Item
10. Directors, Executive Officers and Corporate Governance
Directors
We
believe that the combination of the various qualifications, skills and experiences of our directors contribute to an effective
and well-functioning board and that, individually and as a whole, our directors possess the necessary qualifications to provide
effective oversight of our business and quality advice to our management. Listed below are the names, ages and biographies of
our current directors. Our directors are elected annually and serve until the next annual meeting of shareholders and until their
successors are duly elected and appointed.
Mark
E. Andrews, III
, 69, our chairman of the board, founded our predecessor company, Great Spirits Company LLC, in 1998 and served
as its chairman of the board, president and chief executive officer from its inception until December 2003. Mr. Andrews has served
as our chairman of the board since December 2003 and served as our president from December 2003 until November 2005. Mr. Andrews
served as our chief executive officer from December 2003 until November 2008. Prior to founding our predecessor, Mr. Andrews founded
American Exploration Company, a company engaged in the exploration and production of oil and natural gas, in 1980. He oversaw
that company becoming publicly traded in 1983 and served as its chairman and chief executive officer until its merger with Louis
Dreyfus Natural Gas Corp. in October 1997. He also serves as a life trustee of The New York Presbyterian Hospital in New York
City. Mr. Andrews’ pertinent experience, qualifications, attributes and skills include financial literacy and expertise,
industry experience, managerial experience, and the knowledge and experience he has attained through his service as a director
and officer of publicly-traded corporations.
John
F. Beaudette
, 62, has served as a director of our company since January 2004. Since 1995, Mr. Beaudette has been president
and chief executive officer of MHW, Ltd., a national beverage alcohol import, distribution and service company located in Manhasset,
New York. MHW, Ltd. provides U.S. import and distribution services to wineries, breweries, and distilleries throughout the world.
From 1985 to 1994, Mr. Beaudette worked with PepsiCo Inc. and its affiliate company Monsieur Henri Wines in the distribution
of Stolichnaya Vodka and other wine and spirit brands. During this period, Mr. Beaudette held positions such as Director of Planning
for PepsiCo Wines & Spirits Intl. and V. P. of Finance & CFO of Monsieur Henri Wines Ltd. He currently serves
on the board of directors of The National Association of Beverage Importers Inc. as well as the Distilled Spirits Council
of the United States. Mr. Beaudette’s pertinent experience, qualifications, attributes and skills include industry expertise,
managerial experience and the knowledge and experience he has attained through his service as a director of our company.
Henry C. Beinstein
,
76, has served as a director of our company since January 2009. He has been a partner of Gagnon Securities, LLC, a broker-dealer
and a FINRA member firm, since January 2005 and has been a money manager and an analyst and registered representative of such
firm since August 2002. Mr. Beinstein has been a director of Vector Group Ltd. (NYSE: VGR), a New York Stock Exchange listed
holding company, since March 2004. Vector Group is engaged principally in the tobacco business through its Liggett Group LLC subsidiary
and in the real estate and investment business through its New Valley LLC subsidiary. New Valley owns Douglas Elliman Realty,
LLC, which operates the largest residential brokerage company in the New York metropolitan area. Since May 2001, Mr. Beinstein
has served as a director of Ladenburg Thalmann Financial Services Inc. (NYSE American: LTS), a publicly-traded diversified
financial services company. Mr. Beinstein is a certified public accountant in New York and previously was a partner and national
director of finance and administration at Coopers & Lybrand. Mr. Beinstein’s pertinent experience, qualifications, attributes
and skills include financial literacy and expertise, managerial experience and the knowledge and experience he has attained through
his service as a director of publicly-traded corporations.
Phillip Frost, M.D
.,
82, has served as a director of our company since October 2008 and previously served as a director of our company from September
2005 to August 2007. Since March 2007, he has served as chairman of the board and chief executive officer of OPKO Health, Inc.
(NASDAQ: OPK), a multi-national biopharmaceutical and diagnostics company. Dr. Frost also serves as a director for CoCrystal
Pharma, Inc. (NASDAQ GM: COCP), a publicly traded biotechnology company. He also serves as chairman of Temple Emanu-El,
as a member of the Florida Council of 100, as a trustee for each of the University of Miami, the Miami Jewish Home for the Aged
and the Mount Sinai Medical Center and as a member of the executive committee of the board of trustees of the Phillip and Patricia
Frost Museum of Science. From 1972 to 1990, Dr. Frost was the chairman of the Department of Dermatology at Mt. Sinai Medical Center
of Greater Miami, Miami Beach, Florida. Dr. Frost served as a director of Teva Pharmaceutical Industries Ltd., a pharmaceutical
company, from January 2006 until February 2015, served as chairman of the board of directors of Teva from March 2010 until December
2014 and served as vice chairman of the board of directors from January 2006 when Teva acquired IVAX Corporation until March 2010.
Dr. Frost was chairman of the board of directors of Key Pharmaceuticals, Inc. from 1972 until its acquisition by Schering Plough
Corporation in 1986 and served as chairman of the board of directors and chief executive officer of IVAX from 1987 to January
2006. Dr. Frost previously served as the chairman of the board of directors of Ladenburg Thalmann Financial Services Inc. and
PROLOR Biotech, Inc. (until it was acquired by OPKO Health, Inc.), vice chairman of the board of directors of Cogint, Inc., as
a director of Continucare Corp. (until its merger with Metropolitan Health Networks, Inc.), TransEnterix, Inc. (formerly SafeStitch
Medical, Inc.), and Sevion Therapeutics, Inc. (formerly Senesco Technologies, Inc.), and as governor and co-vice-chairman of the
American Stock Exchange (now NYSE American). Dr. Frost’s pertinent experience, qualifications, attributes and skills include
financial literacy and expertise, managerial experience, and the knowledge and experience he has attained through his service
as a director and officer of publicly-traded corporations. On December 27, 2018, Dr. Frost entered into a settlement agreement
with the SEC to resolve an action brought by the SEC against Dr. Frost, an affiliate of Dr. Frost and others in SEC v. Honig et
al., 18 Civ. 08175 (S.D.N.Y.). Without admitting or denying the SEC’s allegations, Dr. Frost agreed to injunctions from
violations of the Sections 5(a), 5(c), and 17(a)(2) of the Securities Act of 1933, as amended, which we refer to as the Securities
Act, and Section 13(d) of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and Rule 13d-1(a)
thereunder; approximately $5.5 million in penalty, disgorgement, and prejudgment interest, which has been paid; and a prohibition,
with certain exceptions, from trading in penny stocks. Without admitting or denying the SEC’s allegations, Frost Gamma Investments
Trust, of which Dr. Frost is Trustee, agreed to injunctions from violations of Section 17(a)(2) of the Securities Act and a prohibition,
with certain exceptions, from trading in penny stocks.
Dr.
Richard M. Krasno
, 77, has served as a director of our company since March 2015 and as our lead independent director since
May 2018. Dr. Krasno has served as a director of Ladenburg Thalmann Financial Services Inc. since 2006 and has served as its lead
director since November 2014. Since October 2016, Dr. Krasno has served as a director of BioCardia, Inc., a clinical-stage regenerative
medicine company. Since February 2017, Dr. Krasno has served as a director of OPKO Health, Inc. From 1999 to 2014, he served as
the executive director of the William R. Kenan, Jr. Charitable Trust and, from 1999 to 2010, as president of the four affiliated
William R. Kenan, Jr. Funds. Prior to joining the Trust, Dr. Krasno was the president of the Monterey Institute of International
Studies in Monterey, California. From 2004 to 2012, Dr. Krasno also served as a director of the University of North Carolina Health
Care System and served as chairman of the board of directors from 2009 to 2012. From 1981 to 1998, he served as president and
chief executive officer of the Institute of International Education in New York. He also served as Deputy Assistant Secretary
of Education in Washington, D.C. from 1979 to 1980. Dr. Krasno’s pertinent experience, qualifications, attributes and skills
include financial literacy and expertise, managerial experience and the knowledge and experience he has attained through his service
as a director of publicly-traded corporations.
Richard
J. Lampen
, 65, has served as our president and chief executive officer and as a director of our company since October
2008. Mr. Lampen has served as executive vice president of Vector Group Ltd. since July 1996. Since September 2006, he has
served as president and chief executive officer of Ladenburg Thalmann Financial Services Inc. Mr. Lampen has served as a
director of Ladenburg Thalmann Financial Services Inc. since January 2002 and as chairman of the board of directors since
September 2018. Mr. Lampen previously served as chairman of the board of directors of the Financial Services Institute, an
advocacy organization for independent broker-dealers and their affiliated independent financial advisors, and currently
serves as a director. Mr. Lampen’s pertinent experience, qualifications, attributes and skills include his knowledge
and experience in our company attained through his service as a director of our company and as president and chief executive
officer since 2008, and his managerial experience and the knowledge and experience he has attained through his service as a
director and officer of publicly-traded corporations.
Steven
D. Rubin
, 59, has served as a director of our company since January 2009. Since May 2007, Mr. Rubin has served
as executive vice president - administration of OPKO Health, Inc. and he has served as a director of OPKO Health, Inc.
since February 2007. Mr. Rubin currently serves on the board of directors of Non-Invasive Monitoring Systems, Inc. (OTC
US: NIMU), a medical device company, Cocrystal Pharma, Inc. (NASDAQ GM: COCP), Eloxx Pharmaceuticals, Inc. (NASDAQ:
ELOX), a clinical stage biopharmaceutical company dedicated to treating patients suffering from rare and ultra-rare
disease caused by premature termination codon nonsense mutations, ChromaDex Corp. (NASDAQ CM: CDXC), an
integrated, global nutraceutical company devoted to improving the way people age, and Red Violet, Inc. (NASDAQ CM:
RDVT), a software and services company, and currently serves as chairman of the board of directors of Neovasc, Inc.
(NASDAQ CM: NVCN), a company developing and marketing medical specialty vascular devices. Mr. Rubin previously served
as the senior vice president, general counsel and secretary of IVAX Corporation from August 2001 until its merger with Teva
in January 2006. Mr. Rubin previously served as a director of VBI Vaccines, Inc. BioCardia, Inc., Cogint, Inc. (now known
as Fluent, Inc.) (NASDAQ:FLNT), an information solutions provider focused on the data-fusion market, prior to the spin-off of
its data and analytics operations and assets into Red Violet, Inc., Kidville, Inc., Sevion Therapeutics, Inc., (prior to its
merger with Eloxx Pharmaceuticals, Inc.), Dreams, Inc, SciVac Therapeutics, Inc. (prior to its merger with VBI Vaccines,
Inc.), and Tiger X Medical, Inc. (prior to its merger with BioCardia, Inc.). Mr. Rubin’s pertinent experience,
qualifications, attributes and skills include financial literacy and expertise, legal experience, managerial experience, and
the knowledge and experience he has attained through his service as a director and officer of publicly-traded
corporations.
Mark
Zeitchick
, 54, has served as a director of our company since March 2014. Mr. Zeitchick has been executive vice president of
Ladenburg Thalmann Financial Services Inc. since September 2006 and has served as a director of Ladenburg Thalmann Financial Services
Inc. since 1999. From August 1999 until December 2003, Mr. Zeitchick served as an executive vice president of Ladenburg Thalmann
Financial Services Inc. and from September 2006 until December 2011, Mr. Zeitchick served as president and chief executive officer
of its subsidiary Ladenburg Thalmann & Co. Inc. Mr. Zeitchick has been a registered representative with Ladenburg Thalmann
& Co. Inc. since March 2001. Mr. Zeitchick’s pertinent experience, qualifications, attributes and skills include managerial
and financial experience and the knowledge and experience he has attained through his service as a director and officer of a publicly-traded
corporation.
Executive
Officers
Our
executive officers serve until the appointment and qualification of their successors or until their earlier death, resignation
or removal by our board of directors. The following table lists the name, age and position of our executive officers:
Name
|
|
Age
|
|
Position
|
Richard J. Lampen
|
|
65
|
|
President and Chief Executive Officer
|
John S. Glover
|
|
64
|
|
Executive Vice President and Chief Operating
Officer
|
T. Kelley Spillane
|
|
56
|
|
Senior Vice President - Global Sales
|
Alfred J. Small
|
|
50
|
|
Senior Vice President, Chief Financial Officer,
Treasurer & Secretary
|
Alejandra Peña
|
|
52
|
|
Senior Vice President - Marketing
|
Listed
below are biographical descriptions of our current executive officers. For Mr. Lampen’s information, see the description
under “Directors” above.
John
S. Glover
, our executive vice president and chief operating officer, joined us in February 2008. From February 2008 to October
2008, Mr. Glover served as our senior vice president - marketing, since October 2008, he has served as our chief operating officer
and since March 2017 he has served as our executive vice president. From June 2006 to February 2008, Mr. Glover served as senior
vice president - commercial management of Remy Cointreau USA. From January 2001 to June 2006, Mr. Glover served in various management
positions at Remy Cointreau in the United States and France. From January 1999 to January 2001, he was a managing director and
chief marketing officer for Bols Royal Distilleries in the Netherlands.
T.
Kelley Spillane
, our senior vice president - global sales, joined us in April 2000. From April 2000 to December 2003, Mr.
Spillane served as vice president - sales of Great Spirits Company, and was appointed executive vice president - U.S. sales in
December 2003. He has served as our senior vice president - global sales since June 2013. Prior to joining us, Mr. Spillane worked
at Carillon Importers Limited, a division of Grand Metropolitan PLC. Carillon developed and launched Absolut Vodka and Bombay
Sapphire Gin. At Carillon, Mr. Spillane served as assistant manager for its control states and duty free divisions and was promoted
to director of special accounts, focusing on expanding sales in national accounts.
Alfred
J. Small
, our senior vice president, chief financial officer, treasurer and secretary joined us in October 2004. Mr. Small
has served as our chief financial officer and treasurer since November 2007 and as our secretary since January 2009. He previously
served as our vice president-controller from March 2007 until November 2007 and has served as our principal accounting officer
since October 2006. Mr. Small is a certified public accountant.
Alejandra
Peña
, our senior vice president - marketing, joined us in September 2011. Prior to joining our company, Ms. Peña
most recently served as marketing vice president for liqueurs and spirits for Remy Cointreau USA, where she was responsible for
the marketing of Cointreau Liqueur and Mount Gay Rum in addition to other brands. Earlier in her career, she was employed with
Banfi and served as marketing director of Italian Estate Wines. Ms. Peña started her career as a strategic consultant and
is fluent in English, Spanish and Italian.
There
are no family relationships among any of our directors and executive officers.
Code
of Business Conduct
Our board of directors
has adopted a code of business conduct, which applies to all of our directors, executive officers and employees. The code of business
conduct sets forth our commitment to conduct our business in accordance with the highest standards of business ethics and to promote
the highest standards of honesty and ethical conduct by our directors, executive officers and employees. Our code of business
conduct is posted on our investor relations website at
investor.castlebrandsinc.com/corporate-governance
. We intend
to post amendments to, or waivers from a provision of, our code of business conduct that apply to our principal executive officer,
principal financial officer, principal accounting officer or persons performing similar functions on our website.
Shareholder
Nominations
There
have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
Audit
Committee Information
Our
board of directors has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of
the Exchange Act. Messrs. Beinstein (Chair), Beaudette and Rubin comprise our audit committee. Our board of directors has determined
that each member of the audit committee is an independent director and is financially literate as required by the applicable rules
of the NYSE American and the SEC. The audit committee is responsible for, among other things:
●
|
appointing,
replacing, overseeing and compensating the work of our independent registered public accounting firm;
|
●
|
reviewing and discussing
with management and our independent registered public accounting firm our quarterly financial statements and discussing with
management our earnings releases;
|
●
|
pre-approving all
auditing services and permissible non-audit services provided by our independent registered public accounting firm;
|
●
|
engaging in a dialogue
with our independent registered public accounting firm regarding relationships that may adversely affect the independence
of the independent registered public accounting firm and, based on such review, assessing the independence of our independent
registered public accounting firm;
|
●
|
providing
the audit committee report to be filed with the SEC in our annual proxy statement;
|
●
|
reviewing with our
independent registered public accounting firm the adequacy and effectiveness of the internal controls over our financial reporting;
|
●
|
establishing procedures
for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters,
including the confidential anonymous submission by our employees of concerns regarding questionable accounting or auditing
matters;
|
●
|
reviewing and pre-approving
related-party transactions;
|
●
|
reviewing and discussing
with management and our independent registered public accounting firm management’s annual assessment of the effectiveness
of the internal controls and our independent registered public accounting firm’s attestation;
|
●
|
appointing or replacing
the independent auditor;
|
●
|
reviewing and discussing
with management and our independent registered public accounting firm the adequacy and effectiveness of our internal controls
including any significant deficiencies in the design or operation of our internal controls or material weaknesses and any
fraud, whether or not material, that involves our management or other employees who have a significant role in our internal
controls and the adequacy and effectiveness of our disclosure controls and procedures; and
|
●
|
reviewing and assessing
annually the adequacy of the audit committee charter.
|
Our
audit committee charter is posted on our investor relations website at
http://investor.castlebrandsinc.com/corporate-governance
.
Financial
Expert on Audit Committee
Our
board of directors has determined that Henry C. Beinstein is our “audit committee financial expert” (as defined in
Item 407(d)(5) of Regulation S-K) and is an “independent” director under applicable NYSE American rules.
Item
11. Executive Compensation
Compensation
Discussion and Analysis
This
“Compensation Discussion and Analysis” section discusses the compensation programs and policies for our executive
officers and the compensation committee’s role in the design and administration of these programs and policies in making
specific compensation decisions for our executive officers, including our “named executive officers.”
Our
compensation committee has the sole authority and responsibility to review and determine, or recommend to our board of directors
for determination, the compensation package of our chief executive officer and each of our other named executive officers, each
of whom is identified in the Summary Compensation Table below. Our compensation committee also considers the design and effectiveness
of the compensation programs for our other executive officers and approves the final compensation package, employment agreements,
and stock awards and option grants for all of our executive officers. Our compensation committee is composed entirely of independent
directors who have never served as officers of our company.
Our
compensation committee may engage outside advisors, experts and others to assist it in determining executive compensation. Our
compensation committee engaged GK Partners, Inc. to provide services in connection with its compensation review for the fiscal
year ended March 31, 2019. In particular, GK Partners reviewed the terms of the employment agreement amendment entered into in
June 2018 with Mr. Andrews and the employment agreement entered into in February 2019 with Mr. Lampen. The compensation committee,
considering all relevant factors, including those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act and applicable
NYSE American rules, is not aware of any conflict of interest that has been raised by the work performed by GK Partners. Other
than the services for which the compensation committee directly engaged GK Partners, GK Partners provided no services to us for
the fiscal year ended March 31, 2019.
Set
forth below is a discussion of the policies and decisions that shape our executive compensation programs, including the specific
objectives and elements. Information regarding director compensation is included under the heading “Director Compensation”
below.
General
Executive Compensation Objectives and Philosophy
The
objective of our executive compensation programs is to attract, retain and motivate talented executives who are critical for
our continued growth and success and to align the interests of these executives with those of our shareholders. To achieve
this objective, in addition to competitive annual base salaries, our executive compensation program utilizes a combination of
annual incentives (cash bonuses) and long-term incentives through equity-based compensation. Our compensation committee
believes that cash bonuses should reward our named executive officers for their personal performance, as well as our
company’s overall business performance, and that equity-based compensation should align the long-term financial
interests of our named executive officers with that of our shareholders. Long-term equity-based compensation for our named
executive officers is typically subject to time-based vesting over a period of four years, but the compensation committee
may establish other service-based and/or performance-based vesting criteria from time-to-time in its sole discretion. We
do not have specific policies for allocating between annual and long-term compensation or between cash and non-cash
compensation. Such amounts are determined by our compensation committee on an annual basis as described below.
In
establishing overall executive compensation levels, our compensation committee considers a number of criteria, including the executive’s
scope of responsibilities, his or her prior and current contributions, attainment of individual and overall company performance
objectives and key employee retention concerns. Our president and chief executive officer and our compensation committee believe
that substantial portions of executive compensation should be linked to the overall performance of our company, and that the contributions
of individuals over the course of the relevant performance period toward the goal of building a profitable business and shareholder
value should be considered in the determination of each executive’s compensation. We do not use benchmarking against a peer
group or otherwise.
Generally,
our compensation committee reviews and, as appropriate, modifies compensation arrangements for executive officers in the first
quarter of each fiscal year, subject to the terms of existing employment agreements with our named executive officers, as discussed
below. Annual equity awards, if any, are typically granted in the first quarter of each fiscal year as well. For the fiscal year
ended March 31, 2019, except with respect to our president and chief executive officer’s compensation, our compensation
committee considered our president and chief executive officer’s executive compensation recommendations, which were presented
at the time of our compensation committee’s annual compensation review. The compensation committee’s determinations
were also based on the committee’s business judgment and discretion. In making its management pay determinations, the
compensation committee considered the overall performance of each executive and their individual contributions to the growth of
our company and its products as well as the company’s overall business performance and achievements. Specifically, the compensation
committee considered each executive officer’s contributions to brand growth, operating cash flows, cost management and long-term
value creation for our shareholders for the fiscal year ended March 31, 2019, as well as the retention of our executive officers.
For
the fiscal year ended March 31, 2019, we granted a $138,000 cash bonus to Mr. Glover; an $89,000 cash bonus to Mr. Spillane; an
$89,000 cash bonus to Mr. Small; and a $76,000 cash bonus to Ms. Peña.
In
July 2019, we granted 130,000 restricted shares of common stock to Mr. Glover, 100,000 restricted shares of common stock to Mr.
Andrews, 90,000 restricted shares of common stock to each of Mr. Spillane and Mr. Small and 75,000 restricted shares of common
stock to Ms. Peña. The foregoing restricted shares vest in four equal annual installments beginning on the first anniversary
of the grant date, subject to certain exceptions. In lieu of a restricted stock grant to Mr. Lampen, in May 2019 Mr. Lampen received
a retention award of $515,000, which vests in two equal installments on March 31, 2020 and March 31, 2021. Under the terms of
the retention award, Mr. Lampen is required to return 100% of the retention award after taxes if he voluntarily terminates his
employment with us or is terminated with “Cause” (as defined in the retention award) on or before March 31, 2020.
Mr. Lampen is required to return 50% of the retention award after taxes if he voluntarily terminates his employment with us or
is terminated with “Cause” (as defined in the retention award) during the period from April 1, 2020 through March
31, 2021. The retention award will be reported in the Summary Compensation Table during the years in which it vests based on his
continued service.
In
April 2018, we granted 130,000 restricted shares of common stock to Mr. Glover, 120,000 restricted shares of common stock to Mr.
Andrews, 90,000 restricted shares of common stock to each of Mr. Spillane and Mr. Small and 75,000 restricted shares of common
stock to Ms. Peña. The foregoing restricted shares vest in four equal annual installments beginning on the first anniversary
of the grant date, subject to certain exceptions. In lieu of a restricted stock grant to Mr. Lampen, in May 2018 Mr. Lampen received
a retention award of $500,000, which vests in two equal installments on March 31, 2019 and March 31, 2020. Under the terms of
the retention award, Mr. Lampen was required to return 100% of the retention award after taxes if he voluntarily terminated his
employment with us or was terminated with “Cause” (as defined in the retention award) prior to March 31, 2019. Mr.
Lampen is required to return 50% of the retention award after taxes if he voluntarily terminates his employment with us or is
terminated with “Cause” (as defined in the retention award) during the period from April 1, 2019 through March 31,
2020. The retention award will be reported in the Summary Compensation Table during the years in which it vests based on his continued
service.
Risk
Considerations in our Compensation Programs
We
have reviewed our compensation structures and policies as they pertain to risk and have determined that our compensation programs
do not create or encourage the taking of risks that are reasonably likely to have a material adverse effect on our company.
Material
Tax Implications of Our Compensation Policy
Section 162(m) of the
Internal Revenue Code of 1986, as amended, limits the deductibility on our tax return of compensation over $1 million to any of
our named executive officers unless, in general, the compensation is paid under a plan which is performance-related, non-discretionary
and has been approved by our shareholders. Our compensation committee’s policy with respect to section 162(m) is to make
every reasonable effort to ensure that compensation is deductible to the extent permitted while simultaneously providing our executives
with appropriate compensation for their performance. We did not pay any compensation during fiscal 2019 that would be subject
to the limitations set forth in section 162(m). The exemption from section 162(m)’s deduction limit for performance-based
compensation was repealed by the Tax Cuts and Jobs Act of 2017 in December 2017, such that performance-based compensation
paid to our named executive officers in excess of $1 million will not be deductible unless it qualifies for transition relief.
Consideration
of Our Most Recent Shareholder Advisory Vote on Executive Compensation
Last
year, at our 2018 Annual Meeting, our shareholders cast an advisory vote on executive compensation, referred to as a “say-on-pay
proposal”, as required by Section 14A of the Exchange Act. At the 2018 Annual Meeting, 95% of the total votes cast were
in favor of the say-on-pay proposal, and we have considered such approval an endorsement of our executive compensation philosophy
and programs. Therefore, our executive compensation philosophy and programs have been confirmed and remain substantially unchanged
since last year. The next say-on-pay proposal will be included in the proxy statement for our 2019 Annual Meeting.
Compensation
Committee Interlocks and Insider Participation
Each
of John F. Beaudette, Dr. Richard M. Krasno and Steven D. Rubin served on our compensation committee during fiscal 2019, with
Dr. Richard M. Krasno serving as chairman. No member of the compensation committee during fiscal 2019 was an officer, employee
or former officer of ours or any of our subsidiaries or had any relationship that would be considered a compensation committee
interlock and would require disclosure pursuant to SEC rules and regulations. None of our executive officers served as a member
of a compensation committee or a director of another entity under the circumstances requiring disclosure pursuant to SEC rules
and regulations.
Compensation
Committee Report
The
information contained in this Compensation Committee Report shall not be deemed “soliciting material” or “filed”
with the SEC, nor shall such information be incorporated by reference into any document we file with the SEC, or subject to the
liabilities of Section 18 of the Exchange Act, except to the extent that such report is specifically stated to be incorporated
by reference into such document.
In fulfilling its
role, the compensation committee met and held discussions with the Company’s management and reviewed and discussed
the Compensation Discussion and Analysis contained in this Amendment. Based on the review and discussions with management
and the compensation committee’s business judgment, the compensation committee recommended to the board of
directors that the Compensation Discussion and Analysis be included in this Amendment and the Company’s proxy statement
for filing with the SEC.
Submitted
by the Compensation Committee of the Board of Directors:
John
F. Beaudette
Dr.
Richard M. Krasno, Chair
Steven
D. Rubin
Summary
Compensation Table
The
following table shows the compensation paid to our named executive officers for our 2019, 2018 and 2017 fiscal years.
Name and Principal
Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock Awards
(1)
|
|
|
Option Awards
(1)
|
|
|
All Other Compensation
(2)
|
|
|
Total
|
|
Richard J. Lampen
|
|
2019
|
|
|
$
|
-
|
|
|
$
|
450,000
|
(3)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
450,000
|
|
President and chief executive
|
|
2018
|
|
|
|
-
|
|
|
|
200,000
|
(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
officer
|
|
2017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
342,000
|
|
|
|
-
|
|
|
|
342,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alfred J. Small
|
|
2019
|
|
|
|
295,473
|
|
|
|
89,000
|
|
|
|
109,800
|
|
|
|
-
|
|
|
|
39,667
|
|
|
|
533,940
|
|
Senior
vice president, chief financial
|
|
2018
|
|
|
|
286,867
|
|
|
|
77,000
|
|
|
|
151,902
|
|
|
|
-
|
|
|
|
31,521
|
|
|
|
547,290
|
|
officer,
treasurer & secretary
|
|
2017
|
|
|
|
278,512
|
|
|
|
70,000
|
|
|
|
-
|
|
|
|
114,000
|
|
|
|
30,141
|
|
|
|
492,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John S. Glover
|
|
2019
|
|
|
|
343,111
|
|
|
|
130,000
|
|
|
|
158,600
|
|
|
|
-
|
|
|
|
32,933
|
|
|
|
664,644
|
|
Executive vice president and
|
|
2018
|
|
|
|
333,117
|
|
|
|
120,000
|
|
|
|
219,414
|
|
|
|
-
|
|
|
|
22,139
|
|
|
|
694,670
|
|
chief operating officer
|
|
2017
|
|
|
|
323,415
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
185,250
|
|
|
|
21,184
|
|
|
|
634,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T. Kelley Spillane
|
|
2019
|
|
|
|
330,096
|
|
|
|
89,000
|
|
|
|
109,800
|
|
|
|
-
|
|
|
|
41,082
|
|
|
|
569,977
|
|
Senior vice president - global
|
|
2018
|
|
|
|
320,481
|
|
|
|
77,000
|
|
|
|
151,902
|
|
|
|
-
|
|
|
|
32,936
|
|
|
|
582,319
|
|
sales
|
|
2017
|
|
|
|
311,147
|
|
|
|
70,000
|
|
|
|
-
|
|
|
|
114,000
|
|
|
|
29,666
|
|
|
|
526,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alejandra Peña
|
|
2019
|
|
|
|
216,360
|
|
|
|
76,000
|
|
|
|
91,500
|
|
|
|
-
|
|
|
|
26,289
|
|
|
|
410,149
|
|
Senior vice president - marketing
|
|
2018
|
|
|
|
210,058
|
|
|
|
66,000
|
|
|
|
126,585
|
|
|
|
-
|
|
|
|
25,364
|
|
|
|
428,007
|
|
|
|
2017
|
|
|
|
203,940
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
96,900
|
|
|
|
23,225
|
|
|
|
384,065
|
|
(1)
|
Represents
the aggregate grant date fair value of restricted stock granted for each of the two fiscal years ended March 31, 2019 and
2018 and the aggregate grant date fair value of the stock options granted for the fiscal year ended March 31, 2017 as determined
in accordance with ASC 718 “Compensation - Stock Compensation” (“ASC 718”), rather than an amount
paid to or realized by the named executive officer. Under SEC rules, the amounts shown exclude the impact of estimated forfeitures
relating to service-based or time-based vesting conditions. See note 12 to our consolidated financial statements for the fiscal
year ended March 31, 2019 included in our Original 10-K, regarding the assumptions underlying the valuation of these grants.
The ASC 718 amounts from these grants may never be realized by the named executive officer.
|
(2)
|
Represents health,
dental and life insurance premiums paid by us. Represents health,
dental and life insurance premiums paid by us. For the fiscal year ended March 31, 2019, also includes automobile expenses
of $11,025 for Mr. Glover and $8,400 for each Mr. Spillane and Mr. Small.
|
(3)
|
Represents $250,000
of the $500,000 in retention awards paid in fiscal 2019, which vested on March 31, 2019 and $200,000 of the $400,000 in retention
awards paid in fiscal 2018, which vested on March 31, 2019.
|
(4)
|
Represents $200,000
of the $400,000 in retention awards paid in fiscal 2018, which vested on March 31, 2018.
|
Narrative
Disclosure to Summary Compensation Table
Material
Terms of Named Executive Officers’ Employment Agreements
The
material terms of Messrs. Lampen’s, Glover’s, Spillane’s and Small’s and Ms. Peña’s employment
agreements are described in the table below. We are also party to a management services agreement with Vector Group Ltd., a more
than 5% shareholder, under which Vector Group Ltd. agreed to make available to us Mr. Lampen’s services. For a discussion
of this agreement, see “Item 13 - Certain Relationships and Related Transactions, and Director Independence - Related Party
Transactions - Agreement with Vector Group Ltd.”
Certain
Material Terms of Employment Agreements with Named Executive Officers
Named Executive Officer
|
|
Date of Agreement
|
|
|
Current Annual Base Salary under the Agreement
(1)
|
|
|
Performance Bonus Eligibility (as Percentage of Annual Base Salary)
|
|
|
Expiration Date of Agreement
(2)
|
|
Duration of Severance Payments
(3)
|
Richard J. Lampen
|
|
4/8/2019
|
|
|
|
-
|
|
|
|
-
|
|
|
3/30/2020
|
|
12 months
|
Alfred J. Small
|
|
4/7/2017
|
|
|
$
|
304,338
|
|
|
|
0-60
%
|
|
|
3/30/2020
|
|
24
months
|
John S. Glover
|
|
4/7/2017
|
|
|
|
353,404
|
|
|
|
0-60 %
|
|
|
3/30/2020
|
|
24 months
|
T. Kelley Spillane
|
|
4/7/2017
|
|
|
|
339,999
|
|
|
|
0-60 %
|
|
|
3/30/2020
|
|
24 months
|
Alejandra Peña
|
|
4/7/2017
|
|
|
|
222,851
|
|
|
|
0-30 %
|
|
|
3/30/2020
|
|
12 months
|
(1)
|
Increases
in Messrs. Lampen’s, Glover’s, Spillane’s and Small’s and Ms. Peña’s base salaries are
at the compensation committee’s sole discretion.
|
|
|
(2)
|
The agreements automatically
renew for successive one (1) year terms, unless either party gives written notice of such party’s intention not to renew
no later than sixty (60) days prior to the end of each such term.
|
|
|
(3)
|
Please see “Potential
Payments Upon Termination or Change in Control” below for a full description of these severance obligations.
|
Annual
Incentives to Named Executive Officers
We
paid cash bonuses to our named executive officers for fiscal 2019 as follows: Mr. Glover - $130,000, Mr. Spillane - $89,000, Mr.
Small - $89,000 and Ms. Peña - $76,000. We paid cash bonuses to our named executive officers for fiscal 2018 as
follows: Mr. Glover - $120,000, Mr. Spillane - $77,000, Mr. Small - $77,000 and Ms. Peña - $66,000. We paid cash bonuses
to our named executive officers for fiscal 2017 as follows: Mr. Glover - $105,000, Mr. Spillane - $70,000, Mr. Small - $70,000
and Ms. Peña - $60,000. These bonus payments are included in the Summary Compensation Table above under the heading “Bonus.”
Mr. Lampen did not receive
a cash bonus for fiscal 2019, 2018 or 2017. In May 2019, Mr. Lampen received a cash retention award of $515,000 in lieu
of a restricted stock grant, in May 2018, Mr. Lampen received a retention award of $500,000 in lieu of a restricted stock grant
and in June 2017, Mr. Lampen received a retention award of $400,000 in lieu of a restricted stock grant. These retention awards
will be reported in the Summary Compensation Table during the years in which they vest based on his continued service.
Grants
of Plan-Based Awards in Fiscal 2019
The
following table shows grants made to our named executive officers in fiscal 2019. The grant date fair value of restricted stock
awards may not be realized by the named executive officers.
Name
|
|
Grant Date
|
|
|
All Other Stock Awards: Number of Shares of Stock (#)
|
|
|
Grant Date Fair Value of Stock Awards
(1)
($)
|
|
Richard Lampen
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Alfred J. Small
|
|
|
4/20/2018
|
|
|
|
90,000
|
|
|
$
|
109,800
|
|
John S. Glover
|
|
|
4/20/2018
|
|
|
|
130,000
|
|
|
$
|
158,600
|
|
T. Kelley Spillane
|
|
|
4/20/2018
|
|
|
|
90,000
|
|
|
$
|
109,800
|
|
Alejandra Peña
|
|
|
4/20/2018
|
|
|
|
75,000
|
|
|
$
|
91,500
|
|
(1)
|
Represents
the estimated grant date fair value of the restricted stock awards computed in accordance with ASC 718 “Compensation
- Stock Compensation.” Under SEC rules, the amounts shown exclude the impact of estimated forfeitures relating to service-based
and time-based vesting conditions.
|
Outstanding
Equity Awards at March 31, 2019 Fiscal Year End
The
following table summarizes the outstanding option awards and unvested awards of restricted stock held by our named executive officers
at March 31, 2019.
|
|
Option Awards
|
|
|
Stock Awards
|
|
Named Executive Officer
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
|
|
Number of Securities Underlying Unexercised Options (#) Unexercisable
|
|
|
Option Exercise Price ($)
|
|
|
Option Expiration Date
|
|
|
Number of shares or Units of Stock That Have Not Vested (#)
|
|
|
Market Value of Shares or Units of Stock That Have Not Vested ($)(5)
|
|
Richard J. Lampen
|
|
|
300,000
|
|
|
|
-
|
|
|
$
|
0.35
|
|
|
|
6/11/2020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
500,000
|
|
|
|
-
|
|
|
$
|
0.33
|
|
|
|
6/20/2021
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
500,000
|
|
|
|
-
|
|
|
$
|
0.31
|
|
|
|
6/8/2022
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
500,000
|
|
|
|
-
|
|
|
$
|
0.38
|
|
|
|
6/5/2023
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
500,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
5/28/2024
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
375,000
|
|
|
|
125,000
|
(1)
|
|
$
|
1.67
|
|
|
|
6/2/2025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
300,000
|
|
|
|
300,000
|
(2)
|
|
$
|
0.90
|
|
|
|
6/3/2026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alfred
J. Small
|
|
|
25,000
|
|
|
|
-
|
|
|
$
|
0.35
|
|
|
|
6/22/2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
65,000
|
|
|
|
-
|
|
|
$
|
0.35
|
|
|
|
6/11/2020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
65,000
|
|
|
|
-
|
|
|
$
|
0.33
|
|
|
|
6/20/2021
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
75,000
|
|
|
|
-
|
|
|
$
|
0.31
|
|
|
|
6/8/2022
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
85,000
|
|
|
|
-
|
|
|
$
|
0.38
|
|
|
|
6/5/2023
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
100,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
5/28/2024
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
112,500
|
|
|
|
37,500
|
(1)
|
|
$
|
1.67
|
|
|
|
6/2/2025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
100,000
|
|
|
|
100,000
|
(2)
|
|
$
|
0.90
|
|
|
|
6/3/2026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,500
|
(3)
|
|
$
|
46,575
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
(4)
|
|
$
|
62,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John S. Glover
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
-
|
|
|
$
|
0.35
|
|
|
|
6/22/2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
225,000
|
|
|
|
-
|
|
|
$
|
0.35
|
|
|
|
6/11/2020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
250,000
|
|
|
|
-
|
|
|
$
|
0.33
|
|
|
|
6/20/2021
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
250,000
|
|
|
|
-
|
|
|
$
|
0.31
|
|
|
|
6/8/2022
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
250,000
|
|
|
|
-
|
|
|
$
|
0.38
|
|
|
|
6/5/2023
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
250,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
5/28/2024
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
187,500
|
|
|
|
62,500
|
(1)
|
|
$
|
1.67
|
|
|
|
6/2/2025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
162,500
|
|
|
|
162,500
|
(2)
|
|
$
|
0.90
|
|
|
|
6/3/2026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
97,500
|
(3)
|
|
$
|
67,275
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,000
|
(4)
|
|
$
|
89,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T. Kelley Spillane
|
|
|
33,900
|
|
|
|
-
|
|
|
$
|
0.21
|
|
|
|
6/9/2018
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
35,000
|
|
|
|
-
|
|
|
$
|
0.35
|
|
|
|
6/22/2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
65,000
|
|
|
|
-
|
|
|
$
|
0.35
|
|
|
|
6/11/2020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
17,100
|
|
|
|
-
|
|
|
$
|
0.35
|
|
|
|
12/7/2020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
44,650
|
|
|
|
-
|
|
|
$
|
0.31
|
|
|
|
6/15/2021
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
20,800
|
|
|
|
-
|
|
|
$
|
0.26
|
|
|
|
12/19/2021
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
43,333
|
|
|
|
-
|
|
|
$
|
0.28
|
|
|
|
6/13/2022
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
85,000
|
|
|
|
-
|
|
|
$
|
0.38
|
|
|
|
6/5/2023
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
100,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
5/28/2024
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
112,500
|
|
|
|
37,500
|
(1)
|
|
$
|
1.67
|
|
|
|
6/2/2025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
100,000
|
|
|
|
100,000
|
(2)
|
|
$
|
0.90
|
|
|
|
6/3/2026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,500
|
(3)
|
|
$
|
46,575
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
(4)
|
|
$
|
62,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alejandra Peña
|
|
|
25,000
|
|
|
|
-
|
|
|
$
|
0.26
|
|
|
|
9/6/2021
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
20,000
|
|
|
|
-
|
|
|
$
|
0.31
|
|
|
|
6/8/2022
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
50,000
|
|
|
|
-
|
|
|
$
|
0.38
|
|
|
|
6/5/2023
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
70,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
5/28/2024
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
93,750
|
|
|
|
31,250
|
(1)
|
|
$
|
1.67
|
|
|
|
6/2/2025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
85,000
|
|
|
|
85,000
|
(2)
|
|
$
|
0.90
|
|
|
|
6/3/2026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56,250
|
(3)
|
|
$
|
38,813
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
(4)
|
|
$
|
51,750
|
|
(1)
|
This
option vests in four equal annual installments with the first installment vested on June 2, 2016.
|
(2)
|
This option vests
in four equal annual installments with the first installment vested on June 3, 2017.
|
(3)
|
These shares of
restricted stock vest in four equal annual installments beginning on April 28, 2018.
|
(4)
|
These shares of
restricted stock vest in four equal annual installments beginning on April 20, 2019.
|
(5)
|
The amounts in this
column are based on the closing price of our common stock on March 29, 2019 of $0.70.
|
Option
Exercises and Stock Vested
The
following table sets forth information regarding the exercise of stock options and vesting of restricted stock for our Named Executive
Officers during fiscal 2019:
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Shares Acquired on
Exercise
(#)
|
|
|
Value Realized
on Exercise
($)
(1)
|
|
|
Number of Shares Acquired on Vesting
(#)
|
|
|
Value Realized
on Vesting
($)
|
|
Richard J. Lampen
|
|
|
800,000
|
|
|
$
|
688,000
|
|
|
|
-
|
|
|
$
|
-
|
|
Alfred J. Small
|
|
|
-
|
|
|
|
-
|
|
|
|
22,500
|
|
|
|
27,900
|
|
John S. Glover
|
|
|
15,400
|
|
|
|
16,324
|
|
|
|
32,500
|
|
|
|
40,300
|
|
T. Kelley Spillane
|
|
|
33,900
|
|
|
|
35,934
|
|
|
|
22,500
|
|
|
|
27,900
|
|
Alejandra Peña
|
|
|
-
|
|
|
|
-
|
|
|
|
18,750
|
|
|
|
23,250
|
|
(1)
|
Represents
the difference between the exercise price and the market price of the common stock on the date of exercise for each option.
|
Pension
Benefits
We
do not provide pension benefits to our named executive officers.
Nonqualified
Deferred Compensation
We
do not maintain defined contribution or other plans providing for the deferral of compensation on a basis that is not tax qualified.
Timing
of Equity Grants
For
all of our employees, including our named executive officers, grants of equity-based compensation are effective on the date that
our compensation committee approves them. All stock option grants to employees, including our named executive officers, are made
with an exercise price at least equal to the fair market value of the underlying stock on the grant date. Our compensation committee
does not grant equity compensation awards in anticipation of the release of material nonpublic information. Similarly, we do not
time the release of material nonpublic information based on equity award grant dates.
Severance
and Change in Control Benefits
We
provide certain severance and change in control benefits to Messrs. Lampen, Glover, Spillane and Small and Ms. Peña. Information
about these benefits is listed below under the heading “Potential Payments Upon Termination or Change in Control.”
Perquisites
and Other Benefits
We
generally provide the same health and welfare benefits to all of our full-time employees, including our named executive officers,
including health and dental coverage, disability insurance, and paid holidays and other paid time off.
We
maintain a 401(k) retirement savings plan for the benefit of all of our full-time employees, including our named executive officers.
Unless
otherwise agreed, Mr. Lampen will not participate in profit-sharing, hospitalization, insurance, medical, disability, or other
fringe benefit or executive perquisite plans that may otherwise be available to other senior executives of our company.
Indemnification
Our
articles of incorporation, as amended, and bylaws require us to indemnify our directors and officers to the fullest extent permitted
by Florida law. We also have entered into indemnity agreements with each of our directors and named executive officers.
Potential
Payments Upon Termination or Change in Control
The
following describes the potential payments upon termination or a change in control for our named executive officers.
Termination
Without Cause
Each
of Messrs. Lampen, Glover, Spillane and Small and Ms. Peña has an employment agreement with us that provides for potential
payments in the event of their termination.
Under
Messrs. Glover, Spillane and Small’s employment agreements, if we terminate the executive’s employment without “cause,”
we have agreed to pay the executive his annual base salary, a bonus equal to the bonus paid for the period immediately prior to
the termination and to provide benefits, including medical insurance, for 24 months following termination. Under Mr. Lampen and
Ms. Peña’s employment agreements, if we terminate either of their employment without “cause,” we have
agreed to pay their annual base salary, a bonus equal to the bonus paid for the period immediately prior to the termination and,
in the case of Ms. Peña, to provide benefits, including medical insurance, for 12 months following termination.
Also,
if we terminate any of the executives without “cause,” then such executive is entitled to accelerated vesting or other
treatment of some or all of the equity awards granted to such executive under the terms of such executive’s employment agreement.
Subject
to his compliance with the terms of his employment agreement and the terms of his option and restricted stock agreements, for
Mr. Lampen, any tranche of unvested shares or options held by the executive that would have vested following termination will
accelerate and vest without any further action of any kind by our company or the executive. Further, subject to the terms of his
option agreements, any stock option held by Mr. Lampen that is vested at the time of his termination will be exercisable until
the expiration date of such option pursuant to its terms. Subject to their compliance with the terms of their respective employment
agreements, for Messrs. Glover, Spillane and Small, any tranche of unvested shares or options held by the executive that would
have vested during the 24 month period following termination will accelerate and vest without any further action of any kind by
our company or the executive. Further, any stock option held by the executive that is vested at the time of the executive’s
termination will be exercisable until the earlier to occur of (i) the expiration date of such option pursuant to its terms and
(ii) 24 months following the date of termination. Subject to her compliance with the terms of her employment agreement, for Ms.
Peña, any tranche of unvested shares or options held by her that would have vested during the 12 month period following
termination will accelerate and vest without any further action of any kind by our company or Ms. Peña. Further, any stock
option held by Ms. Peña that is vested at the time of her termination will be exercisable until the earlier to occur of
(i) the expiration date of such option pursuant to its terms and (ii) 12 months following the date of termination.
Per
the employment agreements, “cause” is defined as the executive’s (i) having committed in the performance of
his or her duties under the agreement one or more acts or omissions constituting fraud, dishonesty, or willful injury to our company
which results in a material adverse effect on the business, financial condition or results of operations of our company, (ii)
having committed one or more acts constituting gross neglect or willful misconduct which results in a material adverse effect
on the business, financial condition or results of operations of our company, (iii) breach of his or her fiduciary duties, (iv)
failure to substantially perform assigned duties relating to executive’s performance under the agreement (other than any
such failure owing to the executive becoming disabled as reasonably determined by a majority of our compensation committee and,
in all cases except for Mr. Lampen, after consultation with our chief executive officer), (v) conviction of, or the entry by the
executive of any plea of guilty or nolo contendere to, any felony, or (vi) material breach of any provision of the employment
agreement as reasonably determined by our compensation committee and, in all cases except for Mr. Lampen, after consultation with
our chief executive officer, subject to a thirty (30) day cure period.
Non-Renewal
of Employment Agreement
If
we do not renew the employment agreements with Messrs. Glover, Spillane or Small, then such executive is entitled to receive his
annual base salary, a bonus equal to the bonus paid for the period immediately prior to the termination and benefits, including
medical insurance, for 24 months following termination. If we do not renew the employment agreements with Mr. Lampen or Ms. Peña,
then such executive is entitled to receive his or her annual base salary, a bonus equal to the bonus paid for the period immediately
prior to the termination and, in the case of Ms. Peña, benefits, including medical insurance, for 12 months following termination.
Further, such executives shall have any tranche of unvested restricted stock or options to purchase common stock vest on the
terms set forth above in “Termination Without Cause.”
Termination
Due to Death or Disability
The
employment agreements of Messrs. Lampen, Glover, Spillane and Small and Ms. Peña each provide that, in each case, if we
terminate such executive due to a “disability,” or if such executive’s employment is terminated as a result
of such executive’s death, the executive will be entitled to any salary owed to the executive through the date of termination,
bonus for the year in which the termination occurred, and base salary for the duration of such executive’s severance period
(24 months in the case of Messrs. Glover, Spillane and Small and 12 months in the case of Mr. Lampen and Ms. Peña). Further,
all stock options and restricted stock awards held by the executive will fully vest and be exercisable for a period of two (2)
years from date of termination for death or disability in the case of Messrs. Glover, Spillane and Small, one (1) year in the
case of Ms. Peña and until the expiration of such option pursuant to its terms in the case of Mr. Lampen. For each of our
named executive officers, a “disability” is defined in the employment agreements as the executive becoming physically
or mentally disabled or incapacitated to the extent that the executive has been or will be unable to perform the duties under
the employment agreement on account of such disabilities or incapacitation for a continuous period of six (6) months as determined
by a qualified independent physician or group of physicians selected by our company and approved by the executive or his or her
representative.
Termination
by Employee with Good Reason
Each
of Messrs. Glover’s, Spillane’s and Small’s employment agreements provides that if he terminates his employment
for “good reason,” we will pay the executive his annual base salary, a bonus equal to the bonus paid for the period
immediately prior to the termination and to provide benefits, including medical insurance, for 24 months following termination.
Under Mr. Lampen’s and Ms. Peña’s employment agreements, if either executive terminates his or her employment
for “good reason,” we have agreed to pay their annual base salary, a bonus equal to the bonus paid for the period
immediately prior to the termination and, in the case of Ms. Peña, to provide benefits, including medical insurance, for
12 months following termination.
Subject
to his compliance with the terms of his employment agreement and the terms of his option and restricted stock agreements, for
Mr. Lampen, any tranche of unvested shares or options held by the executive that would have vested following termination will
accelerate and vest without any further action of any kind by our company or the executive. Further, subject to the terms of his
option agreements, any stock option held by Mr. Lampen that is vested at the time of his termination will be exercisable
until the expiration date of such option pursuant to its terms. Subject to their compliance with the terms of their respective
employment agreements, for Messrs. Glover, Spillane and Small, any tranche of unvested shares or options held by the executive
that would have vested during the 24 month period following termination for “good reason” will accelerate and vest
without any further action of any kind by our company or the executive. Further, any stock option held by the executive that is
vested at the time of the executive’s termination for “good reason” will be exercisable until the earlier to
occur of (i) the expiration date of such option pursuant to its terms and (ii) 24 months following the date of termination. Subject
to her compliance with the terms of her employment agreement, for Ms. Peña, any tranche of unvested shares or options held
by her that would have vested during the 12 month period following termination for “good reason” will accelerate and
vest without any further action of any kind by our company or Ms. Peña. Further, any stock option held by Ms. Peña
that is vested at the time of her termination for “good reason” will be exercisable until the earlier to occur of
(i) the expiration date of such option pursuant to its terms and (ii) 12 months following the date of termination.
Per
the agreement for Mr. Lampen, “good reason” means a termination by executive of such executive’s employment
within sixty (60) days after, without his consent (i) a material diminution of his title, duties or responsibilities as provided
in the agreement, including without limitation, the failure to elect or re-elect his as President and Chief Executive Officer
of the company or as a member of the Board of Directors of the company, or the removal of Mr. Lampen from such position, (ii)
any material diminution his base salary from that in effect on the effective date of the agreement or the most recent anniversary
thereof, (iii) relocation by the company of his primary office to any location more than fifty (50) miles away from Miami, Florida
or (iv) the company’s material breach of any provision of the employment agreement; provided, however, good reason shall
only occur if Mr. Lampen gives the company sixty (60) days’ prior notice of his intent to terminate his employment setting
forth with reasonable specificity the event that constitutes “good reason”, which written notice, to be effective,
must be provided to the company within sixty (60) days of his knowledge (whether actual or constructive, including, without limitation,
knowledge that Mr. Lampen would have reasonably obtained after making due and appropriate inquiry) of such event.
Per
the agreements for Messrs. Glover, Spillane and Small and Ms. Peña, “good reason” means a termination by executive
of such executive’s employment within sixty (60) days after (i) any material diminution in the nature, title, base salary,
target incentive bonus opportunity as a percentage of base salary or status of such executive’s job responsibilities from
those in effect on the effective date of executive’s employment agreement or the most recent anniversary thereof, (ii) relocation
by our company of the executive’s office to any location not within fifty (50) miles from executive’s principal place
of employment in New York City as of the effective date of the executive’s employment agreement or (iii) our company’s
material breach of any provision of the executive’s employment agreement which is not cured within thirty (30) days after
written notice thereof from executive to our company.
Any
severance payments to Messrs. Lampen, Glover, Spillane and Small and Ms. Peña described above under “Termination
Without Cause,” “Non-Renewal of Employment Agreement,” “Termination Due to Death or Disability”
and “Termination by Employee with Good Reason” are in consideration of the non-compete provisions contained in such
named executive officer’s employment agreement.
Each
of Messrs. Glover, Spillane and Small is prohibited from, during the term of his employment and for 18 months thereafter, (i)
soliciting employees to terminate their employment, (ii) soliciting business from our customers or (iii) ownership of, or employment
or consultation with, competing companies. Mr. Lampen and Ms. Peña are prohibited from, during the term of his or her employment
and for 12 months thereafter, (i) soliciting employees to terminate their employment, (ii) soliciting business from our customers
or (iii) ownership of, or employment or consultation with, competing companies.
Change
in Control
If
any of Messrs. Lampen, Glover, Spillane or Small or Ms. Peña is terminated within two years after any “change of
control” (as defined below), either by the executive for “good reason” or by our company or its successor without
“cause,” the executive will be paid a lump sum payment equal to two times such executive’s base salary and bonus
(in the case of Messrs. Glover, Spillane and Small) or one time such executive’s base salary and bonus (in the case of Mr.
Lampen and Ms. Peña). The executive (other than Mr. Lampen) will also be entitled to participate in all benefit plans during
such executive’s severance period. Unvested shares or options held by each executive would accelerate as described above
under “Termination by Employee with Good Reason” or “Termination Without Cause,” as applicable.
For
Messrs. Lampen, Glover, Spillane and Small and Ms. Peña, a “change of control” is defined as: (i) any person
(as such term is used in Section 13(d) of the Exchange Act), other than Dr. Phillip Frost, any member of his immediate family,
and any “person” or “group” (as used in Section 13(d)(3) of the Exchange Act) that is controlled by Dr.
Frost or any member of his immediate family, any beneficiary of the estate of Dr. Frost, or any trust, partnership, corporate
or other entity controlled by any of the foregoing, becomes the “beneficial owner” (as determined pursuant to Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of our company representing more than thirty-five percent (35%)
of the aggregate voting power of our company’s then outstanding securities, other than by acquisition directly from our
company; (ii) there has been a merger or equivalent combination involving our company after which forty-nine percent (49%) or
more of the voting stock of the surviving corporation is held by persons other than former shareholders of our company; (iii)
during any period of two consecutive years, individuals who at the beginning of such period were members of our board of directors
cease for any reason to constitute at least a majority thereof (unless the appointment, election, or the nomination for election
by our stockholders, of each director elected during such consecutive two-year period was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of such period); or (iv) our company sells or disposes
of all or substantially all of its assets.
Also,
certain of our option and restricted stock agreements contain clauses that provide that in the event of a change in control of
our company, or upon the death or disability of the grantee or upon the termination of the grantee without cause or for good reason,
all stock options or shares of restricted stock under such an agreement become fully vested. The unrealized value of in-the-money
unvested stock options and unvested restricted stock subject to accelerated vesting are shown below as potential payments to the
named Executive Officers.
The
following table quantifies for each named executive officer the estimated potential severance payments and benefits that would
be provided, if each termination circumstance set forth below occurred on March 31, 2019.
Named Executive Officer
|
|
Severance Payment
(1)
|
|
|
Estimated
Value of
Benefits
(2)
|
|
|
Benefit of
Acceleration
for Vesting of
Option and Restricted Stock
Awards
(3)
|
|
Richard J. Lampen
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause/with good reason
|
|
$
|
515,000
|
|
|
|
-
|
|
|
|
-
|
|
Non-renewal of employment agreement
|
|
|
515,000
|
|
|
|
-
|
|
|
|
-
|
|
Termination due to death/disability
|
|
|
515,000
|
|
|
|
-
|
|
|
|
-
|
|
Change in control
|
|
|
515,000
|
|
|
|
-
|
|
|
|
-
|
|
Alfred J. Small
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
without cause/with good reason
|
|
|
786,675
|
|
|
$
|
80,050
|
|
|
$
|
108,675
|
|
Non-renewal
of employment agreement
|
|
|
786,675
|
|
|
|
80,050
|
|
|
|
108,675
|
|
Termination
due to death/disability
|
|
|
697,675
|
|
|
|
N/A
|
|
|
|
108,675
|
|
Change
in control
|
|
|
786,675
|
|
|
|
80,050
|
|
|
|
108,675
|
|
John S. Glover
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause/with good reason
|
|
|
966,808
|
|
|
|
53,709
|
|
|
|
156,975
|
|
Non-renewal of employment agreement
|
|
|
966,808
|
|
|
|
53,709
|
|
|
|
156,975
|
|
Termination due to death/disability
|
|
|
836,808
|
|
|
|
N/A
|
|
|
|
156,975
|
|
Change in control
|
|
|
966,808
|
|
|
|
53,709
|
|
|
|
156,975
|
|
T. Kelley Spillane
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause/with good reason
|
|
|
857,997
|
|
|
|
78,334
|
|
|
|
108,675
|
|
Non-renewal of employment agreement
|
|
|
887,997
|
|
|
|
78,334
|
|
|
|
108,675
|
|
Termination due to death/disability
|
|
|
768,997
|
|
|
|
N/A
|
|
|
|
108,675
|
|
Change in control
|
|
|
857,997
|
|
|
|
78,334
|
|
|
|
108,675
|
|
Alejandra Peña
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause/with good reason
|
|
|
298,851
|
|
|
|
27,759
|
|
|
|
90,953
|
|
Non-renewal of employment agreement
|
|
|
298,851
|
|
|
|
27,759
|
|
|
|
90,563
|
|
Termination due to death/disability
|
|
|
298,851
|
|
|
|
N/A
|
|
|
|
90,563
|
|
Change in control
|
|
|
298,851
|
|
|
|
27,759
|
|
|
|
90,563
|
|
(1)
|
Severance
payments (including bonus) would be paid out over the duration of the severance period, except in the case of a change in
control wherein payment would be made in a lump sum.
|
(2)
|
Estimated using
the value of COBRA payments at the rates in effect on March 31, 2019.
|
(3)
|
With
respect to option awards, the estimated amount of benefit was calculated by multiplying the number of options that would accelerate
vesting upon the termination circumstance indicated by the difference between the closing price of our common stock on March
29, 2019, which was $0.70, and the exercise price of the stock option. This column shows a benefit for each of Messrs. Lampen,
Glover, Spillane and Small and Ms. Peña due to the accelerated vesting of option awards and restricted stock awards
granted to each such named executive officer.
|
Pay
Ratio Disclosure
Pursuant
to Item 402(u) of Regulation S-K and Section 953(b) of the Dodd-Frank Act, presented below is the ratio of the annual total compensation
of Richard J. Lampen, our chief executive officer, to the annual total compensation of our median employee (excluding the chief
executive officer).
The
ratio presented below is a reasonable estimate calculated in a manner consistent with Item 402(u). The SEC’s rules for identifying
the median employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to
adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their
employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable
to the pay ratio reported below, as other companies have different employee populations and compensation practices and may utilize
different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
We
identified our median employee from all full-time, part-time, and temporary workers who were included as employees on our payroll
records as of a determination date of March 31, 2019, based on fiscal 2019 base salaries (excluding the chief executive officer).
For employees hired during the year, their compensation was annualized to reflect a full year of wages. For international employees,
their pay was converted to US dollar equivalents using exchange rates as of the determination date.
The
fiscal 2019 annual total compensation as determined under Item 402 of Regulation S-K for our chief executive officer was $450,000,
as reported in the Summary Compensation Table of this annual report. The fiscal 2019 annual total compensation as determined under
Item 402 of Regulation S-K for our median employee was $108,000. The ratio of our chief executive officer’s annual
total compensation to our median employee’s annual total compensation for fiscal year 2019 is 4 to 1.
Director
Compensation
The
following table summarizes compensation paid to directors during our 2019 fiscal year.
Fiscal
2019 Director Compensation
Name
|
|
Fees Earned or
Paid in Cash
|
|
|
Restricted Stock Awards
(1)
|
|
|
Total
|
|
Mark E. Andrews, III
|
|
$
|
100,000
|
(2)
|
|
$
|
146,400
|
(2)
|
|
$
|
246,400
|
|
John Beaudette
|
|
|
30,000
|
|
|
|
13,200
|
(3)
|
|
|
43,200
|
|
Henry C. Beinstein
|
|
|
32,500
|
|
|
|
13,200
|
(4)
|
|
|
45,700
|
|
Phillip Frost, M.D.
|
|
|
25,000
|
|
|
|
13,200
|
(5)
|
|
|
38,200
|
|
Dr. Richard M. Krasno
|
|
|
57,500
|
|
|
|
13,200
|
(6)
|
|
|
70,700
|
|
Richard J. Lampen
|
|
|
-
|
(7)
|
|
|
-
|
|
|
|
-
|
|
Steven D. Rubin
|
|
|
35,000
|
|
|
|
13,200
|
(8)
|
|
|
48,200
|
|
Mark Zeitchick
|
|
|
27,500
|
|
|
|
13,200
|
(9)
|
|
|
40,700
|
|
(1)
|
Represents
the estimated grant date fair value of restricted stock granted for the fiscal year ended March 31, 2019 in accordance with
ASC 718, rather than the amount paid to or realized by the director. Under SEC rules, the amounts shown exclude the impact
of estimated forfeitures relating to service-based vesting conditions. The ASC 718 amounts from these grants may never be
realized.
|
(2)
|
Mr. Andrews, our
chairman, receives an annual salary of $100,000. We do not pay any additional cash compensation for his services as a director.
As of March 31, 2019, Mr. Andrews held options to purchase 1,775,000 shares of our common stock and 240,000 shares of restricted
common stock.
|
(3)
|
As of March 31,
2019, Mr. Beaudette held options to purchase 140,000 shares of our common stock and 22,500 shares of restricted common stock.
|
(4)
|
As of March 31,
2019, Mr. Beinstein held options to purchase 80,000 shares of our common stock and 22,500 shares of restricted common stock.
|
(5)
|
As of March 31,
2019, Dr. Frost held options to purchase 80,000 shares of our common stock and 22,500 shares of restricted common stock.
|
(6)
|
As of March 31,
2019, Dr. Krasno held options to purchase 140,000 shares of our common stock and 22,500 shares of restricted common stock.
|
(7)
|
Mr. Lampen, our
president and chief executive officer, receives no additional compensation for his services as a director.
|
(8)
|
As of March 31,
2019, Mr. Rubin held options to purchase 140,000 shares of our common stock and 22,500 shares of restricted common stock.
|
(9)
|
As of March 31,
2019, Mr. Zeitchick held options to purchase 160,000 shares of our common stock and 22,500 shares of restricted common stock.
|
Our
board of directors believes that compensation for our non-employee directors should be a combination of cash and equity-based
compensation. Employee directors are not paid for their service on the board of directors and only receive compensation as employees.
In
December 2008, effective with the 2008 annual meeting, our board of directors approved the payment of annual compensation of our
non-employee directors comprised of cash and options granted under our stock incentive plans. In March 2018, our board of directors
approved a change in the annual compensation of our non-employee directors by replacing the initial and annual option grants with
grants of restricted shares of our common stock. In May 2018, our board of directors approved (i) the payment of an annual fee
of $25,000 to the lead independent director and (ii) effective as of April 1, 2018, an increase in the annual director retainer
from $10,000 to $25,000. The current compensation of our non-employee directors is as set forth in the following table:
Type of Compensation
|
|
Amount
|
|
Annual director retainer (paid quarterly)
|
|
$
|
25,000
|
|
Additional annual retainer for committee participants, except chairs (paid quarterly)
|
|
$
|
2,500
|
|
Additional annual retainer for committee chairs (paid quarterly)
|
|
$
|
5,000
|
|
Additional annual retainer for the lead independent director (paid quarterly)
|
|
$
|
25,000
|
|
Grant of restricted shares of our common stock upon initial election
|
|
|
50,000 shares
|
|
Grant of restricted shares of our common stock for board service (per director, per year)
|
|
|
15,000 shares
|
|
Reimbursement of expenses related to board attendance
|
|
|
Reasonable expenses
reimbursed as incurred
|
|
Item
13. Certain Relationships and Related Transactions, and Director Independence
Related-Party
Policy
Our
code of business conduct requires us to avoid related party transactions that could result in actual or potential conflicts of
interest, except under guidelines approved by our board of directors or audit committee. Related-party transactions are defined
as transactions in which:
●
|
the
aggregate amount involved is expected to exceed $120,000 in any calendar year;
|
|
|
●
|
we or any of our
subsidiaries is a participant; and
|
|
|
●
|
any (a) executive
officer, director or director nominee, (b) 5% or greater beneficial owner of our common stock, or (c) immediate family member,
of the persons listed in clauses (a) and (b), has or will have a material interest (other than solely as a result of being
a director or a less than 10% beneficial owner of another entity).
|
A
conflict of interest can arise when a person takes actions or has interests that may make it difficult for such person to perform
his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family,
receives improper personal benefits as a result of his or her position. Our audit committee, under its charter, reviews and approves
related-party transactions to the extent we enter into such transactions.
The
audit committee considers all relevant factors when determining whether to approve a related party transaction, including:
●
|
whether
the transaction is on terms no less favorable to us than terms generally available to an unaffiliated third-party under the
same or similar circumstances; and
|
|
|
●
|
the extent of the
related party’s interest in the transaction.
|
A
director may not participate in the approval of any transaction in which he or she is a related party, but must provide the audit
committee with all material information concerning the transaction. Also, we require each of our directors and executive officers
to complete a directors’ and officers’ questionnaire annually that elicits information about related party transactions.
These procedures are intended to determine whether any such related party transaction impairs the independence of a director or
presents a conflict of interest on the part of a director, employee or officer.
Related
Party Transactions
Agreement
with Ladenburg Thalmann Financial Services Inc.
In
November 2008, we entered into an agreement to reimburse Ladenburg Thalmann Financial Services Inc. for its costs in providing
certain administrative, legal and financial services to us. Mr. Lampen, our president and chief executive officer and a director,
is the president and chief executive officer and chairman of Ladenburg Thalmann Financial Services Inc. Dr. Frost, one of our
directors and our principal shareholder, is the former chairman and former principal shareholder of Ladenburg Thalmann Financial
Services Inc. Mr. Beinstein and Dr. Krasno, two of our directors, are directors of Ladenburg Thalmann Financial Services Inc.
Mr. Zeitchick, one of our directors, is an executive vice president and a director of Ladenburg Thalmann Financial Services Inc.
For the fiscal year ended March 31, 2019, Ladenburg Thalmann Financial Services Inc. was paid $281,750 under this agreement.
Agreement
with Vector Group Ltd.
In
November 2008, we entered into a management services agreement with Vector Group Ltd., a more than 5% shareholder of ours, under
which Vector Group agreed to make available to us the services of Mr. Lampen, Vector Group’s executive vice president, effective
October 11, 2008 to serve as our president and chief executive officer and to provide certain other financial and accounting services,
including assistance with corporate taxes and complying with Section 404 of the Sarbanes-Oxley Act of 2002. In consideration for
such services, we agreed to pay Vector Group an annual fee of $100,000, plus any direct, out-of-pocket costs, fees and other expenses
incurred by Vector Group or Mr. Lampen in connection with providing such services, and to indemnify Vector Group for any liabilities
arising out of the provision of the services. The agreement is terminable by either party upon 30 days’ prior written notice.
During the fiscal year ended March 31, 2019, we paid Vector Group $125,349 under this agreement. Mr. Beinstein, a director of
our company, is also a director of Vector Group and Dr. Frost, a director of ours and our principal shareholder, is a principal
shareholder of Vector Group.
Loans
from Certain Executive Officers, Directors and Shareholders
In
August 2015, we entered into amendments (together, the “Amendments”) to our Amended and Restated Loan and Security
Agreement (the “Amended Loan Agreement”) with ACF FinCo I LP (“ACF”). The Amendments provided for a sublimit
to our revolving credit facility in the maximum principal amount of $7.0 million to permit us to acquire aged whiskey inventory
(the “Purchased Inventory Sublimit”), subject to certain conditions set forth in the Amended Loan Agreement. The Purchased
Inventory Sublimit replaced a term loan of $2.5 million with the predecessor entity of ACF, which was paid in full in May 2015
in the normal course of business. The interest rate applicable to the Purchased Inventory Sublimit was the rate that, when annualized,
was the greatest of (a) the Prime Rate plus 4.25%, (b) the LIBOR Rate plus 6.75% and (c) 7.50%.
ACF
required as a condition to entering into an amendment to the Amendment that ACF enter into a participation agreement with certain
related parties of ours, including Frost Gamma Investments Trust, an entity affiliated with Dr. Frost ($150,000), Mark E. Andrews,
III ($50,000), Richard J. Lampen ($100,000), Brian L. Heller, our general counsel and assistant secretary ($42,500), and Alfred
J. Small, our senior vice President, chief financial officer, treasurer & secretary ($15,000), to allow for the sale of participation
interests in the Purchased Inventory Sublimit and the inventory purchased with the proceeds thereof. The participation agreement
provides that ACF’s commitment to fund each advance of the Purchased Inventory Sublimit will be limited to seventy percent
(70%), up to an aggregate maximum principal amount for all advances equal to $4.9 million. Under the terms of the participation
agreement, the participants receive interest at the rate of 11% per annum. We are not a party to the participation agreement.
However, we and our wholly-owned subsidiary, Castle Brands (USA) Corp. (“CB-USA”), are party to a fee letter with
the junior participants (including the related party junior participants) pursuant to which we and CB-USA were obligated to pay
the junior participants a closing fee of $18,000 on the effective date of the Amendment and are obligated to pay a commitment
fee of $18,000 on each anniversary of the effective date until the junior participants’ obligations are terminated pursuant
to the participation agreement. During the fiscal year ended March 31, 2019, we paid the following amounts of principal to related
parties under the participation agreement: an affiliate of Dr. Frost ($92,155), Mr. Andrews ($30,718), an affiliate of Mr. Lampen
($61,437), Mr. Heller ($26,111) and Mr. Small ($9,216). During the fiscal year ended March 31, 2019, we paid the following amounts
of interest to related parties under the participation agreement: an affiliate of Dr. Frost ($31,305), Mr. Andrews ($10,435),
an affiliate of Mr. Lampen ($20,870), Mr. Heller ($8,870) and Mr. Small ($3,131).
In
April 2018, we acquired $2,001,000 in aged bulk bourbon under the Purchased Inventory Sublimit with additional borrowings from
certain related parties of ours, including Frost Gamma Investments Trust ($100,050), Richard J. Lampen ($66,700), Mark E. Andrews,
III ($33,350), Brian L. Heller ($28,348), and Alfred J. Small ($10,005), as junior participants in the Purchased Inventory Sublimit
with respect to such purchase.
In
June 2018, we acquired $1,035,000 in aged bulk bourbon under the Purchased Inventory Sublimit with additional borrowings from
certain related parties of ours, including Frost Gamma Investments Trust ($51,750), Richard J. Lampen ($34,500), Mark E. Andrews,
III ($17,250), Brian L. Heller ($14,663), and Alfred J. Small ($5,175), as junior participants in the Purchased Inventory Sublimit
with respect to such purchase.
In
July 2019, we, and our wholly-owned subsidiary, Castle Brands (USA) Corp. (“CB-USA”), entered into an Eighth Amendment
to the Amended Loan Agreement (the “Eighth Amendment”). Among other changes, the Eighth Amendment removed the Purchased
Inventory Sublimit. As a result of the removal of the Purchased Inventory Sublimit, all amounts owed to Frost Gamma Investments
Trust, Richard J. Lampen, Mark E. Andrews, III, Brian L. Heller and Alfred J. Small pursuant to the participation agreement were
repaid in full.
In March 2017, we issued
a promissory note to Frost Nevada Investment Trust, an affiliate of Dr. Frost (the “Subordinated Note”) in the aggregate
principal amount of $20 million. In April 2018, we entered into a first amendment to the Subordinated Note to extend the maturity
date on the Subordinated Note from March 15, 2019 until September 15, 2020. No other provisions of the Subordinated Note were
amended. The purpose of the Subordinated Note was to finance the acquisition of an additional 20.1% of Gosling-Castle Partners,
Inc. The Subordinated Note, as amended, bore interest quarterly at the rate of 11% per annum. The principal and interest accrued
thereon was due and payable in full on September 15, 2020. In July 2019, the Subordinated Note was prepaid in full by the Company,
in the amount of $20,183,333, including accrued but unpaid interest, without penalty.
Independence
of Directors
We
follow the NYSE American rules in determining if a director is independent. Our board of directors also consults with our counsel
to ensure that the board’s determination is consistent with those rules and all other relevant laws and regulations regarding
director independence. Consistent with these considerations, our board of directors has determined that Messrs. Beaudette, Beinstein,
Krasno, Rubin and Zeitchick are independent directors. The other remaining directors may not be deemed independent under the NYSE
American rules because they currently have relationships with us that may result in them being deemed not “independent.”
All members of our audit, compensation and nominating and corporate governance committees are independent. The members of our
audit committee are also independent under Rule 10A-3 under the Exchange Act.