)
|
“Subsidiary”
means any company during any period in which it is a “subsidiary
corporation” (as such term is defined in Section 424(f) of the Code) with
respect to the Company.
|
|
(bb)
|
“Ten
Percent Holder”
means an individual who owns, or is deemed to own, stock possessing
more
than 10% of the total combined voting power of all classes of stock
of the
Company or of any parent or subsidiary corporation of the Company,
determined pursuant to the rules applicable to Section 422(b)(6)
of the
Code.
|
In
addition, certain other terms used herein have the definitions given to them
in
the first places in which they are used.