On April 12, 2018, the stockholders of ProPhase Labs, Inc. (the Company), at a Special Meeting of Stockholders (the Special Meeting), approved the 2018 Stock Incentive Plan (the 2018 Stock Plan) and the Amended and Restated 2015 Executive Employment Agreement with Ted Karkus, the Companys Chairman and Chief Executive Officer (the New CEO Employment Agreement), which had each been previously approved by the Companys board of directors on February 16, 2018.
The 2018 Stock Plan provides for the grant of incentive stock options qualifying under Section 422 of the Code to eligible employees, and for the grant of nonstatutory stock options to eligible employees, directors and consultants. Subject to certain adjustments, the aggregate number of shares of the Companys co mmon stock that may be issued pursuant to stock options awarded under the 2018 Stock Plan may not exceed 2,300,000 shares. All shares of common stock authorized for issuance under the 2018 Stock Plan have been reserved for the stock option granted to Mr. Karkus on February 23, 2018, subject to stockholder approval of the 2018 Stock Plan and the New CEO Employment Agreement (described below) at the Special Meeting.
The New CEO Employment Agreement is substantially similar to Mr. Karkus prior employment agreement, except that the New CEO Employment Agreement (1) amends the salary and benefits payable to Mr. Karkus and (2) amends the benefits payable to Mr. Karkus upon termination of his employment.
Pursuant to the terms of the New CEO Employment Agreement, Mr. Karkus voluntarily agreed to reduce his base salary from the rate set forth in his prior employment agreement (i.e., not less than $675,000 per annum) to a base salary of $125,000 per annum (the Term Base Salary) through February 22, 2021. Unless otherwise determined by the mutual agreement of the Company and Mr. Karkus, on February 22, 2021 and thereafter, Mr. Karkus salary will increase from the Term Base Salary to not less than $675,000 per annum.
In consideration of Mr. Karkus voluntary reduction in salary, on February 23, 2018, the board of directors granted Mr. Karkus a stock option to purchase 2,300,000 shares of the Companys common stock at an exercise price of $3.00 per share (the Stock Option). The Stock Option vests and is exercisable in 35 equal monthly installments of 63,888 shares and one monthly installment of 63,290 shares, subject to his continued employment with the Company, and subject to accelerated vesting in the event Mr. Karkuss employment is terminated for any reason other than by the Company for Cause or by Mr. Karkus without Good Reason (as such terms are defined in the New CEO Employment Agreement). The Stock Option is exercisable for a five year term commencing on the date of grant.
The New CEO Employment Agreement also modified the benefits to be received by Mr. Karkus in the event of certain terminations of his employment. Under the terms of the New CEO Employment Agreement, in the event Mr. Karkus employment is terminated on or before February 22, 2021 for any reason other than as a result of (i) a termination for Cause (as defined in the New CEO Employment Agreement), or (ii) a voluntary resignation by Mr. Karkus without a Good Reason (as defined in the New CEO Employment Agreement) ((i) and (ii) collectively, an Ineligible Termination), then Mr. Karkus will be entitled to receive a combination of accelerated vesting of the Stock Option and a portion of a total cash severance payment of up to $1,687,500 (as described in the New CEO Employment Agreement). If Mr. Karkus employment is terminated on or after February 23, 2021, other than for an Ineligible Termination, Mr. Karkus will be entitled to a cash severance payment equal to 2.5 times his base salary and all of his stock options and/or restricted stock will automatically vest concurrently with such termination of employment, regardless of any existing vesting schedules. If Mr. Karkus employment is terminated for any reason, other than an Ineligible Termination, death or disability, within 18 months following a Change in Control (as defined in the New CEO Employment Agreement), or prior to a Change in Control but in contemplation of a Change in Control, which Change in Control actually occurs, then Mr. Karkus will receive a one-time severance payment in cash equal to $2,500,000 and all of his stock options and/or restricted stock will automatically vest concurrently upon such termination of employment.
The foregoing is a summary of the terms of the 2018 Stock Plan, the New CEO Employment Agreement and the Stock Option. The summary does not purport to be complete and is qualified in its entirety by reference to the 2018 Stock Plan, the New CEO Employment Agreement and the Stock Option, copies of which are filed as Exhibits 10.1, 10.2 and 10.3 to this Current Report on Form 8-K, and incorporated herein by reference.
Item 5.07 Submission of Matters to a Vote of Security Holders.
At the Special Meeting, the Companys stockholders voted on the following two proposals and cast their votes as described below. Mr. Karkus abstained from voting on each of the two proposals due to his personal interest in these matters.
Proposal 1. Approval of the 2018 Plan
The proposal to approve the 2018 Plan was approved.
Proposal 2. Approval of the New CEO Employment Agreement
The proposal to approve the New CEO Employment Agreement was approved.
Item 9.01 Financial Statements and Exhibits.
2018 Stock Incentive Plan
Amended and Restated 2015 Executive Employment Agreement with Ted Karkus, effective February 23, 2018 (incorporated by reference to Exhibit 10.1 to the Form 8-K (File No. 000-21617) filed on February 21, 2018)
Stock Option Agreement with Ted Karkus pursuant to the 2018 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form 8-K (File No. 000-21617) filed on February 21, 2018)
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ProPhase Labs, Inc.
Chairman of the Board, Chief Executive Officer and Director
Date: April 16, 2018
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Other recent filings from the company include the following:
ProPhase Labs Just Received a Notice of Effectiveness - July 5, 2018
Registration statement under Securities Act of 1933 - June 25, 2018