EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is a list of the names, ages as of the Record Date and positions, and a brief account of the business experience of the individuals who serve as our executive officers and directors and the nominees for director.
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Ryan Ashton
|
|
56
|
|
President, Chief Executive Officer and Director
|
Robert Jenison
|
|
50
|
|
Chief Technology Officer and Senior Vice President of Research
|
Jeffrey Rona
|
|
47
|
|
Chief Financial Officer
|
David Spafford
|
|
55
|
|
Director and Executive Chairman
|
Kirk Calhoun
|
|
72
|
|
Director
|
Ronald Labrum
|
|
60
|
|
Director
|
Sam Chawla
|
|
41
|
|
Director
|
Nominees for Election to the Board as Class II Directors
Sam Chawla Director.
Mr. Chawla became a director upon the completion of our initial public offering in 2014. Mr. Chawla is a Portfolio Manager of Perceptive Advisors LLC, an investment fund focused on the healthcare sector. Mr. Chawla leads Perceptives Credit Opportunities Fund. Prior to joining Perceptive Advisors in 2013, Mr. Chawla was a Managing Director at UBS Securities LLC in the Global Healthcare Group, where he led origination and execution of financing and advisory assignments for healthcare companies, with a focus on the diagnostics sector. Mr. Chawlas investment
banking experience centered on strategic advisory, including M&A buy-side and sell-side assignments, and financial advisory, including equity and debt capital raises, for both public and private healthcare companies. Prior to joining UBS in September 2010, Mr. Chawla was a Director (from January 2009 to September 2010) and a Vice President (from July 2007 to January 2009) in the Healthcare Investment Banking Group of Credit Suisse LLC, which he originally joined as an investment banker in 2002. Mr. Chawla also worked at Bloomberg L.P. and Pelican Life Sciences. Mr. Chawla received an M.B.A. from Georgetown University and a B.A. in Economics from Johns Hopkins University. Mr. Chawla is also a director of VBI Vaccines, Inc. (NASDAQ: VBVI).
Mr. Chawla brings to the board of directors significant investment banking, mergers and acquisitions, financing and advisory expertise focusing on the healthcare sector, particularly in the diagnostic laboratory industry. Mr. Chawlas experience and knowledge in these areas are important to the board of directors ability to help guide us in evaluating optimal short and long term strategic plans as well as providing insight and guidance in pursing growth through strategic opportunities.
Ronald Labrum Director.
Mr. Labrum became a Director of the board of directors upon the completion of our initial public offering in 2014. From 2007 until 2012, Mr. Labrum served as the Chief Executive Officer of Fenwal, Inc., a provider of products and technologies that support and improve blood collection, processing and transfusion medicine. From 2004 to 2006, Mr. Labrum served as the Chief Executive Officer of Cardinal Health, Inc.s Healthcare Supply Chain Services, which includes medical products distribution, pharmaceutical distribution, nuclear pharmacy services and the specialty
distribution businesses of Cardinal Health, Inc. During 2004, Mr. Labrum served as Chairman and Chief Executive Officer of Integrated Provider Solutions and Cardinal Health International, both divisions of Cardinal Health, Inc. Prior to 2004, Mr. Labrum served as executive vice president of Cardinal Health, Inc. and Group President of the Medical Products and Services segment. Mr. Labrum joined Cardinal Health in 1999 with the acquisition of Allegiance Healthcare Corporation, originally American Hospital Supply Corp., where he was president of Allegiance Manufacturing and Distribution. Mr. Labrum is also a director of Aptalis Pharma Inc. and Procure Treatment Centers, Inc., which are both privately held companies, and Wright Medical Group, Inc. (NASDAQ: WMGI).
Mr. Labrum possesses attributes that qualify him to serve as a member of our board of directors including his significant management and operating experience within the healthcare sector and specifically within the diagnostic sector.
Continuing Class I Directors
David Spafford Director and Executive Chairman.
Mr. Spafford is a founding investor of Great Basin and has served as Chairman of our board of directors since its inception. Mr. Spafford was a co-founder, director and senior executive officer of Megahertz Corporation. Megahertz Corporation completed an initial public offering in 1993 and was acquired by U.S. Robotics in 1995 in a transaction valued at approximately $450 million. Since 1994 Mr. Spafford has focused on angel investing and philanthropic work.
We believe Mr. Spafford possesses specific attributes that qualify him to serve as a member of our board of directors and as our Executive Chairman, including the depth of his sales and marketing and operating experience and his intimate knowledge of our business as a founder, investor and member of the board of directors since our inception.
Kirk Calhoun Director.
Mr. Calhoun became a director at our last annual meeting of stockholders on May 27, 2015. Mr. Calhoun is a Certified Public Accountant (non-practicing) with a background in auditing and accounting. Mr. Calhoun joined Ernst & Young LLP, a public accounting firm, in 1965 and served as a partner of the firm from 1975 until his retirement in 2002. Mr. Calhoun currently serves on the board and audit committee of Ryerson Holding Corporation (NYSE: RYI) and NantHealth, Inc. (Nasdaq: NH). Mr. Calhoun has served previously on the boards and audit committees of six public
companies in the pharmaceutical industry up until the dates of their respective sales, including Abraxis Bioscience, Inc., Myogen, Inc., Aspreva Pharmaceuticals Company, Replidyne, Inc. and Adams Respiratory Therapeutics, Inc. Mr. Calhoun also currently serves on the boards of three private companies, including NeuroSigma, Inc., a developer of products that treat major neurological and neuropsychiatric disorders such as epilepsy and depression. Mr. Calhoun received a B.S. in Accounting from the University of Southern California.
We believe that Mr. Calhoun brings to the board of directors experience and skills in finance, management and corporate governance, developed over his career in public accounting and through his service as an audit committee financial expert on various public company boards and his service as a director of other life sciences companies. Mr. Calhoun was recommended for the board of directors by members of the board of directors based on these qualifications.
Continuing Class III Director
Ryan Ashton President, Chief Executive Officer and Director.
Mr. Ashton joined us in January 2005 and has served as our President, Chief Executive Officer and a Director since then. Prior to joining us, from 2001 to 2005 he served as the CEO of Printelligent Corporation. From 1999 to 2001 he served as the Vice President of Sales and Marketing at Inari Inc., a venture-funded technology start-up. Prior to that, Mr. Ashton was hired, in 1989, as a marketing manager of Megahertz Corporation, a manufacturer of communications products for mobile computing, by 1991 he was responsible for all sales
and marketing for Megahertz Corporation. By the time his tenure with Megahertz Corporation ended when it was sold to U.S. Robotics in 1995, he was serving as Senior Vice President, Sales and Marketing.
We believe that Mr. Ashton possesses attributes that qualify him to serve as a member of our board of directors, including his depth of operating, strategic, transactional and senior management experience, in addition to his intimate knowledge of our Company, as he has been the CEO since 2005, overseeing the development of the technology and the commercialization of our first product.
Other Executive Officers
Jeffrey A. Rona Chief Financial Officer.
Mr. Rona has served as the Chief Financial Officer since our IPO in 2014. Prior to that he was a financial consultant to Great Basin since 2013 and has served as the Managing Director of Rona Capital, LLC, a life sciences-focused transactional advisory consultancy, since 2011. From 2006 to 2011, Mr. Rona was the Chief Business Officer of GlobeImmune a private life sciences company. Prior to that, from 2003 to 2006, Mr. Rona was the Chief Financial Officer for AlgoRx Pharmaceuticals, a private life sciences company that was merged into a public traded
company, Corgentech Inc. Mr. Rona was in the Investment Banking Department at UBS Warburg, a global securities and investment banking firm, from 2000 to 2002. From 1998 to 2000, Mr. Rona served as the Director of Finance and Corporate Development at Antigenics Inc., a life sciences company that went public in 2000, and Mr. Rona
was responsible for running the IPO process. In 1998, Mr. Rona was employed by Carr & Company, a private equity firm. From 1990 1997, Mr. Rona was with Coopers and Lybrand and its wholly owned subsidiary Coopers & Lybrand Securities, serving in a variety of capacities. Mr. Rona received a B.S. in Accounting from Case Western Reserve University in 1990. Mr. Rona is a trustee of the PKD Foundation (Polysystic Kidney Disease), a not-for-profit foundation.
Robert Jenison Chief Technology Officer and Senior Vice President of Research.
Mr. Jenison has served as Chief Technology Officer since 2006. From 1999 2006, Mr. Jenison was Associate Director, R&D of Thermo BioStar where he was responsible for establishing a molecular diagnostic testing business. From 1992 1999, Mr. Jenison was a Senior Research Associate at Nexstar Pharmaceuticals responsible for aptamer development. From 1990 1992, Mr. Jenison was a Scientist at ISIS Pharmaceuticals. From 1989 1990, Mr. Jenison was a
Research Associate at Research Institute, Scripps Clinic. Mr. Jenison received a B.A.Sc. in Chemistry and Biochemistry from the University of California, San Diego.
Arrangements between Officers and Directors
To our knowledge, there is no arrangement or understanding between any of our officers and any other person, including directors, pursuant to which the officer was selected to serve as an officer.
Family Relationships
There are no family relationships among any of our directors or executive officers
.
Other Directorships
Except as listed below, no directors of the Company are also directors of issuers with a class of securities registered under Section 12 of the United States
Securities Exchange Act of 1934
, as amended (the Exchange Act) (or which otherwise are required to file periodic reports under the Exchange Act).
Ronald Labrum Wright Medical Group, Inc.
Sam Chawla VBI Vaccines, Inc.
Kirk Calhoun Ryerson Holding Corporation; NantHealth, Inc.
Legal Proceedings
No director or officer of the Company is a party adverse to the Company or any of its subsidiaries, or has a material interest adverse to the Company or any of its subsidiaries. During the past ten years, no director or executive officer of the Company has:
|
(a)
|
filed or has had filed against such person, a petition under the U.S. federal bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent or similar officer been appointed by a court for the business or property of such person, or any partnership in which such person was a general partner, at or within two years before the time of filing, or any corporation or business association of which such person was an executive officer, at or within two years before such filings;
|
|
(b)
|
been convicted or pleaded guilty or
nolo contendere
in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offences);
|
|
(c)
|
been the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting such persons activities in any type of business, securities, trading, commodity or banking activities;
|
|
(d)
|
been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any U.S. federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any type of business, securities, trading, commodity or banking activities, or to be associated with persons engaged in any such activity;
|
|
(e)
|
been found by a court of competent jurisdiction in a civil action or by the U.S. Securities and Exchange Commission (the SEC), or by the U.S. Commodity Futures Trading Commission to have violated a U.S. federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
|
(f)
|
been the subject of, or a party to, any U.S. federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any U.S. federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
(g)
|
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C.78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the U.S.
Commodity Exchange Act
(7 U.S.C.1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
BOARD OF DIRECTORS
Board of Directors Composition and Election of Directors
Our Board of Directors consists of five members. In accordance with our Certificate our Board of Directors is divided into three classes.
|
|
Class I, whose term expires at the 2018 Annual Meeting;
|
|
|
Class II, whose term expires at this Annual Meeting; and
|
|
|
Class III, whose term will expire at the annual meeting of stockholders to be held in 2017.
|
All directors hold office until their successors have been elected and qualified or until their earlier death, resignation or removal. At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire will serve from the time of election and qualification until the third annual meeting following election and until their successors are duly elected and qualified. The number of directors to constitute the whole board of directors will consist of not fewer than three and not more than twelve directors, as fixed from time to time by resolution adopted by a majority of
the entire Board of Directors. The section of our Amended and Restated Bylaws (
Bylaws
) relating to the size of our Board of Directors may not be altered, amended or repealed except by the board or by the affirmative vote of holders of at least two-thirds of our outstanding voting stock. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors. This classification of the Board of Directors may have the effect of delaying or preventing changes in control or management.
Director Independence
The Board of Directors has determined each of the following directors and nominees to qualify as an independent director as such term is defined in the NASDAQ Stock Market Listing Standards: Ronald Labrum, Sam Chawla and Kirk Calhoun.
In this Proxy Statement, the three current directors are referred to individually as an Independent Director and collectively as the Independent Directors.
Board Committees
Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee, each of which operates under a written charter that has been approved by our board of directors.
Our board of directors has determined that the members of the audit committee, the compensation committee and the nominating and corporate governance committee are independent directors under The NASDAQ Marketplace Rules, including, in the case of all of the members of our audit committee, the independence requirements contemplated by Rule 10A-3 under the Exchange Act. In making such determination, the board of directors considered the relationships that each director has with our Company and all other facts and circumstances that the board of directors deemed relevant in determining director independence, including the
beneficial ownership of our capital stock by each director.
the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board for independent auditor communications with Audit Committees concerning independence, as may be modified or supplemented, and has discussed with Mantyla McReynolds LLC its independence from us.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in the Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2015. The Committee and the Board have also recommended the selection of BDO USA, LLP as independent auditors for the Company for the fiscal year ending December 31, 2016.
Submitted by:
Ronald Labrum
Sam Chawla
Compensation Committee
Our Compensation Committee is comprised of Mr. Chawla (chair), Mr. Labrum, and Mr. Calhoun. None of the members of our Compensation Committee at any time has been one of our officers or employees. During the fiscal year ended December 31, 2015, the Compensation Committee met 1 time. A copy of the Compensation Committee charter is available on the Companys website at at
www.gbscience.com
.
Our compensation committee is authorized to:
|
|
review and recommend the compensation arrangements for management, including the compensation for our president and chief executive officer;
|
|
|
establish and review general compensation policies with the objective to attract and retain superior talent, to reward individual performance and to achieve our financial goals;
|
|
|
administer our stock incentive plans; and
|
|
|
to review and make recommendations to our board of directors regarding employment agreements and any severance arrangements or plans for our president and chief executive officer and other executive officers.
|
Compensation Committee Interlocks and Insider Participation
There are no Compensation Committee or Board interlocks among the members of the Companys Board
Nominating and Governance Committee
Our Nominating and Governance Committee is comprised of Mr. Labrum (Chair), Mr. Calhoun, and Mr. Chawla. During the fiscal year ended December 31, 2015, Nominating and Governance Committee met 0 times. A copy of the Nominating and Governance Committee charter is available on the Companys website at at
www.gbscience.com
.
Our nominating and governance committee is authorized to:
|
|
determine the qualifications, qualities, skills, and other expertise required to be a director;
|
|
|
develop and recommend to our board of directors for its approval, criteria to be considered in selecting nominees for director;
|
|
|
consider any nominations of director candidates validly made by stockholders; and
|
|
|
identify and nominate members of the board of directors.
|
Recommendations to the Board
The Nominating and Corporate Governance Committee will consider recommendations for director nominees made by stockholders and others. For consideration by the Committee, the nominating stockholder or other person must provide the Corporate Secretary, Jeffrey Rona, at the Companys principal offices with information about the nominee, including the detailed background of the suggested candidate.
No stockholder or stockholders holding 5% or more of the Companys outstanding stock, either individually or in aggregate, has recommended a nominee for election to the Board as of the date of this filing.
Board Diversity
The Company does not have a formal policy regarding diversity in the selection of nominees for directors. The Nominating and Governance Committee does, however, consider diversity as part of its overall selection strategy. In considering diversity of the Board as a criteria for selecting nominees, the Nominating and Governance Committee takes into account various factors and perspectives, including differences of viewpoint, professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin. The Nominating and Governance
Committee seeks persons with leadership experience in a variety of contexts. The Nominating and Governance Committee believes that this conceptualization of diversity is the most effective means to implement Board diversity. The Nominating and Governance Committee will assess the effectiveness of this approach as part of its annual review of its charter.
Insider Participation and Other Relationships
Ryan Ashton, our Chief Executive Officer, is also a member of our board of directors.
Since January 1, 2013, we had certain debt obligations to Mr. Ashton and Mr. Spafford and issued Mr. Ashton and Mr. Spafford certain warrants to purchase shares of common stock in connection with their personal guarantees of our obligations, each as more fully described under Certain Relationships and Related Person Transactions.
Code of Business Conduct and Ethics
Our Board of Directors has adopted a written Code of Business Conduct and Ethics applicable to our employees, officers and directors, including those officers responsible for financial reporting. The Code of Business Conduct and Ethics is available on our website at
www.gbscience.com
. If the Company amends the Code of Business Conduct and Ethics or grants a waiver, including an implicit waiver, from the Code of Business Conduct and Ethics, the Company will disclose the information on its internet website. The waiver information will remain on the website for at least twelve months after the initial disclosure of such
waiver.
Board Meetings
The Board held a total of 7 meetings during 2015. None of our directors attended fewer than 75% of the total number of Board meetings and meetings of the committees on which the member of the Board serves. Board members are not required to attend the Annual Meeting.
Board Role in Risk Oversight
Our Board is responsible for overseeing the Companys management of risk. The Board strives to effectively oversee the Companys enterprise-wide risk management in a way that balances managing risks while enhancing the long-term value of the Company for the benefit of the stockholders. The Board understands that its focus on effective risk oversight is critical to setting the Companys tone and culture towards effective risk management. To administer its oversight function, the Board seeks to understand the Companys risk philosophy by having discussions with management to establish a mutual understanding
of the Companys overall appetite for risk. Our Board maintains an active dialogue with management about existing risk management processes and how management identifies, assesses, and manages the Companys most significant risk exposures. Our Board expects frequent updates from management about the Companys most significant risks so as to enable it to evaluate whether management is responding appropriately.
Our Board relies on each of its committees to help oversee the risk management responsibilities relating to the functions performed by such committees. Our Audit Committee periodically discusses with management the Companys major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Companys risk assessment and risk management policies. Our Compensation Committee helps the Board to identify the Companys exposure to any risks potentially created by our compensation programs and practices. Our Nominating and Corporate Governance Committee oversees risks
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid or accrued during the fiscal years ended December 31, 2014 and December 31, 2015 to our chief executive officer and our other executive officers. We collectively refer to these officers as our named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Base
Salary
($)
|
|
Other Cash
Compensation
($)
|
|
Option
Awards
(10)
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
Ryan Ashton
President, Chief Executive Officer and Director
|
|
|
2015
|
|
|
|
425,000
|
(1)
|
|
|
255,000
|
|
|
|
|
|
|
|
14,654
|
(4)
|
|
|
694,654
|
|
|
|
2014
|
|
|
|
330,792
|
|
|
|
|
|
|
|
105,720
|
|
|
|
17,545
|
(5)
|
|
|
454,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Jenison
Chief Technology Officer
|
|
|
2015
|
|
|
|
250,000
|
(2)
|
|
|
75,000
|
|
|
|
|
|
|
|
21,072
|
(6)
|
|
|
346,072
|
|
|
|
2014
|
|
|
|
230,000
|
|
|
|
|
|
|
|
60,789
|
|
|
|
18,411
|
(7)
|
|
|
309,200
|
|
Jeffrey Rona
Chief Financial Officer
|
|
|
2015
|
|
|
|
325,000
|
(3)
|
|
|
97,500
|
|
|
|
|
|
|
|
21,072
|
(8)
|
|
|
443,572
|
|
|
|
2014
|
|
|
|
67,997
|
|
|
|
|
|
|
|
152,352
|
|
|
|
400,585
|
(9)
|
|
|
620,934
|
|
|
(1)
|
Consists of base salary of $425,000.
|
|
(2)
|
Consists of base salary of $250,000.
|
|
(3)
|
Consists of base salary of $325,000.
|
|
(4)
|
Consists of medical insurance payments of $13,417 and dental insurance payments of $1,237
|
|
(5)
|
Consists of medical insurance payments of $16,359 and dental insurance payments of $1,186.
|
|
(6)
|
Consists of medical insurance payments of $19,835 and dental insurance payments of $1,237.
|
|
(7)
|
Consists of medical insurance payments of $17,235 and dental insurance payments of $1,176.
|
|
(8)
|
Consists of medical insurance payments of $19,835 and dental insurance payments of $1,237.
|
|
(9)
|
Consists of payments of $377,000 to Rona Capital, LLC, payments of $22,000 to Liberty Tree Advisors, LLC, medical insurance payments of $1,486 and dental insurance payment of $99.
|
|
(10)
|
The amounts reported in this column represent the grant date fair value and repricing-date incremental fair value of the stock options granted or repriced in the applicable year, as computed in accordance with ASC 718. The amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic value that may be received for the stock options. During 2014, Mr. Ashton was granted 175,000 stock options exercisable for 84 shares of common stock with a nominal fair value per share, Mr. Jenison was granted 55,000 stock options exercisable for 27 shares of common stock with a nominal fair value per share and Mr. Rona was granted 50,784 stock options exercisable for 25 shares of common stock with a fair value of $4,494.00 per share. During 2014, we also repriced 50,000 options exercisable for 24 shares of common stock held by Mr. Ashton and 28,750 options exercisable for 14 shares of common stock
held by Mr. Jenison. The incremental fair value of the stock options repriced for Mr. Ashton and Mr. Jenison was $4,431.00 per share. For information on the valuation assumptions used in calculating these amounts, see Note 11 to our annual financial statements included in Form 10-K.
|
Narrative to Summary Compensation Table
Our board of directors periodically reviews and, when appropriate, adjusts the compensation of management. Our management is eligible to participate in any other compensation or benefit plans, as approved by the board of directors, made available to our other employees, including without limitation, stock option plans, health insurance plans, and 401(k) plans.
During the fiscal years ended December 31, 2014 and December 31, 2015, equity awards of 570,284 options exercisable for 272 shares of common stock at exercise prices ranging from $4,200.00 to $14,700.00 per share were issued to directors and officers in connection with their compensation. These options have vesting periods ranging from three to four years and all expire 10 years after the date of grant. Additional
18
information about certain warrants issued as consideration for guaranties of our obligations can be found under the section of Item 13 of this Amendment.
Mr. Ronas additional compensation in 2014 was given in exchange for financial consulting services provided to us as an affiliate of Liberty Tree Advisors, LLC, or Liberty Tree, and as a member of Rona Capital, LLC, or Rona Capital, for which Mr. Rona served as Managing Director. These payments include an aggregate of $54,000 paid for consulting services from January 2014 to April 2014, including $22,000 that was paid to Liberty Tree and $32,000 that was paid to Rona Capital. The services provided by Mr. Rona after these initial payments were performed pursuant to two financial advisory agreements dated April 15, 2014,
which we refer to herein as the Rona Agreements. We entered into an initial Financial Advisory Agency Agreement, the First Rona Agreement with Rona Capital wherein Rona Capital provided us with financial advisory services related to our previous financing activities prior to the Offering. Under the First Rona Agreement, we paid Rona Capital a total of $100,000 in fees and bonuses, and issued Rona Capital warrants to purchase 36,000 Series D Units (which are separable into 18 shares of our common stock, 36,000 Class A warrants exercisable for 18 shares of common stock and 36,000 Class B warrants exercisable for 18 shares of common stock). In addition, we reimbursed Rona Capital for reasonable out-of-pocket expenses incurred in connection with our activities under the First Rona Agreement totaling $17,030. We agreed to indemnify Rona Capital for claims arising from the First Rona Agreement, subject to certain exceptions.
We also entered into a second Financial Advisory Agency Agreement, the Second Rona Agreement, with Rona Capital, wherein Rona Capital provided us with financial advisory services related to our previous financing activities. We paid Rona Capital $15,000 per every 30-day period ending September 30, 2014 and additional cash amounts on the achievement of specified milestones, including $50,000 upon the filing of our S-1 with the SEC and $100,000 upon the closing of the IPO. We also issued to Mr. Rona options to purchase shares of our common stock such that together, Rona Capital and Mr. Rona own 1% of our outstanding equity that
vest upon continued service to us as an employee. On October 8, 2014, we issued 50,784 options exercisable for 25 shares of common stock to Mr. Rona to satisfy this obligation. In addition, we reimbursed Rona Capital for reasonable out-of-pocket expenses incurred in connection with our activities under the Second Rona Agreement. We have paid Rona Capital $15,000 per month and $200,000 in bonuses under the Second Rona Agreement for a total of $245,000. We also agreed to indemnify Rona Capital for claims arising from the Second Rona Agreement, subject to certain exceptions.
Employment, Change in Control and Severance Disclosure
We have entered into employment agreements with Ryan Ashton, Jeffrey Rona and Robert Jenison. These employment agreements provide for at-will employment and set forth each officers initial base salary, initial equity grant amount and eligibility for employee benefits. In addition, each of our named executive officers has executed a form of our standard confidential information and invention assignment agreement. The key terms of these employment agreements are described below. Other than the employment agreements described below, we have not entered into any arrangements providing for payments or benefits in connection
with the resignation, severance, retirement or other termination of any of our named executive officers, changes in their compensation or a change in control.
Ryan Ashton
We have entered into an employment agreement with Mr. Ashton to be our Chief Executive Officer and a member of our board of directors. The employment agreement provides for at-will employment and sets forth his initial annual base salary of $425,000 and his eligibility to participate in our employee benefit plans and programs, as in effect from time to time. Mr. Ashton would also be entitled to severance in the event of a termination without cause or a constructive termination within one year of a change of control in an amount equal to two times Mr. Ashtons annual base salary at the time of such termination,
which amount would be paid in a lump sum within 60 days of such termination. In addition, upon such termination we would also pay to Mr. Ashton an amount equal to 100% of his target employee bonus in equal monthly installments over the six-month period following such termination.
Jeffrey Rona
We have entered into an employment agreement with Mr. Rona to be our Chief Financial Officer. The employment agreement provides for at-will employment and sets forth his initial annual base salary of
19
$325,000 and his eligibility to participate in our employee benefit plans and programs, as in effect from time to time. Mr. Rona would also be entitled to severance in the event of a termination without cause or a constructive termination within one year of a change of control in an amount equal to one half of Mr. Ronas annual base salary at the time of such termination if Mr. Rona were terminated prior to completing six months of service to us or a full years base salary if Mr. Rona were terminated after providing at least six months of service to us, which amount would be paid in a lump sum within 60 days of such
termination. In addition, upon such termination we would also pay to Mr. Rona an amount equal to 50% of his target employee bonus in equal monthly installments over the six-month period following such termination.
Robert Jenison
We have entered into an employment agreement Mr. Jenison to be our Chief Technology Officer and Senior Vice President of Research. The employment agreement provides for at-will employment and sets forth his initial annual base salary of $250,000 and his eligibility to participate in our employee benefit plans and programs, as in effect from time to time. Mr. Jenison would also be entitled to severance in the event of a termination without cause or a constructive termination within one year of a change of control in an amount equal to Mr. Jenisons annual base salary at the time of such termination, which
amount would be paid in a lump sum within 60 days of such termination. In addition, upon such termination we would also pay to Mr. Jenison an amount equal to 50% of his target employee bonus in equal monthly installments over the six-month period following such termination.
Outstanding Equity Awards as of December 31, 2015
The following sets forth information concerning the number and value of common stock of unexercised options held by each Named Executive Officer as of December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION AWARDS
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
(1)
|
|
Option
Expiration
Date
|
Ryan Ashton
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
$
|
7,350.00
|
|
|
|
2/14/2020
|
(2)
|
|
|
|
35
|
|
|
|
49
|
|
|
|
|
|
|
$
|
4,200.00
|
|
|
|
4/11/2024
|
(3)
|
Jeffrey Rona
|
|
|
14
|
|
|
|
11
|
|
|
|
|
|
|
$
|
14,700.00
|
|
|
|
10/5/2014
|
(4)
|
Robert Jenison
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
$
|
7,350.00
|
|
|
|
7/22/2017
|
(5)
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
$
|
7,350.00
|
|
|
|
11/7/2017
|
(6)
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
$
|
7,350.00
|
|
|
|
2/14/2020
|
(7)
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
$
|
7,350.00
|
|
|
|
7/26/2016
|
(8)
|
|
|
|
11
|
|
|
|
16
|
|
|
|
|
|
|
$
|
4,200.00
|
|
|
|
4/11/2014
|
(9)
|
|
(1)
|
The option exercise prices in this table reflect the option exercise prices per share as of December 31, 2015.
|
|
(2)
|
This award vested ¼ of the total underlying shares on February 15, 2011 and 1/48 of the total underlying shares at the end of each month for the remaining 36 months commencing with the first month following the first anniversary of the grant date.
|
|
(3)
|
This award vests ¼ of the total underlying shares on April 14, 2015, and 1/48 of the total underlying shares at the end of each month for the remaining 36 months commencing with the first month following the first anniversary of the grant date.
|
|
(4)
|
This award vested ¼ of the total underlying shares on the day it was issued, and 1/48 of the total underlying shares at the end of each month for the remaining 36 months commencing with the first month following the grant date.
|
|
(5)
|
This award vested ¼ of the total underlying shares on each of January 26, 2008, 2009, 2010 and 2011.
|
20
|
(6)
|
This award vested ¼ of the total underlying shares on each of November 7, 2008, 2009, 2010 and 2011.
|
|
(7)
|
This award vested ¼ of the total underlying shares on February 15, 2011 and 1/48 of the total underlying shares at the end of each month for the remaining 36 months commencing with the first month following the first anniversary of the grant date.
|
|
(8)
|
This award vested ¼ of the total underlying shares on each of July 26, 2007, 2008, 2009 and 2010.
|
|
(9)
|
This award vests ¼ of the total underlying shares on April 14, 2015, and 1/48 of the total underlying shares at the end of each month for the remaining 36 months commencing with the first month following the first anniversary of the grant date.
|
EQUITY COMPENSATION PLANS
The following table sets forth information as of December 31, 2015 relating to all of our equity compensation plans:
|
|
|
|
|
|
|
Plan Category
|
|
(a)
Number of Shares
to be Issued upon
Exercise of
Outstanding Options
|
|
(b)
Weighted-average
Exercise Price of
Outstanding Options
|
|
(c)
Number of
Securities Remaining
Available for Future
Issuance under Equity
Compensation Plans
(Excluding Securities
Referenced in
Column (a))
|
Equity compensation plans approved by stockholders
|
|
|
420
|
(1)
|
|
$
|
5,968.23
|
(2)
|
|
|
14,162
|
(3)
|
Equity compensation plans not approved by Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
420
|
(1)
|
|
$
|
5,968.23
|
(2)
|
|
|
14,162
|
(3)
|
|
(1)
|
Includes options outstanding under our 2014 Incentive Plan, 2014 Stock Option Plan and 2006 Stock Option Plan.
|
|
(2)
|
Represents weighted-average exercise price per share of common stock acquirable upon exercise of outstanding stock options.
|
|
(3)
|
Represents shares of common stock available for issuance pursuant to Awards granted under the 2014 Incentive Plan. Stock options may no longer be granted under the 2014 Stock Option Plan or 2006 Stock Option Plan.
|
The Great Basin Scientific, Inc. 2014 Omnibus Incentive Plan
In connection with our IPO, we adopted our Omnibus Plan, which was approved by our board of directors and stockholders. Our stockholders also approved an amendment to our Omnibus Plan on June 2, 2015. The compensation committee of our board of directors (also referred to herein as the committee) has the authority to administer the Omnibus Plan and has full power and authority to determine when and to whom awards will be granted, and the type, amount, form of payment and other terms and conditions of each award, consistent with the provisions of the Omnibus Plan. Subject to the provisions of the Omnibus Plan, the
committee may amend or waive the terms and conditions, or accelerate the exercisability, of an outstanding award. The committee has authority to interpret the Omnibus Plan and establish rules and regulations for the administration of the Omnibus Plan. In addition, the Omnibus Plan provides that our board of directors may generally exercise the powers of the committee at any time. Any employee, officer, non-employee directors, consultant, independent contractor or advisor providing services to us or any of our affiliate or any such person to whom an offer of employment or engagement with us or any of our affiliates is extended, who is selected by the committee, is eligible to receive awards under the Omnibus Plan.
The aggregate number of shares of common stock that may be issued under all stock-based awards made under the Omnibus Plan is 1,400 shares, which adjusts automatically on the first day of each fiscal quarter to an amount equal to the greater of (i) fifteen percent (15%) of the number of shares of common stock outstanding on the last day of the immediately preceding fiscal quarter or (ii) 1,400 shares, provided that this amount cannot exceed 500,000 shares. Any shares of our common stock subject to any award that is terminated or forfeited without delivery of any shares will be available for future awards under the Omnibus
21
Plan. The shares of common stock issuable under the Omnibus Plan may be drawn from shares of authorized but unissued common stock or from shares of common stock that we acquire. No eligible person may be granted any stock options, stock appreciation rights or performance awards denominated in shares of our common stock, for more than 120 shares of our common stock in the aggregate in any calendar year.
If the committee or our board of directors determines that any dividend or other distribution (whether in the form of cash, shares of our common stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares of our common stock or other securities, issuance of warrants or other rights to purchase shares of our common stock or other securities or other event identified by the committee as affecting shares of our common stock such that an adjustment is necessary or appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Omnibus Plan, then the committee or the board of directors shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of shares of common stock (or other securities or other property) that thereafter may be made the subject of awards, (ii) the number and type of shares of common stock (or other securities or other property) subject to outstanding awards, (iii) the purchase price or exercise price with respect to any award and (iv) the share limitations contained in the Omnibus Plan.
Under the Omnibus Plan, the committee is permitted and authorized to make the following grants to all eligible persons:
|
|
Stock Options
. The committee may grant stock options to any person eligible under the Omnibus Plan, including options intended to qualify as incentive stock options, as defined in Section 422 of the Code. The holder of an option will be entitled to purchase a number of shares of our common stock at a specified exercise price during a specified time period, all as determined by the committee. The exercise price of an option may not be less than 100% of the fair market value of our common stock on the date of grant, or in the case of incentive stock options, 110% of the fair market value of our common stock with respect to holders of more than 10% of our common stock. The fair market value of our common stock will be the closing sale price as quoted on The NASDAQ Capital Market on the date of grant. The Omnibus Plan permits payment of the exercise price to be made by cash, shares of our common stock, other securities, other
awards or other property. The shares subject to each option will generally vest in one or more installments over a specified period of service measured from the grant date.
|
|
|
Stock Appreciation Rights
. The holder of a stock appreciation right (a SAR) is entitled to receive the excess of the fair market value (calculated as of the exercise date or, at the committees discretion, as of any time during a specified period before or after the exercise date) of a specified number of shares of our common stock over the grant price of the SAR, as determined by the committee, paid solely in shares of common stock. SARs vest and become exercisable in accordance with a vesting schedule established by the committee.
|
|
|
Restricted Stock and Restricted Stock Units
. The holder of restricted stock will own shares of our common stock subject to restrictions imposed by the committee (including, for example, restrictions on transferability or on the right to vote the restricted shares or to receive any dividends with respect to the shares) for a specified time period determined by the committee. The restrictions, if any, may lapse or be waived separately or collectively, in installments or otherwise, as the committee may determine. The holder of restricted stock units will have the right, subject to any restrictions imposed by the committee, to receive shares of our common stock at some future date determined by the committee.
|
|
|
Performance Awards
. Performance awards give participants the right to receive payments in cash, stock or property based solely upon the achievement of certain performance goals during a specified performance period. Subject to the terms of the Omnibus Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any performance award granted, the amount of any payment or transfer to be made pursuant to any
|
22
|
|
performance award and any other terms and conditions of any performance award is determined by the committee. No eligible person may be granted performance awards in excess of shares of our common stock (subject to adjustment in the event of a stock split or similar event) in the aggregate in any taxable year.
|
|
|
Dividend Equivalents
. The committee may grant dividend equivalents under which the participant is entitled to receive payments (in cash, shares of common stock, other securities, other awards or other property as determined in the discretion of the committee) equivalent to the amount of cash dividends paid by us to holders of shares of common stock with respect to a number of shares of common stock determined by the committee.
|
|
|
Other Stock Awards
. The committee may grant such other awards that are denominated or payable in, valued in whole or in part by reference to, shares of our common stock, subject to terms and conditions determined by the committee and the Omnibus Plan limitations.
|
The term of awards will not be longer than ten years, or in the case of incentive stock options, longer than five years with respect to holders of more than 10% of our common stock. The committee may permit accelerated vesting of an award upon the occurrence of certain events, including a change in control, regardless of whether the award is assumed, substituted or otherwise continued in effect by the successor corporation. The acceleration of vesting in the event of a change in the ownership or control may be seen as an anti-takeover provision and may have the effect of discouraging a merger proposal, a takeover attempt or
other efforts to gain control of us.
Awards under the Omnibus Plan may be subject to performance goals, including revenue, cash flow, gross profit, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, net earnings, earnings per share, margins (including one or more of gross, operating and net income margins), returns (including one or more of return on assets, equity, investment, capital, revenue and total stockholder return), stock price, economic value added, working capital, market share, cost reductions, workforce satisfaction and diversity goals, employee retention, customer satisfaction, completion of key
projects and strategic plan development and implementation. The goals may reflect absolute entity or business unit performance or a relative comparison to the performance of a peer group of entities or other external measure of the selected performance criteria.
Unless earlier discontinued or terminated by the board of directors, the Omnibus Plan will expire on the tenth anniversary of the Omnibus Plans effective date. No awards may be made after that date. However, unless otherwise expressly provided in the Omnibus Plan or an applicable award agreement, any award granted under the Omnibus Plan prior to expiration may extend beyond the end of such period through the awards normal expiration date. Our board of directors may amend, suspend or terminate the Omnibus Plan at any time, provided that our board of directors will get stockholder approval when necessary to not
violate the rules of The NASDAQ Capital Market, to increase the number of shares of common stock authorized under the Omnibus Plan, to reprice options or SARs, to permit the grant of options or SARs with an exercise price less than the fair market value of the common stock, to prevent the grant of options or SARs that would qualify under Section 162(m) of the Code or increase the maximum term permitted for options and SARs as specified in the Omnibus Plan. The committee may not amend an outstanding award in a manner that adversely affects the holder of the award without the holders consent.
The Great Basin Scientific, Inc. 2014 Stock Option Plan
The Great Basin Scientific, Inc. 2014 Stock Option Plan, which we refer to as the 2014 Stock Option Plan, was adopted by our board of directors on April 18, 2014 and approved by our stockholders on April 21, 2014 and became effective on April 18, 2014. The compensation committee of our board of directors has authority to administer the 2014 Stock Option Plan and will have full power and authority to determine when and to whom awards will be granted, and the type, amount, form of payment and other terms and conditions of each award, consistent with the provisions of the 2014 Stock Option Plan. Subject to the provisions of the
2014 Stock Option Plan, the compensation committee may amend or waive the terms and conditions, or accelerate the exercisability, of an outstanding award. The compensation committee has authority to interpret the 2014 Stock Option Plan and establish rules and regulations for the administration of the 2014 Stock Option Plan. In addition, our board of directors may generally exercise the powers of the compensation
23
committee at any time. Any employee, officer, consultant, independent contractor or director providing services to us or any of our affiliates, who is selected by the compensation committee, is eligible to receive awards under the 2014 Stock Option Plan.
The aggregate number of shares of common stock that may be issued under all stock-based awards made under the 2014 Stock Option Plan is 358 shares. Any shares of common stock that are used by a participant as full or partial payment to us of the purchase price relating to an award, or in connection with the satisfaction of tax obligations relating to an award, shall again be available for granting awards (other than incentive stock options) under the 2014 Stock Option Plan. Additionally, shares of our common stock subject to any award that are terminated or forfeited without delivery of any shares will be available for future
awards under the 2014 Stock Option Plan. The shares of common stock issuable under the 2014 Stock Option Plan may be drawn from shares of authorized but unissued common stock or from shares of common stock that we acquire. No eligible person may be granted any award or awards under the 2014 Stock Option Plan, the value of which award or awards is based solely on an increase in the value of shares of common stock after the date of grant of such award or awards, and which is intended to represent qualified performance based compensation with the meaning of Section 162(m) of Code, for more than shares of our common stock (subject to adjustment in the event of a stock split or similar corporate event), in the aggregate in any taxable year.
If the compensation committee determines that any dividend or other distribution (whether in the form of cash, shares of our common stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares of our common stock or other securities, issuance of warrants or other rights to purchase shares of our common stock or other securities or other event identified by the compensation committee as affecting shares of our common stock such that an adjustment is necessary or appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the 2014 Stock Option Plan, then the compensation committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of shares of common stock (or other securities or other property) that thereafter may be made the subject of awards, (ii) the number and type of shares of common stock (or other securities or other property) subject to outstanding awards, (iii) the purchase price or exercise price with respect to any award and (iv) the share limitations contained in the 2014 Stock Option Plan.
Under our 2014 Stock Option Plan, the compensation committee is permitted and authorized to make the following grants to all eligible persons:
|
|
Stock Options
. The compensation committee may grant stock options to officers and other employees intended to qualify as incentive stock options, as defined in Section 422 of the Code, and may also grant options to employees, consultants, independent contractors and directors that do not qualify as incentive stock options. The holder of an option will be entitled to purchase a number of shares of our common stock at a specified exercise price during a specified time period, all as determined by the compensation committee. The exercise price of an option may not be less than 100% of the fair market value of our common stock on the date of grant, or in the case of incentive stock options, 110% of the fair market value of our common stock with respect to holders of more than 10% of our common stock. The fair market value of our common stock will be the closing sale price as quoted on The NASDAQ Capital Market on the date of
grant. The 2014 Stock Option Plan permits payment of the exercise price to be made by cash, shares of our common stock, other securities, other awards or other property. The shares subject to each option will generally vest in one or more installments over a specified period of service measured from the grant date. No employee may be granted stock options to the extent the aggregate fair market value (determined as of the time each option is granted) of the common stock with respect to which any such options are exercisable would exceed $100,000.
|
24
|
|
Stock Appreciation Rights
. The holder of a SAR is entitled to receive the excess of the fair market value (calculated as of the exercise date or, at the compensation committees discretion, as of any time during a specified period before or after the exercise date) of a specified number of shares of our common stock over the grant price of the SAR, as determined by the compensation committee, paid solely in shares of common stock. SARs vest and become exercisable in accordance with a vesting schedule established by the compensation committee.
|
The term of awards will not be longer than ten years, or in the case of incentive stock options, longer than five years with respect to holders of more than 10% of our common stock. The compensation committee may permit accelerated vesting of an award upon the occurrence of certain events, including a change in control, regardless of whether the award is assumed, substituted or otherwise continued in effect by the successor corporation. The acceleration of vesting in the event of a change in the ownership or control may be seen as an anti-takeover provision and may have the effect of discouraging a merger proposal, a takeover
attempt or other efforts to gain control of us.
Awards under the 2014 Stock Option Plan may be subject to performance goals, including revenue, cash flow, gross profit, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, net earnings, earnings per share, margins (including one or more of gross, operating and net income margins), returns (including one or more of return on assets, equity, investment, capital, revenue and total stockholder return), stock price, economic value added, working capital, market share, cost reductions, workforce satisfaction and diversity goals, employee retention, customer satisfaction, completion of
key projects and strategic plan development and implementation. The goals may reflect absolute entity or business unit performance or a relative comparison to the performance of a peer group of entities or other external measure of the selected performance criteria.
Unless earlier discontinued or terminated by the board of directors, the 2014 Stock Option Plan will expire on April 17, 2024. No awards may be made after that date. However, unless otherwise expressly provided in an applicable award agreement, any award granted under the 2014 Stock Option Plan prior to expiration may extend beyond the end of such period through the awards normal expiration date. Our board of directors may amend, suspend or terminate the 2014 Stock Option Plan at any time, provided that our board of directors will get stockholder approval when necessary to not violate the rules of The NASDAQ Capital
Market, to allow the grant of incentive stock options, to increase the number of shares of common stock authorized under the 2014 Stock Option Plan, to grant or reprice options or SARs with an exercise price less than the fair market value of the common stock, or to prevent the grant of options or SARs that would qualify under Section 162(m) of the Code. The compensation committee may not amend an outstanding award in a manner that adversely affects the holder of the award without the holders consent.
We do not intend to make any future stock options grants under the 2014 Stock Option Plan, as all future grants will be made pursuant to the Omnibus Plan.
The Great Basin Inc. 2006 Stock Option Plan and Tender Offer
On August 7, 2014, we launched a tender offer to eligible employees to exchange all of the stock options held by such employees under the Great Basin Scientific, Inc. 2006 Stock Option Plan, or the 2006 Stock Option Plan, for new options under the 2014 Stock Option Plan. Following the expiration of the tender offer on September 5, 2014, we accepted for exchange eligible options to purchase an aggregate of up to 54 shares of our common stock. In accordance with the terms and conditions of the tender offer, on September 9, 2014, we granted new options exercisable into 54 shares of our common stock with an exercise price of
$7,350.00 per share in exchange for the cancellation of such tendered options. After the tender offer, options to purchase up to 9 shares of our common stock remain outstanding under the 2006 Stock Option Plan.
25
All of the named executive officers holding stock options under the 2006 Stock Option Plan participated in the tender offer. The objective of the tender offer was to provide employees who elected to participate with new options, the terms of which preserve the original incentive effect of our equity incentive programs in light of market and industry wide economic conditions, and resolve uncertainty concerning documentation and approval of the options. The terms of the 2006 Stock Option Plan are substantially similar to the 2014 Stock Option Plan.
We do not intend to make any future stock options grants under the 2006 Stock Option Plan, as all future grants will be made pursuant to the Omnibus Plan.
26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of Common Stock that may be acquired by an individual or group within 60 days of July 21, 2016, pursuant to the exercise of options or warrants, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage of ownership is based on 12,426,233 shares of Common Stock outstanding as of July
21, 2016.
Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of Common Stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o Great Basin Scientific, Inc., 2441 South 3850 West, Salt Lake City, UT 84120.
|
|
|
|
|
Name of Beneficial Owner
|
|
Number of Common
Share Equivalents
Beneficially Owned
|
|
Percent
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
Ryan Ashton
(1)
|
|
|
172
|
|
|
|
|
*
|
David Spafford
(2)
|
|
|
58,224
|
|
|
|
|
*
|
Robert Jenison
(3)
|
|
|
31
|
|
|
|
|
*
|
Jeffrey Rona
(4)
|
|
|
70
|
|
|
|
|
*
|
Sam Chawla
(5)
|
|
|
12
|
|
|
|
|
*
|
Ron Labrum
(6)
|
|
|
122
|
|
|
|
|
*
|
Kirk Calhoun
(7)
|
|
|
4
|
|
|
|
|
*
|
All Executive Officers and Directors as a Group
(7 Persons)
|
|
|
58,635
|
|
|
|
|
*
|
Other Five Percent Stockholders:
|
|
|
|
|
|
|
|
|
|
*
|
Represents less than 1% of the outstanding shares of Common Stock
|
|
(1)
|
Represents 22 shares of Common Stock and options and warrants to purchase 150 shares of Common Stock that are currently exercisable or exercisable within 60 days after May 25, 2016.
|
|
(2)
|
Represents (i) 6 shares of Common Stock, warrants to purchase 30 shares of Common Stock, warrants for 6 shares of Common Stock owned by Mr. Spafford and options to purchase 23 shares of common stock that are currently exercisable or exercisable within 60 days after May 25, 2016; (ii) shares owned by Spring Forth Investments LLC, an entity controlled by Mr. Spafford, which owns 54,692 shares of Common Stock, 21,360 shares of Series E Convertible Preferred Stock, convertible into 41 shares of common stock, 86 Class A warrants to purchase 2 shares of Common Stock and 86 Class B warrants to purchase 2 shares of Common Stock and 52,758 Series D warrants convertible into 1,508 shares of common stock; (iii) 1 shares of Common Stock owned by DSM Ventures, an entity controlled by Mr. Spafford; (iv) 12 shares of Common Stock, Class A warrants to purchase 10 shares of Common Stock and Class B warrants to purchase 10 shares of Common Stock and warrants to
purchase 6 shares of Common Stock owned by DRS, LLC, an entity controlled by Mr. Spafford; (v) shares owned by Craig F. McCullough, Trustee, SBS Charitable Remainder Trust U/A/D November 27, 1995, a trust affiliated with Mr. Spafford, which owns 214 shares of Common Stock, warrants to purchase 11 shares of Common Stock; (vi) shares owned by Craig F. McCullough, Trustee, DRS Charitable Remainder Trust U/A/D May 5, 1993, a trust affiliated with Mr. Spafford, which owns 92 shares of Common Stock, warrants to purchase 2 shares of Common Stock; (vii) shares owned by Bourne Spafford Charitable Trust U/A/D May 15, 1995, a trust affiliated with Mr. Spafford, which owns 51 shares of Common Stock and the Utah Autism Foundation a non-for-profit for which Mr. Spafford is a Trustee, owns 52,758 Series D warrants convertible into 1,508 share of Common Stock.
|
|
(3)
|
Represents options to purchase 31 shares of Common Stock that are currently exercisable or exercisable within 60 days after May 25, 2016.
|
27
|
(4)
|
Represents warrants to purchase 18 shares of Common Stock, Class A Warrants to purchase 18 shares of Common Stock, Class B Warrants to purchase 18 shares of Common Stock and options to purchase 16 shares of Common Stock exercisable within 60 days after May 25, 2016.
|
|
(5)
|
Represents options to purchase 6 shares of Common Stock that are currently exercisable or exercisable within 60 days after May 25, 2016, and 2 shares of Common Stock, Class A warrants to purchase 2 shares of Common Stock and Class B warrants to purchase 2 shares of Common Stock held by Mr. Chawlas wife Stephanie Chawla.
|
|
(6)
|
Represents options to purchase 5 shares of Common Stock that are currently exercisable or exercisable within 60 days after May 25, 2016, 39 shares of Common Stock, Class A Warrants to purchase 39 shares of Common Stock and Class B Warrants to purchase 39 shares of Common Stock.
|
|
(7)
|
Represents options to purchase 4 shares of common stock that are exercisable or exercisable within 60 days after May 25, 2016.
|
Change in Control
The Company is not aware of any arrangement that might result in a change in control in the future. The Company has no knowledge of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in the Companys control.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Since January 1, 2013, we were a participant in certain transactions and relationships with related persons as more fully described below.
Convertible Notes and Related Warrants
Since January 1, 2014, we have debt obligations to certain persons in connection with convertible notes with related persons as described below. Each of these notes converts to shares of common stock as set forth below.
In February 2015, we entered into a loan agreement for $250,000 with Spring Forth Investments, LLC, an entity controlled by Mr. Spafford. The loan bears interest at a rate of twelve percent (12%) per year and has a maturity date of the earlier of (i) 90 days from the date of the loan agreement or (ii) five days after the closing of a registered public offering of our securities. We paid off this loan with a portion of the proceeds from our February 2015 follow-on offering.
On July 18, 2014, we issued a convertible promissory note with 20% interest and 20,000 Series D Units to Spring Forth Investments, LLC, an entity controlled by Mr. David Spafford. The consideration paid by Mr. Spafford for the note and Units was $500,000. The maturity date on the note is July 18, 2015, which can be extended to July 18, 2016 at our option if we pay $10,000 to Mr. Spafford as compensation for the extension. On April 18, 2015, we extended the maturity date on the note pursuant to this option. This financing was for general working capital purposes.
On March 10, 2014, we issued a convertible promissory note with an 8% interest rate and warrants to purchase 6 shares of Common Stock to DRS, LLC, an entity controlled by David Spafford, one of our directors. The consideration paid by DRS, LLC for the note and warrants was $100,000. The maturity date for the promissory note was March 10, 2015, or upon a qualified equity financing of at least $5 million. This financing was for general working capital purposes. The principal balance of this note, along with accrued interest of $3,112 converted to 20,622 Series D Units at $5.00 per unit in July 2014.
On February 26, 2014, we issued a convertible promissory note with an 8% interest rate and warrants to purchase 12 shares of Common Stock to Ryan Ashton, our Chief Executive Officer. The consideration paid by Mr. Ashton for the note and warrants was $200,000. The maturity date for the promissory note was February 26, 2015, or upon or a qualified equity financing of at least $5 million. This financing was for general working capital purposes. The principal balance of this note, along with accrued interest of $6,751 converted to 41,350 Series D Units at $5.00 per unit in July 2014.
28
During 2013, we issued promissory notes to SSA Ventures, LLC and SBS Charitable Remainder Trust U/A/D November 27, 1995 (entities controlled by Mr. Aldous) reflecting obligations of $571,000 and $2,000,000 respectively. The principal balance of these notes, along with accrued interest of $21,901 and $67,068 respectively, converted to shares of Series C Preferred Stock at $4.92 per share.
During 2013, we issued a promissory note to Bourne Spafford Charitable Trust U/A/D May 15, 1995 (controlled by Mr. Spafford) reflecting an obligation of $200,000. This note had an 8% interest rate. The principal and $7,540 of accrued interest converted into shares of Series C Preferred Stock at $4.92 per share.
During 2013, we issued a promissory note to Krispen Family Holdings, LC, a greater than 5% stockholder, reflecting an obligation of $571,000. This note had an 8% interest rate. The principal and $24,154 of accrued interest converted into shares of Series C Preferred Stock at $4.92 per share.
During 2012 we issued convertible promissory notes to Spring Forth Investments LLC and the Bourne Spafford Charitable Trust U/A/D May 15, 1995 (entities controlled by Mr. Spafford) in the aggregate amount of $2,880,000. Each of these notes had an 8% interest rate. The principal and $52,655 of accrued interest converted into shares of Series B Preferred Stock at $32.00 per share. In connection with our IPO, these shares of Series B Preferred Stock converted into shares of our common stock.
During 2012 and 2013, we issued convertible notes to Krispen Family Holdings, LC in the aggregate amount of $2,880,000. Each of these notes had an 8% interest rate. The principal and $36,331 of accrued interest converted into shares of Series B Preferred Stock at $32.00 per share.
During 2012 and 2013, we issued convertible notes to SSA Ventures, LLC in the aggregate amount of $2,880,000. Each of these notes had an 8% interest rate. The principal and $39,700 of accrued interest converted into shares of Series B Preferred Stock at $32.00 per share.
Master Lease Agreement with Onset and Related Warrants and Letters of Credit
We entered into a Master Lease Agreement to provide for the sale-leaseback of molecular diagnostic analyzers. We have completed two lease schedules under this lease agreement: Lease Schedule 001 dated October 16, 2013, amended December 10, 2013, for the sale of 125 molecular diagnostic analyzers for a purchase price of $2,500,000, which are being leased back for 36 monthly payments of $74,875 and Lease Schedule 002 dated March 14, 2014, amended March 18, 2014, for the sale of 75 molecular diagnostic analyzers for a purchase price of $1,500,000, which are being leased back for 24 monthly payments of $64,665. At the end of the
lease term of Schedule 001, the lease will automatically renew for twelve additional months at the current monthly rate unless we give written notice 150 days prior to the end of the lease. If timely notice is given we have the opportunity to: 1) repurchase the analyzers for a purchase price determined by lessor not to exceed forty percent of the original costs; or 2) terminate the lease, return the property and enter into a new lease with new property that replaces the property of the old lease. Both we and the lessor will have the right to reject any terms of option 1 or 2 and if rejected, the 12 month extension will apply. Schedule 002 includes similar end of term options as found in Schedule 001, except that if we give timely notice, we have the option to purchase the analyzers at a price to be determined by lessor and us. Schedule 002 also includes a provision that during the first 14 months of the base period of the Schedule, provided there is no event of default and if we
complete a successful capital raise, then lessor will use commercially acceptable best efforts to rewrite this Schedule 002 at more favorable terms. We are accounting for these transactions as a capital lease sale-leaseback in accordance with ASC 840 Leases.
Our obligations pursuant to the sale-leaseback agreement are secured by letters of credit obtained by Spring Forth Investments, LLC, an entity controlled by David Spafford, and Utah Autism Foundation, an entity for which Mr. Spafford serves on the Board of Trustees and as a Founder Trustee, in an aggregate amount of $3,000,000. These letters of credit were issued by a bank for the benefit of the lessor. Pursuant to three reimbursement agreements we entered into with those entities in connection with the letters of credit, we have agreed to pay each of them 10% interest per annum on the total amount of the letter of credit.
Under the reimbursement agreements, we are also obligated to reimburse those third parties for any draws made under the letters of credit. As of December 31, 2014, no draws on either letter of credit had taken place. Our obligations under the reimbursement agreements are secured by a security interest in all of our assets pursuant to security agreements effective the dates of the respective lease schedule.
29
Ryan Ashton, our chief executive officer, and David Spafford, one of our directors, each personally guaranteed our obligations under the sale-lease agreement. These guarantees cover the full amount of liability for any amounts due from us to Onset under the lease agreement. On November 25, 2013, we issued Mr. Ashton warrants to purchase 24 shares of common stock and Mr. Spafford warrants to purchase 24 shares of common stock, each in compensation for their personal guarantees of our obligations under the lease agreement, with an exercise price of $4,200.00 per share.
Additionally, on December 30, 2015, in relation to the agreement of Spring Forth Investments, LLC and Utah Autism Foundation agreeing to enter into subordination agreements in relation to our financing of convertible notes and related Series D warrants, we issued Spring Forth Investments, LLC and Utah Autism Foundation warrants to purchase 3,015 shares of common stock on the same general terms and conditions of the Series D warrants.
Voting Agreement
On February 16, 2010 we entered into a voting agreement under which certain holders of our preferred stock, including entities affiliated with certain of our directors, have agreed to vote in a certain way on certain matters, including with respect to the election of directors. In connection with the issuance of Series D Preferred Stock, the Voting Agreement was amended and restated on April 21, 2014 and July 30, 2014. Pursuant to the July 2014 amendment and restatement, (i) the parties agreed to vote their shares to set the size of the board of directors at five directors, (ii) the holders of common stock, voting as a
separate class, elect one director to our board of directors (initially Ryan Ashton), and (iii) for long as Hitachi owns 5% of the issued and outstanding shares of our capital stock, Hitachi will be entitled to elect one director. Upon the closing of our IPO, the board of directors election voting provisions contained in the voting agreement terminated; however, pursuant to the terms of the Series D Stock Purchase Agreement and our Certificate, Hitachi will continue to be entitled to elect one director.
Investor Rights Agreement
On February 16, 2010, we entered into an investor rights agreement with the holders of our outstanding Series A Preferred Stock, including entities affiliated with certain of our directors. On November 26, 2013, the investor rights agreement was amended in connection with the issuance of Series C Preferred Stock and Series C-1 Preferred Stock. On April 21, 2014, the investor rights agreement was amended in connection with the issuance of Series D Preferred Stock and on July 30, 2014 the investor rights agreement and was further amended in connection with the issuance of additional shares of Series D Preferred Stock. In
connection with our IPO, each share of Series A, Series C, Series C-1 and Series D Preferred Stock was converted into one share of our common stock.
Other Relationships
Sandra Nielsen, who became the domestic partner of Ryan Ashton in 2012, is employed by us as our Vice President of Marketing and Customer Support. In 2015, Ms. Nielsen received a salary of $205,000, commissions of $201,576 and a bonus of $61,500. Ms. Nielsen also received a stock option grant in 2014 for 10 shares of stock.
Indemnification Provisions
We intend to enter into indemnification agreements with each of our directors and officers. These indemnification agreements, and our Certificate and Bylaws, require us to indemnify our directors and officers to the fullest extent permitted by Delaware law.
Policies and Procedures for Transactions with Related Persons
Our Audit Committee is responsible for reviewing any potential conflict of interest situations, on an ongoing basis, any future proposed transaction, or series of transactions, with related persons, and either approve or disapprove each reviewed transaction or series of related transactions with related persons.
We have adopted a written policy and procedures with respect to related person transactions, which includes specific provisions for the approval of related person transactions. Pursuant to this policy, related person transactions include a transaction, arrangement or relationship or series of similar transactions,
30
arrangements or relationships, in which we and certain enumerated related persons participate, the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and the related person has a direct or indirect material interest.
If a related person transaction is identified, such transaction must be reviewed and approved or ratified by our Audit Committee. If it is impracticable for our Audit Committee to review such transaction, the transaction will be reviewed by the chair of our Audit Committee, whereupon the chair of our Audit Committee will report to the Audit Committee the approval or disapproval of such transaction.
In reviewing and approving related person transactions, the Audit Committee, or its chair, considers all information that the Audit Committee, or its chair, believes to be relevant and important to a review of the transaction. The Audit Committee or its chair, as the case may be, approves only those related person transactions that are determined to be in, or not inconsistent with, our best interests and that of our stockholders, taking into account all available relevant facts and circumstances available to the Audit Committee or the chair. These facts and circumstances will typically include, but not be limited to, the
benefits of the transaction to us; the impact on a directors independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, stockholder or executive officer; the availability of other sources for comparable products or services; the terms of the transaction; and the terms of comparable transactions that would be available to unrelated third parties or to employees generally. No member of the Audit Committee will participate in any review, consideration or approval of any related person transaction with respect to which the member or any of his or her immediate family members is the related person.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires our directors, officers, and persons that own more than 10 percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10 percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon our review of the copies of such forms received by us during the year ended December 31, 2014, we believe that each person who, at any time during such year, was a director, officer, or beneficial owner of more than 10% of our common stock met the filing requirements during such year, except for a late Form 3 filing by Hitachi.
31
PROPOSAL II SERIES E WARRANT EXCHANGE PROPOSAL
General
Effective April 4, 2016, we entered into Exchange Agreements each by and between the Company and a holder of the Companys outstanding Series E Warrants, pursuant to which the Company and each such holder agreed to exchange outstanding Series E Warrants for shares of common stock of the Company. The Series E Warrants were previously issued by the Company to such holders on February 24, 2016 as part of the Companys previously announced public offering of 39.2 million units, each unit consisting of one share of common stock and 1.5 Series E Warrants.
Pursuant to the Exchange Agreements, the Company issued 650,160 shares of common stock of the Company in exchange for the surrender by the holders to the Company of Series E Warrants exercisable to acquire approximately 1,680,000 shares of common stock of the Company (representing an exchange ratio of one share of common stock for each 2.584 shares of common stock underlying the surrendered Series E Warrants). At such closing, the surrendered Series E Warrants were immediately cancelled by the Company and are no longer outstanding.
The exchange of the Series E Warrants for 650,160 shares of common stock of the Company was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the
Securities Act
), pursuant to Section 3(a)(9) thereof based on the representations of the holders. No commission or other remuneration was or will be paid or given directly or indirectly for soliciting the exchange. Other than the surrendered Series E Warrants, the Company will not receive any compensation for the issuance of the shares of common stock.
Why does the Company Need Stockholder Approval?
Our Common Stock is listed on The NASDAQ Capital Market and, as such, we are subject to the NASDAQ Stock Market Rules. NASDAQ Stock Market Rule 5635(d) is referred to as the NASDAQ 20% Rule. The NASDAQ 20% Rule requires shareholder approval of a transaction other than a public offering involving the sale, issuance, or potential issuance by a company of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock, or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.
Although the Series E Warrant exchange did not require shareholder approval at the time we effected the exchange, NASDAQ is permitted to aggregate securities issued in multiple transactions and treat them as a single issuance for purposes of the NASDAQ 20% Rule. In the event we decide to conduct future issuances of our shares of common stock on a private placement basis or exchanges of our outstanding securities for shares of common stock, NASDAQ may aggregate the number of shares of common stock issuable in such future financings or exchanges with the number of shares of common stock issued in the Series E Warrant Exchange
which may limit our flexibility with respect to the timing of such financings and exchanges and the number of shares of common stock we may issue without shareholder approval.
If the shareholders approve the Series E Warrant Exchange at this time, the 650,160 shares of common stock issued in the Series E Warrant Exchange will no longer be intergrated with future financings or exchanges for purposes of the NASDAQ 20% Rule.
What is the Effect on Current Stockholders if the Warrant Exchange Proposal is Approved?
If our stockholders approve this proposal, we will be able to conduct future financings and exchanges of our shares of common stock without NASDAQ aggregating the shares of common stock issuable in relation to such financings or exchanges with the 650,160 shares of our common stock issued in our Series E Warrant Exchange, which will mean that we will be able to issue 650,160 more shares of common stock without seeking further shareholder approval. If we issue such shares of common stock in future financings or exchanges our current shareholders will be diluted.
Why was Stockholder Approval Not Required for the Series E Warrant Exchange?
At the time we effected the Series E Warrant Exchange, the number of shares of common stock we issued in exchange for the Series E Warrants was below 20% of our issued and outstanding shares of common stock as determined under the NASDAQ 20% Rule. As result, no stockholder approval was required.
32
Who received the shares of common stock issued under the Series E Warrant Exchange?
The holders of our outstanding Series E Warrants received shares of our common stock under the Series E Warrant Exchange. The following were the principal holders of our Series E Warrants at the time of the Series E Warrant Exchange and the number of shares of common stock received for which we are seeking approval:
|
|
|
Name
|
|
Shares of
Common Stock
Received
|
Hudson Bay Master Fund Ltd.
|
|
|
103,660
|
|
CVI Investments, Inc
|
|
|
91,221
|
|
Sabby Healthcare Master Fund Ltd.
|
|
|
107,807
|
|
Sabby Volatility Warrant Master Fund Ltd.
|
|
|
58,050
|
|
Empery Asset Master Ltd.
|
|
|
49,834
|
|
Empery Tax Efficient LP
|
|
|
43,830
|
|
Empery Tax Efficient II LP
|
|
|
61,828
|
|
Alpha Capital Anstalt
|
|
|
34,830
|
|
Kingsbrook Opportunities Master Fund LP
|
|
|
20,732
|
|
Brio Capital Master Fund Ltd.
|
|
|
18,245
|
|
Iroquois Capital Investment Group
|
|
|
5,183
|
|
Iroquois Master Fund Ltd.
|
|
|
38,281
|
|
Alto Opportunity Master
|
|
|
10,366
|
|
Mark Mays
|
|
|
8,293
|
|
Where can I find more information regarding the Series E Warrant exchange?
The above descriptions set forth the material terms of the Series E Warrant warrant exchange. A more detailed description of the Series E Warrant exchange and the related transaction documents can be read in the Companys Current Report on Form 8-K as filed with the SEC on April 4, 2016.
33
PROPOSAL III NASDAQ 20% ISSUANCE PROPOSAL
General
On June 29, 2016, we entered into the Securities Purchase Agreement with the investors listed therein (the
Buyers
) pursuant to which we agreed to issue $75 million senior secured convertible notes (
Notes
) that are convertible into shares of our Common Stock at an initial conversion price equal to $2.00 per share. Each Note was sold with a related number of Series H warrants to purchase Common Stock (the
Series H Warrants
) (the
Note Financing
).
In relation to the Note Financing, certain warrants were issued to our
prior debt holders as consideration for their agreement to subordinate the debt owed them by the Company to the Notes (the
Subordination Warrants
). The Notes do not bear any ordinary interest. The Company will receive total gross proceeds of $68 million, assuming all conditions for subsequent release of funds from restrictied accounts are met and no events of default occur, each as described below. Under the terms of the Notes, at closing we received an initial tranche of $6 million at the close of the Note Financing. Pursuant to the Notes, prior to receiving access to the remaining cash purchase price from our restricted accounts of approximately $62 million in subsequent tranches, we must meet certain equity conditions as described therein.
Description of the Notes
Maturity Date
The Notes are senior secured obligations of the Company. Unless earlier converted or redeemed, each Note will mature on the sixteenth month anniversary from the date of issuance.
Interest
The Notes do not bear any ordinary interest. However, interest on the Notes shall commence accruing immediately upon the occurrence of, and shall continue accruing during the continuance of, an event of default (as described below), at 10% per annum and shall be computed on the basis of a 360-day year of twelve 30-day months and shall be payable, if applicable, in arrears for each calendar month on the first (1
st
) business day of each calendar month after any such interest accrues after an event of default (each, an
Interest Date
). Interest, if any, shall be payable on each Interest Date to
the record holder of the Note on the applicable Interest Date in cash by wire transfer of immediately available funds pursuant to wire instruction provided by the Holder in writing to the Company.
Amortization Payments
We have agreed to make amortization payments with respect to the Notes in fifteen (15) equal installments beginning on January 30, 2017 (each, an
Installment Date
). On each installment date, assuming the equity conditions set forth in the Notes are met, the installment payment shall automatically be converted into shares of Common Stock pursuant to the conversion feature described below, provided however that the Company may elect prior to any Installment Date to redeem all or a portion of the installment amount in cash.
Conversion Features of the Notes
Conversion of Installment Payments
The price at which we will convert the installment amounts is equal to the lowest of:
|
(i)
|
the then prevailing conversion price, and
|
|
(ii)
|
initially, 80% of the arithmetic average of the lower of (A) the three lowest daily weighted average prices of the common stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the Installment Date and (B) the weighted average price of the common stock on the trading day immediately preceding the Installment Date, subject in all cases to a floor price of $1.00.
|
Any holder of a Note may by notice to us accelerate up to four future installment payments to any applicable Installment Date, in which case we will deliver shares of Common Stock for the conversion of such accelerated payments. The holder of a Note may also by notice to us defer any installment payment to a later Installment Date.
34
Conversion at Election of Holder
At any time after issuance, the Notes will be convertible at the election of the holder into shares of our Common Stock at a conversion price of $2.00, subject to adjustment. Conversion of the note is subject to a blocker provision which prevents any holder from converting into shares of Common Stock if their beneficial ownership of the Common Stock would exceed either 4.99% or 9.99% of our issued and outstanding Common Stock, as elected by such holder at Closing.
Further, prior to us receiving the necessary stockholder approval contemplated in this proxy statement, conversion of all Notes is limited to 19.99% of the Companys issued and outstanding Common Stock on the date of closing (the
Exchange Cap
).
The conversion price is subject to certain adjustments upon the occurrence of certain dilutive events, including the issuance of certain options or convertible securities, upon the occurrence of certain corporate events, including stock splits and dividends, upon the occurrence of an Event of Default and as deemed appropriate by the Companys Board of Directors with the prior written consent of certain required holders of Notes.
Equity Conditions
Subject to obtaining the approval of stokholders under this proposal and certain other equity conditions as described below, the Restricted Cash will become unrestricted and released for use by the Company as follows: (i) $6 million on the fifth trading day after January 30, 2017 (such date, the First Amortization Date)), (ii) $8 million after the fifth trading day after the last business day of the calendar month following the First Amortization Date and (iii) $3,692,308 on the 75
th
trading day after the initial date the shares of common stock underlying the Notes are eligible to be resold pursuant to
Rule 144 of the Securities Act of 1933, as amended (the 144 Date) and each 30
th
calendar day thereafter until all Restricted Cash has become unrestricted and released.
Release of the remaining cash purchase price will be subject to certain equity conditions including, but not limited to:
|
(i)
|
all shares of common stock issuable pursuant to the terms of the Notes, including the shares of common stock issuable upon the conversion requiring the satisfaction of the equity conditions (in each case, without regard to any restriction or limitation on conversions), shall be eligible for sale pursuant to Rule 144 without any volume limitation by the holder and no failure to have current public information under Rule 144 exists, and without the need for registration under any applicable federal or state securities laws;
|
|
(ii)
|
on each day during the required measuring period, the common stock is designated for quotation on an acceptable exchange or market and shall not have been suspended from trading on such exchange or market (other than suspensions of not more than five (5) days and occurring prior to the applicable date of determination due to business announcements by the Company);
|
|
(iii)
|
during the measuring period, the Company shall have delivered all shares of common stock pursuant to the terms of the Notes and upon exercise of the Warrants to the holders on a timely basis;
|
|
(iv)
|
the shares of common stock issuable upon conversion may be issued in full without violating beneficial owner limitations and Nasdaq regulations as set forth in the Notes;
|
|
(v)
|
during the measuring period, the Company shall not have failed to timely make any payments within five (5) Business Days of when such payment is due;
|
|
(vi)
|
during the measuring period, there shall not have occurred either (A) the public announcement of a pending, proposed or intended fundamental transaction which has not been abandoned, terminated or consummated, (B) an Event of Default (as described below) or (C) an event that with the passage of time or giving of notice would constitute an Event of Default;
|
35
|
(vii)
|
the Company shall have no knowledge of any fact that would cause all shares of common stock issuable pursuant to the terms of the Notes, not to be eligible for sale pursuant to Rule 144 without any volume limitation by the Holder (including, without limitation, by virtue of an existing or expected public information failure under Rule 144) and any applicable state securities laws;
|
|
(viii)
|
during the measuring period, the Company otherwise shall have been in compliance with and shall not have breached any provision, covenant, representation or warranty of any documents related to the Note transaction;
|
|
(ix)
|
the holder shall not be in possession of any material, nonpublic information received from the Company;
|
|
(x)
|
the shares of common stock issuable upon conversion are duly authorized and listed and eligible for trading without restriction on an eligible market;
|
|
(xi)
|
the daily dollar trading volume of the common stock as reported by Bloomberg for each trading day during the measuring period shall be at least $800,000;
|
|
(xii)
|
on each trading day during the measuring period, the weighted average price of the common stock equals or exceeds $1.30 (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction); and
|
|
(xiii)
|
the Company shall have a number of shares of common stock duly authorized and reserved for the issuance pursuant to the terms of this Note that is equal to, or greater than, the quotient obtained by dividing (A) 165.5% of the applicable release amount, by (B) the conversion floor price (as set forth in the Note).
|
Events of Default
Under the Notes, the holders will have certain rights upon an Event of Default (as defined in the Notes). Such rights include (i) the remaining principal amount of the Notes bearing interest at a rate of 10% per annum, (ii) during the Event of Default the conversion price being adjusted to the lowest of (a) the conversion price then in effect, (b) 75% of the lowest weighted average price of the Common Stock during the 30 consecutive trading day period ending on the trading day immediately preceding the date of the event of default conversion and (c) 75% of the weighted average price of the Common Stock on the date
of the applicable event of default conversion, and (iii) the holder having the right to demand redemption of all or a portion of the Notes.
At any time after the earlier of the holders receipt of a notice of an Event of Default and the holder becoming aware of an Event of Default and ending on the 15
th
trading day after the later of (x) the date such Event of Default is cured and (y) the holders receipt of an Event of Default notice, the holder may require the Company to redeem all or any portion of the Note by delivering written notice to the Company. Each portion of this Note subject to redemption shall be redeemed by the Company in cash by wire transfer of immediately available funds at a price equal to the greater of (x) 125% of the
conversion amount being redeemed and (y) the product of (A) the conversion amount being redeemed and (B) the quotient determined by dividing (I) the greatest closing price of the shares of Common Stock during the period beginning on the date immediately preceding such Event of Default and ending on the date the holder delivers the redemption notice, by (II) the lowest conversion price in effect during such period.
Event of Default includes, but is not limited to (and subject to the ability to cure in certain instances):
|
(i)
|
(A) the suspension from trading for more than an aggregate of ten (10) trading days in any 365-day period or (B) or failure of the common stock to be listed on an eligible market;
|
|
(ii)
|
failure to cure conversion failures of the Notes or exercise failures of the Warrants;
|
|
(iii)
|
certain failures to have enough authorized and unreserved shares of common stock to satisfy conversions of the Notes or exercises of the Warrants;
|
36
|
(iv)
|
the Companys failure to pay to the holder any amounts when and as due under the Notes or any other transaction document;
|
|
(v)
|
any default under, redemption of or acceleration prior to maturity of more than $100,000, individually or in the aggregate, of indebtedness of the Company;
|
|
(vi)
|
voluntary bankruptcy of the Company;
|
|
(vii)
|
involuntary bankruptcy, receivership or other similar proceedings before a court;
|
|
(viii)
|
subject to certain limitations, a final judgment or judgments for the payment of money aggregating in excess of $250,000, individually or in the aggregate, not covered by insurance;
|
|
(ix)
|
breaches of the representations, warranties and covenants in the transaction documents only if such breach continues for a period of at least an aggregate of five (5) Trading Days;
|
|
(x)
|
any breach or failure in any respect to comply with either Sections 8, 17 or 18 of the Note;
|
|
(xi)
|
the Company fails to perform or comply with any covenant or agreement contained in the Security Agreement;
|
|
(xii)
|
the Company shall fail to perform or comply with any covenant or agreement contained in any Master Control Account Agreement;
|
|
(xiii)
|
any material provision of any security document or Master Control Account Agreement (as determined by the applicable holder) shall at any time for any reason cease to be valid and binding on or enforceable against the Company;
|
|
(xiv)
|
any Security Document, Master Control Account Agreement or any other security document, after delivery thereof pursuant hereto, shall for any reason fail or cease to create a valid and perfected;
|
|
(xv)
|
any bank at which any deposit account, blocked account, lockbox account or other account of the Company is maintained shall fail to comply with any material term of any deposit account, blocked account, lockbox account or other similar agreement to which such bank is a party;
|
|
(xvi)
|
any material damage to, or loss, theft or destruction of, any collateral or a material amount of property of the Company, if any such event or circumstance could reasonably be expected to have a material adverse effect;
|
|
(xvii)
|
a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the equity conditions are satisfied or that there has been no equity conditions failure or as to whether any Event of Default has occurred;
|
|
(xviii)
|
the Companys failure for any reason after the date that is six (6) months immediately following the date of issuance to satisfy the current public information requirement under Rule 144(c) of the Securities Act;
|
|
(xix)
|
if as of the applicable date of determination (A) the holder of this Note is not an affiliate of the Company and (B) the shares of Common Stock issuable pursuant to the terms of the Notes and/or exercise of the Warrants are eligible to be resold by the holder either pursuant to an effective registration statement in favor of the holder or Rule 144 of the Securities Act, the failure of such shares of Common Stock issuable pursuant to the terms of the Notes and/or such Warrant, as applicable, to be issued and delivered to the holder without any restrictive legends; or
|
|
(xx)
|
any Event of Default occurs with respect to any other Notes.
|
Description of the Warrants
Series H Warrants
In connection with the issuance of the Notes under the Securities Purchase Agreement, the Company issued Series H Warrants (the
Series H Warrants
), exercisable to acquire 150% of the sum of the number of shares of Common Stock acquirable upon conversion of the Notes in full at the conversion price on the closing date (without regard to any limitations on conversions set forth therein).
37
Adjustment for dilutive events will occur if and whenever on or after June 29, 2016, the Company issues or sells, or in accordance with the terms of the Warrants is deemed to have issued or sold, or the Company publicly announces the issuance or sale of, any shares of Common Stock (except for certain excluded securities) and, for a consideration per share less (
New Issuance Price
) than a price equal to the exercise price in effect immediately prior to such issue or sale or deemed issuance or sale then immediately after such event the exercise price will be adjusted to equal the New Issuance Price.
Similar adjustments are made for the issuance of options, convertible securities, and adjustments in exercise prices and conversion prices of such securities.
Each Series H Warrant is exercisable by the holder beginning six months July 1, 2016 and continuing for a period five years thereafter. Each Series H Warrant will be exercisable initially $2.08, subject to adjustments for certain dilutive events and subject to an exercise price floor equal to $1.70 (the
Exercise Floor Price
).
Unless and until such time as the Company obtains the necessary stockholder approval as contemplated in this proxy statement, no adjustment to the exercise price shall cause the exercise price to be less than the Exercise Price Floor, as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction. Upon the receipt of such stockholder approval, however, any adjustment to the exercise price that would have been made pursuant to the terms of the Series H Warrants but for the Exercise Floor Price shall be made on the date of such receipt.
The exercise price of the warrants will also be adjusted upon the occurrence of certain corporate events, including stock splits and dividends and as deemed appropriate by the Companys Board of Directors with the prior written consent of certain required holders of Series H Warrants.
The Series H Warrants are exercisable on a cashless basis in the event that there is no effective registration statement under the Securities Act covering the resale of the shares of Common Stock issuable upon exercise of the Series H Warrants. Pursuant to the registration rights agreement between the investors under the Securities Purchase Agreement and the Company, the Company is required to file a registration statement for these shares of Common Stock and the Company intends to file the registration statement in the near future.
Subordination Warrants
The Subordination Warrants were issued to Spring Forth Investments LLC and Utah Autism Foundation in relation to their agreement to enter into subordination agreements with the collateral agent in the Note Financing whereby each agreed to subordinate their debt to the Notes issued in the Note Financing. The Subordination Warrants have the same general material terms and conditions of the Series H Warrants.
The Subordination Warrants are exercisable for 1,687,500 shares of common stock. Each Subordination Warrant is exercisable by the holder beginning six months after July 1, 2016 and continuing for a period five years thereafter. Each Subordination Warrant will be exercisable initially at a price of $2.08, subject to adjustments for certain dilutive events (same as the Series H Warrants) and subject to an exercise price floor equal to the Exercise Floor Price ($1.70).
Why does the Company Need Stockholder Approval?
Our Common Stock is listed on The NASDAQ Capital Market and, as such, we are subject to the NASDAQ Stock Market Rules. NASDAQ Stock Market Rule 5635(d) is referred to as the NASDAQ 20% Rule. In order to comply with the NASDAQ 20% Rule and to satisfy conditions under the Securities Purchase Agreement, we are seeking stockholder approval for:
|
|
elimination of the Exchange Cap to permit the potential issuance of more than 20% of our outstanding Common Stock upon conversion of the Notes; and
|
|
|
elimination of the Exercise Floor Price for the potential issuance of Common Stock upon exercise of the Series H Warrants and Subordination Warrants at an exercise price below the Exercise Floor Price ($1.70) if the Company issues equity securities that trigger an adjustment pursuant to the terms of the Series H Warrants and Subordination Warrants, in which case the exercise price would be set at the per share price or deemed per share price of securities issued in the dilutive transaction.
|
38
Elimination of the Exchange Cap
The NASDAQ 20% Rule requires that an issuer obtain stockholder approval prior to certain issuances of Common Stock or securities convertible into or exchangeable for Common Stock at a price less than the greater of market price or book value of such securities (on an as exercised basis) if such issuance equals 20% or more of the Common Stock or voting power of the issuer outstanding before the transaction.
Without the Exchange Cap, the aggregate number of shares of Common Stock issuable upon the conversion of the Notes could exceed 20% of our outstanding Common Stock on the date we closed the Note Financing and could potentially be issued at a price less than the greater of the book value or market of the shares on the applicable date. Therefore, the Exchange Cap was added to the provisions of the Notes which restrict the Notes from being convertible into shares of Common Stock in excess of 19.9% of our outstanding Common Stock on the date we closed the Note Financing.
To meet the requirements of the NASDAQ 20% Rule, we need stockholder approval under the listing rules of NASDAQ to remove the Exchange Cap provisions under the Notes to permit the potential issuance of more than 20% of our outstanding Common Stock upon conversion of the Notes.
Elimination of Series H Warrant and Subordination Warrant Exercise Floor Price
In relation to the shares of Common Stock issuable upon exercise of the Series H Warrants and Subordination Warrants, typically such shares would be included in the calculation for determining if the Note Financing exceeded 20% of the outstanding shares of Common Stock in relation to the NASDAQ 20% Rule. The Exercise Floor Price was added to the Series H Warrants and Subordination Warrants and the initial exercisability date of the Series H Warrants and Subordination Warrants was pushed out for six months because NASDAQ will not count in such 20% calculation shares of Common Stock issuable upon exercise of warrants if such
warrants are not exercisable for at least six months following their date of issuance and are exercisable at or above the market price of the common stock on the date of issuance.
To meet the requirements of the NASDAQ 20% Rule, we need stockholder approval under the listing rules of NASDAQ to remove the Exercise Floor Price for the potential issuance of Common Stock upon exercise of the Series H Warrants and Subordination Warrants at an exercise price below the Exercise Floor Price ($1.70).
What is the Effect on Current Stockholders if the NASDAQ 20% Issuance Proposal is Approved?
If our stockholders approve this proposal, we will be able to:
|
|
eliminate the Exchange Cap in the Notes and therefore potentially issue shares of Common Stock issuable upon the conversion of the Notes in excess of 20% of our issued and outstanding shares of Common Stock as of the date we closed the Note Financing pursuant to the terms of the Securities Purchase Agreement; and
|
|
|
eliminate the Exercise Floor Price in the Series H Warrants and Subordination Warrants and therefore potentially issue shares of Common Stock issuable upon exercise of the Series H Warrants and Subordination Warrants at an exercise price below the Exercise Floor Price ($1.70) if the Company issues equity securities that trigger an adjustment pursuant to the terms of the Warrants, in which case the exercise price would be set at the per share price or deemed per share price of securities issued in the dilutive transaction.
|
Effect of Elimination of Exchange Cap
If stockholders approve the NASDAQ 20% Issuance Proposal, current stockholders may experience significant dilution of their current equity ownership in the Company. There are two principal ways in which the Notes may be converted into shares of Common Stock: (1) conversion at the election of the holder of the Notes and (2) conversion into shares of Common Stock of the cash amount due under the fifteen amortization installment payments on the Notes.
39
Effect of Elimination of the Series H Warrants and Subordination Warrants Exercise Floor Price
Removal of the Exercise Floor Price will not result in the issuance of more shares of Common Stock under the terms of the Series H Warrants and Subordination Warrants, but will permit the holders of such Series H Warrants and Subordination Warrants to acquire shares of Common Stock at an exercise price below the current Exercise Floor Price ($1.70), if the Company issues equity securities triggering an adjustment to the exercise price pursuant to the anti-dilution terms of the Series H Warrants and Subordination Warrants.
As noted above under Description of Warrants, the approval of the stockholders of this proposal could result in the exercise price of the Series H Warrants and Subordination Warrants being immediately adjusted to reflect any dilutive issuances that occurred
prior
to this stockholder approval, if any, to the extent such prior dilutive issuances would have lowered the exercise price below the Exercise Floor Price but for such provision. As of the date of this proxy statement no such dilutive issuances have occurred; however the Company may engage in one or more transactions subsequent to the date hereof that
may qualify as dilutive issuances under the terms of the Series H Warrants and Subordination Warrants.
What is the Effect on Current Stockholders if the NASDAQ 20% Issuance Proposal is not Approved?
If our stockholders do not approve this proposal, we will not meet certain equity conditions under the Notes required for the release to us from our restricted accounts of the full cash purchase price of the Notes. As noted above, at closing we received $6 million in cash. In order for us to receive access to the additional $62 million in our restricted accounts under the terms of the Notes, stockholders must approve this proposal. If approval is not obtained, unless the equity conditions are waived by the required number of holders of such Notes pursuant to their terms, the additional $62 million under the terms of the Notes
will not be released from our restriced accounts.
In addition, we will be required to seek stockholder approval of this proposal every three months until we receive stockholder approval of this proposal or the Notes and Warrants expire or are all converted or exercised pursuant to their terms. We are not seeking the approval of our stockholders to authorize our entry into the Securities Purchase Agreement and related transaction documents, as we have already entered into the Securities Purchase Agreement and related transaction documents, which are binding obligations on us. The failure of our stockholders to approve the proposal will not negate the existing terms of the
documents relating to the Note Financing. The Notes, Series H Warrants and Subordination Warrants were issued at the closing of the Note Financing will remain outstanding and the terms of the Notes, the Series H Warrants and Subordination Warrants will remain binding obligations of the Company.
Who are the investors in the Note Financing and holders of the Series H Warrants and Subordination Warrants?
The investors in the Note Financing and the principal aggregate amount of Notes and related Series H Warrants held by each such investor is set forth on the Schedule of Buyers attached hereto as Appendix B. The Subordination Warrants were issued to Springforth Investments LLC and the Utah Autism Foundation in equal amounts; Mr. David Spafford, our Chairman of the Board, is principal of both entities.
Where can I find more information regarding the Note Financing, the Securities Purchase Agreement, the Notes, the Series H Warrants and the Subordination Warrants?
The above descriptions set forth the material terms of the Notes and Series H Warrants. A more detailed description of the Note Financing, the Securities Purchase Agreement, the Notes, the Series H Warrants, and related transaction documents can be read in the Companys Current Report on Form 8-K as filed with the SEC on June 29, 2016.
The Securities Purchase Agreement, the Form of Note and the Form of Series H Warrant are attached as Exhibit 10.1 to the Companys Current Report on Form 8-K as filed with the SEC on June 29, 2016.
How does the Company Intend to Use the Proceeds from the Note Financing?
We intend to use the net proceeds of the Note Financing for general operating purposes.
40
Required Vote of Stockholders
Approval of the this proposal requires the affirmative vote of the holders of a majority of the shares of our Common Stock present in person or by proxy at the Special Meeting and actually voted on this proposal. This proposal is a non-routine matter and shares may not be voted on by your broker if you do not submit voting instructions.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE NASDAQ 20% ISSUANCE PROPOSAL
41
PROPOSAL IV ACCOUNTANT APPOINTMENT PROPOSAL
General
On July 1, 2016, Mantyla McReynolds, LLC, the Companys independent registered public accountants, merged with BDO USA, LLP on July 1, 2016. As a result of this transaction, on July 14, 2016, we received notice that instead of Mantyla McReynolds, LLC, BDO USA, LLC would now stand for reappointment as the Companys independent registered public accountants for the fiscal year ending December 31, 2016. Effective July 18, 2016, the Company, after review and approval of the Companys Audit Committee, appointed BDO USA, LLC as the Companys new independent registered public accounting firm for and with respect
to the fiscal year ending December 31, 2016.
Mantyla McReynolds, LLCs reports on the Companys financial statements as of and for the fiscal years ended December 31, 2015 and 2014 contained an emphasis paragraph that raised substantial doubt about its ability to continue as a going concern. Other than the going concern matter, the reports of Mantyla on the financial statements of the Company for the fiscal years ended December 31, 2015 and 2014 did not contain any other adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the Companys fiscal years ended December 31, 2015 and 2014 and through July 14, 2016, there were no disagreements between the Company and Mantyla on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Mantyla, would have caused Mantyla to make reference to the subject matter of the disagreements in connection with its audit reports on the Companys financial statements. During the Companys past fiscal years ended December 31, 2014 and 2015 and the interim period through July 14,
2016, Mantyla did not advise the Company of any of the matters specified in Item 304(a)(1)(v) of Regulation S-K.
During the Companys two most recently completed fiscal years and through the date of engagement of BDO USA, LLP, neither the Company nor anyone on behalf of the Company consulted with BDO USA, LLP regarding (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Companys financial statements as to which the Company received a written report or oral advice that was an important factor in reaching a decision on any accounting, auditing or financial reporting issue; or (b) any matter that was the subject of a
disagreement or a reportable event as defined in Items 304(a)(1)(iv) and (v), respectively, of Regulation S-K.
We are asking the stockholders to ratify the selection BDO USA, LLP as the Companys independent registered public accountants for the fiscal year ending December 31, 2016. Mantyla McReynolds LLC audited the Companys financial statements for the fiscal years ended December 31, 2015 and 2014. Even if the selection is ratified, the Board or Audit Committee, in their discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year we determine that such change would be in the best interest of the Company and its stockholders.
Representatives from BDO USA, LLP are not expected to be present at the annual meeting, however, if they are present they will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.
42
Principal Accountant Fees and Services
The following table presents fees for professional services rendered by Mantyla McReynolds LLC each of the last two fiscal years for the audit of the Companys annual financial statements and review of financial statements included in the Companys Forms 10-Q, and fees billed for other services rendered by Mantyla McReynolds LLC during those periods.
|
|
|
|
|
|
|
2015
|
|
2014
|
Audit Fees
(1)
|
|
$
|
205,771
|
|
|
$
|
160,871
|
|
Audit-Related Fees
(2)
|
|
|
154,925
|
|
|
|
54,167
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
360,696
|
|
|
$
|
215,038
|
|
|
(1)
|
Audit Fees consist of fees billed for the audit of the Companys annual financial statements included in Form 10-K and services in connection with the Companys various statutory and regulatory filings. Audit fees also include fees related to the reviews of interim financial information included in Forms 10-Q.
|
|
(2)
|
Audit-Related Fees consist of fees billed for consent or comfort letter procedures performed in conjunction with the Company filing a registration statement or completing financial transactions during the respective fiscal years.
|
Pre-approval Policies
Our policy has been for the Audit Committee to pre-approve all audit, audit-related and non-audit services performed by our independent auditors and to subsequently review the actual fees and expenses paid to our independent auditors. Accordingly, the Audit Committee pre-approved all audit, audit-related and non-audit services performed by our independent auditors and subsequently reviewed the actual fees and expenses paid to Mantyla McReynolds LLC. The Audit Committee has determined that the fees paid to Mantyla McReynolds LLC for services are compatible with maintaining Mantyla McReynolds LLCs independence as our
auditors.
What vote is required to approve the Accountant Approval Proposal
A majority of the votes present in person or represented by proxy at the Annual Meeting is required to approve the proposal. Abstentions will have the same effect as votes against the proposal. Broker non-votes will have no effect on the vote for this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
FOR
THE PROPOSAL TO RATIFY THE SELECTION OF BDO USA, LLP TO SERVE AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2016.
Unless otherwise instructed, the proxy holders will vote the proxies received by them
FOR
the proposal.
43
OTHER MATTERS
The Company is unaware of any business, other than described in this Proxy Statement that may be considered at the Annual Meeting. If any other matters should properly come before the Annual Meeting, it is the intention of the persons named in the accompanying form of proxy to vote the proxies held by them in accordance with their best judgment.
To assure the presence of the necessary quorum and to vote on the matters to come before the Annual Meeting, please promptly indicate your choices via the internet, by phone or by mail, according to the procedures described on the proxy card. The submission of a proxy via the internet, by phone or by mail does not prevent you from attending and voting at the Annual Meeting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, files reports and other information with the Securities and Exchange Commission (the
SEC
). Any interested party may inspect information filed by the Company, without charge, at the public reference facilities of the SEC at its principal office at 100 F. Street, N.E., Washington, D.C. 20549. Any interested party may obtain copies of all or any portion of the information filed by the Company at prescribed rates from the Public Reference Section of the SEC at its
principal office at 100 F. Street, N.E., Washington, D.C. 20549. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding the Company and other registrants that file electronically with the SEC at
http://www.sec.gov.
The Companys Common Stock is listed on The NASDAQ Capital Market and trades under the symbol GBSN.
APPENDICES
APPENDIX A Form of Proxy Card
APPENDIX B Schedule of Buyers of Notes and Series H Warrants
By Order of the Board of Directors,
Ryan Ashton
President and Chief Executive Officer
August 8, 2016
Please sign and return the enclosed form of proxy promptly. If you decide to attend the meeting, you may, if you wish, revoke the proxy and vote your shares in person.
44
APPENDIX A
PROXY GREAT BASIN SCIENTIFIC, INC.
2441 South 3850 West, Salt Lake City, Utah 84120
ANNUAL MEETING OF STOCKHOLDERS, AUGUST 31, 2016
(This Proxy is Solicited on Behalf of the Board of Directors)
The undersigned hereby appoints Ryan Ashton and Jeffrey Rona, or either of them, as Proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of common stock of Great Basin Scientific, Inc. (the Company) held of record by the undersigned on July 11, 2016 at the Annual Meeting of Stockholders (the Annual Meeting) to be held at the Offices of Dorsey & Whitney LLP, 1400 Wewatta Street, Suite 400, Denver, Colorado at 9:00 a.m. local time, on Wednesday, August 31, 2016 and at any adjournments or postponements thereof.
Directions to the facility in order to attend the Annual Meeting may be obtained by going to
http://Client.irwebkit.com/gbscience
. The undersigned also acknowledges receipt of the Notice of the Annual Meeting of Stockholders, the proxy statement and the annual report on Form 10-K for the year ended December 31, 2015, which were furnished with this proxy.
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder.
If no direction is made, this proxy will be voted FOR the director nominees listed in Proposal 1 and FOR Proposals 2, 3, and 4.
The Board of Directors recommends you vote FOR all two nominees listed and FOR proposals 2, 3, 4 and 5.
|
|
|
|
|
|
|
|
|
1.
|
|
Election of Directors
|
|
|
|
|
|
|
|
|
Nominees:
|
|
For
|
|
Against
|
|
Withhold
|
|
|
Ronald Labrum
|
|
o
|
|
o
|
|
o
|
|
|
Sam Chawla
|
|
o
|
|
o
|
|
o
|
|
|
FOR ALL NOMINEES
o
WITHHOLD ALL NOMIEES
o
|
|
|
|
|
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
2.
|
|
To ratify for purposes of complying with NASDAQ Listing Rule 5635(d), the April 4, 2016 exchange of all of the Companys issued and outstanding Series E Warrants for 650,160 shares of the Companys common stock the pursuant to the terms of those certain Exchange Agreements, dated April 3, 2016 (the
Exchange Agreements
), between the Company and the investors named therein (the
Series E Warrant Exchange Proposal
)
|
|
o
|
|
o
|
|
o
|
3.
|
|
To approve for purposes of complying with NASDAQ Listing Rule 5635(d), the issuance of shares of our common stock underlying senior secured convertible notes and related Series H Warrants issued by us pursuant to the terms of that certain Securities Purchase Agreement, dated June 29, 2016 (the
Securities Purchase Agreement
), between the Company and the investors named therein, without giving effect to the exchange cap in such senior secured convertible notes in an amount that may be equal to or exceed 20% of our common stock outstanding before the issuance of such senior secured convertible notes and related Series H Warrants and certain subordination warrants and without giving effect to the exercise price floor of such Series H Warrants and subordination warrants (the
NASDAQ 20% Issuance Proposal
)
|
|
o
|
|
o
|
|
o
|
|
|
|
|
|
|
|
|
|
4.
|
|
To ratify the appointment of BDO USA, LLP as the Companys independent registered public accountants for the fiscal year ending December 31, 2016 (the
Accountant Appointment Proposal
)
|
|
o
|
|
o
|
|
o
|
NOTE:
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof.
|
|
|
|
|
|
|
For address changes and/or comments, please check this box and write them on the back where indicated.
o
|
|
|
|
|
|
|
Please indicate if you plan to attend this meeting.
Yes
o
No
o
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
|
|
|
Signature [PLEASE SIGN WITHIN BOX]
|
|
Date
|
|
|
|
Signature (Joint Owners)
|
|
Date
|
APPENDIX B
SCHEDULE OF BUYERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
(2)
|
|
(3)
|
|
(4)
|
|
(5)
|
|
(6)
|
|
(7)
|
|
(8)
|
Buyer
|
|
Address and
Facsimile Number
|
|
Aggregate
Principal
Amount of
Notes
|
|
Number of
Warrant
Shares
|
|
Purchase
Price
|
|
Company
Purchase
Price
|
|
Restricted
Account
Purchase
Price
|
|
Legal
Representatives
Address and
Facsimile
Number
|
Hudson Bay
Master Fund
Ltd.
|
|
|
777 Third Avenue, 30
th
Floor
New York, NY 10017
Attention: Yoav Roth
George Antonopoulos
Facsimile: 646-214-7946
Telephone: 212-571-1244
Residence: Cayman Islands
E-mail:
investments@hudsonbaycapital.com
operations@hudsonbaycapital.com
|
|
|
$
|
57,815,941.18
|
|
|
|
43,361,956
|
|
|
$
|
52,419,786.67
|
|
|
$
|
4,625,259.88
|
|
|
$
|
47,794,526.79
|
|
|
|
Schulte Roth &
Zabel LLP
919 Third
Avenue
New York,
New York 10022
Attention: Eleazer
Klein, Esq.
Facsimile:
(212) 593-5955
Telephone: (212) 756-2376
|
|
CVI
Investments,
Inc.
|
|
|
c/o Heights Capital Management, Inc.
101 California Street, Suite 3250
San Francisco, CA 94111
United States of America
Attention: Sam Winer
Facsimile: (415) 403-6525
Telephone: (415) 403-6500
Residence: Cayman Islands
|
|
|
$
|
4,500,000.00
|
|
|
|
3,375,000
|
|
|
$
|
4,080,000.00
|
|
|
$
|
359,998.80
|
|
|
$
|
3,720,001.20
|
|
|
|
|
|
Empery Asset
Master Ltd.
|
|
|
c/o Empery Asset Management LP
1 Rockefeller Plaza Suite 1205
New York, NY 10020
Attention: Ryan Lane
Telephone: 212-608-3300
Residence: Cayman Islands
Email: notices@emperyam.com
|
|
|
$
|
1,918,000.00
|
|
|
|
1,438,500
|
|
|
$
|
1,738,986.67
|
|
|
$
|
153,439.49
|
|
|
$
|
1,585,547.18
|
|
|
|
|
|
Empery Tax
Efficient, LP
|
|
|
c/o Empery Asset Management LP
1 Rockefeller Plaza Suite 1205
New York, NY 10020
Attention: Ryan Lane
Telephone: 212-608-3300
Residence: State of Delaware
Email: notices@emperyam.com
|
|
|
$
|
891,000.00
|
|
|
|
668,250
|
|
|
$
|
807,840.00
|
|
|
$
|
71,279.76
|
|
|
$
|
736,560.24
|
|
|
|
|
|
Empery Tax
Efficient II, LP
|
|
|
c/o Empery Asset Management LP
1 Rockefeller Plaza Suite 1205
New York, NY 10020
Attention: Ryan Lane
Telephone: 212-608-3300
Residence: State of Delaware
Email: notices@emperyam.com
|
|
|
$
|
1,603,000.00
|
|
|
|
1,202,250
|
|
|
$
|
1,453,386.67
|
|
|
$
|
128,239.57
|
|
|
$
|
1,325,147.10
|
|
|
|
|
|
Sabby
Healthcare
Master Fund, Ltd.
|
|
|
10 Mountainview Road, Suite 205
Upper Saddle River, NJ 07458
Attention: Robert Grundstein, COO
and General Counsel
Residence: Cayman Islands
Telephone: (646) 307-4527
Cellphone (201) 993-9426
Email: rgrundstein@sabbycapital.com
|
|
|
$
|
6,617,647.06
|
|
|
|
4,963,235
|
|
|
$
|
6,000,000.00
|
|
|
$
|
529,410.00
|
|
|
$
|
5,470,590.00
|
|
|
|
|
|
Brio Capital
Master Fund
Ltd.
|
|
|
Brio Capital Master Fund, Ltd.
100 Merrick Road, Suite 401W
Rockville Centre, NY 11570
Attn: Shaye Hirsch
shaye@briocapital.com
|
|
|
$
|
1,654,411.76
|
|
|
|
1,240,809
|
|
|
$
|
1,500,000.00
|
|
|
$
|
132,352.50
|
|
|
$
|
1,367,647.50
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
75,000,000.00
|
|
|
|
56,250,000
|
|
|
$
|
68,000,000.01
|
|
|
$
|
5,999,980.00
|
|
|
$
|
62,000,020.01
|
|
|
|
|
|