SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
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EDESA BIOTECH,
INC.
(Name
of Registrant as Specified in Charter)
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To
the Holders of Common Shares of Edesa Biotech, Inc.:
Edesa Biotech, Inc., a British Columbia
corporation formerly known as Stellar Biotechnologies, Inc.
(‘‘Edesa,’’ ‘‘we’’
or ‘‘our’’), on October 22, 2019, received
a written consent from shareholders holding an aggregate of
5,122,379 of our outstanding common shares, representing 68.3% of 7,504,468
outstanding common shares as of such
date (the “Majority Holders”), approving the
adoption of the Company’s 2019 Equity Incentive Compensation
Plan (the “2019 Plan”).
The
details of the foregoing action and other important information are
set forth in the accompanying Information Statement. Our Board of
Directors (the “Board”) has unanimously approved the
above action.
Adoption
of the 2019 Plan required approval of our Board and the affirmative
vote of shareholders representing a majority of our outstanding
voting securities. No other vote or shareholder action is required
to approve the 2019 Plan. You are hereby being provided with notice
of the approval of the 2019 Plan by less than unanimous written
consent of our shareholders.
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
By
order of the Board of Directors,
Dr.
Pardeep Nijhawan
Chief Executive Officer
Markham,
Ontario, Canada
October
25, 2019
EDESA BIOTECH, INC.
INFORMATION STATEMENT
CONCERNING CORPORATE ACTIONS
AUTHORIZED BY WRITTEN CONSENT OF SHAREHOLDERS
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
QUESTIONS AND ANSWERS ABOUT THIS INFORMATION STATEMENT
Why did I receive this information statement?
We are providing this information statement
(“Information Statement”) in connection with the
receipt of written consents from shareholders holding an
aggregate of 5,122,379 common shares without par value (“Common
Shares”) of Edesa
Biotech, Inc., a British Columbia corporation formerly known as
Stellar Biotechnologies, Inc. (sometimes referred to as
‘‘we,’’ ‘‘our,’’
‘‘us,’’ the
‘‘Company’’ or
‘‘Edesa’’), representing 68.3% of
our 7,504,468 outstanding Common Shares, approving the adoption of
the Company’s 2019 Equity Incentive Compensation Plan (the
“2019 Plan”).
Adoption
of the 2019 Plan required approval of our Board of Directors (the
“Board”) and the affirmative vote of shareholders
representing a majority of our outstanding voting securities. No
other vote or shareholder action is required to approve the 2019
Plan. You are hereby being provided with notice of the approval of
the 2019 Plan by less than unanimous written consent of our
shareholders.
On
September 27, 2019, the compensation committee of our Board
recommended that our Board approve the 2019 Plan, and on October
16, 2019, our Board approved the 2019 Plan and recommended
shareholder approval of the 2019 Plan.
Do I need to vote on the approval of the 2019 Plan?
We
are not asking you for a proxy and you are requested not to send us
a proxy.
What was the record date for voting on the 2019 Plan?
On October 16, 2019, our Board set the record date
for voting on the 2019 Plan as October 16, 2019 (the
‘‘Record Date’’). On the Record Date, there
were 7,504,468 Common Shares
outstanding and entitled to vote.
How many votes were required to approve the 2019 Plan?
Each
Common Share that was outstanding as of the Record Date was
entitled to one vote on the approval of the 2019 Plan. The approval
of the 2019 Plan required the affirmative vote of holders of a
majority of our outstanding Common Shares.
When will the Plan become effective?
The
2019 Plan became effective on October 16, 2019. The 2019 Plan will
become available for use on the twentieth day after we distribute
this Information Statement to our shareholders. This Information
Statement will first be sent to our shareholders on or about
October 25, 2019 and is being furnished for informational purposes
only.
Am I entitled to dissenters’ or appraisal
rights?
No,
our shareholders are not entitled to dissenters’ rights or
appraisal rights under British Columbia law in connection with the
approval of the 2019 Plan.
Can I access the Information Statement via the
Internet?
The Information Statement is available in the
Investors section of our website at www.edesabiotech.com.
Do the share numbers and per share prices in this Information
Statement account for the 1-for-6 reverse stock split that occurred
on June 7, 2019?
Yes,
all share numbers and per share prices in this Information
Statement give effect to the 1-for-6 reverse split of our Common
Shares that occurred on June 7, 2019.
ITEM NO. 1
APPROVAL AND ADOPTION OF 2019 INCENTIVE COMPENSATION
PLAN
On October 22, 2019, we received written consents
from shareholders holding an aggregate of 5,122,379 of our
Common Shares, representing 68.3% of our 7,504,468 outstanding
Common Shares (the “Majority Holders”), approving the 2019 Plan. A copy of the 2019 Plan
is attached to this Information Statement as Annex
A.
On October 16, 2019, our Board approved the
adoption of the 2019 Plan. Adoption of the 2019 Plan required board approval
and the affirmative vote of shareholders representing a majority of
our outstanding voting securities. Since both our Board and the
Majority Holders have approved the 2019 Plan, no vote or further
action of our shareholders is required to adopt the 2019 Plan. You
are hereby being provided with notice of the approval of the
adoption of the 2019 Plan by less than unanimous written consent of
our shareholders. The Plan became effective on October 16, 2019 and
will become available for use by the Company on the twentieth day
after we distribute this Information Statement to our shareholders.
This Information Statement will first be sent to our shareholders
on or about October 25, 2019, and is being furnished for
informational purposes only.
The
2019 Plan amends and restates the Stellar Biotechnologies, Inc. 2017 Incentive
Compensation Plan (the “2017 Plan”). The 2017
Plan was originally adopted by our Board on January 27, 2017 and by our shareholders on
March 23, 2017. The 2017 Plan amended and restated the
Stellar Biotechnologies, Inc.
2013 Fixed Share Option Plan (the “Prior Plan”),
which was approved by the Company’s Board on December 8, 2013
and ratified by our shareholders on February 13, 2014. The Prior
Plan amended and restated the Fixed Share Option Plan originally
approved by our Board on September 4, 2009, as amended on December
13, 2011 and as ratified by our shareholders on January 17,
2012.
The
purpose of this 2019 Plan is to assist us in attracting,
motivating, retaining and rewarding high-quality executives and
other employees, officers, directors, consultants and other persons
who provide services to us by enabling such persons to acquire or
increase a proprietary interest in the Company in order to
strengthen the mutuality of interests between such persons and our
shareholders, and providing such persons with performance
incentives to expend their maximum efforts in the creation of
shareholder value.
The
Board has approved Appendix A to the 2019 Plan to be used by
recipients of awards under the 2019 Plan who are Canadian
residents. The subplan in Appendix A sets out the major features of
the 2019 Plan and the principal terms and conditions of
participation that differ for Canadian participants in the 2019
Plan in order to, among other things, recognize, and comply with,
differences in law and tax policy in Canada.
Background
As of September 30, we had 33,502 shares
remaining available for future grants under the 2017 Plan.
The number of options outstanding
under the 2017 Plan as of September 30, 2019 was 319,645 with a
weighted average exercise price of $3.38 per share and weighted
average remaining term of 8 years. We have never awarded full value
awards (e.g., restricted share awards) under the 2017 Plan and
there are no full value awards outstanding under the 2017 Plan as
of September 30, 2019.
Following the approval of the 2019 Plan, the
number of Common Shares available for issuance under the 2019 Plan
is 800,000 shares, plus any shares remaining available for
delivery under the 2017 Plan on the effective date. The 2019
Plan will become available for use by the Company on the twentieth
day after the date this Information Statement has first been sent
to shareholders.
If,
any shares subject to (i) any award under the 2019 Plan, or any
awards granted under the 2017 Plan, are forfeited, expire or
otherwise terminate without issuance of such shares, or (ii) any
award under the 2019 Plan, or any award granted under the 2017
Plan, is settled for cash or otherwise does not result in the
issuance of all or a portion of the shares subject to such award,
the shares to which those awards were subject, will, to the extent
of such forfeiture, expiration, or termination, cash settlement or
non-issuance, again be available for delivery with respect to
awards under the 2019 Plan.
Any
share that again becomes available for delivery pursuant to the
provisions described above will be added back as one share if the
share was subject to an option, and as 1.5 shares if such share was
subject to an award other than an option.
As of
September 30, 2019, there were
319,645 shares issuable
pursuant to outstanding options under the 2017 Plan, any of which
might be available for awards under the 2019 Plan as described
above.
Rationale for the adoption of the 2019 Plan
The
Board believes that the 2019 Plan will advance our long-term
success by encouraging share ownership among award recipients. In
addition, the Board believes that a fundamental objective of a
long-term equity incentive compensation program is the alignment of
management and shareholder interests. The 2019 Plan allows for
several forms of awards based on the value of our Common Shares and
for the utilization of performance-based vesting targets. The 2019
Plan is intended to be used to make future awards that were
previously made under the Prior Plan. The 2019 Plan is also intended to set forth the
principles our shareholders expect us to adhere to in designing and
administering employee and director compensation
programs.
The 2019 Plan is designed to comply with
applicable requirements of the Securities Act (including for the
registration of Common Shares issuable under the 2019 Plan on a Form S-8
registration statement), listing requirements of the Nasdaq Stock
Market, LLC (“Nasdaq”) with respect to those shares,
and other applicable requirements established by law or
regulation.
Shareholder
approval of the 2019 Plan was obtained (i) for purposes of
complying with the shareholder approval requirements for the
listing of shares on Nasdaq, (ii) to comply with the incentive
stock options rules under Section 422 of the Code, and (iii) for
the 2019 Plan to be eligible under the “plan lender”
exemption from the margin requirements of Regulation U promulgated
under the Exchange Act.
We
intend to file, pursuant to the Securities Act, a registration
statement on Form S-8 to register the Common Shares available for
issuance under the 2019 Plan.
Principal Features of the 2019 Plan
The principal features of the 2019 Plan are as follows (and are set
forth more fully below):
● All officers,
directors, employees, and consultants of the Company and its
subsidiaries and other designated affiliates, which we refer to as
“Related Entities,” are eligible to participate in the
2019 Plan;
● Options, restricted
shares and restricted share units (RSUs) are eligible for grants
under the 2019 Plan;
● The 2019 Plan is to
be administered by the Compensation Committee of the
Company’s Board (the “Committee”), except to the
extent (and subject to the limitations set forth in the 2019 Plan)
the Board elects to administer the 2019 Plan, in which case the
2019 Plan shall be administered by only those members of the Board
who are “independent” members of the Board, as that
term is defined under the rules of the stock exchange or quotation
system on which Common Shares are listed or quoted;
● Vesting
requirements with respect to awards under the 2019 Plan are
determined by the Committee;
● In the event of a
“change in control” of the Company, as defined in the
2019 Plan, and only to the extent provided in any employment or
other agreement between the participant and the Company or any
Related Entity, or in any award agreement, or to the extent
otherwise determined by the Committee in its sole discretion in
each particular case, (i) any option that was not previously
vested and exercisable at the time of the change in control will
become immediately vested and exercisable; (ii) any
restrictions, deferral of settlement and forfeiture conditions
applicable to a restricted share award or RSU award subject only to
future service requirements will lapse and such awards will be
deemed fully vested; and (iii) any outstanding award subject
to achievement of performance goals and conditions under the 2019
Plan will be considered to have been earned and payable based on
achievement of performance goals or based upon target performance
(either in full or pro-rata based on the portion of the performance
period completed as of the change in control of the
Company);
● The 2019 Plan
grants the Committee discretion to determine the time when an
option no longer may be exercised following a participant’s
termination, as set forth in the applicable award
agreement;
● The 2019 Plan
prohibits the repricing of option awards without approval by the
Company’s shareholders; and
● The 2019 Plan
limits the aggregate grant date fair value (computed as of the date
of grant in accordance with applicable financial accounting rules)
of all awards granted to any outside director during any single
calendar year to $250,000.
Description of the 2019 Plan
A copy of the 2019 Plan is attached hereto as Annex A
and is hereby incorporated into this
Information Statement by reference. The following summary of key
provisions of the 2019 Plan, as well as the other summaries and
descriptions relating to the 2019 Plan contained elsewhere in this
Item No. 1, are each qualified in their entirety by reference to
the full text of the 2019 Plan.
Purpose
The
purpose of the 2019 Plan is to assist the Company and its Related
Entities in attracting, motivating, retaining and rewarding
high-quality executives and other officers, employees, directors,
and consultants of the Company or its Related Entities, by enabling
such persons to acquire or increase a proprietary interest in the
Company in order to strengthen the mutuality of interests between
such persons and the Company’s shareholders, and providing
such persons with performance incentives to expend their maximum
efforts in the creation of shareholder value.
Shares Available for Awards; Annual Per-Person
Limitations
The number of Common Shares available for issuance under the 2019 Plan on or
after the 2019 Plan’s effective date is 800,000
shares, plus any shares remaining for grant and delivery
under the Prior Plan on the effective date of the 2019
Plan.
If, after the effective date, any shares subject to (i) any award
under the 2019 Plan or any awards granted under the Prior Plan, are
forfeited, expire or otherwise terminate without issuance of such
shares, or (ii) any award under the 2019 Plan or any award granted
under the Prior Plan, is settled for cash or otherwise does not
result in the issuance of all or a portion of the shares subject to
such award, the shares to which those awards were subject, will, to
the extent of such forfeiture, expiration, or termination, cash
settlement or non-issuance, again be available for delivery with
respect to awards under the 2019 Plan.
Any
share that again becomes available for delivery pursuant to the
provisions described above will be added back as one share if the
share was subject to an option, and as 1.5 shares if such share was
subject to an award other than an option.
Substitute Awards (as defined in the 2019 Plan) will not reduce the
shares authorized for delivery under the 2019 Plan or authorized
for delivery to a participant in any period. Additionally, in the
event that a company acquired by the Company or any Related Entity
(as define in the 2019 Plan) or with which the Company or any
Related Entity combines has shares available under a pre-existing
plan approved by its stockholders and not adopted in contemplation
of such acquisition or combination, the shares available for
delivery pursuant to the terms of such pre-existing plan (as
adjusted, to the extent appropriate, using the exchange ratio or
other adjustment or valuation ratio or formula used in such
acquisition or combination to determine the consideration payable
to the holders of common stock of the entities party to such
acquisition or combination) may be used for awards under the 2019
Plan and will not reduce the shares authorized for delivery under
the 2019 Plan; provided, that awards using such available shares
will not be made after the date awards or grants could have been
made under the terms of the pre-existing plan, absent the
acquisition or combination, and will only be made to individuals
who were not employees or directors of the Company or its Related
Entities prior to such acquisition or combination.
As of
September 30, 2019, there were
319,645 shares issuable
pursuant to outstanding options under the Prior Plan, any of which
might be available for awards under the 2019 Plan as described
above. On or after the effective date of the 2019 Plan, all
outstanding awards granted under the Prior Plan will be governed by
the terms of the 2019 Plan, subject to compliance with all
applicable provisions in the 2019 Plan, including, without
limitation, the prohibition on repricing of outstanding awards
without shareholder approval, except to the extent otherwise
required under the Prior Plan.
The aggregate fair market value of our Common Shares
on the date of grant underlying
incentive stock options that can be exercisable by any individual
for the first time during any year cannot exceed $100,000 (or such
other amount as specified in Section 422 of the Code). Any
excess will be treated as a non-qualified stock
option.
The
maximum number of shares that may be delivered under the 2019 Plan
as a result of the exercise of incentive stock options is
1,200,000, subject to certain
adjustments.
Notwithstanding
any other provision of the 2019 Plan to the contrary, the aggregate
grant date fair value (computed as of the date of grant in
accordance with applicable financial accounting rules) of all
awards granted to any outside director during any single calendar
year will not exceed $250,000.
The
Committee is authorized to adjust the limitations on the
number of Common Shares
available for issuance under the 2019
Plan and the individual limitations on the amount of certain awards
(other than the $100,000 limitation described above with respect to
incentive stock option awards) and will adjust outstanding
awards (including adjustments to exercise prices of options and
other affected terms of awards) to the extent it deems equitable in
the event that any extraordinary dividend or other distribution
(whether in cash, Common Shares or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange,
liquidation, dissolution or other similar corporate transaction or
event affects the Company’s Common Shares so that an
adjustment is appropriate and equitable. See the sections called
“Acceleration of Vesting;
Change in Control” and “Other Adjustments” below for a
summary of certain additional adjustment provisions of the 2019
Plan.
Except
with respect to the adjustments referenced in the foregoing
paragraph, the Committee is prohibited from taking any of the
following actions without approval of the Company’s
shareholders: (i) lowering the exercise or grant price per share of
an option after it is granted, (ii) cancelling an option when the
exercise price or grant price per share exceeds the fair market
value of the underlying shares in exchange for cash or another
award (other than in connection with substitute awards), (iii)
cancelling an outstanding option in exchange for an option with an
exercise price that is less than the exercise price or grant price
of the original option, or (iv) taking any other action with
respect to an option that may be treated as a repricing pursuant to
the applicable rules of the stock exchange or quotation system on
which Common Shares are listed or quoted (any such action described
in (i) - (iv) being referred to as a
“Repricing”).
The
closing price of one common share of the Company on Nasdaq on
October 22, 2019 was $5.35 per
share.
Eligibility
The
persons eligible to receive awards under the 2019 Plan are the
officers, directors, employees, and consultants of the Company or
any Related Entity. The foregoing notwithstanding, only employees
of the Company, or any parent corporation or subsidiary corporation
of the Company (as those terms are defined in Sections 424(e) and
(f) of the Code, respectively) are eligible for purposes of
receiving any incentive stock options that are intended to comply
with the requirements of Section 422 of the Code
(“ISOs”). An employee on leave of absence may be
considered as still in the employ of the Company or a Related
Entity for purposes of eligibility for participation in the 2019
Plan.
As of
the record date, October 16, 2019, approximately 17 persons were eligible to participate in
the 2019 Plan.
Administration
The
2019 Plan is to be administered by the Committee, except to the
extent (and subject to the limitations set forth in the 2019 Plan)
the Board elects to administer the 2019 Plan, in which case the
2019 Plan shall be administered by only those members of the Board
who are “independent” members of the Board, as that
term is defined under the rules of the stock exchange or quotation
system on which Common Shares are listed or quoted. It is intended
that the Committee will be comprised exclusively of independent
non-employee directors in accordance with Nasdaq listing
requirements and Rule 16b-3 under the Exchange Act. Subject to the
terms of the 2019 Plan, the Committee is authorized to select
eligible persons to receive awards, grant awards, determine the
type, number and other terms and conditions of, and all other
matters relating to, awards, prescribe award agreements (which need
not be identical for each participant), and the rules and
regulations for the administration of the 2019 Plan, construe and
interpret the 2019 Plan and award agreements, correct defects,
supply omissions or reconcile inconsistencies therein, and make all
other decisions and determinations as the Committee may deem
necessary or advisable for the administration of the 2019
Plan.
The Committee is permitted to delegate the performance of certain
functions, including administrative functions, of the 2019 Plan to
members of the Board, or our officers or managers, or committees of
them. The delegation is required to be accomplished in a manner
that does not result in the loss of an exemption under
Rule 16b-3 under the Exchange Act for awards.
Share Options
The
Committee is authorized to grant share options, including both
ISOs, which can result in potentially favorable tax treatment to
the participant, and non-qualified stock options. The exercise
price per share subject to an option is determined by the
Committee, provided that the exercise price per share of an option
will be no less than 100% of the fair market value of a common
share on the date such option is granted. An option granted to a
person who owns or is deemed to own stock representing 10% or more
of the voting power of all classes of stock of the Company or any
parent company (sometimes referred to as a “10% owner”)
will not qualify as an ISO unless the exercise price for the option
is not less than 110% of the fair market value of a common share on
the date such ISO is granted.
For
purposes of the 2019 Plan, the term “fair market value”
means the fair market value of Common Shares, awards or other
property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the
Committee, the fair market value of a common share as of any given
date is the closing sales price per common share as reported on the
principal stock exchange or market on which Common Shares are
traded on the date as of which such value is being determined (or
as of such later measurement date as determined by the Committee on
the date the award is authorized by the Committee) or, if there is
no sale on that date, then on the last previous day on which a sale
was reported.
The
maximum term of each option, the times at which each option will be
exercisable, and provisions requiring forfeiture of unexercised
options at or following termination of employment generally are
fixed by the Committee, except that no option may have a term
exceeding ten years, and no ISO granted to a 10% owner (as
described above) may have a term exceeding five years (to the
extent required by the Code at the time of grant); provided,
however, that in the event that on the last day of the term of an
option, other than an ISO, the exercise of the option would violate
an applicable federal, state, local, or foreign law, the Committee
may, in its sole and absolute discretion, extend the term of the
option for a period of no more than thirty (30) days after the date
on which the exercise of the option would no longer violate an
applicable federal, state, local, and foreign laws, provided that
such extension of the term of the option would not cause the option
to violate the requirements of Section 409A of the Code. Methods of
exercise and settlement and other terms of options are determined
by the Committee. The Committee, thus, may permit the exercise
price of options awarded under the 2019 Plan to be paid in cash,
shares, other awards or other property.
Restricted Shares and Restricted Share Units
The
Committee is authorized to grant restricted shares and restricted
share units (RSUs). A grant of restricted shares is a grant of
Common Shares which may not be sold or disposed of, and which are
subject to such risks of forfeiture and other restrictions as the
Committee may impose, including time or performance restrictions or
both. A participant granted restricted shares generally has all of
the rights, other than dividend rights, of a shareholder of the
Company (including voting rights), unless otherwise determined by
the Committee. A participant granted restricted shares will have
the right to receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee), if and
only to the extent provided in the participant’s award
agreement. An award of RSUs confers upon a participant the right to
receive Common Shares or cash equal to the fair market value of the
specified number of shares covered by the RSUs, at the end of a
specified deferral period, subject to such risks of forfeiture and
other restrictions as the Committee may impose. Prior to
settlement, an award of RSUs carries no voting or dividend rights
or other rights associated with share ownership.
Transferability
Each
award may be exercised during the participant’s lifetime only
by the participant or, if permissible under applicable law, by the
participant’s guardian or legal representative and may not be
otherwise transferred or encumbered by a participant other than by
will or by the laws of descent and distribution. The Committee,
however, may permit awards to be transferred to certain family
members, a trust for the benefit of such family members, a
partnership, limited liability company or corporation whose
partners, members or stockholders are the participant and his or
her family members, a foundation in which any participant and his
or her family members controls the management of assets, or anyone
else approved by it.
Other Terms of Awards
Awards
may be settled in the form of cash, Common Shares, other awards or
other property, in the discretion of the Committee. The Committee
may require or permit participants to defer the settlement of all
or part of an award in accordance with such terms and conditions as
the Committee may establish, including payment or crediting of
interest or dividend equivalents on deferred amounts, and the
crediting of earnings, gains and losses based on deemed investment
of deferred amounts in specified investment vehicles. The Committee
is authorized to place cash, Common Shares or other property in
trusts or make other arrangements to provide for payment of the
Company’s obligations under the 2019 Plan. The Committee may
condition any payment relating to an award on the withholding of
taxes and may provide that a portion of any Common Shares or other
property to be distributed will be withheld (or previously acquired
Common Shares or other property be surrendered by the participant)
to satisfy withholding and other tax obligations.
Awards
under the 2019 Plan generally are granted without a requirement
that the participant pay consideration in the form of cash or
property for the grant (as distinguished from the exercise), except
to the extent required by law. The Committee may, however, grant
awards in exchange for other awards under the 2019 Plan, awards
under other Company plans, or other rights to payment from the
Company, and may grant awards in addition to and in tandem with
such other awards, rights or other awards.
Acceleration of Vesting; Change in Control
Subject
to certain limitations contained in the 2019 Plan, including those
described in the following paragraph, the Committee may, in its
discretion, accelerate the exercisability, the lapsing of
restrictions or the expiration of deferral or vesting periods of
any award. In the event of a “change in control” of the
Company, as defined in the 2019 Plan, and only to the extent
provided in any employment or other agreement between the
participant and the Company or any Related Entity, or in any award
agreement, or to the extent otherwise determined by the Committee
in its sole discretion in each particular case, (i) any option
that was not previously vested and exercisable at the time of the
change in control will become immediately vested and exercisable;
(ii) any restrictions, deferral of settlement and forfeiture
conditions applicable to a restricted share award or RSU award
subject only to future service requirements will lapse and such
awards will be deemed fully vested; and (iii) any outstanding
award subject to achievement of performance goals and conditions
under the 2019 Plan will be considered to have been earned and
payable based on achievement of performance goals or based upon
target performance (either in full or pro-rata based on the portion
of the performance period completed as of the change in control of
the Company).
Notwithstanding
the foregoing or any provision in any award agreement to the
contrary, and unless the Committee otherwise determines in a
specific instance, or as is provided in any employment or other
agreement between the participant and the Company or any Related
Entity, each outstanding option, restricted share or RSU will not
be accelerated as described above, if either (i) the Company is the
surviving entity in the change in control and the award continues
to be outstanding after the change in control on substantially the
same terms and conditions as were applicable immediately prior to
the change in control or (ii) the successor company assumes or
substitutes for the applicable award, as determined in accordance
with the terms of the 2019 Plan. Notwithstanding the foregoing, if
and only to the extent provided in an award agreement and on such
terms and conditions as may be set forth in an award agreement, in
the event a participant’s employment is terminated without
“cause” by the Company or any Related Entity or by such
successor company or by the participant for “good
reason,” as those terms are defined in the 2019 Plan, within
24 months following such change in control, each award held by such
participant at the time of the change in control will be
accelerated as described above.
Subject
to any limitations contained in the 2019 Plan, including those
described above in the preceding paragraph, relating to the vesting
of awards in the event of any merger, consolidation or other
reorganization in which the Company does not survive, or in the
event of any “change in control,” the agreement
relating to such transaction and/or the Committee may provide for:
(i) the continuation of the outstanding awards by the Company, if
the Company is a surviving entity, (ii) the assumption or
substitution for outstanding awards by the surviving entity or its
parent or subsidiary pursuant to the provisions contained in the
2019 Plan, (iii) full exercisability or vesting and accelerated
expiration of the outstanding awards, or (iv) settlement of the
value of the outstanding awards in cash or cash equivalents or
other property followed by cancellation of such awards. The
foregoing actions may be taken without the consent or agreement of
a participant in the 2019 Plan and without any requirement that all
such participants be treated consistently.
Other Adjustments
The
Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, awards (i) in
recognition of unusual or nonrecurring events (including, without
limitation, acquisitions and dispositions of businesses and assets)
affecting the Company, any Related Entity or any business unit, or
the financial statements of the Company or any Related Entity, (ii)
in response to changes in applicable laws, regulations, accounting
principles, tax rates and regulations or business conditions or
(iii) in view of the Committee's assessment of the business
strategy of the Company, any Related Entity or business unit
thereof, performance of comparable organizations, economic and
business conditions, personal performance of a participant, and any
other circumstances deemed relevant. However, without the approval
of the Company’s shareholders, the Committee may not make any
adjustment described in this paragraph if such adjustment would
result in a Repricing.
Foreign Employees and Consultants
Awards
may be granted to participants who are foreign nationals or
employed or providing services outside the United States, or both,
on such terms and conditions different from those applicable to
awards to employees or consultants providing services in the United
States as may, in the judgment of the Committee, be necessary or
desirable in order to recognize differences in local law or tax
policy. The Committee will have the authority to adopt such
modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign
countries in which the Company or its Related Entities may operate
to assure the viability of the benefits from awards granted to
participants performing services in such countries and to meet the
objectives of the 2019 Plan. The Committee also may impose
conditions on the exercise or vesting of awards in order to
minimize the Company's obligation with respect to tax equalization
for employees or consultants on assignments outside their home
country.
The
Board has approved a subplan in Appendix A to the 2019 Plan
applicable to residents of Canada.
Clawback of Benefits
The
Company may (i) cause the cancellation of any award, (ii) require
reimbursement of any award by a participant or beneficiary, and
(iii) effect any other right of recoupment of equity or other
compensation provided under the 2019 Plan or otherwise in
accordance with any Company policies that currently exist or that
may from time to time be adopted or modified in the future by the
Company and/or applicable law, which we refer to each as a clawback
policy. In addition, a participant may be required to repay to the
Company certain previously paid compensation, whether provided
under the 2019 Plan or an award agreement or otherwise, in
accordance with any clawback policy. By accepting an award, a
participant is also agreeing to be bound by any existing or future
clawback policy adopted by the Company, or any amendments that may
from time to time be made to the clawback policy in the future by
the Company in its discretion (including without limitation any
clawback policy adopted or amended to comply with applicable laws
or stock exchange requirements) and is further agreeing that all of
the participant’s award agreements may be unilaterally
amended by the Company, without the participant’s consent, to
the extent that the Company in its discretion determines to be
necessary or appropriate to comply with any clawback policy. In
addition, if a participant, without the consent of the Company,
while employed by or providing services to the Company or any
Related Entity or after termination of such employment or service,
violates a non-competition, non-solicitation or non-disclosure
covenant or agreement or otherwise engages in activity that is in
conflict with or adverse to the interests of the Company or any
Related Entity, then (x) any outstanding, vested or unvested,
earned or unearned portion of an award may, at the
Committee’s discretion, be cancelled and (y) the Committee,
in its discretion, may require the participant or other person to
whom any payment has been made or shares or other property have
been transferred in connection with an award to forfeit and pay
over to the Company all or any portion of the gain (whether or not
taxable) realized upon the exercise of any option and the value
realized (whether or not taxable) on the vesting or payment of any
other award during the time period specified in the applicable
award agreement or otherwise specified by the
Committee.
Amendment and Termination
The
Board may amend, alter, suspend, discontinue or terminate the 2019
Plan or the Committee’s authority to grant awards without
further shareholder approval, except that shareholder approval must
be obtained for any amendment or alteration if such approval is
required by law or regulation or under the rules of any stock
exchange or quotation system on which Common Shares are then listed
or quoted; provided that, except as otherwise permitted by the 2019
Plan or an award agreement, without the consent of an affected
participant, no such Board action may materially and adversely
affect the rights of such participant under the terms of any
previously granted and outstanding award. The Committee may waive
any conditions or rights under, or amend, alter, suspend,
discontinue or terminate any award theretofore granted and any
award agreement relating thereto, except as otherwise provided in
the 2019 Plan; provided that, except as otherwise permitted by the
2019 Plan or award agreement, without the consent of an affected
participant, no such Committee or the Board action may materially
and adversely affect the rights of such participant under terms of
such award. In addition, without the approval of the
Company’s shareholders, the Board may not alter or amend the
2019 Plan if such alteration or amendment would permit a Repricing
without approval of the Company’s shareholders. The 2019 Plan
will terminate at the earliest of (i) such time as no Common Shares
remain available for issuance under the 2019 Plan, (ii) termination
of the 2019 Plan by the Board, or (iii) the tenth anniversary of
the effective date of the 2019 Plan. Awards outstanding upon
expiration of the 2019 Plan will remain in effect until they have
been exercised or terminated, or have expired.
Federal Income Tax Consequences of Awards
The
2019 Plan is not qualified under the provisions of section 401(a)
of the Code and is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974.
Nonqualified Stock Options
An
optionee generally is not taxable upon the grant of a nonqualified
stock option granted under the 2019 Plan. On exercise of a
nonqualified stock option granted under the 2019 Plan an optionee
will recognize ordinary income equal to the excess, if any, of the
fair market value on the date of exercise of the shares of stock
acquired on exercise of the option over the exercise price. If the
optionee is an employee of the Company or a Related Entity, that
income will be subject to the withholding of Federal income tax.
The optionee’s tax basis in those shares will be equal to
their fair market value on the date of exercise of the option, and
his or her holding period for those shares will begin on that
date.
If an
optionee pays for Common Shares on exercise of an option by
delivering Common Shares, the optionee will not recognize gain or
loss on the shares delivered, even if their fair market value at
the time of exercise differs from the optionee’s tax basis in
them. The optionee, however, will be taxed on the exercise of the
option in the manner described above as if he or she had paid the
exercise price in cash. If a separate identifiable share
certificate or other indicia of ownership is issued for that number
of shares equal to the number of shares delivered on exercise of
the option, the optionee’s tax basis in the shares
represented by that certificate or other indicia of ownership will
be equal to his or her tax basis in the shares delivered, and his
or her holding period for those shares will include his or her
holding period for the shares delivered. The optionee’s tax
basis and holding period for the additional shares received on
exercise of the option will be the same as if the optionee had
exercised the option solely in exchange for cash.
The
Company generally will be entitled to a deduction for Federal
income tax purposes equal to the amount of ordinary income taxable
to the optionee, provided that amount constitutes an ordinary and
necessary business expense for the Company and is reasonable in
amount, and either the employee includes that amount in income or
the Company timely satisfies its reporting requirements with
respect to that amount.
Incentive Stock Options
Under
the Code, an optionee generally is not subject to tax upon the
grant or exercise of an ISO. In addition, if the optionee holds a
share received on exercise of an ISO for at least two years from
the date the option was granted and at least one year from the date
the option was exercised, which we refer to as the Required Holding
Period, the difference, if any, between the amount realized on a
sale or other taxable disposition of that share and the
holder’s tax basis in that share will be long-term capital
gain or loss.
If,
however, an optionee disposes of a share acquired on exercise of an
ISO before the end of the Required Holding Period, which we refer
to as a Disqualifying Disposition, the optionee generally will
recognize ordinary income in the year of the Disqualifying
Disposition equal to the excess, if any, of the fair market value
of the share on the date the ISO was exercised over the exercise
price. If, however, the Disqualifying Disposition is a sale or
exchange on which a loss, if realized, would be recognized for
Federal income tax purposes, and if the sales proceeds are less
than the fair market value of the share on the date of exercise of
the option, the amount of ordinary income recognized by the
optionee will not exceed the gain, if any, realized on the sale. If
the amount realized on a Disqualifying Disposition exceeds the fair
market value of the share on the date of exercise of the option,
that excess will be short-term or long-term capital gain, depending
on whether the holding period for the share exceeds one
year.
An
optionee who exercises an ISO by delivering Common Shares acquired
previously pursuant to the exercise of an ISO before the expiration
of the Required Holding Period for those shares is treated as
making a Disqualifying Disposition of those shares. This rule
prevents “pyramiding” or the exercise of an ISO (that
is, exercising an ISO for one share and using that share, and
others so acquired, to exercise successive ISOs) without the
imposition of current income tax.
For
purposes of the alternative minimum tax, the amount by which the
fair market value of a share acquired on exercise of an ISO exceeds
the exercise price of that option generally will be an adjustment
included in the optionee’s alternative minimum taxable income
for the year in which the option is exercised. If, however, there
is a Disqualifying Disposition of the share in the year in which
the option is exercised, there will be no adjustment with respect
to that share. If there is a Disqualifying Disposition in a later
year, no income with respect to the Disqualifying Disposition is
included in the optionee’s alternative minimum taxable income
for that year. In computing alternative minimum taxable income, the
tax basis of a share acquired on exercise of an ISO is increased by
the amount of the adjustment taken into account with respect to
that share for alternative minimum tax purposes in the year the
option is exercised.
The
Company is not allowed an income tax deduction with respect to the
grant or exercise of an ISO or the disposition of a share acquired
on exercise of an ISO after the Required Holding Period. However,
if there is a Disqualifying Disposition of a share, the Company is
allowed a deduction in an amount equal to the ordinary income
includible in income by the optionee, provided that amount
constitutes an ordinary and necessary business expense for the
Company and is reasonable in amount, and either the employee
includes that amount in income or the Company timely satisfies its
reporting requirements with respect to that amount.
Share Awards
Generally,
the recipient of a share award will recognize ordinary compensation
income at the time the shares are received equal to the excess, if
any, of the fair market value of the share received over any amount
paid by the recipient in exchange for the shares. If, however, the
shares are not vested when they are received under the 2019 Plan
(for example, if the recipient is required to work for a period of
time in order to have the right to sell the shares), the recipient
generally will not recognize income until the shares become vested,
at which time the recipient will recognize ordinary compensation
income equal to the excess, if any, of the fair market value of the
shares on the date it becomes vested over any amount paid by the
recipient in exchange for the shares. A recipient may, however,
file an election with the Internal Revenue Service, within 30 days
of his or her receipt of the share award, to recognize ordinary
compensation income, as of the date the recipient receives the
share award, equal to the excess, if any, of the fair market value
of the shares on the date the share award is granted over any
amount paid by the recipient in exchange for the
shares.
The
recipient’s basis for the determination of gain or loss upon
the subsequent disposition of shares acquired as share awards will
be the amount paid for such shares plus any ordinary income
recognized either when the shares are received or when the shares
become vested. Upon the disposition of any shares received as a
share award under the 2019 Plan the difference between the sale
price and the recipient’s basis in the shares will be treated
as a capital gain or loss and generally will be characterized as
long-term capital gain or loss if the shares have been held for
more the one year from the date as of which he or she would be
required to recognize any compensation income.
The
Company generally will be entitled to a deduction for Federal
income tax purposes equal to the amount of ordinary income taxable
to the recipient, provided that amount constitutes an ordinary and
necessary business expense for the Company, is reasonable in
amount, and is not precluded by the deduction limitations imposed
by Section 162(m) of the Code, and either the recipient includes
that amount in income or the Company timely satisfies its reporting
requirements with respect to that amount.
RSUs
The recipient of an RSU that provides for the delivery of shares at
a future date will not recognize taxable income at the time of
grant. The recipient will generally recognize taxable income, and
if the recipient is an employee, be subject to withholding for
income and employment taxes, when the delivery of shares is
actually made.
The recipient’s basis for the determination of gain or loss
upon the subsequent disposition of shares acquired pursuant to the
RSU awards will be the amount paid for such shares, if any, plus
any ordinary income recognized when the shares are received. Upon
the disposition of any such shares received, the difference between
the sale price and the recipient’s basis in the shares will
be treated as a capital gain or loss and generally will be
characterized as long-term capital gain or loss if the shares have
been held for more than one year from the date as of which he or
she would be required to recognize any compensation
income.
The Company will generally be entitled to a corresponding deduction
equal to the amount of income the recipient recognizes, provided
that amount constitutes an ordinary and necessary business expense,
is reasonable in amount, and is not precluded by the deduction
limitations imposed by Section 162(m) of the Code.
Section 162 Limitations
Section
162(m) of the Code disallows a public company’s tax deduction
for compensation to covered employees in excess of $1 million in
any tax year. Covered employees include the Company’s CEO and
CFO at any time during an applicable tax year and the three other
most highly compensated officers (other than the CEO and CFO) for
such tax year.
Section 409A of the Code
The
2019 Plan is intended to comply with Section 409A of the Code
to the extent that such section would apply to any award under the
2019 Plan. Section 409A of the Code governs the taxation of
deferred compensation. Any participant that is granted an award
that is deemed to be deferred compensation, such as a grant of RSUs
that does not qualify for an exemption from Section 409A of the
Code, and does not comply with Section 409A of the Code, could
be subject to taxation on the award as soon as the award is no
longer subject to a substantial risk of forfeiture (even if the
award is not exercisable) and an additional 20% tax (and a further
additional tax based upon an amount of interest determined under
Section 409A of the Code) on the value of the award.
The
information set forth above is a summary only and does not purport
to be complete. In addition, the information is based upon current
federal income tax rules and therefore is subject to change when
those rules change.
Interests of Directors or Officers
Our
directors may grant awards under the 2019 Plan to themselves as
well as our officers, in addition to granting awards to our other
employees.
New Plan Benefits
Following
the effective date of the 2019 Plan, the Company intends to grant
awards under the 2019 Plan to its executive officers, including Dr.
Pardeep Nijhawan, the Company’s Chief Executive Officer,
Kathi Niffenegger, the Company’s Chief Financing Officer,
Michael Brooks, the Company’s President and its outside Board
members, Lorin Johnson, Sean
MacDonald, Frank Oakes, Paul Pay, Carlo Sistilli and Peter van der
Velden. As of the date of this Information Statement, the
number of awards to be granted to each of the foregoing individuals
has not been determined. The dollar
value of each award will be determined based on the market price of
the Company’s Common Shares on the close of trading on date the Company issues
awards.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following table sets forth information known to us regarding the
beneficial ownership of our Common Shares as of October 22, 2019
by: 1) each person known by us to beneficially own more than five
percent of our outstanding Common Shares; 2) each of our directors;
3) each of our Named Executive Officers; and 4) all directors and
executive officers as a group.
Directors and Officers
|
Name and Address
of Beneficial Owner (1)
|
Amount and Nature
of Beneficial Ownership
|
Percent of Shares
Beneficially Owned
|
|
Pardeep
Nijhawan
|
2,905,109(2)
|
38.5%
|
|
Lorin
Johnson
|
-
|
-
|
|
Sean
Macdonald
|
14,369(3)
|
*
|
|
Paul
Pay
|
25,200(4)
|
*
|
|
Peter van der
Velden
|
1,861,943(5)
|
24.8%
|
|
Carlo
Sistilli
|
-
|
-
|
|
Michael
Brooks
|
155,316(6)
|
2.0%
|
|
Kathi
Niffenegger
|
2,094(7)
|
*
|
|
Frank
Oakes
|
7,117(8)
|
*
|
|
All
directors and executive officers as a group (9
persons)
|
4,971,148(9)
|
66.0%
|
*
Percentage of shares beneficially owned does not exceed one
percent.
(1)
Unless
otherwise indicated, the address of each beneficial owner is c/o
Edesa Biotech, Inc., 100 Spy Court,
Markham, Ontario, Canada, L3R 5H6.
(2)
This amount includes (i) 36,934 common
shares issuable upon the exercise of options currently exercisable
or exercisable within 60 days of October 22, 2019 and (ii) 537,312 common
shares held directly by Dr. Nijhawan; 2,106,769 common shares held
by Pardeep Nijhawan Medicine Professional Corporation, a
corporation wholly owned by Dr. Nijhawan; and 224,094 shares held
by The Digestive Health Clinic Inc., a corporation wholly owned by
Dr. Nijhawan.
(3)
Consists of 14,369 common shares.
(4)
Represents
25,200 common shares issuable upon the exercise of options
currently exercisable or exercisable within 60 days of October 22,
2019.
(5)
Consists
of 1,704,344 common shares held by Lumira Capital II, L.P. and
157,599 common shares held by Lumira Capital II (International),
L.P., an affiliate of Lumira Capital II, L.P. Lumira Capital
GP, L.P., the general partners of which are Lumira GP Inc. and
Lumira GP Holdings Co., is the general partner of each of Lumira
Capital II, L.P. and Lumira Capital II (International), L.P.
Each of Lumira Capital II, L.P. and Lumira Capital II
(International), L.P. is managed by Lumira Capital Investment
Management Inc. Each of Lumira Capital GP, L.P., Lumira
GP Inc., Lumira GP Holdings Co. and Lumira Capital Investment
Management Inc. may be deemed to beneficially own the shares held
by Lumira Capital II, L.P. and Lumira Capital II (International),
L.P. Mr. van der Velden is an executive
officer of Lumira GP Inc., Lumira GP Holdings Co. and Lumira
Capital Investment Management Inc.
(6)
Represents
155,316 common shares issuable upon the exercise of options
currently exercisable or exercisable within 60 days of October 22,
2019.
(7)
Represents
2,094 common shares issuable upon the exercise of options currently
exercisable or exercisable within 60 days of October 22,
2019.
(8)
This
amount includes 952 common shares issuable upon the exercise of
options currently exercisable or exercisable within 60 days of
October 22, 2019.
(9)
This
amount includes 220,496 shares issuable upon the exercise of
options currently exercisable or exercisable within 60 days of
October 22, 2019 and 4,750,652 common shares.
Shareholders Known by the Combined Company to Own 5% or More of the
Combined Company’s Common
Shares
|
Name and Address
of Beneficial Owner
|
Amount and
Nature of Beneficial Ownership
|
Percent of
Shares Beneficially Owned
|
|
10379085
Canada Inc. (1)
|
675,218
|
9.0%
|
|
Inveready
(2)
|
531,986
|
7.1%
|
|
Lumira
Capital II, L.P. (3)
|
1,861,943
|
24.8%
|
(1)
The address of the shareholder is 6111 vie.
Royalmount Ave., Montreal, Quebec, Canada, H4P 2T4. Voting and
investment power over the shares held by 10379085 Canada Inc. is
exercised by an investment committee of PCRI Inc., the parent of
10379085 Canada Inc.
(2)
The address of the shareholder is c/o Inveready
Technology Investment Group, C/dels Cavaliers, 50, Barcelona,
08034, Spain. Voting and investment power over the shares held by
Inveready Innvierte Biotech II, S.C.R. S.A is exercised by its
board of directors.
(3)
Consists of 1,704,344 common shares held by
Lumira Capital II, L.P. and 157,599 common shares held by Lumira
Capital II (International), L.P., an affiliate of Lumira Capital
II, L.P. Lumira Capital GP, L.P., the general
partners of which are Lumira GP Inc. and Lumira GP Holdings Co., is
the general partner of each of Lumira Capital II, L.P. and Lumira
Capital II (International), L.P. Each of Lumira Capital
II, L.P. and Lumira Capital II (International), L.P. is managed by
Lumira Capital Investment Management Inc. Each of Lumira
Capital GP, L.P., Lumira GP Inc., Lumira GP Holdings Co. and Lumira
Capital Investment Management Inc. may be deemed to beneficially
own the shares held by Lumira Capital II, L.P. and Lumira Capital
II (International), L.P and such entities control voting and
investment power over such shares through an investment committee
of the Lumira group. The address of each entity listed
in this note is 141 Adelaide Street West, Suite 770, Toronto,
Ontario, Canada M5H 3L5.
Change of Control
On June
7, 2019, we completed a business combination with Edesa Biotech
Research, Inc., formerly known as Edesa Biotech Inc.
(“Edesa”), a company organized under the laws of the
province of Ontario, in accordance with the terms of a Share
Exchange Agreement, dated March 7, 2019, by and among the Company,
Edesa and the shareholders of Edesa. At the closing of the
transaction, we acquired the entire issued share capital of Edesa,
with Edesa becoming a wholly owned subsidiary of ours. Also on June
7, 2019, in connection with and following the completion of the
reverse acquisition, we effected a 1-for-6 reverse split of our
Common Shares and changed our name to “Edesa Biotech,
Inc.” At the closing of the transaction, the Edesa
shareholders exchanged their shares for 88% of our outstanding
shares on a fully diluted basis. Following the closing, our primary
business is the business conducted by Edesa, which is a
biopharmaceutical company focused on the development of innovative
therapeutics for dermatological and gastrointestinal indications
with clear unmet medical needs.
At the closing of the transaction, the Edesa
shareholders received 6,249,780 of our Common Shares in exchange
for the capital shares of Edesa and the holders of unexercised
Edesa share options immediately prior to the closing of the
transaction were issued replacement share options
(“Replacement Options”) to purchase an aggregate of
297,422 of our Common Shares.
On July 26, 2019, pursuant to the post-closing adjustment
contemplated by the Share Exchange Agreement, we issued an
additional 366,234 of our Common Shares to the Edesa shareholders
and the holders of unexercised Edesa stock options immediately
prior to the closing of the transaction were issued 17,701
additional Replacement Options to purchase our Common
Shares. Following the completion of the transactions
contemplated by the Share Exchange Agreement and the Reverse Split,
there were approximately 7,504,468, of our Common Shares issued and
outstanding and approximately 7,876,292 of our Common Shares
outstanding on a fully-diluted basis, and the former Edesa
shareholders and option holders owned approximately 6,931,137 of
our Common Shares on a fully-diluted basis, or 88% of our Common
Shares on a fully-diluted basis, and our shareholders and option
holders prior to the transactions contemplated by the Exchange
Agreement owned approximately 945,155 of our Common Shares on a
fully-diluted basis, or 12% of our Common Shares on a fully-diluted
basis.
EXECUTIVE COMPENSATION
Summary Compensation Table
As a
smaller reporting company under SEC rules, we may provide scaled
disclosure in Item 402 paragraphs (m) through (r). The
Information Statement disclosure has been prepared to comply with
those U.S. requirements and the Canadian proxy disclosure
requirements in Form 51-102F6, including certain additional
executive compensation disclosures.
Named Executive Officers
For the
purposes of this Information Statement, a named executive officer
(“NEO”) means each of the following
individuals:
(i)
All individuals
serving as the Company’s principal executive officer or
acting in a similar capacity during the last completed fiscal year
(“PEO”), regardless of compensation level;
(ii)
the Company’s
two most highly compensated executive officers other than the PEO
who were serving as executive officers at the end of the last
completed fiscal year; and
(iii)
Up to two
additional individuals for whom disclosure would have been provided
under (ii) above but for the fact that the individual was not
serving as an executive officer of Edesa at the end of the last
completed fiscal year.
Two
NEOs for the year ended December 31, 2018 were Dr. Pardeep Nijhawan
and Dr. Michael Brooks.
Summary Compensation Table
The
following table sets forth information regarding the compensation
awarded to, earned by or paid to the NEOs during the fiscal year
ended December 31, 2018.
Summary Compensation Table
|
Name and
Principal Position
|
|
|
|
|
All
OtherCompensation ($)
|
|
|
Pardeep
Nijhawan
|
2018
|
27,116
|
-
|
25,795
|
37,601(2)
|
90,512
|
|
Chief
Executive Officer, President, Secretary
|
2017
|
11,299
|
-
|
7,845
|
16,187(2)
|
35,331
|
|
|
|
|
|
|
|
|
Michael
Brooks
|
2018
|
170,445
|
51,706
|
13,203
|
22,183(3)
|
257,537
|
|
Vice
President Corporate Development and Strategy
|
2017
|
126,616
|
16,941
|
128,758
|
13,216(3)
|
285,531
|
(1)
The amounts shown
in this column represent the aggregate grant date fair value of the
share option awards computed in accordance with Financial
Accounting Standards Board (FASB) Accounting Standards Codification
718, not the actual amounts paid to or realized by the NEOs during
the covered fiscal year. The assumptions used in determining grant
date fair value of these awards are set forth in Note 8 to
Edesa’s audited financial statements for the years ended
December 31, 2018 and 2017.
(2)
Represents (i)
$32,415 in car allowance; (ii) $2,161 in vacation pay; (iii) $2,068
in Canada Pension Plan company contributions and (iv) $957 in
employment insurance in 2018 and (i) $13,476 in car allowance; (ii)
$904 in vacation pay; (iii) $1,220 in Canada Pension Plan company
contributions and (iv) $587 in employment insurance in
2017.
(3)
Represents (i)
$2,186 in health insurance; (ii) $5,094 in car allowance; (iii)
$11,799 in vacation pay; (iv) $2,132 in Canada Pension Plan company
contributions and (v) $972 in employment insurance company
contribution in 2018 and (i) $2,224 in health insurance; (ii)
$1,694 in car allowance; (iii) $5,315 in vacation pay; (iv) $2,732
in Canada Pension Plan company contributions and (v) $1,251 in
employment insurance company contribution in 2017.
Narrative Disclosure to Summary Compensation Table
Employment Agreements
Prior
to the completion of our business combination with Edesa, Edesa had
employment agreements in effect with Dr. Pardeep Nijhawan and Dr.
Michael Brooks which are described below. Upon completion of our
business combination transaction with Edesa, Dr. Nijhawan and Dr.
Brooks each entered into new employment agreements with us which
are also described below, and the old employment agreements were
terminated.
Terminated Employment Agreement with Dr. Pardeep
Nijhawan
On
August 1, 2017, Edesa entered into an employment agreement with Dr.
Pardeep Nijhawan which was to continue indefinitely until
terminated in accordance with its terms. The employment agreement
provided that during the term of the agreement, Dr. Nijhawan was to
serve as Edesa’s Chief Executive Officer. In consideration
for his services to Edesa, Dr. Nijhawan received a base salary of
C$35,000 per annum and was eligible for coverage under
Edesa’s standard benefit programs. The agreement was
terminable by Edesa (i) for cause without notice or severance pay
or (ii) without cause, in which case Edesa was to provide 18 months
notice of termination or pay in lieu of notice (based on Dr.
Nijhawan’s base salary) and benefits for up to 18 months
following the provision of notice of termination. In addition, upon
a termination by Edesa without cause, all options on a pro-rated
basis were to be deemed vested on the business day immediately
preceding the termination date and would remain exercisable for a
period of 180 days. Dr. Nijhawan could resign from his employment
at any time by providing two weeks advance notice to
Edesa.
New Employment Agreement with Pardeep Nijhawan
On June
14, 2019 but effective as of June 7, 2019, we entered into an
employment agreement with Pardeep Nijhawan. Pursuant to the
employment agreement, Dr. Nijhawan will serve as our Chief
Executive Officer for an indefinite term until Dr. Nijhawan’s
employment is terminated in accordance with the agreement. As
compensation for his services to us, Dr. Nijhawan will receive a
base salary of $300,000 per year and be eligible to receive a
target annual bonus of 40% of his base
salary, subject to achieving corporate and personal targets to be
determined by us. Dr. Nijhawan will also receive an automobile allowance of
$2,700 per month and be eligible to participate in our group
insured benefits program, as may be in effect from time-to time for
our employees generally, and executive employees
specifically. Dr. Nijhawan is also eligible for future share
and/or option grants, as determined by our Compensation Committee,
commensurate with Dr.
Nijhawan’s position and any
business milestones which may be established by the Compensation
Committee and subject to availability of shares and/or
options for grant under our Equity Incentive Compensation
Plan.
If Dr.
Nijhawan’s employment with us is terminated for
“Cause” (as such term is defined in the employment
agreement), subject to applicable law, our only obligation shall be
to provide Dr. Nijhawan with his base salary and vacation pay
earned through the date of termination and all of Dr.
Nijhawan’s vested or non-vested stock options which have not
been exercised by Dr. Nijhawan as of the date of termination will
be automatically extinguished. If Dr. Nijhawan is terminated by us
without “Cause”, our only obligation shall be to
provide Dr. Nijhawan with (i) a lump sum payment equal to Dr.
Nijhawan’s then current base salary for twenty-four months
(the “Severance Period”), (ii) a lump sum payment of
the annual bonus to which Dr. Nijhawan is entitled for the fiscal
year immediately preceding the date of termination, if such bonus
has not already been paid, (iii) a lump sum payment equal to Dr.
Nijhawan’s annual bonus entitlement, prorated over Dr.
Nijhawan’s length of service in the fiscal year in which his
employment is terminated, calculated in accordance with the terms
of the employment agreement; (iv) payment of Dr. Nijhawan’s
annual bonus entitlement during the full Severance Period,
calculated in accordance with the terms of the employment
agreement, (v) continuation of Dr. Nijhawan’s benefits and
car allowance and any other benefit required to be maintained by
law in accordance with the terms of the employment agreement and
(vi) subject to applicable law, all stock options granted to Dr.
Nijhawan shall be exercisable in accordance with the terms of the
applicable stock option plan. Dr. Nijhawan may resign from his
employment at any time by providing us with a minimum of sixty days
advance notice, in writing. Dr. Nijhawan’s notice may be
waived by us, subject only to providing Dr. Nijhawan with payment
of his base salary and continuation of benefits until the end of
the notice period. If Dr. Nijhawan resigns from his employment,
subject to applicable law, (i) all non-vested stock options and all
vested stock options held by Dr. Nijhawan which have not been
exercised by Dr. Nijhawan as of the date of termination shall be
automatically extinguished and (ii) Dr. Nijhawan shall not be
entitled to any bonus or pro rata bonus payment not already paid on
or before the date of termination.
During
the term of Dr. Nijhawan’s employment with us and for twelve
months following the cessation of Dr. Nijhawan’s employment
with us, Dr. Nijhawan is prohibited from competing with our
business in North America. In addition, for twenty-four months
following the cessation of Dr. Nijhawan’s employment with us,
Dr. Nijhawan is prohibited from soliciting customers or prospective
customers for any purpose competitive with our business,
encouraging any customer to cease doing business with us and
soliciting the employment or engagement of certain of our
employees.
Terminated Employment Agreement with Michael Brooks
On
August 28, 2017, Edesa entered into an employment agreement with
Michael Brooks which was to continue indefinitely until terminated
in accordance with its terms. The employment agreement provided
that during the term of the agreement, Dr. Brooks was to serve as
Edesa’s Vice President Corporate Development and Strategy. In
consideration for his services to Edesa, Dr. Brooks received a base
salary of C$220,000 per annum and was eligible for coverage under
Edesa’s standard benefit programs. In addition, subject to
achievement of bonus criteria established by Edesa, Dr. Brooks was
eligible to receive an annual bonus award of up to 30% of his base
salary.
The
agreement was terminable by Edesa (i) for cause without notice or
severance pay or (ii) without cause, in which case Edesa was to
provide 12 months notice of termination or pay in lieu of notice
(based on Dr. Brooks’s base salary) and benefits for up to 12
months following the provision of notice of termination. In
addition, upon a termination by Edesa without cause, Dr. Brooks was
entitled to a pro-rated bonus covering any year or partial actively
worked from the time of the past applicable bonus period through to
the termination date of Dr. Brooks employment and all options on a
pro-rated basis would be deemed to be vested on the business day
immediately preceding the termination date and would remain
exercisable for a period of 180 days. In the event Dr.
Brook’s employment was terminated in connection with a change
of control event, any unvested options or other equity awards then
held by Dr. Brooks would be deemed to be vested on the business day
immediately preceding the termination date and were to remain
exercisable for a period of 180 days. Dr. Brooks could also resign
from his employment at any time by providing two weeks advance
notice to Edesa. During the term of his employment and for a period
of 12 months thereafter, Dr. Brooks was subject to certain
non-solicitation provisions relating to Edesa’s employees,
customers, prospective customers and suppliers. In addition, the
agreement provided that, subject to certain exceptions, Dr. Brooks
could not compete with the business of Edesa during the employment
period and any notice period (or period paid in lieu of
notice).
New Employment Agreement with Michael Brooks
On June
14, 2019 but effective as of June 7, 2019, we entered into an
employment agreement with Michael Brooks. Pursuant to the
employment agreement, Mr. Brooks will serve as our President for an
indefinite term until Mr. Brooks’ employment is terminated in
accordance with the agreement. As compensation for his services to
us, Mr. Brooks will receive a base salary of $275,000 per year and
be eligible to receive a target annual
bonus of 40% of his base salary, subject to achieving corporate and
personal targets to be determined by us. Mr. Brooks will also
receive an automobile allowance of $2,000 per month and be eligible
to participate in our group insured benefits program, as may be in
effect from time-to time for our employees generally, and executive
employees specifically. Mr. Brooks is also eligible for
future share and/or option grants, as determined by our
Compensation Committee, commensurate
with Mr. Brooks’ position and any business milestones which
may be established by the Compensation Committee and subject
to availability of shares and/or options for grant under our Equity
Incentive Compensation Plan.
If Mr.
Brooks’ employment with us is terminated for
“Cause” (as such term is defined in the employment
agreement), subject to applicable law, our only obligation shall be
to provide Mr. Brooks with his base salary and vacation pay earned
through the date of termination and all of Mr. Brooks’ vested
or non-vested stock options which have not been exercised by Mr.
Brooks as of the date of termination will be automatically
extinguished. If Mr. Brooks is terminated by us without
“Cause”, our only obligation shall be to provide Mr.
Brooks with (i) a lump sum payment equal to Mr. Brooks’ then
current base salary for twelve months plus one additional month for
every completed year of service since September 2015, not to exceed
an aggregate of twenty-four months (the “Severance
Period”), (ii) a lump sum payment of the annual bonus to
which Mr. Brooks is entitled for the fiscal year immediately
preceding the date of termination, if such bonus has not already
been paid, (iii) a lump sum payment equal to Mr. Brooks’
annual bonus entitlement, prorated over Mr. Brooks’ length of
service in the fiscal year in which his employment is terminated,
calculated in accordance with the terms of the employment
agreement; (iv) payment of Mr. Brooks’ annual bonus
entitlement during the full Severance Period, calculated in
accordance with the terms of the employment agreement, (v)
continuation of Mr. Brooks’ benefits and car allowance and
any other benefit required to be maintained by law in accordance
with the terms of the employment agreement and (vi) subject to
applicable law, all stock options granted to Mr. Brooks shall be
exercisable in accordance with the terms of the applicable stock
option plan. If Mr. Brooks’ employment is terminated or
“constructively terminated” (as such term is defined in
the employment agreement) by us without “Cause” upon or
within a twelve month period following a Change of Control (as such
term is defined in the employment agreement), Mr. Brooks shall be
entitled to the payments and benefits provided as described in
clauses (ii) to (vi) above, plus a change of control payment equal
to twenty-four months of the his then current base salary. Mr.
Brooks may resign from his employment at any time by providing us
with a minimum of sixty days advance notice, in writing. Mr.
Brooks’ notice may be waived by us, subject only to providing
Mr. Brooks with payment of his base salary and continuation of
benefits until the end of the notice period. If Mr. Brooks resigns
from his employment, subject to applicable law, (i) all non-vested
stock options and all vested stock options held by Mr. Brooks which
have not been exercised by Mr. Brooks as of the date of termination
shall be automatically extinguished and (ii) Mr. Brooks shall not
be entitled to any bonus or pro rata bonus payment not already paid
on or before the date of termination.
During
the term of Mr. Brooks’ employment with us and for twelve
months following the cessation of Mr. Brooks' employment with us,
Mr. Brooks is prohibited from competing with our business in North
America. In addition, for twenty-four months following the
cessation of Mr. Brooks' employment with us, Mr. Brooks is
prohibited from soliciting customers or prospective customers for
any purpose competitive with our business, encouraging any customer
to cease doing business with us and soliciting the employment or
engagement of certain of our employees.
New Employment Agreement with Kathi Niffenegger
On June
7, 2019, we entered into an employment agreement with Ms.
Niffenegger. Pursuant to the employment agreement, Ms. Niffenegger
will serve as our Chief Financial Officer. Both Ms. Niffenegger and
us have the right to terminate the employment relationship at any
time, with or without cause. As compensation for her services to
us, Ms. Niffenegger will receive a base salary of $215,000 per
year, a discretionary bonus in an amount up to 25% of her base
salary based on her performance and the company’s
performance, a one-time hiring and retention bonus of $53,750 which
is subject to partial claw back if Ms. Niffenegger voluntary
terminates her employment prior to March 1, 2020 and such other
employee benefits as are generally provided to similarly situated
employees of the company. Ms. Niffenegger may be eligible for
future share and/or option grants in accordance with our executive
compensation policy as in effect from time to time as determined by
our Compensation Committee subject to availability of shares and/or
options for grant under our Equity Incentive Compensation
Plan.
If Ms.
Niffenegger’s employment with us is terminated for
“Cause” (as such term is defined in the employment
agreement) or if Ms. Niffenegger resigns from her employment at any
time, our only obligation shall be to provide Ms. Niffenegger with:
(i) her accrued salary through and including her last day of
employment (the “Separation Date”); (ii) reimbursement
of any reimbursable expenses properly incurred through and
including the Separation Date; and (iii) any benefit required under
applicable law. If we terminates Ms. Niffenegger’s employment
without “Cause” or if Ms. Niffenegger’s
employment with us is “constructively terminated” (as
such term is defined in the employment agreement) our only
obligations shall be: (a) to provide Ms. Niffenegger with the same
payments and benefits as would be provided if we had terminated her
employment for Cause; and (b) subject to Ms. Niffenegger’s
execution of a release in our favor, Ms. Niffenegger will also be
paid, as severance, an amount equal to twelve months of her base
salary at her then-current rate. In the event that Ms.
Niffenegger’s employment is terminated or constructively
terminated by us without Cause upon or within a twelve month period
following a Change of Control (as defined in the employment
agreement), Ms. Niffenegger shall be entitled to the payments and
benefits as though she was terminated without “Cause”,
plus an additional change of control payment equal to twelve months
of her base salary.
During
the term of Ms. Niffenegger’s employment with us, Ms.
Niffenegger is prohibited from competing with our business. In
addition, while Ms. Niffenegger is employed by us and for a period
of one year thereafter, Ms. Niffenegger is prohibited from
soliciting for employment certain of our employees.
Edesa Share Option Plan
Prior
to the completion of our business combination with Edesa, Edesa
maintained the Edesa Biotech Inc. Share Option Plan, which it
adopted on August 28, 2017 (the “Edesa Plan”). The
purpose of the Edesa Plan was to provide Edesa with a share-related
mechanism to attract, retain and motivate qualified directors,
employees, officers and consultants and to reward such personnel
for their contributions toward the long term goals of the company
and to enable and encourage such personnel to acquire shares in the
capital of Edesa as long term investments. The Edesa Plan allowed
options to be granted to directors, officers, employees and certain
external consultants and advisers to Edesa. Under the Edesa Plan,
the option term was not to exceed 10 years and the exercise price
of each option was determined by Edesa’s Board of Directors.
Upon completion of our business combination with Edesa, the awards
described below were substituted for “Substitute
Awards” under our 2017 Plan in the form of options that are
exercisable for our Common Shares.
On
August 28, 2017, Edesa granted Dr. Brooks an option to purchase
42,105 of Edesa’s Common Shares at an exercise price of
C$7.00 per share. The option was fully vested upon grant and is
exercisable for a period of ten years subject to earlier
termination in certain conditions. Upon completion of our business
combination with Edesa, this option was converted into an option to
purchase 136,416 of our Common Shares at an exercise price of
C$2.16 per share with the same vesting terms.
On
September 26, 2017, Dr. Nijhawan was granted an option to purchase
14,658 of Edesa’s Common Shares at an exercise price of
C$7.00 per share. The option vests over a period of three years,
with one-third vesting on the first anniversary of the date of
grant and the remainder vesting on a pro-rata basis monthly
thereafter. The options are scheduled to expire on September 26,
2027 subject to earlier termination in certain conditions. Upon
completion of our business combination with Edesa, this option was
converted into an option to purchase 47,490 of our Common Shares at
an exercise price of C$2.16 per share with the same vesting
terms.
On
September 26, 2017, Dr. Brooks was granted an option to purchase
7,500 of Edesa’s Common Shares at an exercise price of C$7.00
per share. The option will vest over a period of three years, with
one-third vesting on the first anniversary of the date of grant and
the remainder vesting on a pro-rata basis monthly thereafter. The
options are scheduled to expire on September 26, 2027 subject to
earlier termination in certain conditions. Upon completion of our
business combination with Edesa, this option was converted into an
option to purchase 24,999 of our Common Shares at an exercise price
of C$2.16 per share with the same vesting terms.
On
December 28, 2018, Dr. Nijhawan was granted an option to purchase
500 of Edesa’s Common Shares at an exercise price of C$7.00
per share. The option will vest over a period of three years, with
one-third vesting on the first anniversary of the date of grant and
the remainder vesting on a pro-rata basis monthly thereafter. The
options are scheduled to expire on December 28, 2028 subject to
earlier termination in certain conditions. Upon completion of our
business combination with Edesa, this option was converted into an
option to purchase 1,620 of our Common Shares at an exercise price
of C$2.16 per share with the same vesting terms.
On
December 28, 2018, Dr. Brooks was granted an option to purchase 500
of Edesa’s Common Shares at an exercise price of C$7.00 per
share. The option will vest over a period of three years, with
one-third vesting on the first anniversary of the date of grant and
the remainder vesting on a pro-rata basis monthly thereafter. The
options are scheduled to expire on December 28, 2028 subject to
earlier termination in certain conditions. Upon completion of our
business combination with Edesa, this option was converted into an
option to purchase 1,620 of our Common Shares at an exercise price
of C$2.16 per share with the same vesting terms.
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the equity awards made to
Edesa’s NEOs that were outstanding at December 31, 2018,
reflecting their substitution for Substitute Awards under our 2017
Plan and the 1 for 6 reverse stock split of our Common
Shares that
became effective on June 7, 2019:
|
|
|
|
|
|
|
Number of
securities underlying unexercised options
(#)exercisable
|
Number
of securities underlying unexercised options
(#)unexercisable (1)
|
Option exercise
prices ($)
|
|
|
|
09/26/2017
|
21,106
|
26,384
|
$C$2.16
|
09/26/2027
|
|
|
12/28/2018
|
-
|
1,620
|
$C2.16
|
12/28/2028
|
|
|
|
|
|
|
|
|
|
08/28/2017
|
136,416
|
-
|
$C2.16
|
08/28/2027
|
|
|
09/26/2017
|
10,800
|
13,499
|
$C2.16
|
09/26/2027
|
|
|
12/28/2018
|
-
|
1,620
|
$C2.16
|
12/28/2028
|
(1)
The vesting terms
of the applicable option awards are described above under the
heading “Edesa Share Option Plan.”
Director Compensation
Edesa
did not have a director compensation policy as of December 31, 2018
and none of Edesa’s non-executive directors received
compensation for service during the fiscal year ending December 31,
2018, except that Mr. Pay was paid C$30,000 during 2018 for his
services as a director to Edesa. However, Edesa does provide
reimbursement for reasonable out-of-pocket expenses incurred for
attending meetings of the Edesa Board of Directors or any
committees thereof.
Outstanding Equity Awards at 2018 Fiscal Year-End
The following table summarizes the equity awards made to
Edesa’s directors that were outstanding at December 31, 2018,
reflecting their substitution for Substitute Awards under our 2017
Plan and the 1 for 6 reverse stock split of our Common
Shares that
became effective on June 7, 2019:
|
Name
|
|
|
Pardeep
Nijhawan
|
49,110
|
|
Paul William
Pay
|
32,399(1)
|
(1)
On September 26,
2017, Paul Pay was granted an option to purchase 10,000 of
Edesa’s common shares at an exercise price of C$7.00 per
share. The option will vest over a period of three years, with
one-third vesting on the first anniversary of the date of grant and
the remainder vesting on a pro-rata basis monthly thereafter. The
options are scheduled to expire on September 26, 2027. Upon
completion of our business combination with Edesa, this option was
converted into an option to purchase 32,399 of our common shares at
an exercise price of C$2.16 per share with the same vesting
terms.
Securities Authorized for Issuance Under Equity Compensation
Plans
Equity Compensation Plan Information
The
following table provides certain information as of September 30,
2019 about our Common Shares that may be issued under our equity
compensation plans, which consists of the 2017 Plan:
|
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
|
319,645
|
$3.38
|
33,502
|
|
Equity compensation
plans not approved by security holders
|
N/A
|
N/A
|
N/A
|
|
Total
|
319,645
|
$3.38
|
33,502
|
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED
UPON
Except
as described above under the heading “New Plan
Benefits”, none of our directors, executive officers or any
associate of a director or executive officer has a substantial
interest, direct or indirect, by security holdings or otherwise, in
any matter described in this Information Statement.
DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN
ADDRESS
We
are delivering this Information Statement to all shareholders of
record as of the Record Date. Shareholders residing in the same
household who hold their shares in the name of a bank, broker or
other holder of record may receive only one Information Statement
if previously notified by their bank, broker or other holder. This
process, by which only one Information Statement is delivered to
multiple security holders sharing an address, unless contrary
instructions are received from one or more of the security holders,
is called ‘‘householding.’’ Householding
may provide convenience for shareholders and cost savings for
companies. Once begun, householding may continue unless
instructions to the contrary are received from one or more of the
shareholders within the household.
Copies of this Information Statement are available
promptly by calling (905) 475-1234, or by writing to Edesa Biotech,
Inc., Attn: Investor Relations, 100 Spy Court, Markham, Ontario,
Canada L3R 5H6, CA 93033. If
you are receiving multiple copies of this Information Statement,
you also may request orally or in writing to receive a single copy
of this Information Statement by calling (905) 475-1234, or by
writing to Edesa Biotech, Inc., Attn: Investor Relations, 100 Spy
Court, Markham, Ontario, Canada L3R 5H6.
By order of the Board of Directors,
Dr. Pardeep Nijhawan
Chief Executive Officer
Markham,
Ontario, Canada
October
25, 2019
ANNEX A
EDESA BIOTECH, INC.
2019 EQUITY INCENTIVE COMPENSATION PLAN
EDESA BIOTECH, INC.
2019 EQUITY INCENTIVE COMPENSATION PLAN
|
1.
|
Purpose
|
A-1
|
|
2.
|
Definitions
|
A-1
|
|
3.
|
Administration
|
A-5
|
|
4.
|
Shares Subject to Plan
|
A-5
|
|
5.
|
Eligibility; Per-Participant
Limitations
|
A-6
|
|
6.
|
Specific Terms of Awards
|
A-6
|
|
7.
|
Certain Provisions Applicable to
Awards
|
A-9
|
|
8.
|
Change in Control
|
A-10
|
|
9.
|
General Provisions
|
A-11
|
EDESA BIOTECH, INC.
2019 EQUITY INCENTIVE COMPENSATION PLAN
1. Purpose. The purpose of
this 2019 EQUITY INCENTIVE COMPENSATION PLAN (the
“Plan”) is to assist Edesa Biotech, Inc., a British
Columbia corporation, and its Related Entities (as hereinafter
defined) in attracting, motivating, retaining and rewarding
high-quality executives and other employees, officers, directors,
consultants and other persons who provide services to the Company
or its Related Entities by enabling such persons to acquire or
increase a proprietary interest in the Company in order to
strengthen the mutuality of interests between such persons and the
Company’s shareholders, and providing such persons with
performance incentives to expend their maximum efforts in the
creation of shareholder value. This Plan is an amendment and
restatement of the Company’s 2017 Incentive Compensation
Plan, as amended and restated effective as of January 27, 2017 (the
“Initial Plan”), the terms and conditions of which are
superseded hereby, except as explicitly set forth
herein.
2. Definitions. For purposes of
the Plan, the following terms shall be defined as set forth below,
in addition to such terms defined in Section 1 hereof and elsewhere
herein.
(a) “Award” means
any Option, Restricted Share Award or Restricted Share Unit Award,
granted to a Participant under the Plan.
(b) “Award
Agreement” means any written agreement, contract or
other instrument or document evidencing any Award granted pursuant
to this Plan.
(c) “Beneficiary”
means the person, persons, trust or trusts that have been
designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the
benefits specified under the Plan upon such Participant’s
death or to which Awards or other rights are transferred if and to
the extent permitted under Section 9(b) hereof. If, upon a
Participant’s death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means
the Participant’s estate.
(d) “Beneficial
Owner” and “Beneficial
Ownership” shall have the meaning ascribed to such
term in Rule 13d-3 under the Exchange Act and any successor to such
Rule.
(e) “Board” means
the Company’s Board of Directors.
(f) “Cause” shall,
with respect to any Participant, have the meaning specified in the
Award Agreement. In the absence of any definition in the Award
Agreement, “Cause” shall have the equivalent meaning or
the same meaning as “cause” or “for cause”
set forth in any employment, consulting, or other agreement for the
performance of services between the Participant and the Company or
a Related Entity or, in the absence of any such agreement or any
such definition in such agreement, such term shall mean (i) the
failure by the Participant to perform, in a reasonable manner, his
or her duties as assigned by the Company or a Related Entity, (ii)
any violation or breach by the Participant of his or her
employment, consulting or other similar agreement with the Company
or a Related Entity, if any, (iii) any violation or breach by the
Participant of any non-competition, non-solicitation,
non-disclosure and/or other similar agreement with the Company or a
Related Entity, (iv) any act by the Participant of dishonesty or
bad faith with respect to the Company or a Related Entity, (v) use
of alcohol, drugs or other similar substances in a manner that
adversely affects the Participant’s work performance, or (vi)
the commission by the Participant of any act, misdemeanor, or crime
reflecting unfavorably upon the Participant or the Company or any
Related Entity. The good faith determination by the Committee of
whether the Participant’s Continuous Service was terminated
by the Company for “Cause” shall be final and binding
for all purposes hereunder.
(g) “Change in
Control” means a Change in Control as defined in
Section 8(b) of the Plan.
(h) “Code” means
the Internal Revenue Code of 1986, as amended from time to time,
including regulations thereunder and successor provisions and
regulations thereto.
(i) “Committee”
means a committee designated by the Board to administer the Plan;
provided, however, that if the Board fails to designate a committee
or if there are no longer any members on the committee so
designated by the Board, or for any other reason determined by the
Board, then the Board shall serve as the Committee. Except as may
otherwise be permitted under applicable law, the Committee shall
consist of at least two directors, each of whom shall be (i) a
“non-employee director” within the meaning of Rule
16b-3 (or any successor rule) under the Exchange Act, unless
administration of the Plan by “non-employee directors”
is not then required in order for exemptions under Rule 16b-3 to
apply to transactions under the Plan, and (ii)
“Independent.
(j) “Company” means
Edesa Biotech, Inc., a British Columbia corporation, and any
successor thereto.
(k) “Consultant”
means any consultant or advisor who provides services to the
Company or any Related Entity, so long as (i) such person renders
bona fide services that are not in connection with the offer and
sale of the Company’s securities in a capital-raising
transaction, (ii) such person does not directly or indirectly
promote or maintain a market for the Company’s securities,
and (iii) the identity of such person would not preclude the
Company from offering or selling securities to such person pursuant
to the Plan in reliance on a registration of those securities on a
Form S-8 Registration Statement under the Securities Act of
1933.
(l) “Continuous
Service” means the uninterrupted provision of services
to the Company or any Related Entity in any capacity of Employee,
Director, Consultant or other service provider. Continuous Service
shall not be considered to be interrupted in the case of (i) any
leave of absence approved by management of the Company, (ii)
transfers among the Company, any Related Entities, or any successor
entities, in any capacity of Employee, Director, Consultant or
other service provider, or (iii) any change in status as long as
the individual remains in the service of the Company or a Related
Entity in any capacity of Employee, Director, Consultant or other
service provider (except as otherwise provided in the Award
Agreement). An approved leave of absence shall include sick leave,
military leave, or any other authorized personal
leave.
(m) “Covered
Employee” means the Person who, as of the end of the
taxable year, is considered a “covered employee” for
purposes of Section 162(m) of the Code.
(n) “Director”
means a member of the Board or the board of directors of any
Related Entity.
(o) “Disability”
means a permanent and total disability (within the meaning of
Section 22(e) of the Code), as determined by a medical doctor
satisfactory to the Committee.
(p) “Dividend
Equivalent” means a right, granted to a Participant
under Section 6(g) hereof, to receive cash, Shares, other Awards or
other property equal in value to dividends paid with respect to a
specified number of Shares, or other periodic
payments.
(q) “Effective
Date” means the effective date of the Plan, which was
December 18, 2013.
(r) “Effective
Date of Restated Plan” means the effective date of
this Plan, as amended and restated, which was October 16,
2019.
(s) “Eligible
Person” means each officer, Director, Employee,
Consultant and other person who provides services to the Company or
any Related Entity. The foregoing notwithstanding, only Employees
of the Company, or any parent corporation or subsidiary corporation
of the Company (as those terms are defined in Sections 424(e) and
(f) of the Code, respectively), shall be Eligible Persons for
purposes of receiving any Incentive Stock Options. An Employee on a
leave of absence approved by management of the Company shall be
considered as still in the employ of the Company or a Related
Entity for purposes of eligibility for participation in the
Plan.
(t) “Employee”
means any person, including an officer or Director, who is an
employee of the Company or any Related Entity, or is a prospective
employee of the Company or any Related Entity (conditioned upon and
effective not earlier than, such person becoming an employee of the
Company or any Related Entity). The payment of a director’s
fee by the Company or a Related Entity shall not be sufficient to
constitute “employment” by the Company.
(u) “Exchange Act”
means the Securities Exchange Act of 1934, as amended from time to
time, including rules thereunder and successor provisions and rules
thereto.
(v) “Fair Market
Value” means the fair market value of Shares, Awards
or other property on the date as of which the value is being
determined, as determined by the Committee, or under procedures
established by the Committee, subject to the
following:
(i) If,
on such date, the Shares are listed on a national or regional
securities exchange or market system, the Fair Market Value of a
Share shall be the closing price of a Share (or the mean of the
closing bid and asked prices of a Share if the Share is so quoted
instead) as quoted on the Nasdaq Stock Market, LLC or such other
national or regional securities exchange or market system
constituting the primary market for the Share, as reported in The
Wall Street Journal or such other source as the Company deems
reliable. If the relevant date does not fall on a day on which the
Share has traded on such securities exchange or market system, the
date on which the Fair Market Value shall be established shall be
the last day on which the Share was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the
Committee, in its discretion.
(ii) If,
on such date, the Share are not listed on a national or regional
securities exchange or market system, the Fair Market Value of a
Share shall be as determined by the Committee in good faith without
regard to any restriction other than a restriction which, by its
terms, will never lapse.
(w) “Good Reason”
shall, with respect to any Participant, have the meaning specified
in the Award Agreement. In the absence of any definition in the
Award Agreement, “Good Reason” shall have the
equivalent meaning or the same meaning as “good reason”
or “for good reason” set forth in any employment,
consulting or other agreement for the performance of services
between the Participant and the Company or a Related Entity or, in
the absence of any such agreement or any such definition in such
agreement, such term shall mean (i) the assignment to the
Participant of any duties inconsistent in any material respect with
the Participant’s duties or responsibilities as assigned by
the Company or a Related Entity, or any other action by the Company
or a Related Entity which results in a material diminution in such
duties or responsibilities, excluding for this purpose an action
which is remedied by the Company or a Related Entity promptly after
receipt of notice thereof given by the Participant; (ii) any
material failure by the Company or a Related Entity to comply with
its obligations to the Participant as agreed upon, other than a
failure which is remedied by the Company or a Related Entity
promptly after receipt of notice thereof given by the Participant;
(iii) the Company’s or Related Entity’s requiring the
Participant to be based at any office or location outside of fifty
miles from the location of employment or service as of the date of
Award, except for travel reasonably required in the performance of
the Participant’s responsibilities; or (iv) a material breach
by the Company or any Related Entity of any employment, consulting
or other agreement under which the Participant provides services to
the Company or any Related Entity. For purposes of this Plan, upon
termination of a Participant’s Continuous Service, Good
Reason shall not be deemed to exist unless the Participant’s
termination of Continuous Service for Good Reason occurs within 6
months following the initial existence of one of the conditions
specified in clauses (i) through (iv) above, the Participant
provides the Company or the Related Entity for which the
Participant provides services with written notice of the existence
of such condition with 90 days after the initial existence of the
condition, and the Company fails to remedy the condition within 30
days after its receipt of notice.
(x) “Incentive Stock
Option” means any Option intended to be designated as
an incentive stock option within the meaning of Section 422 of the
Code or any successor provision thereto.
(y) “Independent”,
when referring to either the Board or members of the Committee,
shall have the same meaning as used in the rules of the Listing
Market.
(z) “Incumbent
Board” means the Incumbent Board as defined in Section
8(b)(ii) hereof.
(aa) “Listing
Market” means any national securities exchange on
which any securities of the Company are listed for trading, and if
not listed for trading, by the rules of the Nasdaq Stock
Market.
(bb) “Option”
means a right granted to a Participant under Section 6(b) hereof,
to purchase Shares or other Awards at a specified price during
specified time periods.
(cc) “Optionee”
means a person to whom an Option is granted under this Plan or any
person who succeeds to the rights of such person under this
Plan.
(dd) “Parent”
means any corporation (other than the Company), whether now or
hereafter existing, in an unbroken chain of corporations ending
with the Company, if each of the corporations in the chain (other
than the Company) owns stock possessing 50% or more of the combined
voting power of all classes of stock in one of the other
corporations in the chain.
(ee) “Participant”
means a person who has been granted an Award under the Plan which
remains outstanding, including a person who is no longer an
Eligible Person.
(ff) “Person”
shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, and shall include a “group” as
defined in Section 13(d) thereof.
(gg) “Related
Entity” means any Parent or Subsidiary, and any
business, corporation, partnership, limited liability company or
other entity designated by the Committee in which the Company, a
Parent or a Subsidiary holds a substantial ownership interest,
directly or indirectly and with respect to which the Company may
offer or sell securities pursuant to the Plan in reliance upon
registration on a Form S-8 Registration Statement under the
Securities Act of 1933.
(hh) “Restricted
Share” means any Share issued with such risks of
forfeiture and other restrictions as the Committee, in its sole
discretion, may impose (including any restriction on the right to
vote such Share and the right to receive any dividends), which
restrictions may lapse separately or in combination at such time or
times, in installments or otherwise, as the Committee may deem
appropriate.
(ii) “Restricted
Share Award” means an Award granted to a Participant
under Section 6(d) hereof.
(jj) “Restricted
Share Unit” means a right to receive Shares, including
Restricted Share, cash measured based upon the value of Shares, or
a combination thereof, at the end of a specified deferral
period.
(kk) “Restricted
Share Unit Award” means an Award of Restricted Share
Units granted to a Participant under Section 6(e)
hereof.
(ll) “Restriction
Period” means the period of time specified by the
Committee that Restricted Share Awards shall be subject to such
restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose.
(mm) “Rule
16b-3” means Rule 16b-3, as from time to time in
effect and applicable to the Plan and Participants, promulgated by
the Securities and Exchange Commission under Section 16 of the
Exchange Act.
(nn) “Shares”
means the common shares of the Company, no par value per share, and
such other securities as may be substituted (or resubstituted) for
Shares pursuant to Section 9(c) hereof.
(oo) “Subsidiary”
means any corporation or other entity in which the Company has a
direct or indirect ownership interest of 50% or more of the total
combined voting power of the then outstanding securities or
interests of such corporation or other entity entitled to vote
generally in the election of directors or in which the Company has
the right to receive 50% or more of the distribution of profits or
50% or more of the assets on liquidation or
dissolution.
(pp) “Substitute
Awards” means Awards granted or Shares issued by the
Company in assumption of, or in substitution or exchange for,
awards previously granted, or the right or obligation to make
future awards, by a company (i) acquired by the Company or any
Related Entity, (ii) which becomes a Related Entity after the date
hereof, or (iii) with which the Company or any Related Entity
combines.
(a) Authority
of the Committee. The Plan shall be
administered by the Committee, except to the extent (and subject to
the limitations imposed by Section 3(b) hereof) the Board elects to
administer the Plan, in which case the Plan shall be administered
by only those members of the Board who are Independent members of
the Board, in which case references herein to the
“Committee” shall be deemed to include references to
the Independent members of the Board. The Committee shall have full
and final authority, subject to and consistent with the provisions
of the Plan, to select Eligible Persons to become Participants,
grant Awards, determine the type, number and other terms and
conditions of, and all other matters relating to, Awards, prescribe
Award Agreements (which need not be identical for each Participant)
and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award Agreements and correct
defects, supply omissions or reconcile inconsistencies therein, and
to make all other decisions and determinations as the Committee may
deem necessary or advisable for the administration of the Plan. In
exercising any discretion granted to the Committee under the Plan
or pursuant to any Award, the Committee shall not be required to
follow past practices, act in a manner consistent with past
practices, or treat any Eligible Person or Participant in a manner
consistent with the treatment of any other Eligible Persons or
Participants. Decisions of the Committee shall be final, conclusive
and binding on all persons or entities, including the Company, any
Related Entity or any Participant or Beneficiary, or any transferee
under Section 9(b) hereof or any other person claiming rights from
or through any of the foregoing persons or entities.
(b) Manner of Exercise of
Committee Authority. The Committee, and not the Board, shall
exercise sole and exclusive discretion with respect to any Award to
an Independent Director. The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall
not be construed as limiting any power or authority of the
Committee. The Committee may delegate to members of the Board, or
officers or managers of the Company or any Related Entity, or
committees thereof, the authority, subject to such terms and
limitations as the Committee shall determine, to perform such
functions, including administrative functions as the Committee may
determine to the extent that such delegation will not result in the
loss of an exemption under Rule 16b-3(d)(1) for Awards granted to
Participants subject to Section 16 of the Exchange Act in respect
of the Company. The Committee may appoint agents to assist it in
administering the Plan.
(c) Limitation
of Liability. The Committee and
the Board, and each member thereof, shall be entitled to, in good
faith, rely or act upon any report or other information furnished
to him or her by any officer or Employee, the Company’s
independent auditors, Consultants or any other agents assisting in
the administration of the Plan. Members of the Committee and the
Board, and any officer or Employee acting at the direction or on
behalf of the Committee or the Board, shall not be personally
liable for any action or determination taken or made in good faith
with respect to the Plan, and shall, to the extent permitted by
law, be fully indemnified and protected by the Company with respect
to any such action or determination.
4. Shares Subject to Plan.
(a) Limitation
on Overall Number of Shares Available for Delivery Under
Plan. Subject to
adjustment as provided in Section 9(c) hereof, the total number of
Shares reserved and available for delivery under the Plan after the
Effective Date of Restated Plan shall be the sum of (i) 800,000
plus (ii) the number of Shares remaining available for delivery
under the Plan as of the Effective Date of Restated Plan. Any
Shares that are subject to Awards of Options shall be counted
against this limit as one (1) Share for every one (1) Share
granted. Any Shares that are subject to Awards other than Options
shall be counted against this limit as one and one-half (1.5)
Shares for every one (1) Share granted. Any Shares delivered under
the Plan may consist, in whole or in part, of authorized and
unissued shares.
(b) Application
of Limitation to Grants of Awards.. No Award may be
granted if the number of Shares to be delivered in connection with
such an Award exceeds the number of Shares remaining available for
delivery under the Plan, minus the number of Shares that would be
counted against the limit upon settlement of then outstanding
Awards. The Committee may adopt reasonable counting procedures to
ensure appropriate counting, avoid double counting (as, for
example, in the case of substitute awards) and make adjustments if
the number of Shares actually delivered differs from the number of
Shares previously counted in connection with an Award.
(c) Availability
of Shares Not Delivered under Awards and Adjustments to
Limits.
(i) If, after the
Effective Date of Restated Plan, (x) Shares subject to any Awards
granted under the Plan are forfeited, expire or otherwise terminate
without issuance of such Shares, or (y) any Award is settled for
cash or otherwise does not result in the issuance of all or a
portion of the Shares subject to such Award, the Shares to which
those Awards were subject shall, to the extent of such forfeiture,
expiration, termination, non-issuance or cash settlement, again be
available for delivery with respect to Awards under the
Plan.
(ii) In
the event that, after the Effective Date of Restated Plan, any
Option or other Award granted under this Plan, is exercised through
the tendering of Shares (either actually or by attestation) or by
the withholding of Shares by the Company, or withholding tax
liabilities arising from such Option or other Award are satisfied
by the tendering of Shares (either actually or by attestation) or
by the withholding of Shares by the Company, then only the number
of Shares issued net of the Shares tendered or withheld shall be
counted for purposes of determining the maximum number of
Shares available for grant under the Plan.
(iii) Substitute
Awards shall not reduce the Shares authorized for delivery under
the Plan or authorized for delivery to a Participant in any period.
Additionally, in the event that an entity acquired by the Company
or any Related Entity or with which the Company or any Related
Entity combines has shares available under a pre-existing plan
approved by its shareholders and not adopted in contemplation of
such acquisition or combination, the shares available for delivery
pursuant to the terms of such pre-existing plan (as adjusted, to
the extent appropriate, using the exchange ratio or other
adjustment or valuation ratio or formula used in such acquisition
or combination to determine the consideration payable to the
holders of common stock of the entities party to such acquisition
or combination) may be used for Awards under the Plan and shall not
reduce the Shares authorized for delivery under the Plan if and to
the extent that the use of such Shares would not require approval
of the Company’s shareholders under the rules of the Listing
Market. Awards using such available shares shall not be made after
the date awards or grants could have been made under the terms of
the pre-existing plan, absent the acquisition or combination, and
shall only be made to individuals who were not Employees or
Directors prior to such acquisition or combination.
(iv) Any
Share that again becomes available for delivery pursuant to this
Section 4(c) shall be added back as one (1) Share if such Share was
subject to an Option granted under the Plan and as one and one-half
(1.5) Shares if such Share was subject to an Award other than an
Option granted under the Plan.
(v) Notwithstanding
anything in this Section 4(c) to the contrary but subject to
adjustment as provided in Section 9(c) hereof, the maximum
aggregate number of Shares that may be delivered under the Plan as
a result of the exercise of the Incentive Stock Options shall be
1,200,000 Shares. In no event shall any Incentive Stock Options be
granted under the Plan after the tenth anniversary of the date on
which the Board adopts the Plan.
(vi) Notwithstanding
anything in this Section 4 to the contrary, but subject to
adjustment as provided in Section 9(c) hereof, in any fiscal year
of the Company during any part of which the Plan is in effect, no
Participant who is a Director but is not also an Employee or
Consultant may be granted any Awards that have a “fair
value” as of the date of grant, as determined in accordance
with FASB ASC Topic 718 (or any other applicable accounting
guidance), that exceeds $250,000 in the aggregate.
5. Eligibility; Per-Participant
Limitations. Awards may be
granted under the Plan only to Eligible Persons. Subject to
adjustment as provided in Section 9(c) of this Plan, in any
calendar year during any part of which the Plan is in effect, no
Participant may be granted Options with respect to more than
100,000 Shares.
6. Specific Terms of Awards.
(a) General.
Awards may be granted on the terms and conditions set forth in this
Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject
to Section 7(e) hereof), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee
shall determine, including terms requiring forfeiture of Awards in
the event of termination of the Participant’s Continuous
Service and terms permitting a Participant to make elections
relating to his or her Award. Except as otherwise expressly
provided herein, the Committee shall retain full power and
discretion to accelerate, waive or modify, at any time, any term or
condition of an Award that is not mandatory under the Plan. Except
in cases in which the Committee is authorized to require other
forms of consideration under the Plan, or to the extent other forms
of consideration must be paid to satisfy the requirements of
British Columbia law, no consideration other than services may be
required for the grant (as opposed to the exercise) of any
Award.
(b) Options.
The Committee is authorized to grant Options to any Eligible Person
on the following terms and conditions:
(i) Exercise Price.
Other than in connection with Substitute Awards, the exercise price
per Share purchasable under an Option shall be determined by the
Committee, provided that such exercise price shall not be less than
100% of the Fair Market Value of a Share on the date of grant of
the Option. If an Employee owns or is deemed to own (by reason of
the attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock
of the Company (or any parent corporation or subsidiary corporation
of the Company, as those terms are defined in Sections 424(e) and
(f) of the Code, respectively) and an Incentive Stock Option is
granted to such Employee, the exercise price of such Incentive
Stock Option (to the extent required by the Code at the time of
grant) shall be no less than 110% of the Fair Market Value of a
Share on the date such Incentive Stock Option is granted. Other
than pursuant to Section 9(c)(i) and (ii) of this Plan, the
Committee shall not be permitted to (A) lower the exercise price
per Share of an Option after it is granted, (B) cancel an Option
when the exercise price per Share exceeds the Fair Market Value of
the underlying Shares in exchange for cash or another Award (other
than in connection with Substitute Awards), (C) cancel an
outstanding Option in exchange for an Option with an exercise price
that is less than the exercise price of the original Options or (D)
take any other action with respect to an Option that may be treated
as a repricing pursuant to the applicable rules of the Listing
Market, without approval of the Company’s
shareholders.
(ii) Time
and Method of Exercise. The Committee shall determine the
time or times at which or the circumstances under which an Option
may be exercised in whole or in part (including based on future
service requirements), the method by which notice of exercise is to
be given and the form of exercise notice to be used, the time or
times at which Options shall cease to be or become exercisable
following termination of Continuous Service or upon other
conditions, the methods by which the exercise price may be paid or
deemed to be paid (including in the discretion of the Committee a
cashless exercise procedure), the form of such payment, including,
without limitation, cash, Shares (including without limitation the
withholding of Shares otherwise deliverable pursuant to the Award),
other Awards or awards granted under other plans of the Company or
a Related Entity, or other property, or any rule or regulation
adopted thereunder or any other applicable law), and the methods by
or forms in which Shares will be delivered or deemed to be
delivered to Participants.
(iii) Form
of Settlement. The
Committee may, in its sole discretion, provide that the Shares to
be issued upon exercise of an Option shall be in the form of
Restricted Share or other similar securities.
(iv) Incentive
Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code. Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to Incentive
Stock Options shall be interpreted, amended or altered, nor shall
any discretion or authority granted under the Plan be exercised, so
as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code, unless the Participant has first
requested, or consents to, the change that will result in such
disqualification. Thus, if and to the extent required to comply
with Section 422 of the Code, Options granted as Incentive Stock
Options shall be subject to the following special terms and
conditions:
(A) the Option shall
not be exercisable for more than ten years after the date such
Incentive Stock Option is granted; provided, however, that if a
Participant owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company (or any parent
corporation or subsidiary corporation of the Company, as those
terms are defined in Sections 424(e) and (f) of the Code,
respectively) and the Incentive Stock Option is granted to such
Participant, the term of the Incentive Stock Option shall be (to
the extent required by the Code at the time of the grant) for no
more than five years from the date of grant;
(B) the aggregate Fair
Market Value (determined as of the date the Incentive Stock Option
is granted) of the Shares with respect to which Incentive Stock
Options granted under the Plan and all other option plans of the
Company (and any parent corporation or subsidiary corporation of
the Company, as those terms are defined in Sections 424(e) and (f)
of the Code, respectively) that become exercisable for the first
time by the Participant during any calendar year shall not (to the
extent required by the Code at the time of the grant) exceed
$100,000; and
(C) if Shares acquired
by exercise of an Incentive Stock Option are disposed of within two
years following the date the Incentive Stock Option is granted or
one year following the transfer of such Shares to the Participant
upon exercise, the Participant shall, promptly following such
disposition, notify the Company in writing of the date and terms of
such disposition and provide such other information regarding the
disposition as the Committee may reasonably require.
(c) Restricted
Share Awards. The Committee is
authorized to grant Restricted Share Awards to any Eligible Person
on the following terms and conditions:
(i) Grant and
Restrictions. Restricted Share Awards shall be subject to
such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, or as otherwise
provided in this Plan during the Restriction Period. The terms of
any Restricted Share Award granted under the Plan shall be set
forth in a written Award Agreement which shall contain provisions
determined by the Committee and not inconsistent with the Plan. The
restrictions may lapse separately or in combination at such times,
under such circumstances (including based on future service
requirements), in such installments or otherwise, as the Committee
may determine at the date of grant or thereafter. Except to the
extent restricted under the terms of the Plan and any Award
Agreement relating to a Restricted Share Award, a Participant
granted Restricted Shares shall have all of the rights of a
shareholder, including the right to vote the Restricted Share and
the right to receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee). During
the period that the Restricted Share Award is subject to a risk of
forfeiture, subject to Section 9(b) below and except as otherwise
provided in the Award Agreement, the Restricted Shares may not be
sold, transferred, pledged, hypothecated, margined or otherwise
encumbered by the Participant or Beneficiary.
(ii) Forfeiture.
Except as otherwise determined by the Committee, upon termination
of a Participant’s Continuous Service during the applicable
Restriction Period, the Participant’s Restricted Shares that
are at that time subject to a risk of forfeiture that has not
lapsed or otherwise been satisfied shall be forfeited and
reacquired by the Company; provided that the Committee may provide,
by resolution or other action or in any Award Agreement, or may
determine in any individual case, that forfeiture conditions
relating to Restricted Share Awards shall be waived in whole or in
part in the event of terminations resulting from specified causes,
and the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Shares.
(iii) Certificates
for Shares. Restricted Shares granted under the Plan may be
evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Shares are registered in the
name of the Participant, the Committee may require that such
certificates bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Shares,
that the Company retain physical possession of the certificates,
and that the Participant deliver a stock power to the Company,
endorsed in blank, relating to the Restricted Shares.
(iv) Dividends
and Splits. As a condition to the grant of a Restricted
Share Award, the Committee may require or permit a Participant to
elect that any cash dividends paid on Restricted Shares be
automatically reinvested in additional Restricted Shares or applied
to the purchase of additional Awards under the Plan, or may require
that payment be delayed (with or without interest at such rate, if
any, as the Committee shall determine) and remain subject to
restrictions and a risk of forfeiture to the same extent as the
Restricted Shares with respect to which such cash dividend is
payable, in each case in a manner that does not violate the
requirements of Section 409A of the Code. Unless otherwise
determined by the Committee, Shares distributed in connection with
a share split or share dividend, and other property distributed as
a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Shares with respect
to which such Shares or other property have been
distributed.
(d) Restricted
Share Unit Award. The Committee is
authorized to grant Restricted Share Unit Awards to any Eligible
Person on the following terms and conditions:
(i) Award and
Restrictions. Satisfaction of a Restricted Share Unit Award
shall occur upon expiration of the deferral period specified for
such Restricted Share Unit Award by the Committee (or, if permitted
by the Committee, as elected by the Participant in a manner that
does not violate the requirements of Section 409A of the Code). In
addition, a Restricted Share Unit Award shall be subject to such
restrictions (which may include a risk of forfeiture) as the
Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times
(including based on future service requirements), separately or in
combination, in installments or otherwise, as the Committee may
determine. A Restricted Share Unit Award may be satisfied by
delivery of Shares, cash equal to the Fair Market Value of the
specified number of Shares covered by the Restricted Share Units,
or a combination thereof, as determined by the Committee at the
date of grant or thereafter. Prior to satisfaction of a Restricted
Share Unit Award, a Restricted Share Unit Award carries no voting
or dividend or other rights associated with Share ownership. Prior
to satisfaction of a Restricted Share Unit Award, except as
otherwise provided in an Award Agreement and as permitted under
Section 409A of the Code, a Restricted Share Unit Award may not be
sold, transferred, pledged, hypothecated, margined or otherwise
encumbered by the Participant or any Beneficiary.
(ii) Forfeiture.
Except as otherwise determined by the Committee, upon termination
of a Participant’s Continuous Service during the applicable
deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award Agreement evidencing the Restricted
Share Unit Award), the Participant’s Restricted Share Unit
Award that is at that time subject to a risk of forfeiture that has
not lapsed or otherwise been satisfied shall be forfeited; provided
that the Committee may provide, by resolution or other action or in
any Award Agreement, or may determine in any individual case, that
forfeiture conditions relating to a Restricted Share Unit Award
shall be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other
cases waive in whole or in part the forfeiture of any Restricted
Share Unit Award.
7. Certain Provisions Applicable to
Awards.
(a) Stand-Alone,
Additional, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, or in substitution or exchange for,
any other Award or any award granted under another plan of the
Company, any Related Entity, or any business entity to be acquired
by the Company or a Related Entity, or any other right of a
Participant to receive payment from the Company or any Related
Entity. Such additional, and substitute or exchange Awards may be
granted at any time. If an Award is granted in substitution or
exchange for another Award or award, the Committee shall require
the surrender of such other Award or award in consideration for the
grant of the new Award. In addition, Awards may be granted in lieu
of cash compensation, including in lieu of cash amounts payable
under other plans of the Company or any Related Entity, in which
the value of Shares subject to the Award is equivalent in value to
the cash compensation (for example, Restricted Share or Restricted
Share Units), or in which the exercise price, grant price or
purchase price of the Award in the nature of a right that may be
exercised is equal to the Fair Market Value of the underlying
Shares minus the value of the cash compensation surrendered (for
example, Options granted with an exercise price or grant price
“discounted” by the amount of the cash compensation
surrendered), provided that any such determination to grant an
Award in lieu of cash compensation must be made in a manner
intended to be exempt from or comply with Section 409A of the
Code.
(b) Term
of Awards. The term of each
Award shall be for such period as may be determined by the
Committee. The term of any Option shall not exceed a period of ten
years (or in the case of an Incentive Stock Option such shorter
term as may be required under Section 422 of the Code); provided,
however, that in the event that on the last day of the term of an
Option, other than an Incentive Stock Option, the exercise of the
Option would violate an applicable federal, state, local, or
foreign law, the Committee may, in its sole and absolute
discretion, extend the term of the Option for a period of no more
than thirty (30) days after the date on which the exercise of the
Option would no longer violate an applicable federal, state, local
and foreign law, provided that such extension of the term of the
Option would not cause the Option to violate the requirements of
Section 409A of the Code.
(c) Form
and Timing of Payment Under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Award Agreement, payments to
be made by the Company or a Related Entity upon the exercise of an
Option or other Award or settlement of an Award may be made in such
forms as the Committee shall determine, including, without
limitation, cash, Shares, other Awards or other property, and may
be made in a single payment or transfer, in installments, or on a
deferred basis, provided that any determination to pay in
installments or on a deferred basis shall be made by the Committee
at the date of grant. Any installment or deferral provided for in
the preceding sentence shall, however, subject to the terms of the
Plan, be subject to the Company’s compliance with the
provisions of the Sarbanes-Oxley Act of 2002, as amended, the rules
and regulations adopted by the Securities and Exchange Commission
thereunder, all applicable rules of the Listing Market and any
other applicable law, and in a manner intended to be exempt from or
otherwise satisfy the requirements of Section 409A of the Code.
Subject to Section 7(e) of this Plan, the settlement of any Award
may be accelerated, and cash paid in lieu of Shares in connection
with such settlement, in the sole discretion of the Committee or
upon occurrence of one or more specified events (in addition to a
Change in Control). Any such settlement shall be at a value
determined by the Committee in its sole discretion, which, without
limitation, may in the case of an Option be limited to the amount
if any by which the Fair Market Value of a Share on the settlement
date exceeds the exercise price. Installment or deferred payments
may be required by the Committee (subject to Section 7(e) of this
Plan, including the consent provisions thereof in the case of any
deferral of an outstanding Award not provided for in the original
Award Agreement) or permitted at the election of the Participant on
terms and conditions established by the Committee. The acceleration
of the settlement of any Award, and the payment of any Award in
installments or on a deferred basis, all shall be done in a manner
that is intended to be exempt from or otherwise satisfy the
requirements of Section 409A of the Code. The Committee may,
without limitation, make provision for the payment or crediting of
a reasonable interest rate on installment or deferred payments or
the grant or crediting of other amounts in respect of installment
or deferred payments denominated in Shares.
(d) Exemptions from Section
16(b) Liability. It is the intent of the Company that the
grant of any Awards to or other transaction by a Participant who is
subject to Section 16 of the Exchange Act shall be exempt from
Section 16 pursuant to an applicable exemption (except for
transactions acknowledged in writing to be non-exempt by such
Participant). Accordingly, if any provision of this Plan or any
Award Agreement does not comply with the requirements of Rule 16b-3
then applicable to any such transaction, such provision shall be
construed or deemed amended to the extent necessary to conform to
the applicable requirements of Rule 16b-3 so that such Participant
shall avoid liability under Section 16(b).
(e) Code
Section 409A
(i) The
Award Agreement for any Award that the Committee reasonably
determines to constitute a “nonqualified deferred
compensation plan” under Section 409A of the Code (a
“Section 409A Plan”), and the provisions of the Section
409A Plan applicable to that Award, shall be construed in a manner
consistent with the applicable requirements of Section 409A of the
Code, and the Committee, in its sole discretion and without the
consent of any Participant, may amend any Award Agreement (and the
provisions of the Plan applicable thereto) if and to the extent
that the Committee determines that such amendment is necessary or
appropriate to comply with the requirements of Section 409A of the
Code.
(ii) If
any Award constitutes a Section 409A Plan, then the Award shall be
subject to the following additional requirements, if and to the
extent required to comply with Section 409A of the
Code:
(A)
Payments under the Section 409A Plan may be made only upon (u) the
Participant’s “separation from service”, (v) the
date the Participant becomes “disabled”, (w) the
Participant’s death, (x) a “specified time (or pursuant
to a fixed schedule)” specified in the Award Agreement at the
date of the deferral of such compensation, (y) a “change in
the ownership or effective control of the corporation, or in the
ownership of a substantial portion of the assets” of the
Company, or (z) the occurrence of an “unforeseeble
emergency”;
(B)
The time or schedule for any payment of the deferred compensation
may not be accelerated, except to the extent provided in applicable
Treasury Regulations or other applicable guidance issued by the
Internal Revenue Service;
(C) Any
elections with respect to the deferral of such compensation or the
time and form of distribution of such deferred compensation shall
comply with the requirements of Section 409A(a)(4) of the Code;
and
(D)
In the case of any Participant who is a “specified
employee”, a distribution on account of a “separation
from service” may not be made before the date which is six
months after the date of the Participant’s “separation
from service” (or, if earlier, the date of the
Participant’s death).
For
purposes of the foregoing, the terms in quotations shall have the
same meanings as those terms have for purposes of Section 409A of
the Code, and the limitations set forth herein shall be applied in
such manner (and only to the extent) as shall be necessary to
comply with any requirements of Section 409A of the Code that are
applicable to the Award.
(iii) Notwithstanding
the foregoing, or any provision of this Plan or any Award
Agreement, the Company does not make any representation to any
Participant or Beneficiary that any Awards made pursuant to this
Plan are exempt from, or satisfy, the requirements of, Section 409A
of the Code, and the Company shall have no liability or other
obligation to indemnify or hold harmless the Participant or any
Beneficiary for any tax, additional tax, interest or penalties that
the Participant or any Beneficiary may incur in the event that any
provision of this Plan, or any Award Agreement, or any amendment or
modification thereof, or any other action taken with respect
thereto, is deemed to violate any of the requirements of Section
409A of the Code.
(a) Effect
of “Change in Control.”
If and
only to the extent provided in any employment or other agreement
between the Participant and the Company or any Related Entity, or
in any Award Agreement, or to the extent otherwise determined by
the Committee in its sole discretion and without any requirement
that each Participant be treated consistently, upon the occurrence
of a “Change in Control,” as defined in Section
8(b):
(i) Any Option that was
not previously vested and exercisable as of the time of the Change
in Control, shall become immediately vested and exercisable,
subject to applicable restrictions set forth in Section 9(a)
hereof.
(ii) Any
restrictions, deferral of settlement, and forfeiture conditions
applicable to a Restricted Share Award, Restricted Share Unit Award
or an Other Share-Based Award subject only to future service
requirements granted under the Plan shall lapse and such Awards
shall be deemed fully vested as of the time of the Change in
Control, except to the extent of any waiver by the Participant and
subject to applicable restrictions set forth in Section 9(a)
hereof.
(iii) Notwithstanding
the foregoing or any provision in any Award Agreement to the
contrary, and unless the Committee otherwise determines in a
specific instance, or as is provided in any employment or other
agreement between the Participant and the Company or any Related
Entity, each outstanding Option, Restricted Share Award or
Restricted Share Unit Award shall not be accelerated as described
in Section 8(a)(i), (ii) and (iii), if either (A) the Company is
the surviving entity in the Change in Control and the Option,
Restricted Share Award or Restricted Share Unit Award continues to
be outstanding after the Change in Control on substantially the
same terms and conditions as were applicable immediately prior to
the Change in Control or (B) the successor company or its parent
company assumes or substitutes for the applicable Award, as
determined in accordance with Section 9(c)(ii) hereof.
Notwithstanding the foregoing, if and only to the extent provided
in an Award Agreement and on such terms and conditions as may be
set forth in an Award Agreement, in the event a Participant’s
employment is terminated without Cause by the Company or any
Related Entity or by such successor company or by the Participant
for Good Reason within 24 months following such Change in Control,
each Award held by such Participant at the time of the Change in
Control shall be accelerated as described in Sections 8(a)(i), (ii)
and (iii) above.
(b) Definition
of “Change in Control”. Unless otherwise
specified in any employment or other agreement for services between
the Participant and the Company or any Related Entity, or in an
Award Agreement, a “Change in Control” shall mean the
occurrence of any of the following:
(i) The acquisition by
any Person of Beneficial Ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than fifty
percent (50%) of either (A) the value of then outstanding equity
securities of the Company (the “Outstanding Company
Shares”) or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding
Company Voting Securities”) (the foregoing Beneficial
Ownership hereinafter being referred to as a “Controlling
Interest”); provided, however, that for purposes of this
Section 8(b), the following acquisitions shall not constitute or
result in a Change in Control: (v) any acquisition directly from
the Company; (w) any acquisition by the Company; (x) any
acquisition by any Person that as of the Effective Date owns
Beneficial Ownership of a Controlling Interest; (y) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Related Entity; or (z) any
acquisition by any entity pursuant to a transaction which complies
with clauses (1), (2) and (3) of subsection (iii) below;
or
(ii) During
any period of two (2) consecutive years (not including any period
prior to the Effective Date) individuals who constitute the Board
on the Effective Date (the “Incumbent Board”) cease for
any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for
election by the Company’s shareholders, was approved by a
vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were
a member of the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) Consummation
of (A) a reorganization, merger, statutory share exchange or
consolidation or similar transaction involving (x) the Company or
(y) any of its Related Entities, but in the case of this clause
(y) only if equity securities of the Company are issued or
issuable in connection with the transaction (each of the events
referred to in this clause (A) being hereinafter referred to
as a “Business Reorganization”), or (B) a sale or other
disposition of all or substantially all of the assets of the
Company, or the acquisition of assets or equity of another entity
by the Company or any of its Related Entities (each an “Asset
Sale”), in each case, unless, following such Business
Reorganization or Asset Sale, (1) all or substantially all of the
individuals and entities who were the Beneficial Owners,
respectively, of the Outstanding Company Shares and Outstanding
Company Voting Securities immediately prior to such Business
Reorganization or Asset Sale beneficially own, directly or
indirectly, more than fifty percent (50%) of the value of the then
outstanding equity securities and the combined voting power of the
then outstanding voting securities entitled to vote generally in
the election of members of the board of directors (or comparable
governing body of an entity that does not have such a board), as
the case may be, of the entity resulting from such Business
Reorganization or Asset Sale (including, without limitation, an
entity which as a result of such transaction owns the Company or
all or substantially all of the Company’s assets either
directly or through one or more subsidiaries) (the
“Continuing Entity”) in substantially the same
proportions as their ownership, immediately prior to such Business
Reorganization or Asset Sale, of the Outstanding Company Shares and
Outstanding Company Voting Securities, as the case may be
(excluding any outstanding equity or voting securities of the
Continuing Entity that such Beneficial Owners hold immediately
following the consummation of the Business Reorganization or Asset
Sale as a result of their ownership, prior to such consummation, of
equity or voting securities of any company or other entity involved
in or forming part of such Business Reorganization or Asset Sale
other than the Company), (2) no Person (excluding any employee
benefit plan (or related trust) of the Company or any Continuing
Entity or any entity controlled by the Continuing Entity or any
Person that as of the Effective Date owns Beneficial Ownership of a
Controlling Interest) beneficially owns, directly or indirectly,
fifty percent (50%) or more of the value of the then outstanding
equity securities of the Continuing Entity or the combined voting
power of the then outstanding voting securities of the Continuing
Entity except to the extent that such ownership existed prior to
the Business Reorganization or Asset Sale and (3) at least a
majority of the members of the Board of Directors or other
governing body of the Continuing Entity were members of the
Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Reorganization or Asset Sale; or
(iv) Approval
by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
(a) Compliance
With Legal and Other Requirements. The Company may,
to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Shares or payment of other
benefits under any Award until completion of such registration or
qualification of such Shares or other required action under any
federal or state law, rule or regulation, listing or other required
action with respect to the Listing Market, or compliance with any
other obligation of the Company, as the Committee may consider
appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be
subject to such other conditions as it may consider appropriate in
connection with the issuance or delivery of Shares or payment of
other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other
obligations.
(b) Limits
on Transferability; Beneficiaries. No Award or other
right or interest granted under the Plan shall be pledged,
hypothecated or otherwise encumbered or subject to any lien,
obligation or liability of such Participant to any party, or
assigned or transferred by such Participant otherwise than by will
or the laws of descent and distribution or to a Beneficiary upon
the death of a Participant, and such Awards or rights that may be
exercisable shall be exercised during the lifetime of the
Participant only by the Participant or his or her guardian or legal
representative, except that Awards and other rights (other than
Incentive Stock Options) may be transferred to one or more
Beneficiaries or other transferees during the lifetime of the
Participant, and may be exercised by such transferees in accordance
with the terms of such Award, but only if and to the extent such
transfers are permitted by the Committee pursuant to the express
terms of an Award Agreement (subject to any terms and conditions
which the Committee may impose thereon), are by gift or pursuant to
a domestic relations order, and are to a “Permitted
Assignee” that is a permissible transferee under the
applicable rules of the Securities and Exchange Commission for
registration of securities on a Form S-8 registration statement.
For this purpose, a Permitted Assignee shall mean (i) the
Participant’s spouse, children or grandchildren (including
any adopted and step children or grandchildren), parents,
grandparents or siblings, (ii) a trust for the benefit of one or
more of the Participant or the persons referred to in clause (i),
(iii) a partnership, limited liability company or corporation in
which the Participant or the persons referred to in clauses (i) and
(ii) are the only partners, members or shareholders, or (iv) a
foundation in which any person or entity designated in clauses (i),
(ii) or (iii) above control the management of assets. A
Beneficiary, transferee, or other person claiming any rights under
the Plan from or through any Participant shall be subject to all
terms and conditions of the Plan and any Award Agreement applicable
to such Participant, except as otherwise determined by the
Committee, and to any additional terms and conditions deemed
necessary or appropriate by the Committee.
(c) Adjustments.
(i) Adjustments to
Awards. In the event that any extraordinary dividend or
other distribution (whether in the form of cash, Shares, or other
property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Shares and/or
such other securities of the Company or any other issuer, then the
Committee shall, in such manner as it may deem appropriate and
equitable, substitute, exchange or adjust any or all of
(A) the number and kind of Shares which may be delivered in
connection with Awards granted thereafter, (B) the number and
kind of Shares by which annual per-person Award limitations are
measured under Section 4 hereof, (C) the number and kind of
Shares subject to or deliverable in respect of outstanding Awards,
(D) the exercise price or purchase price relating to any Award
and/or make provision for payment of cash or other property in
respect of any outstanding Award, and (E) any other aspect of any
Award that the Committee determines to be appropriate in order to
prevent the reduction or enlargement of benefits under any
Award.
(ii) Adjustments
in Case of Certain Transactions. In the event of any merger,
consolidation or other reorganization in which the Company does not
survive, or in the event of any Change in Control (and subject to
the provisions of Section 8 of this Plan relating to the vesting of
Awards in the event of any Change in Control), any outstanding
Awards may be dealt with in accordance with any of the following
approaches, without the requirement of obtaining any consent or
agreement of a Participant as such, as determined by the agreement
effectuating the transaction or, if and to the extent not so
determined, as determined by the Committee: (A) the continuation of
the outstanding Awards by the Company, if the Company is a
surviving entity, (B) the assumption or substitution for, as those
terms are defined below, the outstanding Awards by the surviving
entity or its parent or subsidiary, (C) full exercisability or
vesting and accelerated expiration of the outstanding Awards, or
(D) settlement of the value of the outstanding Awards in cash or
cash equivalents or other property followed by cancellation of such
Awards (which value, in the case of Options, shall be measured by
the amount, if any, by which the Fair Market Value of a Share
exceeds the exercise or grant price of the Option as of the
effective date of the transaction). For the purposes of this Plan,
an Option, Restricted Share Award, Restricted Share Unit Award, or
Other Share-Based Award shall be considered assumed or substituted
for if following the applicable transaction the Award confers the
right to purchase or receive, for each Share subject to the Option,
Restricted Share Award, Restricted Share Unit Award, or Other
Share-Based Award immediately prior to the applicable transaction,
on substantially the same vesting and other terms and conditions as
were applicable to the Award immediately prior to the applicable
transaction, the consideration (whether stock, cash or other
securities or property) received in the applicable transaction by
holders of Shares for each Share held on the effective date of such
transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such
consideration received in the applicable transaction is not solely
common stock of the successor company or its parent or subsidiary,
the Committee may, with the consent of the successor company or its
parent or subsidiary, provide that the consideration to be received
upon the exercise or vesting of an Option, Restricted Share Award,
Restricted Share Unit Award, or Other Share-Based Award, for each
Share subject thereto, will be solely common stock of the successor
company or its parent or subsidiary substantially equal in fair
market value to the per share consideration received by holders of
Shares in the applicable transaction. The determination of such
substantial equality of value of consideration shall be made by the
Committee in its sole discretion and its determination shall be
conclusive and binding. The Committee shall give written notice of
any proposed transaction referred to in this Section 9(c)(ii) a
reasonable period of time prior to the closing date for such
transaction (which notice may be given either before or after the
approval of such transaction), in order that Participants may have
a reasonable period of time prior to the closing date of such
transaction within which to exercise any Awards that are then
exercisable (including any Awards that may become exercisable upon
the closing date of such transaction). A Participant may condition
his or her exercise of any Awards upon the consummation of the
transaction.
(iii) Other
Adjustments. The Committee is authorized to make adjustments
in the terms and conditions of, and the criteria included in,
Awards (including Awards subject to satisfaction of performance
goals, or performance goals and conditions relating thereto) in
recognition of unusual or nonrecurring events (including, without
limitation, acquisitions and dispositions of businesses and assets)
affecting the Company, any Related Entity or any business unit, or
the financial statements of the Company or any Related Entity, or
in response to changes in applicable laws, regulations, accounting
principles, tax rates and regulations or business conditions or in
view of the Committee’s assessment of the business strategy
of the Company, any Related Entity or business unit thereof,
performance of comparable organizations, economic and business
conditions, and any other circumstances deemed
relevant.
(d) Award Agreements.
Each Award Agreement shall either be (a) in writing in a form
approved by the Committee and executed by the Company by an officer
duly authorized to act on its behalf, or (b) an electronic notice
in a form approved by the Committee and recorded by the Company (or
its designee) in an electronic recordkeeping system used for the
purpose of tracking one or more types of Awards as the Committee
may provide; in each case and if required by the Committee, the
Award Agreement shall be executed or otherwise electronically
accepted by the recipient of the Award in such form and manner as
the Committee may require. The Committee may authorize any officer
of the Company to execute any or all Award Agreements on behalf of
the Company. The Award Agreement shall set forth the material terms
and conditions of the Award as established by the Committee
consistent with the provisions of the Plan.
(e) Taxes.
The Company and any Related Entity are authorized to withhold from
any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Shares, or any payroll or other
payment to a Participant, amounts of withholding and other taxes
due or potentially payable in connection with any transaction
involving an Award, and to take such other action as the Committee
may deem advisable to enable the Company or any Related Entity and
Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Shares or
other property and to make cash payments in respect thereof in
satisfaction of a Participant’s tax obligations, either on a
mandatory or elective basis in the discretion of the Committee. The
amount of withholding tax paid with respect to an Award by the
withholding of Shares otherwise deliverable pursuant to the Award
or by delivering Shares already owned shall not exceed the maximum
statutory withholding required with respect to that Award (or such
other limit as the Committee shall impose, including without
limitation, any limit imposed to avoid or limit any financial
accounting expense relating to the Award).
(f) Changes
to the Plan and Awards. The Board may
amend, alter, suspend, discontinue or terminate the Plan, or the
Committee’s authority to grant Awards under the Plan, without
the consent of shareholders or Participants, except that any
amendment or alteration to the Plan shall be subject to the
approval of the Company’s shareholders not later than the
annual meeting next following such Board action if such shareholder
approval is required by any applicable law or regulation
(including, without limitation, Rule 16b-3) or the rules of the
Listing Market, and the Board may otherwise, in its discretion,
determine to submit other such changes to the Plan to shareholders
for approval; provided that, except as otherwise permitted by the
Plan or Award Agreement, without the consent of an affected
Participant, no such Board action may materially and adversely
affect the rights of such Participant under the terms of any
previously granted and outstanding Award. The Committee may waive
any conditions or rights under, or amend, alter, suspend,
discontinue or terminate any Award theretofore granted and any
Award Agreement relating thereto, except as otherwise provided in
the Plan; provided that, except as otherwise permitted by the Plan
or Award Agreement, without the consent of an affected Participant,
no such Committee or the Board action may materially and adversely
affect the rights of such Participant under terms of such Award.
For the avoidance of doubt, and notwithstanding any other terms of
this Plan to the contrary, the terms of the Initial Plan shall
continue to apply to any Awards granted under the Initial Plan
prior to the Effective Date of Restated Plan only if and to the
extent required to comply with this Section 9(f) of the
Plan.
(g) Clawback
of Benefits.
(i) The
Company may (A) cause the cancellation of any Award, (B) require
reimbursement of any Award by a Participant or Beneficiary, and (C)
effect any other right of recoupment of equity or other
compensation provided under this Plan or otherwise in accordance
with any Company policies that currently exist or that may from
time to time be adopted or modified in the future by the Company
and/or applicable law (each, a “Clawback Policy”). In
addition, a Participant may be required to repay to the Company
certain previously paid compensation, whether provided under this
Plan or an Award Agreement or otherwise, in accordance with any
Clawback Policy. By accepting an Award, a Participant is also
agreeing to be bound by any existing or future Clawback Policy
adopted by the Company, or any amendments that may from time to
time be made to the Clawback Policy in the future by the Company in
its discretion (including without limitation any Clawback Policy
adopted or amended to comply with applicable laws or stock exchange
requirements) and is further agreeing that all of the
Participant’s Award Agreements may be unilaterally amended by
the Company, without the Participant’s consent, to the extent
that the Company in its discretion determines to be necessary or
appropriate to comply with any Clawback Policy.
(ii) If
the Participant, without the consent of the Company, while employed
by or providing services to the Company or any Related Entity or
after termination of such employment or service, violates a
non-competition, non-solicitation or non-disclosure covenant or
agreement or otherwise engages in activity that is in conflict with
or adverse to the interest of the Company or any Related Entity, as
determined by the Committee in its sole discretion, then (i) any
outstanding, vested or unvested, earned or unearned portion of the
Award may, at the Committee’s discretion, be canceled and
(ii) the Committee, in its discretion, may require the Participant
or other person to whom any payment has been made or Shares or
other property have been transferred in connection with the Award
to forfeit and pay over to the Company, on demand, all or any
portion of the gain (whether or not taxable) realized upon the
exercise of any Option and the value realized (whether or not
taxable) on the vesting or payment of any other Award during the
time period specified in the Award Agreement or otherwise specified
by the Committee.
(h) Limitation
on Rights Conferred Under Plan. Neither the Plan
nor any action taken hereunder or under any Award shall be
construed as (i) giving any Eligible Person or Participant the
right to continue as an Eligible Person or Participant or in the
employ or service of the Company or a Related Entity;
(ii) interfering in any way with the right of the Company or a
Related Entity to terminate any Eligible Person’s or
Participant’s Continuous Service at any time,
(iii) giving an Eligible Person or Participant any claim to be
granted any Award under the Plan or to be treated uniformly with
other Participants and Employees, or (iv) conferring on a
Participant any of the rights of a shareholder of the Company or
any Related Entity including, without limitation, any right to
receive dividends or distributions, any right to vote or act by
written consent, any right to attend meetings of shareholders or
any right to receive any information concerning the Company’s
or any Related Entity’s business, financial condition,
results of operation or prospects, unless and until such time as
the Participant is duly issued Shares on the books of the Company
or any Related Entity in accordance with the terms of an Award.
None of the Company, its officers or its directors shall have any
fiduciary obligation to the Participant with respect to any Awards
unless and until the Participant is duly issued Shares pursuant to
the Award on the books of the Company in accordance with the terms
of an Award. Neither the Company, nor any Related Entity, nor any
of their respective officers, directors, representatives or agents
is granting any rights under the Plan to the Participant
whatsoever, oral or written, express or implied, other than those
rights expressly set forth in this Plan or the Award
Agreement.
(i) Unfunded
Status of Awards; Creation of Trusts. The Plan is
intended to constitute an “unfunded” plan for incentive
and deferred compensation. With respect to any payments not yet
made to a Participant or obligation to deliver Shares pursuant to
an Award, nothing contained in the Plan or any Award Agreement
shall give any such Participant any rights that are greater than
those of a general creditor of the Company or Related Entity that
issues the Award; provided that the Committee may authorize the
creation of trusts and deposit therein cash, Shares, other Awards
or other property, or make other arrangements to meet the
obligations of the Company or Related Entity under the Plan. Such
trusts or other arrangements shall be consistent with the
“unfunded” status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
The trustee of such trusts may be authorized to dispose of trust
assets and reinvest the proceeds in alternative investments,
subject to such terms and conditions as the Committee may specify
and in accordance with applicable law.
(j) Nonexclusivity
of the Plan. Neither the
adoption of the Plan by the Board nor its submission to the
shareholders of the Company for approval shall be construed as
creating any limitations on the power of the Board or a committee
thereof to adopt such other incentive arrangements as it may deem
desirable.
(k) Payments
in the Event of Forfeitures; Fractional Shares. Unless otherwise
determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other
consideration, the Participant shall be repaid the amount of such
cash or other consideration. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards or other property shall be
issued or paid in lieu of such fractional shares or whether such
fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.
(l) Governing
Law. Except as
otherwise provided in any Award Agreement, the validity,
construction and effect of the Plan, any rules and regulations
under the Plan, and any Award Agreement shall be determined in
accordance with the laws of British Columbia without giving effect
to principles of conflict of laws, and other applicable
laws.
(m) Non-U.S.
Laws. The Committee
shall have the authority to adopt such modifications, procedures,
and subplans as may be necessary or desirable to comply with
provisions of the laws of any countries in which the Company or its
Related Entities may operate to assure the viability of the
benefits from Awards granted to Participants performing services in
such countries and to meet the objectives of the Plan. The
Committee has adopted a Canadian subplan (the “Canadian
Subplan”) that is applicable to a Participant who is a
Canadian Participant as such term is defined in the Canadian
Subplan. The Canadian Subplan is attached hereto as Appendix
A.
(n) Plan
Effective Date and Shareholder Approval; Termination of
Plan. The Plan
initially became effective on the Effective Date. The Plan, as
amended and restated herein, shall become effective on the
Effective Date of Restated Plan, subject to subsequent approval,
within 12 months of its adoption by the Board, by shareholders of
the Company eligible to vote in the election of directors, by a
vote sufficient to meet the requirements of Code Section 422, Rule
16b-3 under the Exchange Act (if applicable), applicable
requirements under the rules of any stock exchange or automated
quotation system on which the Shares may be listed or quoted, and
other laws, regulations, and obligations of the Company applicable
to the Plan. Subject to applicable law and the listing
requirements, Awards may be granted subject to shareholder
approval, but may not be exercised or otherwise settled in the
event the shareholder approval is not obtained. The Plan shall
terminate at the earliest of (a) such time as no Shares remain
available for issuance under the Plan, (b) termination of this
Plan by the Board, or (c) the tenth anniversary of the Effective
Date of Restated Plan. Awards outstanding upon expiration of the
Plan shall remain in effect until they have been exercised or
terminated, or have expired.
(o) Construction
and Interpretation. Whenever used
herein, nouns in the singular shall include the plural, and the
masculine pronoun shall include the feminine gender. Headings of
Articles and Sections hereof are inserted for convenience and
reference and constitute no part of the Plan.
(p) Severability.
If any provision of the Plan or any Award Agreement shall be
determined to be illegal or unenforceable by any court of law in
any jurisdiction, the remaining provisions hereof and thereof shall
be severable and enforceable in accordance with their terms, and
all provisions shall remain enforceable in any other
jurisdiction.
APPENDIX A - Canada
TO THE
EDESA BIOTECH, INC.
2019 EQUITY INCENTIVE COMPENSATION PLAN
1.
SPECIAL
PROVISIONS FOR CANADIAN PARTICIPANTS
1.1.
This
Appendix (this “Appendix”) to the Edesa Biotech, Inc.
2019 Equity Incentive Compensation Plan (formerly the Stellar
Biotechnologies, Inc. 2017 Incentive Compensation Plan) (the
“Plan”) was adopted by the Committee pursuant to
Section 9(m) of the Plan. This Appendix shall become effective on
the Effective Date
1.2.
The
provisions of this Appendix apply only to a Participant who is a
Canadian Resident Employee or a Canadian Resident Consultant (any
such Participant, a “Canadian
Participant”).
1.3.
This
Appendix is to be read as a continuation of the Plan and only
applies with respect to Options and other Awards granted under the
Plan to a Canadian Participant. The purpose of this Appendix is to
establish certain rules and limitations applicable to Options and
other Awards that may be granted or issued under the Plan to a
Canadian Participant from time to time, in compliance with
applicable tax, securities and other applicable laws currently in
force.
1.4.
The
Plan and this Appendix are complimentary to each other and shall be
deemed as one. Subject to Section 1.3 of this Appendix, in any case
of contradiction, whether explicit or implied, between any
definitions and/or provisions of this Appendix and the Plan, the
provisions set out in this Appendix shall prevail.
1.5.
Section
references in this Appendix shall refer to Sections of the Plan,
unless expressly indicated otherwise.
Capitalized terms
not otherwise defined herein shall have the meaning assigned to
them in the Plan. The following additional definitions will apply
to grants made pursuant to this Appendix, provided, however, that
to the extent that such definitions are provided for in the Plan
and this Appendix, the definitions in this Appendix shall apply to
Awards granted to the Canadian Participant:
2.1.
“110(1)(d)
Deduction” means the deduction that may be available pursuant
to paragraph 110(1)(d) of the CITA of an amount generally equal to
50% of the employee share option benefit included in the
employee’s income for the year pursuant to Section
7.
2.2.
“Canadian
Resident Employee” means an Employee of the Company or any of
its Subsidiaries who is a resident in Canada for purposes of the
CITA and any applicable income tax treaty or
convention.
2.3.
“Canadian
Resident Consultant” means a Consultant of the Company or any
of its Subsidiaries who is a resident in Canada for purposes of the
CITA and any applicable income tax treaty or
convention.
2.4.
“Continuous
Service” shall have the meaning assigned to it in the Plan.
For clarity, Continuous Service shall not include any period of pay
in lieu of notice for an Employee or Consultant, whether provided
for under contract, the applicable employment standards
legislation, or the common law.
2.5.
“Cause”
shall include the meaning assigned to it in the Plan, and
“cause” as may be defined by applicable law with
respect the termination of the engagement of a Participant by the
Company or a Related Entity as an Employee or a
Consultant.
2.6.
“CITA”
means the Income Tax Act (Canada) as it may be amended from time to
time and all regulations, interpretations and administrative
guidance issued thereunder.
2.7.
“Consultant”
has the meaning assigned to such term in the Plan; provided that
the Consultant (i) provides the services under a written contract
with the Company or any of its Subsidiaries, and (ii) spends or
will spend a significant amount of time and attention on the
affairs and business of the Company or any of its
Subsidiaries.
2.8.
“Consultant
Share Option” means a right of a Canadian Resident Consultant
to purchase Shares under the Plan in accordance with the terms and
conditions set forth in Section 6(b) of the Plan and which is not
intended to comply with Section 7.
2.9.
“Employee
Share Option” means a right of a Canadian Resident Employee
to purchase Shares under the Plan in accordance with the terms and
conditions set forth in Section 6(b) of the Plan and which is
intended to comply with Section 7.
2.10.
“Fair
Market Value” has the meaning assigned to such term in the
Plan; provided that the Committee shall determine Fair Market Value
for purposes of the CITA.
2.11.
“Section
7” means section 7 of the CITA.
2.12.
“SDA
Rules” means the rules in the CITA applicable to a right to
receive a deferred amount under a “salary deferral
arrangement” as defined in the CITA.
2.13.
“Subsidiary”
has the meaning assigned to such term in the Plan; provided that
the Committee shall determine the meaning of Subsidiary for
purposes of applicable Canadian law.
3.
EMPLOYEE
SHARE OPTIONS
3.1.
The
Employee Share Options granted under the Plan are intended to
comply with Section 7.
3.2.
No
Employee Share Option shall be granted to any individual otherwise
eligible to participate in the Plan who is not an Employee of the
Company or a Subsidiary on the date of granting of such Option. Any
Employee Share Option granted under the Plan shall contain such
terms and conditions, consistent with the Plan, as the Committee
may determine to be necessary to comply with Section 7 and will
take into consideration the availability of an 110(1)(d)
Deduction.
3.3.
No
Employee Share Option shall be granted pursuant to this Appendix
unless the Option Price of such Option is not less than the Fair
Market Value of a Share on the date of granting such Employee Share
Option.
3.4.
No
Employee Share Option shall be granted to an individual otherwise
eligible to participate in the Plan unless the individual deals at
arm’s length with the Company and its Subsidiaries for
purposes of the CITA.
3.5.
The
right to make a payment of the Option Price of an Employee Share
Option in the form of already owned Shares, under Section 6(b)(ii)
of the Plan, or pursuant to the withholding of shares, under
Section 6(b)(ii) of the Plan, shall not be available to Canadian
Resident Employees. Any other method approved or accepted by the
Committee pursuant to Section 6(b)(ii) of the Plan shall contain
such terms and conditions, consistent with the Plan, as the
Committee may determine to be necessary to comply with Section 7
and will take into consideration the availability of an 110(1)(d)
Deduction.
3.6.
No
Employee Share Option may be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, other than by will or by
the laws of descent and distribution or in accordance with Section
9(b) of the Plan and subject to Applicable Law, including any
applicable securities laws.
4.
Consultant
share options
4.1.
The
Consultant Share Options granted under the Plan are not intended to
comply with Section 7.
4.2.
No
Consultant Share Option shall be granted to any individual
otherwise eligible to participate in the Plan who is not a
Consultant of the Company or a Subsidiary on the date of granting
of such Option.
5.1.
No
Restricted Shares shall be granted to a Canadian Participant unless
the Canadian Participant is a Canadian Resident Employee or a
Canadian Resident Consultant.
6.
RESTRICTED
SHARE UNITS
6.1.
No
Restricted Share Units (the “RSUs”) shall be granted to
a Canadian Participant unless the Canadian Participant is a
Canadian Resident Employee or a Canadian Resident
Consultant.
6.2.
The
RSUs granted under the Plan to a Canadian Resident Employee are
intended to comply with Section 7 to the extent applicable. An
award of RSUs to a Canadian Resident Employee shall only be settled
by delivery of Shares and shall not be settled, in whole or in
part, by cash payment in lieu of delivering Shares unless the Award
contains such necessary terms and conditions such that the Award is
not a “salary deferral arrangement” as defined in the
CITA.
6.3.
The
RSUs granted under the Plan to a Canadian Resident Consultant are
not intended to comply with Section 7.
7.1.
It
is the intention of the Company that no Award shall be a
“salary deferral arrangement” as defined in the
CITA.
7.2.
Notwithstanding
Section 9(e) of the Plan, the Company and any Related Entity shall
not have the authority to withhold or receive Shares in
satisfaction of a Canadian Participant’s tax
obligations.
7.3.
Notwithstanding
Section 7(c) of the Plan, the Company and any Related Entity shall
not be entitled to make payments upon the exercise of an Option or
other Award or settlement of an Award on a deferred
basis.
7.4.
In
the event that a Participant becomes a Canadian Participant
subsequent to the grant of an Award under the Plan, then, pursuant
to Section 9(m) of the Plan, such Award shall immediately and
automatically be amended in a manner consistent with this Appendix
unless otherwise determined by the Committee.
7.5.
Participation
in the Plan is voluntary and the Committee may require the Canadian
Participant to represent and warrant at the time of issuance or
transfer that his or her participation in the distribution is
voluntary.
The
Committee shall determine any adjustment pursuant to Section 9(c)
of the Plan after taking into account, among other things, to the
extent applicable: (i) the provisions of the CITA applicable to the
Options, and (ii) the SDA Rules.
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