UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,WASHINGTON, D.C. 20549

 

SCHEDULE 14A INFORMATION

InformationProxy Statement Pursuant to Section 14(c)

14(a) of the Securities Exchange Act of 1934

Filed by the Registrant   þ

Filed by a Party other than the Registrant   o

Check the appropriate box:(Amendment No. 2)

 

Filed by the Registranto[X]
Filed by a Party other than the Registrant[  ]

Check the appropriate box:
[X]Preliminary Proxy Statement
o[  ]Confidential, For Use of the Commission Only (As(as Permitted by Rule 14a-6(e)(2))
þ[  ]Definitive Proxy Statement
o[  ]Definitive Additional Materials
o[  ]Soliciting Material under Rule 14a-12Pursuant to § 240.14a-12

 

CONVERSION LABS, INC.

(Name of Registrant as Specified in Itsits Charter)

 

Payment

(Name of Person(s) Filing Fee (CheckProxy Statement, if other than the appropriate box):Registrant)

 

Payment of Filing Fee (Check the appropriate box):
þ
[X]No fee required

o
[  ]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)Title of each class of securities to which transaction applies:

(2)Aggregate number of securities to which transaction applies:

(3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

(4)Proposed maximum aggregate value of transaction:

(5)Total fee paid:

o
[  ]Fee paid previously with preliminary materials.materials:

o
[  ]Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the formForm or scheduleSchedule and the date of its filing.

(1)Amount Previously Paid:previously paid:

(2)Form, Schedule or Registration Statement No.:

(3)Filing Party:

(4)Date Filed:

 

 

 

 

 

CONVERSION LABS, INC.

800 Third Avenue, Suite 2800

New York, NY 10022

Telephone: (866) 351-5907

 

December 16, 2019NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

Dear Conversion Labs, Inc. Stockholder:

Our Board of Directors (the “Board”) has called and invites you to attend aA Special Meeting of Shareholders (the “Meeting”)the shareholders of Conversion Labs, Inc., a Delaware corporation (together with allits subsidiaries, the “Company”, “Conversion Labs”, “we”, “us” or “our”). The Meeting, will be held on January 10,December 30, 2020, at 10:0010 a.m. Eastern Timelocal time at 800 Third101 Wood Avenue Suite 2800, New York, NY 10022.

AtSouth, 5th Floor, Iselin NJ 08803 for the Meeting, you will be asked to authorize our Board of Directors to:purposes of:

 

●1.Grant discretionary authority toApproving the Board, at any time or times for a period of up to twelve months from the date of the Meeting, to adopt an amendment to our Certificate of Incorporation, as amended (the “Certificate of Incorporation”), to effect a reverse stock split at a ratio of up to and including 1 for 5 (the “Reverse Stock Split”), in the Form of Certificate of Amendment to the Certificate of Incorporation of Conversion Labs, Inc. attached to this Proxy Statement as Annex A or conversely, to determine not to proceed with2020 Equity and Incentive Plan;
2.Ratifying the reverse stock split; and

●Approve anJanuary 21, 2020 amendment to ourthe Company’s Certificate of Incorporation to createauthorize the creation of blank check Preferred Stock,preferred stock, par value $0.0001 per share, (the “Blank Check Preferred”), in one or more series as solely determined by our boardthe subsequent filing of directors, and to have the voting powers, preferences and relative participation, optional and special rights and qualifications, limitations and restrictions thereof as solely determined by our boardAugust 27, 2020 filing of directors as set forth in the Form of Certificate of Amendment to the Certificate of IncorporationDesignations of Conversion Labs, Inc. attached to this Proxy StatementSeries B Convertible Preferred Stock, and the subsequent August 31, 2020 issuance of 3,500 shares of Series B Preferred Stock (collectively, the “Series B Actions”); and
3.Acting on such other matters as Annex B.may properly come before the meeting or any adjournment thereof.

 

The Reverse Stock Split and the creationforegoing items of the Blank Check Preferred (together the “Actions”)business are more fully described in the accompanying Notice of Special Meeting of Shareholders and Proxy Statement. The enclosed Notice of Special Meeting of Shareholders and Proxy Statement contain details about the business to be conducted at the meeting. To ensure that your shares are represented at the meeting, we urge you to mark your choice on the enclosed proxy card, signis attached and date the cardmade and return it promptly in the envelope provided.

Even if you plan to attend the meeting, you are requested to sign, date and return the proxy card in the enclosed envelope. If you attend the meeting after having returned the enclosed proxy card, you may revoke your proxy, if you wish, and vote in person. If you would like to attend and your shares are not registered in your own name, please ask the broker, trust, bank or other nominee that holds the shares to provide you with evidencemade a part of your share ownership.

Thank you for your support.

By Order of the Board of Directors
/s/ Justin Schreiber
Justin Schreiber
December 16, 2019Chief Executive Officer and Director

CONVERSION LABS, INC.

800 THIRD AVENUE, SUITE 2800

NEW YORK, NY 10022

(866) 351-5907

NOTICE OF SPECIAL

MEETING OF SHAREHOLDERS

this Notice. EXCEPT WITH RESPECT TO BE HELD

JANUARY 10, 2020

Dear Conversion Labs, Inc. Stockholder:

Conversion Labs, Inc. (together with all subsidiaries, the “Company”, “Conversion Labs”, “we”, “us” or “our”) will hold a Special Meeting of Shareholders (the “Meeting”). The Meeting will be held on January 10, 2020 at 10:00 a.m. Eastern Time at 800 Third Avenue, Suite 2800, New York, NY 10022, for the following purposes:

●Grant discretionary authority to the Board, at any time or times for a period of up to twelve months from the date of the Meeting, to adopt an amendment to our Certificate of Incorporation, as amended (the “Certificate of Incorporation”), to effect a reverse stock split at a ratio of up to and including 1 for 5 (the “Reverse Stock Split”), in the Form of Certificate of Amendment to the Certificate of Incorporation of Conversion Labs, Inc. attached to this Proxy Statement as Annex A or conversely, to determine not to proceed with the reverse stock split; and

●Approve an amendment to our Certificate of Incorporation to create blank check Preferred Stock, par value $0.0001 per share (the “Blank Check Preferred”), in one or more series as solely determined by our board of directors, and to have the voting powers, preferences and relative participation, optional and special rights and qualifications, limitations and restrictions thereof as solely determined by our board of directors as set forth in the Form of Certificate of Amendment to the Certificate of Incorporation of Conversion Labs, Inc. attached to this Proxy Statement as Annex B.

The holdersTHE RATIFICATIONS (PROPOSAL 2) DESCRIBED BELOW, only stockholders of record of the Company’s common stock, (“Commonpar value $0.01 per share (the “Common Stock”), at the close of business on November 18, 2019 areDecember 3, 2020 (the “Record Date”) will be entitled to notice of, and to vote at, the Special Meeting with respector any adjournment thereof. Our Board of Directors is submitting the Ratifications to the Reverse Stock Split andCompany’s stockholders to eliminate uncertainty concerning the validity or effectiveness of the Ratifications as detailed below. The Ratifications are being submitted to stockholders pursuant to Section 204 of the Delaware General Corporation Law (the “DGCL”). Under Section 204 of the DGCL, stockholders of record as of November 18, 2019 (the record date of the January 10, 2020 Special Meeting at which the amendment to the Company’s Certificate of Incorporation to authorize the creation of the Blank Check Preferred. Theblank check preferred stock was approved), other than holders of record of at least a majoritywhose identities or addresses cannot be determined from our records, are being given notice of the shares of Common Stock of the CompanySpecial Meeting, but are not entitled to vote must be present in person or represented by proxy in order to hold the Special Meeting. Accordingly, it is important that your shares be represented at the meeting. Whether or not you plan to attend the Special Meeting please complete the enclosed proxy card and sign, date and return it promptly in the enclosed postage-paid envelope. If you do plan to attendor vote on any matter presented at the Special Meeting unless they were also holders of Common Stock as of the Record Date.

This notice and the attached proxy statement constitute the notice required to be given to our stockholders under Section 204 of the DGCL in person, you may withdraw your proxyconnection with the ratifications contemplated by Proposal 2. Under Sections 204 and vote personally205 of the DGCL, when a matter is submitted for ratification at a stockholder meeting, any claim that a defective corporate act ratified under Section 204 is void or voidable due to the failure of authorization, or that the Delaware Court of Chancery should declare in its discretion that a ratification in accordance with Section 204 of the DGCL not be effective or be effective only on all matterscertain conditions, must be brought beforewithin 120 days from the Special Meeting. The Boardtime a certificate of Directors recommends that you vote FORvalidation is filed with the Reverse Stock SplitDelaware Secretary of State andFOR becomes effective, if applicable, or from the creationtime the stockholders approve, if no certificate of validation is required. If Proposal 2 is approved, the Company expects to file a certificate of validation with regard to the filing of the Blank Check Preferred.  This matter is more fully describedPreferred Amendment and a certificate of validation with regard to the Series B Designations promptly after the adjournment of the Meeting, and any claim that the filing and effectiveness of the acts so ratified are void or voidable due to the failure to receive the requisite stockholder approval at the January 2020 special meeting of the Company or that the Delaware Court of Chancery should declare, in its discretion, that the acts so ratified not be effective or be effective only on certain conditions, must be brought within 120 days from the time the certificates of validation are filed with the Secretary of State and becomes effective in accordance with the DGCL or, in the Proxy Statement accompanying this Notice.case of the issuance of the Series B Preferred Stock, within 120 days of the Special Meeting.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Justin Schreiber
Justin Schreiber
Chief Executive Officer and Chairman of the Board of Directors
December   , 2020

You are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting, please complete, date, sign and return the enclosed proxy as instructed in these materials, as promptly as possible in order to ensure your representation at the meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.

TABLE OF CONTENTS

 

 By Order of the Board of Directors,

Date: December 16, 2019/s/ Justin SchreiberPage
 Justin Schreiber
INFORMATION CONCERNING THE SPECIAL MEETING1
 Chief Executive Officer
QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING2
PROPOSAL NO. 1: APPROVAL OF THE CONVERSION LABS, INC. 2020 EQUITY AND INCENTIVE PLAN7
PROPOSAL NO. 2: RATIFICATION OF THE JANUARY 21, 2020 AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO AUTHORIZE THE CREATION OF BLANK CHECK PREFERRED STOCK, PAR VALUE $0.0001 PER SHARE, SUBSEQUENT AUGUST 27, 2020 FILING OF THE CERTIFICATE OF DESIGNATIONS OF SERIES B CONVERTIBLE PREFERRED STOCK, AND THE SUBSEQUENT AUGUST 31, 2020 ISSUANCE OF 3,500 SHARES OF SERIES B PREFERRED STOCK11
PROPOSAL NO. 3: APPROVAL OF THE ADJOURNMENT OF THE SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES17
EXECUTIVE COMPENSATION17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT22
OTHER BUSINESS24
ADDITIONAL INFORMATION24
ANNEX A - 2020 EQUITY AND INCENTIVE PLANA-1

ANNEX B – RESOLUTIONS OF THE BOARD RATIFYING THE SERIES B ACTIONS AND AUTHORIZING RELATED MATTERS AND ATTACHING THE CERTIFICATE OF DESIGNATIONS OF SERIES B CONVERTIBLE PREFERRED STOCK

B-1
ANNEX C – FORM OF CERTIFICATES OF VALIDATION TO BE FILED WITH THE DELAWARE SECRETARY OF STATEC-1

 

i

 

 

YOUR VOTE IS IMPORTANTCONVERSION LABS, INC.

800 Third Avenue, Suite 2800

New York, NY 10022

Telephone: (866) 351-5907

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, TO ASSURE THAT YOUR SHARES WILL BE REPRESENTED, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY.STATEMENT

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON JANUARY 10, 2020.DECEMBER 30, 2020

 

Our proxy statement, which is enclosed with this mailing, is also available atINFORMATION CONCERNING THE SPECIAL MEETING www.proxyvote.com. You may vote your shares over the Internet or by mail. If you received a paper copy of the proxy card by mail, please mark, sign, date and promptly return the card in the self-addressed stamped envelope provided. Instructions regarding the methods of voting are contained in the proxy card. Voting over the Internet or by mailing a proxy card will not limit your right to participate in the Special Meeting and vote your shares.

HOW TO CAST YOUR VOTE:
InternetMail
Go towww.proxyvote.com: You can use the Internet 24 hours a day, through January 9, 2020 at 11:59 PM Eastern Time, to transmit your voting instructions. Have your proxy card or Notice in hand when you access the web site and follow the instructions.If you received a printed copy of the proxy materials, you may submit your vote by completing, signing and dating your proxy card and returning it in the prepaid envelope to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717.

CONVERSION LABS, INC.

800 THIRD AVENUE, SUITE 2800

NEW YORK, NY 10022

(866) 351-5907

 

PROXY STATEMENTGeneral

 

SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON JANUARY 10, 2020

GENERAL INFORMATION ABOUT THE PROXY

STATEMENT AND SPECIAL MEETING

GENERAL

This Proxy StatementThe enclosed proxy is being furnished tosolicited by the shareholdersBoard of Directors (the “Board”) of Conversion Labs, Inc. in connection with the solicitation of proxies by our Board of Directors (the “Board of Directors” or the “Board”“Company”), for use at the Special Meeting of Shareholdersthe Company’s shareholders to be held at 800 Third101 Wood Avenue Suite 2800, New York, NY 10022South, 5th Floor, Iselin NJ 08803 , on JanuaryDecember 30, 2020, at 10 2019,a.m. local time and at any and all adjournments thereof. Whether or postponements thereof (the “Special Meeting”) fornot you expect to attend the purposes set forthmeeting in the accompanying Notice of Special Meeting of Shareholders. Accompanying this Proxy Statement is a proxy/voting instruction form (the “Proxy”) for the Special Meeting, which you may useperson, please vote your shares as promptly as possible to indicateensure that your vote as to the proposals described in this Proxy Statement. It is contemplated that this Proxy Statement and the accompanying form of Proxycounted. The proxy materials will be first mailedfurnished to Conversion Labs’ shareholders on or about December 16, 2019.4, 2020.

 

VOTING SECURITIESRevocability of Proxy and Solicitation

 

Only shareholdersAny shareholder executing a proxy that is solicited hereby has the power to revoke it prior to the voting of the proxy. Revocation may be made by attending the Special Meeting and voting the shares of stock in person, or by delivering to the Secretary of the Company at the principal office of the Company prior to the Special Meeting a written notice of revocation or a later-dated, properly executed proxy. Solicitation of proxies may be made by directors, officers and other employees of the Company by personal interview, telephone, facsimile transmittal or electronic communications.

Record Date

Shareholders of record as ofat the close of business on December 3, 2020 (the “Record Date”), will be entitled to receive notice of, attend and vote at the meeting. Under Section 204 of the DGCL, stockholders of record as of November 18, 2019 (the “Record Date”) willrecord date of the January 10, 2020 Special Meeting at which the amendment to the Company’s Certificate of Incorporation to authorize the creation of blank check preferred stock was approved), other than holders whose identities or addresses cannot be determined from our records, are being given notice of the Special Meeting, but are not entitled to attend the Special Meeting or vote on any matter presented at the Special Meeting unless they were also holders of Common Stock as of the Record Date.

Action to be Taken Under Proxy

Unless otherwise directed by the giver of the proxy, the persons named in the form of proxy, namely, Justin Schreiber, our Chief Executive Officer, will vote:

●FOR approval of the Conversion Labs, Inc. 2020 Equity and Incentive Plan;

1

●FOR ratification of the January 21, 2020 amendment to the Company’s Certificate of Incorporation to authorize the creation of blank check preferred stock, par value $0.0001 per share, the subsequent August 27, 2020 filing of the Certificate of Designations of Series B Convertible Preferred Stock, and the subsequent August 31, 2020 issuance of 3,500 shares of Series B Preferred Stock (collectively, the “Series B Actions”); and

●According to his discretion, on the transaction of such other matters as may properly come before the meeting or any adjournment thereof.

Who is Entitled to Vote; Vote Required; Quorum

On October 9, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Delaware in order to effectuate a 1-for-5 reverse stock split of the Company’s issued and any adjournment or postponement thereof. As of November 18, 2019, there were 53,404,045outstanding shares of common stock (“(the “Reverse Split”). The Reverse Split was approved by the Financial Industry Regulatory Authority (FINRA) and became effective in the market on October 14, 2020. Except as otherwise indicated in this proxy statement, all common stock and per share information and all exercise prices with respect to our warrants reflect, on a retroactive basis, the Reverse Split.

As of December 3, 2020, there were 20,992,373 shares of Common Stock”),Stock issued and outstanding, andwhich constitutes all of the outstanding capital stock of the Company entitled to vote. Shareholders are entitled to one vote representing approximately 317 active holders of record, withfor each share of Common Stock held by them. Although as of December 3, 2020, there were 3,500 shares of Series B Preferred Stock issued and outstanding with such shares being entitled to one vote.  Shareholders may vote per share on an as-converted basis with the holders of the Series B Preferred Stock having, in person orthe aggregate, 1,076,923 votes ($3,500,000 of Series B Preferred divided by proxy. the current conversion price of $3.25). Each of the 3,500 Series B Preferred shares equals approximately 307.692 votes on an as-converted basis, subject to adjustment, however, pursuant to DGCL Section 204, because these shares are the subject of the Proposal 2 ratification procedure, they are neither entitled to vote nor counted for quorum purposes for purposes of the Special Meeting.

The presence in person or by proxy of the holders of a majority of the total voting power of the issued and outstanding Common Stock is necessary to constitute a quorum at this meeting. In the absence of a quorum at the meeting, the meeting may be postponed or adjourned from time to time without notice, other than announcement at the meeting, until a quorum is formed. The enclosed Proxy reflects the number of shares that you are entitled to vote. For purposes of the quorum and the discussion below regarding the vote necessary to take shareholder action, shareholders of record who are present at the Special Meeting in person or by proxy and who abstain, including broker non-votes (as described below), and brokers holding customers’ shares of record who cause abstentions to be recorded at the meeting, are considered shareholders who are present for purposes of determining the presence of a quorum.

 

TheBrokers holding shares of record for customers generally are not entitled to vote on “non-routine” matters, unless they receive voting instructions from their customers. As used herein, “uninstructed shares” means shares held by a broker who has not received such instructions from its customers on a proposal. A “broker non-vote” occurs when a nominee holding uninstructed shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that non-routine matter. In connection with the treatment of abstentions and broker non-votes, the proposal at this meeting to approve the 2020 Equity and Incentive Plan and the Ratifications are considered “non-routine” matters, and brokers are not entitled to vote uninstructed shares with respect to this proposal.

For Proposal 1, the affirmative vote of a majority of the votes cast by the shares of Common Stock shares presentcast at the meeting in person or by proxy is required for approval. Abstentions and broker non-votes will be counted for purposes of determining whether a quorum is present but will not be counted as votes cast and, therefore, will have no effect on the outcome of this proposal.

Because Proposal 2 involve the ratification of acts under Section 204 of the DGCL, those acts must be approved by the vote of stockholders required to authorize such acts under the Company’s Certificate of Incorporation and Bylaws and the DGCL at the time the ratification is submitted to stockholders and at the time the acts were originally taken. In this case, because the acts being ratified involve an amendment to the Company’s Certificate of Incorporation, the affirmative vote of the holders of a majority of the outstanding Common Stock entitled to vote thereon is required to approve Proposal 2. Abstentions and broker non-votes will have the Reverse Stock Split and the creationeffect of the Blank Check Preferred (together the “Actions”).votes against Proposal 2.

 

Votes shall be counted by one or more persons who shall serve as the inspectors of election. The inspectors of election will canvas the shareholders present in person at the meeting, count their votes and count the votes represented by proxies presented.  For purposes of determining the votes cast with respect to any matter presented for consideration at the meeting, only those votes cast “FOR” or “AGAINST” are included. However, if a proxy is signed but no specification is given, the shares will be voted “FOR” the Reverse Stock Split and the creation of the Blank Check Preferred. Abstentions are counted as “shares present” at the meeting for purposes of determining the presence of a quorum, while broker non-votes (which result when a broker holding shares for a beneficial owner has not received timely voting instructions on certain matters from such beneficial owner) are not considered “shares present” with respect to any matter. Abstentions will operate in the same manner as a vote against such proposal.


Shareholders ListQUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

 

For a periodWhy am I receiving these materials?

We have sent you these proxy materials because the Board of CONVERSION LABS, INC. (sometimes referred to as the “Company,” “Conversion Labs,” “we” or “us”) is soliciting your proxy to vote at least ten days prior to the Special Meeting of Shareholders. According to our records, you were a shareholder of the Company as of the end of business on December 3, 2020.

2

You are invited to attend the Special Meeting to vote on the proposals described in this proxy statement. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, listsign and return the enclosed proxy card.

The Company intends to mail these proxy materials on or about December 4, 2020 to all shareholders of shareholdersrecord on the Record Date entitled to vote at the Special Meeting.

Under Section 204 of the DGCL, stockholders of record as of November 18, 2019 (the record date of the January 10, 2020 Special Meeting at which the amendment to the Company’s Certificate of Incorporation to authorize the creation of blank check preferred stock was approved), other than holders whose identities or addresses cannot be determined from our records, are being given notice of the Special Meeting, but are not entitled to attend the Special Meeting or vote on any matter presented at the Special Meeting unless they were also holders of Common Stock as of the Record Date.

What is included in these materials?

These materials include this proxy statement for the Special Meeting and the proxy card.

What is the proxy card?

The proxy card enables you to appoint Justin Schreiber, our Chief Executive Officer, as your representative at the Special Meeting. By completing and returning a proxy card, you are authorizing Mr. Schreiber to vote your shares at the Special Meeting in accordance with your instructions on the proxy card. This way, your shares will be available atvoted whether or not you attend the principal executive offices of the Company located at 800 Third Avenue, Suite 2800, New York, NY 10022 so that shareholders of record may inspect the list only for proper purposes.Special Meeting.

 

VOTING OF PROXIESWhen and where is the Special Meeting being held?

 

All valid proxies received prior to theThe Special Meeting will be voted.held on December 30, 2020 commencing at 10 a.m., local time, at 101 Wood Avenue South, 5th FL, Iselin NJ 08830.

Can I view these proxy materials over the Internet?

Yes. The BoardNotice of Directors recommends thatMeeting, this Proxy Statement and accompanying proxy card are available at www.proxyvote.com.

Who can vote at the Special Meeting?

Only shareholders of record at the close of business on December 3, 2020 will be entitled to vote at the Special Meeting. On this Record Date, there were 20,992,373 shares of Common Stock outstanding and entitled to vote.

The Special Meeting will begin promptly at 10 a.m., local time. Check-in will begin one-half hour prior to the meeting. Please allow ample time for the check-in procedures.

Shareholder of Record: Shares Registered in Your Name

If on December 3, 2020 your shares were registered directly in your name with Conversion Labs’ transfer agent, Worldwide Stock Transfer, LLC, then you are a shareholder of record. As a shareholder of record, you may vote in person at the meeting or vote by proxy even ifproxy. Whether or not you plan to attend the Special Meeting.  To vote by proxy,meeting, we urge you mustto fill out and return the enclosed proxy card, sign and date it, and return itproxy.

3

Beneficial Owner: Shares Registered in the enclosed postage-paid envelopeName of a Broker or goBank

If on December 3, 2020, your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, rather than in your name, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to www.proxyvote.comyou by that organization. The organization holding your account is considered to place your vote online.  Voting by proxy will not limit your right to votebe the shareholder of record for purposes of voting at the Special Meeting ifMeeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account. You are also invited to attend the Special Meeting andMeeting. However, since you are not the shareholder of record, you may not vote in person.  However, if your shares are held in person at the name ofmeeting unless you request and obtain a bank,valid proxy from your broker or other holderagent.

What am I voting on?

The following matters are scheduled for a vote:

1.To approve the Conversion Labs, Inc. 2020 Equity and Incentive Plan;

2.To ratify the January 21, 2020 amendment to the Company’s Certificate of Incorporation to authorize the creation of blank check preferred stock, par value $0.0001 per share, the subsequent filing of the August 27, 2020 filing of the Certificate of Designations of Series B Convertible Preferred Stock, and the subsequent August 31, 2020 issuance of 3,500 shares of Series B Preferred Stock; and
3.To act on such other matters as may properly come before the meeting or any adjournment thereof.

The Board is not currently aware of record, you must obtain a proxy executed in your favor, from the holder of record toany other business that will be able to vote atbrought before the Special Meeting.

How do I vote?

You may vote “For” or “Against” or abstain from voting. The procedures for voting are fairly simple:

Shareholder of Record: Shares Registered in Your Name

 

If you are a shareholder of record as of the Record Date, you may vote by one of the following methodswithout attendingin person at the Special Meeting:Meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person even if you have already voted by proxy.

 

●By Internet:To vote in person, come to the Special Meeting and we will give you maya ballot when you arrive. You should be prepared to present photo identification for admittance. A list of shareholders eligible to vote overat the Internet at www.proxyvote.com by following the instructions on the proxy card. Internet voting facilitiesSpecial Meeting will be available 24for inspection at the Special Meeting and for a period of ten days prior to the Special Meeting during regular business hours a day and will close at 11:59 p.m., Eastern Standard Time, on January 9, 2020.our principal executive offices, which are located at 800 Third Avenue, Suite 2800, New York, NY 10022.

 
●By Mail: you may authorize yourTo vote using the proxy by completing, signingcard, simply complete, sign and dating yourdate the enclosed proxy card and returningreturn it promptly in the reply envelope orprovided. If you return ityour completed and signed proxy card to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.us before the Special Meeting, we will vote your shares as you direct.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

 

If you are a streetbeneficial owner of shares registered in the name shareholder,of your broker, bank, or other agent, you will receiveshould have received voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail your voting instructions as directed by your broker or bank to ensure that your vote is counted. Alternatively, you may be able to vote by telephone or over the Internet by following instructions provided by your broker or bank. To vote in person at the Special Meeting, you must obtain a valid proxy from your broker, bank, or other nominee.agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.

4

How many votes do I have?

On each matter to be voted upon, you have one vote for each share of Common Stock you own as of the Record Date.

What is a quorum for purposes of conducting the Special Meeting?

The presence, in person or by proxy, of the holders of a majority of the total voting power of the issued and outstanding Common Stock, or 10,249,352 shares, entitled to vote at the meeting is necessary to constitute a quorum to transact business. If a quorum is not present or represented at the Special Meeting, the shareholders entitled to vote thereat, present in person or by proxy, may adjourn the Special Meeting from time to time without notice or other announcement until a quorum is present or represented.

What if I return a proxy card but do not make specific choices?

If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “FOR” approval of the Conversion Labs, Inc. 2020 Equity and Incentive Plan (Proposal No. 1), and “FOR” the Ratifications (Proposal No. 2) and “FOR” approval of any adjournment of the Special Meeting, if necessary or appropriate, to transact such other business as may properly come before the meeting and all adjournments and postponements thereof; and if any other mat is properly presented at the meeting, your proxy holder (one of the individuals named on your proxy card) will vote your shares using his best judgment.

How does the Board recommend that I vote?

Our Board recommends that you vote your shares “FOR” approval of the Conversion Labs, Inc. 2020 Equity and Incentive Plan (Proposal No. 1), “FOR” the Ratifications (Proposal No. 2); and “FOR” approval of any adjournment of the Special Meeting, if necessary or appropriate, to transact such other business as may properly come before the meeting and all adjournments and postponements thereof. Unless you provide other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board as set forth in this Proxy Statement.

Who is paying for this proxy solicitation?

We will bear the cost of mailing and solicitation of proxies. Proxies may be solicited by mail or personally by our directors, officers or employees, none of whom will receive additional compensation for such solicitation. Those holding shares as of record for the benefit of others, or nominee holders, are being asked to distribute proxy soliciting materials to, and request voting instructions from, the beneficial owners of such shares. We will reimburse nominee holders for their reasonable out-of-pocket expenses.

What does it mean if I receive more than one set of proxy materials?

If you receive more than one set of proxy materials, your shares may be registered in more than one name or in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

I share the same address with another Conversion Labs, Inc. shareholder. Why has our household only received one set of proxy materials?

The SEC’s rules permit us to deliver a single set of proxy materials to one address shared by two or more of our shareholders. This practice, known as “householding,” is intended to reduce the Company’s printing and postage costs. We have delivered only one set of proxy materials to shareholders who hold their shares through a bank, broker or other holder of record and share a single address, unless we received contrary instructions from any shareholder at that address. However, any such street name holder residing at the same address who wishes to receive a separate copy of the proxy materials may make such a request by contacting the bank, broker or other holder of record, or Broadridge Financial Solutions, Inc. at 866-540-7095 or in writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Street name holders residing at the same address who would like to request householding of Company materials may do so by contacting the bank, broker or other holder of record or Broadridge at the phone number or address listed above.

5

Can I change my vote after submitting my proxy?

Yes. You mustcan revoke your proxy at any time before the final vote at the meeting. If you are the record holder of your shares, you may revoke your proxy in any one of three ways:

●You may submit another properly completed proxy card with a later date;
●You may send a timely written notice that you are revoking your proxy to the Company at 800 Third Avenue, Suite 2800, New York, NY 10022, Attn: Chief Executive Officer; or
●You may attend the Special Meeting and vote in person. Simply attending the meeting will not, by itself, revoke your proxy.

If your shares are held by your broker or bank as a nominee or agent, you should follow the voting instructions provided by your broker bank or other nominee in order to instruct your broker, bank or other nominee on how to vote your shares. Street name shareholders should generally be able to vote by returning an instruction card, or by telephone or on the Internet. However, the availability of telephone and Internet voting will depend on the voting process of your broker, bank or other nominee.bank.

 

REVOCABILITY OF PROXIESHow are votes counted?

 

All Proxies which are properly completed, signed and returned prior to the Special Meeting, and which have not been revoked,Votes will be voted in favorcounted by the inspector of elections appointed for the proposals described in this Proxy Statement unless otherwise directed. A shareholder may revoke his or her Proxy atmeeting, who will separately count “For,” “Abstain” and “Against” votes, and broker non-votes. Abstentions will not be counted as votes for any time before it is voted either by filing with the Secretary of the Company, at its principal executive offices located at 800 Third Avenue, Suite 2800, New York, NY 10022, a written notice of revocation or a duly-executed Proxy bearing a later date or by attending the Special Meeting and voting in person.matter.

 

DISSENTER’S RIGHTSHow many votes are needed to approve each proposal?

 

Holders of our voting securities do not have dissenter’s rights under Delaware law in connection withFor Proposal 1, the proposals contemplated by this Proxy.

REQUIRED VOTE

Assuming the presence of a quorum at the Special Meeting:

The affirmative vote of a majority of the votes cast by the shares of Common Stock shares presentcast at the meeting in person or by proxy is required for approval. Abstentions and broker non-votes will be counted for purposes of determining whether a quorum is present but will not be counted as votes cast and, therefore, will have no effect on the outcome of this proposal.

Because Proposal 2 involve the ratification of acts under Section 204 of the DGCL, those acts must be approved by the vote of stockholders required to authorize such acts under the Company’s Certificate of Incorporation and Bylaws and the DGCL at the time the ratification is submitted to stockholders and at the time the acts were originally taken. In this case, because the acts being ratified involved an amendment to the Company’s Certificate of Incorporation, the affirmative vote of the holders of a majority of the total voting power of the issued and outstanding Common Stock, or 10,249,352 shares, entitled to vote at the meeting is required to approve Proposal 2. Abstentions and broker non-votes will have the Actions.


EXPENSES OF SOLICITATIONeffect of votes against Proposal 2.

 

The Company will pay the cost of preparing, assembling and mailing this proxy-soliciting material, and all costs of solicitation, including certain expenses of brokers and nominees who mail proxy material to their customers or principals.Is my vote kept confidential?

 

PRINCIPAL SHAREHOLDERS

The following sets forth information as of November 18, 2019 (the “Determination Date”), regarding the number of shares of our common stock beneficially owned by (i) each personProxy instructions, ballots and voting tabulations that we know beneficially owns more than 5% of our outstanding common stock, (ii) each of our directors and named executive officer and (iii) all of our directors and named executive officer as a group.

Beneficial ownership and percentage ownershipidentify individual shareholders are determined in accordance with the rules of the SEC. Under these rules, beneficial ownership generally includes any shares as to which the individual or entity has sole or shared voting power or investment power and includes any shares that an individual or entity has the right to acquire beneficial ownership of within 60 days of the Determination Date, through the exercise of any option, warrant or similar right (such instruments being deemed to be “presently exercisable”). In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of our common stock that could be issued upon the exercise of presently exercisable options and warrants are considered to be outstanding. These shares, however, are not considered outstanding as of the Determination Date when computing the percentage ownership of each other person.

To our knowledge, except as indicated in the footnotes to the following table, and subject to state community property laws where applicable, all beneficial owners named in the following table have sole voting and investment power with respect to all shares shown as beneficially owned by them. Percentage of ownership is based on 53,404,045 shares of common stock outstanding as of the Determination Date. Unless otherwise indicated, the address of each of the shareholders listed below is: c/o Conversion Labs, Inc., 800 Third Avenue, Suite 2800, New York, NY 10022.

Security Ownership of 5% or greater Beneficial Owners

Name and Address of Beneficial Owner 

Amount and
Nature of
Beneficial
Ownership

  Percent(1) 
Mark McLaughlin(3)  6,080,100   11.39%

Security Ownership of Directors and Executive Officers

Name and Address of Beneficial Owner 

Amount and
Nature of
Beneficial
Ownership

  Percent(1) 
Justin Schreiber(2)  10,388,916   19.45%
Stefan Galluppi(4)  3,654,867   6.84%
Anthony G. Bruzzese, M.D.(5)  1,550,133   2.90%
John R. Strawn(6)  2,415,000   4.52%
Joseph DiTrolio, M.D.(7)  1,010,000   1.89%
Michael Borenstein, M.D.(8)  426,086   0.80%
Happy David Walters(10)  425,000   0.80%
Bertrand Velge(11)  2,173,914   4.07%
Juan Manuel Piñeiro Dagnery(9)  325,000   0.61%
Directors & Executive Officers as a Group (9 persons)  22,368,736   41.89%


Notes:

(1)Percentage of ownership is based on 53,404,045 shares of our common stock outstanding as of November 18, 2019.

(2)Consists of (i) 9,479,310 common shares held by JOJ Holdings, LLC, (ii) warrants to purchase 659,606 ordinary shares issuable upon exercise of outstanding warrants at a price of $0.(we lowered exercise price of these warrants) per share held by JOJ Holdings, LLC, (iii) 250,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.40 per share. Mr. Schreiber has sole voting and dispositive power over all shares and warrants held of record by JOJ Holdings, LLC.

(3)Consists of (i) 2,342,100 common shares held, (ii) 1,448,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.20 per share, (iii) 1,000,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.40 per share, (iv) 250,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.35 per share, and (v) 1,040,000 shares held of record by McLaughlin International, Inc. Mr. McLaughlin has sole voting and dispositive power over all shares and warrants held of record by McLaughlin International, Inc.

(4)Consists of (i) 3,650,000 common shares held by American Nutra Tech, LLC, a company that Mr. Galluppi has sole voting and dispositive power and (ii) 4,687 shares held by Mr. Galluppi.

(5)Consists of (i) 640,133 common shares, (ii) 560,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.20 per share, (iii) 100,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.35 per share and (iv) 250,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.40 per share.

(6)Consists of (i) 15,000 common shares held by John Strawn, Jr., (ii) 300,000 common shares held by Strawn Pickens LLP over which Mr. Strawn has shared voting and dispositive power, (iii) 1,000,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.20 per share, (iv) 1,000,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.40 per share, and (v) 100,000 ordinary shares issuable upon exercise of outstanding options at a price $0.35.

(7)Consists of (i) 82,500 common shares, (ii) 702,500 ordinary shares issuable upon exercise of outstanding options at a price of $0.20 per share, (iii) 100,000 of ordinary shares issuable upon exercise of outstanding options at a price of $0.35 per share, and (iv) 125,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.40 per share.

(8)Consists of (i) 217,390 common shares held by Pilaris Laboratories, LLC, (ii) 108,696 ordinary shares issuable upon exercise of outstanding warrants at a price of $0.40 per share held by Pilaris Laboratories, LLC, and (iii) 100,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.35 per share. Mr. Bornstein is the holder of a 50% equity interest in Pilaris Laboratories, LLC.

(9)Consists of 500,000 ordinary shares issuable upon exercise of outstanding options at a price of $0.40 per share.

(10)Consists of 425,000 common shares held by Happy David Walters.

(11)Consists of (i) 1,086,957 common shares and (ii) warrants to purchase 1,086,957 ordinary shares issuable upon exercise of outstanding warrants at a price of $0.28 per share held by Bertrand Velge.

We are not aware of any arrangements that could resulthandled in a change in control of the Company.


PROPOSAL NO.1

AT ANY TIME OR TIMES FOR A PERIOD OF UP TO TWELVE MONTHS FROM THE DATE OF THE MEETING, TO ADOPT AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION, AS AMENDED (THE “CERTIFICATE OF INCORPORATION”), TO EFFECT A REVERSE STOCK SPLIT AT A RATIO OF UP TO AND INCLUDING 1 FOR 5,OR CONVERSELY, TO DETERMINE NOT TO PROCEED WITH THE REVERSE STOCK SPLIT

Our Board of Directors has unanimously approved and declared advisable an amendment to our Certificate of Incorporation, as amended, to effect a reverse stock split of all issued and outstanding shares of our Common Stock, in a ratio of up to and including 1 for 5, in order to, among other things, assistmanner that protects your voting privacy. Your vote will not be disclosed either within the Company with the applicationor to list its Common Stock onto a national securities exchange (NYSE, NYSE American or NASDAQ) which the Company intends to file in the future. The precise ratio of the proposed reverse stock split shall be a whole number within this range, determined in the sole discretion of our Board of Directors. By approving this proposal, stockholders will give our Board of Directors authority, but not the obligation, to effect the reverse stock split and full discretion to approve the ratio at which shares of Common Stock will be automatically reclassified up to and including a ratio of 1 for 5. Our Board of Directors believes that providing our Board of Directors with this grant of authority with respect to setting the reverse split ratio, rather than approval of a pre-determined reverse stock split ratio, will give our Board of Directors the flexibility to set the ratio in accordance with current market conditions and, therefore, allow our Board of Directors to act in the best interests of the Company and our stockholders. The Form of Certificate of Amendment to the Certificate of Incorporation of the Company with respect to the Reverse Stock Split is attached to this Proxy Statement as Annex A.

In determining the ratio following the receipt of stockholder approval, our Board of Directors may consider, among other things, factors such as:third parties, except:

 

 ●as necessary to meet applicable legal requirements;

●to allow for the historical tradingtabulation and certification of votes; and

●to facilitate a successful proxy solicitation.

Occasionally, shareholders provide written comments on their proxy cards, which may be forwarded to the Company’s management and the Board.

How can I find out the results of the voting at the Special Meeting?

Preliminary voting results will be announced at the Special Meeting. Final voting results will be disclosed in a Current Report on Form 8-K filed after the Special Meeting.

6

PROPOSAL NO. 1: APPROVAL OF THE CONVERSION LABS, INC. 2020 EQUITY AND INCENTIVE PLAN

Overview

Shareholders are being asked to approve the Conversion Labs, Inc. 2020 Equity and Incentive Plan (the “2020 Plan”) which was adopted by the Board on September 19, 2020, subject to shareholder approval. If approved by shareholders, the 2020 Plan will provide stock-based incentive compensation to select officers, employees, non-employee directors, consultants and service providers.

Approval of the 2020 Plan will allow the Company to award stock options in the form of non-qualified and incentive options, stock appreciation rights, restricted stock, and restricted stock units to employees and to non-employee directors, consultants and service providers. In determining the number of shares available under the 2020 Plan, we considered the historical burn-rate of the Company’s previous incentive plans, and the potential dilution to shareholders. The 1,500,000 shares available under the 2020 Plan represent approximately 7.31% of the Company’s 20,992,373 currently outstanding shares (the “Share Reserve”). As of December 1, 2020, the Company has issued an aggregate of 475,000 non-qualified options and restricted stock units pursuant to the Plan.

Plan Highlights

The essential features of our 2020 Plan are outlined below. The following description is not complete and is qualified by reference to the full text of our 2020 Plan, which is appended to this Information Statement as Annex A.

Options are subject to the following conditions:

(i)The Committee (as defined below) determines the exercise price and trading volume of ourIncentive Options at the time the Incentive Options are granted. The assigned exercise price must be no less than 100% of the Fair Market Value (as defined in the 2020 Plan) of the Common Stock;Stock on the Grant Day (as defined in the 2020 Plan). In the event that the recipient is a Ten Percent Owner (as defined in the 2020 Plan), the exercise price must be no less than 110% of the Fair Market Value of the Company on the Grant Day.
   
 ●(ii)The exercise price of each Non-qualified Option will be at least 100% of the then-prevailing trading price and trading volumeFair Market Value of oursuch share of the Common Stock and the anticipated impact of the reverse stock split on the trading market for our Common Stock;date the Non-qualified Option is granted.
   
 ●(iii)The Committee fixes the numberterm of shares of our Common Stock then outstanding,Options, provided that Options may not be exercisable more than ten years from the date the Option is granted, and provided further that Incentive Options granted to a Ten Percent Owner may not be exercisable more than five years from the number of shares of Common Stock issuable upon exercise of options and warrants then outstanding;date the Incentive Option is granted.
   
 ●(iv)Stock Options shall become exercisable and/or vested at such time or times, whether or not in installments, as shall be determined by the anticipated impactCommittee at or after the Grant Date. The Award Agreement may permit a grantee to exercise all or a portion of a particular ratioStock Option immediately at grant; provided that the Shares issued upon such exercise shall be subject to restrictions and a vesting schedule identical to the vesting schedule of the related Stock Option, such Shares shall be deemed to be Restricted Stock for purposes of the Plan, and the optionee may be required to enter into an additional or new Award Agreement as a condition to exercise of such Stock Option. An optionee shall have the rights of a stockholder only as to Shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. An optionee shall not be deemed to have acquired any Shares unless and until a Stock Option shall have been exercised pursuant to the terms of the Award Agreement and this Plan and the optionee’s name has been entered on our ability to reduce administrative and transactional costs;the books of the Company as a stockholder.
   
 ●(v)prevailing general marketOptions are not transferable except to a recipient’s family members or partnerships in which such family members are the only partners and economic conditions;Options are exercisable only by the Options’ recipient, except upon the recipient’s death.
(vi)Incentive Options may not be issued in an amount or manner where the amount of Incentive Options exercisable in one year entitles the holder to Common Stock of the Company with an aggregate Fair Market value of greater than $100,000.

7

Awards of Restricted Stock are subject to the following conditions:

(i)The Committee grants Restricted Stock Options and determines the restrictions on each Restricted Stock Award (as defined in the 2020 Plan). Upon the grant of a Restricted Stock Award and the payment of any applicable purchase price, grantee is considered the record owner of the Restricted Stock and entitled to vote the Restricted Stock if such Restricted Stock is entitled to voting rights.
(ii)Restricted Stock may not be delivered to the grantee until the Restricted Stock has vested.
(iii)Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as provided in the 2020 Plan or in the Award Agreement (as defined in the 2020 Plan).

Upon a Termination Event (as defined in the 2020 Plan), the Company or its assigns shall have the right and option to repurchase from a Holder of Shares (as defined in the 2020 Plan) received pursuant to a Restricted Stock Award any Shares that are still subject to a risk of forfeiture as of the Termination Event (as defined in the 2020 Plan).

Purpose

The objective of the 2020 Plan is to encourage and enable the officers, employees, directors, consultants and other key persons of the Company and its subsidiaries, upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company.

Grants

The 2020 Plan permits the granting of incentive stock options, nonqualified stock options, stock awards, restricted stock units, stock appreciation rights (“SARs”) and other equity-based awards (collectively, “grants”). Although all employees and all of the employees of our subsidiaries are eligible to receive grants under our 2020 Plan, the grant to any particular employee is subject to the discretion of the Compensation Committee of the Board, comprised of not less than two directors (such body that administers the 2020 Plan, the “Committee”).

The maximum number of Shares reserved and available for issuance under the Plan shall be 1,500,000 Shares, subject to adjustment and the following sentence regarding the annual increase. The Share Reserve will automatically increase on January 1st of each year, for a period of not more than nine years, commencing on January 1, 2021 and ending on (and including) January 1, 2029, in an amount equal to 150,000 shares. Notwithstanding the foregoing, the Board may act prior to January 1st of a given year to provide that there will be no January 1st increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a lesser number of shares of Stock than would otherwise occur pursuant to the preceding sentence. If a grant expires or terminates for any reason before it is fully vested or exercised, or if any grant is forfeited, we may again make the number of shares subject to that grant that the participant has not purchased or that has not vested subject to another grant under the 2020 Plan.

We have made and will make appropriate adjustments to outstanding grants and to the number or kind of shares subject to the 2020 Plan in the event of a stock split, reverse stock split, stock dividend, share combination or reclassification and certain other types of corporate transactions, including a merger or a sale of all or substantially all of our assets.

All grants will be determined by the Compensation Committee or a committee of the Board (the “Committee”) and at this time, no grants have been determined or awarded.

Administration

The Plan shall be administered by the Compensation Committee of the Board, comprised of not less than three directors or the Board of Directors in the absence of a Compensation Committee of the Board. All references herein to the “Committee” shall be deemed to refer to the group then responsible for administration of the Plan at the relevant time (i.e., either the Board of Directors or a committee or committees of the Board, as applicable).

8

The Committee shall have the authority and power:

(i)to select the individuals to whom Awards may from time to time be granted;
(ii)to determine the time or times of grant, and the amount, if any, of Incentive Stock Options, Non-Qualified Stock Options, SARs, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units, or any combination of the foregoing, granted to any one or more grantees;
(iii)to determine the number and types of Shares to be covered by any Award and, subject to the provisions of the 2020 Plan, the price, exercise price, conversion ratio or other price relating thereto;
(iv)to determine and, subject to the 2020 Plan, to modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the 2020 Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of Award Agreements;
(v)to accelerate at any time the exercisability or vesting of all or any portion of any Award;
(vi)to impose any limitations on Awards, including limitations on transfers, repurchase provisions and the like, and to exercise repurchase rights or obligations;
(vii)subject to any restrictions imposed under the 2020 Plan or by Section 409A, to extend at any time the period in which Stock Options may be exercised; and
   
 ●(viii)at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the initial listing criteria2020 Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of a national securities exchange such as the NYSE, NYSE American or NASDAQ.2020 Plan and any Award (including Award Agreements); to make all determinations it deems advisable for the administration of the 2020 Plan; to decide all disputes arising in connection with the 2020 Plan; and to otherwise supervise the administration of the 2020 Plan.

 

If our stockholders approve this proposalAll decisions and our Boardinterpretations of Directors does not otherwise abandon the amendment contemplatingCommittee shall be binding on all persons, including the reverse stock split, weCompany and all Holders.

Grant Instruments

All grants will file a Certificate of Amendmentbe subject to the Company’s Certificate of Incorporationterms and conditions set forth in our 2020 Plan and to such other terms and conditions consistent with our 2020 Plan as the Secretary of State ofCommittee deems appropriate and as are specified in writing by the State of Delaware (the “Delaware Secretary of State”)Committee to effect the proposed Reverse Stock Split,individual in the form attached to this proxy statement as Appendix A. Our Board of Directors has approved and declared advisable the proposeda grant instrument or an amendment to the Company’s Amendedgrant instrument. All grants will be made conditional upon the acknowledgement of the grantee in writing or by acceptance of the grant, that all decisions and Restated Certificatedeterminations of Incorporation as set forth in the CertificateCommittee will be final and binding on the grantee, his or her beneficiaries and any other person having or claiming an interest under such grant.

Terms and Conditions of Amendment, in the form attached to this proxy statement as Appendix A. If the proposed Reverse Stock Split is effected, thenGrants

The grant instrument will state the number of issuedshares subject to the grant and outstanding sharesthe other terms and conditions of the grant, consistent with the requirements of our 2020 Plan. The purchase price per share subject to an option (or the exercise price per share in the case of a SAR) must equal at least the fair market value of a share of the Common Stock wouldon the date of grant. The exercise price per share for the Shares covered by a Stock Option shall be reduced. Ourdetermined by the Committee at the time of grant but shall not be less than 100% of the Fair Market Value on the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the exercise price per share for the Shares covered by such Incentive Stock Option shall not be less than 110% of the Fair Market Value on the Grant Date.

Under the 2020 Plan, the term “Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Committee based on the reasonable application of a reasonable valuation method that is consistent with Section 409A of the Code. If the Stock is admitted to trade on a national securities exchange, the determination shall be made by reference to the closing price reported on such exchange. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price. If the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair Market Value shall be the “Price to the Public” (or equivalent).

9

“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent of the Company or any Subsidiary.

Transferability

Restricted Stock, Stock Options, SARs and, prior to exercise, the Shares issuable upon exercise of such Stock Option, shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide in the Award Agreement regarding a given Stock Option or Restricted Stock award that the optionee may transfer by gift, without consideration for the transfer, his or her Non-Qualified Stock Options to his or her family members (as defined in Rule 701 of the Securities Act), to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners (to the extent such trusts or partnerships are considered “family members” for purposes of Rule 701 of the Securities Act), provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this 2020 Plan and the applicable Award Agreement, including the execution of a stock power upon the issuance of Shares. Stock Options, SARs and the Shares issuable upon exercise of such Stock Options, shall be restricted as to any pledge, hypothecation, or other transfer, including any short position, any “put equivalent position” (as defined in the Exchange Act) or any “call equivalent position” (as defined in the Exchange Act) prior to exercise.

Amendment and Termination

The Board may, at any time, amend or discontinue the 2020 Plan and the Committee may, at any time, amend or cancel any outstanding Award for the purpose of Directors has reservedsatisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the consent of the holder of the Award. The Committee may exercise its discretion to reduce the exercise price of outstanding Stock Options or effect repricing through cancellation of outstanding Stock Options and by granting such holders new Awards in replacement of the cancelled Stock Options. To the extent determined by the Committee to be required either by the Code to ensure that Incentive Stock Options granted under the 2020 Plan are qualified under Section 422 of the Code or otherwise, 2020 Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. The Board reserves the right to abandonamend the amendment at2020 Plan and/or the terms of any time beforeoutstanding Stock Options to the effectivenessextent reasonably necessary to comply with the requirements of the Certificate of Amendment with the Delaware Secretary of State, even if the adoption of the amendment is approved by the stockholders. If the Certificate of Amendment is not filed with the Delaware Secretary of State priorexemption pursuant to January 10, 2021, our Board of Directors will abandon the amendment and the Reverse Stock Split will not be effected. Thus, the Board of Directors, at its discretion, may cause the filing of the Certificate of Amendment (following stockholder approval) to effect the Reverse Stock Split or abandon the amendment and not effect the Reverse Stock Split if it determines that any such action is or is not in the best interests of our Company and stockholders.

Prior to filing the amendment to the Certificate of Amendment reflecting the Reverse Stock Split, we must first notify FINRA by filing an Issuer Company Related Action Notification Form no later than ten (10) days prior to the anticipated record date of the Reverse Stock Split.  Our failure to provide such notice may constitute fraud under Section 10Rule 12h-1 of the Exchange Act.

 


Purpose of Proposed Reverse Stock SplitFederal Income Tax Consequences

 

InThe following summary is intended only as a general guide as to the future, we intendUnited States federal income tax consequences under current law of participation in our 2020 Plan and does not attempt to submitdescribe all possible federal or other tax consequences of such participation or tax consequences based on particular circumstances.

Stock option grants under the 2020 Plan are intended either to qualify as incentive stock options under Internal Revenue Code of 1986, as amended (“IRC”) §422 or to be non-qualified stock options governed by IRC §§ 83 and 423, depending on how same are granted. Generally, no federal income tax is payable by a participant upon the grant of an applicationincentive stock option and no deduction is allowed to a national securities exchange (NYSE, NYSE American or NASDAQ) for “uplisting” of our Common Stock. Each such exchange has its own listing criteria.be taken by the Company. The Company is currently targeting the NASDAQ Capital Market which requires, among other criteria, an initial bid price of at least $4.00 per share and, following initial listing, maintenancegrant of a continued price of at least $1.00 per share. On the Record Date, the sale price of our Common Stock on the OTCQB was $0.1646 per share. A decreasenon-qualified stock option does result in the numberrecognition of issued and outstanding shares of our Common Stock resulting fromtaxable income when the Reverse Stock Split should, absent other factors, assist in ensuring that our per share market price of our Common Stock remains aboveoption is granted. Under current tax laws, if a participant exercises a non-qualified stock option, he or she will have taxable income equal to the required price. However, we cannot provide any assurance that (i) we will pursue a listing on the Nasdaq Capital Market, or any other national securities exchange or (ii) even if we do, our minimum bid price would remain over the minimum bid price requirement of the Nasdaq Capital Market or any other such national securities exchange following the Reverse Stock Split.

In the interim, we intend to list our securities on the OTCQX market. In addition to heightened governance requirements and financial requirements of listing, the minimum bid price for the OTCQX is $0.25, We believe that listing on the OTCQX will create additional liquidity and provide additional value to our shareholders while we work towards listing on national exchange.

In addition, an increase in the per share trading value of our Common Stock would be beneficial to us because it would:

●improve the perception of our Common Stock as an investment security;
●reset our stock price to more normalized trading levels in the face of potentially extended market dislocation;
●appeal to a broader range of investors to generate greater investor interest in us; and
●reduce stockholder transaction costs because investors would pay lower commission to trade a fixed dollar amount of our stock if our stock price were higher than they would if our stock price were lower.

Potential Effects of the Proposed Reverse Stock Split

If this proposal is approved and the Reverse Stock Split is effected, the Reverse Stock Split will be realized in the same ratio for all of our issued and outstanding shares of Common Stock. The immediate effect of a reverse stock split would be to reduce the number of shares of our Common Stock outstanding and to increase the trading price of our Common Stock.

However, we cannot predict the effect of any reverse stock split upondifference between the market price of our Common Stock over an extended period, and in many cases, the market value of a company’s Common Stock following a reverse stock split declines, in many cases, because of variables outside of a company’s control (such as market volatility, investor response toon the news of a proposed reverse stock splitexercise date and the general economic environment). We cannot assure you that the trading price of our Common Stock after the Reverse Stock Splitstock option grant price. The Company will rise in inverse proportion to the reduction in the number of shares of our Common Stock outstanding as a result of the Reverse Stock Split. Also, we cannot assure you that a reverse stock split would leadbe entitled to a sustained increase incorresponding deduction on its income tax return. A participant will have no taxable income upon exercising an incentive stock option if the trading price of our Common Stock.shares received are held for the applicable holding period (except that alternative minimum tax may apply), and the Company will receive no deduction when an incentive stock option is exercised. The trading price of our Common StockCompany may change duebe entitled to a variety of other factors, including our operating results and other factors related to our business and general market conditions. You should also keep in mind that the implementation of a reverse stock split does not have an effect on the actual or intrinsic value of our business or a stockholder’s proportional ownership in our Company. However, should the overall value of our Common Stock decline after the proposed Reverse Stock Split, then the actual or intrinsic value of the shares of our Common Stock held by you will also proportionately decrease as a result of the overall decline in value.


The following charts depict the capitalization structure of the Company both pre-Reverse Stock Split and post-Reverse Stock Split based on the following ratios: 1 for 5; 1 for 3; and 1 for 2 (the post-split shares of Common Stock may differ slightly based on the number of fractional shares and the ratio as determined by the Board):

Pre-Reverse Stock Split

1-for-5

Authorized Shares
of Common Stock		  Issued Shares  Authorized but Unissued 
 100,000,000   53,404,045   46,595,955 

Post-Reverse Stock Split

1-for-5

Authorized Shares
of Common Stock		  Issued Shares  Authorized but Unissued 
 100,000,000   10,680,809   89,319,191 

Pre-Reverse Stock Split

1-for-3

Authorized Shares
of Common Stock		  Issued Shares  Authorized but Unissued 
 100,000,000   53,404,045   46,595,955 

Post-Reverse Stock Split

1-for-3

Authorized Shares
of Common Stock		  Issued Shares  Authorized but Unissued 
 100,000,000   17,801,348   82,198,652 

Pre-Reverse Stock Split

1-for-2

Authorized Shares
of Common Stock		  Issued Shares  Authorized but Unissued 
 100,000,000   53,404,045   46,595,955 

Post-Reverse Stock Split

1-for-2

Authorized Shares
of Common Stock		  Issued Shares  Authorized but Unissued 
 100,000,000   26,702,023   73,297,978 


The resulting decrease in the number of shares of our Common Stock outstanding could potentially adversely affect the liquidity of our Common Stock, especiallydeduction in the case of larger block trades.a disposition of shares acquired under an incentive stock option that occurs before the applicable holding period has been satisfied.

 

10

Effects on Ownership

Restricted stock and restricted stock units are also governed by Individual StockholdersIRC §83. Generally, the award of such restricted rights do not give rise to taxable income so long as same are subject to a substantial risk of forfeiture (i.e., becomes vested or transferable). If we implement the Reverse Stock Split, the numberRestricted stock generally becomes taxable when it is no longer subject to a “substantial risk of shares of our Common Stock held by each stockholder would be reduced by multiplying the number of shares held immediately before the Reverse Stock Split by the appropriate ratio and then rounding downforfeiture.” Restricted stock units become taxable when settled. When taxable to the nearest whole share. No fractional shares of Common Stock will be issued as a resultparticipant, income tax is paid on the value of the Reverse Stock Split. Instead, shareholders who otherwise wouldstock or units at ordinary rates. The Company will generally be entitled to receive fractionala corresponding deduction on its income tax return in the year of income recognition by the grantee. Any additional gain on shares upon surrenderreceived are then taxed at capital gains rates when the shares are sold.

The grant of a stock appreciation right will not result in income for the participant or in a tax deduction for the Company. Upon the settlement of such a right, the participant will recognize ordinary income equal to the exchange agentaggregate value of such certificates representing such fractional shares,the payment received, and the Company generally will be entitled to receive a certificate representingtax deduction in the number of shares they would otherwise be entitled to rounded up to the next whole share. The Reverse Stock Split would not affect any stockholder’s percentage ownership interest in our Company or proportionate voting power, except to the extent that interests in fractional shares would be rounded up to the nearest whole share.

Effect on Restricted Stock Units, Stock Options, Warrants. In addition, we would adjust all outstanding shares of any restricted stock units, stock options and warrants entitling the holders to purchase shares of our Common Stock as a result of the Reverse Stock Split, as required by the terms of these securities. In particular, we would reduce the conversion ratio for each security, and would increase the exercise price in accordance with the terms of each security based on the ratio, as determine by the Board, of the Reverse Stock Split (i.e., If a ratio of 1 for 5 is used, the number of shares issuable under such securities would decrease by 80%, and the exercise price per share would be multiplied by 5, respectively).

Other Effects on Issued and Outstanding Shares. If we implement the Reverse Stock Split, the rights pertaining to the issued and outstanding shares of our Common Stock would be unchanged after the Reverse Stock Split. Each share of our Common Stock issued following the Reverse Stock Split would be fully paid and nonassessable.same amount.

 

The Reverse Stock Split would result in some stockholders owning “odd-lots” of less than 5 shares of our Common Stock. Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in “round-lots” of even multiples of 100 shares.

After the effective time, our Common Stock will have a new Committee on Uniform Securities Identification Procedures (CUSIP) number, whichforegoing is a number used to identify our equity securities, and stock certificates with the older CUSIP number will need to be exchanged for shares of Common Stock with the new CUSIP number by following the procedures described below. However, until such exchange is made, the old stock certificates will automatically represent the new, post-split number of shares. After the Reverse Stock Split, we will continue to file periodic reports and comply with other requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Authorized Shares of Stock

The Reverse Stock Split would affect all issued and outstanding shares of Common Stock and outstanding rights to acquire Common Stock. We will not change the number of shares of Common Stock currently authorized. However, upon the effectiveness of the reverse stock split, the number of authorized shares of Common Stock that are not issued or outstanding would increase due to the reduction in the number of shares of Common Stock issued and outstanding as a result of the Reverse Stock Split.

As of the Record Date, we had 100,000,000 shares of authorized Common Stock, of which 53,404,045 shares of Common Stock, par value $0.01 per share, were issued and outstanding. If we issue additional shares, the ownership interest of holders of Common Stock will be diluted.


We will reserve for issuance any authorized but unissued shares of Common Stock that would be made available as a result of the proposed Reverse Stock Split.

We do not have any plans, arrangements or understandings for the remaining portion of the authorized but unissued shares of Common Stock that will be available following the Reverse Stock Split.

Procedure for Effecting the Proposed Reverse Stock Split and Exchange of Stock Certificates

If stockholders approve this proposal and our Board of Directors does not otherwise abandon the amendment contemplating the Reverse Stock Split, we will file with the Delaware Secretary of State a Certificate of Amendment to our Certificate of Incorporation, in the form attached to this proxy statement as Appendix B. The Reverse Stock Split will become effective at the time and on the date of filing of, or at such later time as is specified in, the Certificate of Amendment, which we refer to as the “effective time.” Beginning at the effective time, each certificate representing shares of Common Stock will be deemed for all corporate purposes to evidence ownership of the number of whole shares into which the shares previously represented by the certificate were combined pursuant to the Reverse Stock Split.

Upon the Reverse Stock Split, we intend to treat stockholders holding our Common Stock in “street name,” through a bank, broker or other nominee, in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding our Common Stock in “street name.” However, these banks, brokers or other nominees may have different procedures than registered stockholders for processing the Reverse Stock Split. If you hold your shares with a bank, broker or other nominee and if you have any questions in this regard, we encourage you to contact your nominee.

Following the Reverse Stock Split, stockholders holding physical certificates must exchange those certificates for new certificates, which will be entitled to be rounded up to the next whole share in lieu of any fractional shares.

Our transfer agent will advise registered stockholders of the procedures to be followed to exchange certificates in a letter of transmittal to be sent to stockholders. No new certificates will be issued to a stockholder until the stockholder has surrendered the stockholder’s outstanding certificate(s), together with the properly completed and executed letter of transmittal, to the transfer agent. Any old shares submitted for transfer, whether pursuant to a sale, other disposition or otherwise, will automatically be exchanged for new shares. Stockholders should not destroy any stock certificate(s) and should not submit any certificate(s) until requested to do so.

No Issuance of Fractional Shares

No fractional shares of Common Stock will be issued as a result of the Reverse Stock Split. Instead, shareholders who otherwise would be entitled to receive fractional shares, upon surrender to the exchange agent of such certificates representing such fractional shares, will be entitled to receive a certificate representing the number of shares they would otherwise be entitled to rounded up to the next whole share.

No Appraisal Rights

No appraisal rights are available under the General Corporation Law of the State of Delaware or under our Certificate of Incorporation, as amended, or our Amended and Restated bylaws with respect to the Reverse Stock Split. There may exist other rights or actions under state law for stockholders who are aggrieved by reverse stock splits generally.

Accounting Consequences

The par value of our Common Stock will remain unchanged at $0.01 per share after the Reverse Stock Split. Also, our capital account would remain unchanged, and we do not anticipate that any other accounting consequences would arise as a result of the Reverse Stock Split.


Potential Anti-Takeover Effect

Securities and Exchange Commission (“SEC”) rules require disclosure and discussion of the effects of any proposal that could be used as an anti-takeover device. This proposal, if adopted and implemented, will result in a relative increase in the number of authorized but unissued shares of our Common Stock vis-à-vis the outstanding shares of our Common Stock and could, under certain circumstances, have an anti-takeover effect, although that is not the purpose or intent of the proposal. A relative increase in the number of authorized but unissued shares of Common Stock could have other effects on our stockholders, depending upon the exact nature and circumstances of any actual issuances of authorized shares. A relative increase in our authorized but unissued shares of Common Stock could potentially deter takeovers, including takeovers that our Board of Directors determines are not in the best interest of our stockholders, in that additional shares could be issued (within the limits imposed by applicable law) in one or more transactions that could make a change in control or takeover more difficult. Our Board of Directors is not aware of any attempt to take control of our business and has not considered the Reverse Stock Split to be a tool to be utilized as a type of anti-takeover device. We currently have no plans, proposals or arrangements to issue any shares of Common Stock that would become newly available for issuance as a result of the Reverse Stock Split.

Certain Federal Income Tax Consequences

Each shareholder is advised to consult their own tax advisor as the following discussion may be limited, modified or not apply based on your own particular situation.

The following isonly a summary of important tax considerationsthe effect of federal income taxation on the Reverse Stock Split. It addresses only shareholders who holdparticipant and the pre-Reverse Stock Split shares and post- Reverse Stock Split shares as capital assets.Company under the 2020 Plan. It does not purport to be complete and does not address shareholdersdiscuss the tax consequences arising in the context of a participant’s death or the income tax laws of any municipality, state or foreign country in which the participant’s income may be taxable.

Tax Withholding

Each grantee shall, no later than the date as of which the value of an Award or of any Shares or other amounts received thereunder first becomes includable in the gross income of the grantee for income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and any Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver stock certificates (or evidence of book entry) to any grantee is subject to special rules,and conditioned on any such as financial institutions, tax-exempt organizations, insurance companies, dealerstax withholding obligations being satisfied by the grantee.

The Company’s minimum required tax withholding obligation may be satisfied, in securities, mutual funds, foreign shareholders, shareholders who holdwhole or in part, by the pre-Reverse Stock Split shares as partCompany withholding from Shares to be issued pursuant to an Award a number of a straddle, hedge, or conversion transaction, shareholders who hold the pre-Reverse Stock Split shares as qualified small business stock within the meaning of Section 1202Shares having an aggregate Fair Market Value (as of the Code, shareholders whodate the withholding is effected) that would satisfy the minimum withholding amount due.

No Dissenters’ Rights

Under the Delaware Revised Statutes, the Stockholders are subjectnot entitled to the alternative minimum tax provisions of the Code, and shareholders who acquired their pre-Reverse Stock Split shares pursuant to the exercise of employee stock options or otherwise as compensation. Current tax law may change, possibly even retroactively. This summary does not address tax considerations under state, local, foreign, and other laws. Furthermore, we have not obtained a ruling from the Internal Revenue Service or an opinion of legal or tax counseldissenters’ rights with respect to the consequences of2020 Plan, and the Reverse Stock Split.Company will not independently provide Stockholders with any such right.

 

The Reverse Stock Split is intended to constitute a reorganization within the meaning of Section 368 of the Code. Assuming the Reverse Stock Split qualifies as reorganization, a shareholder generally will not recognize gain or loss on the Reverse Stock Split, except to the extent of cash, if any, received in lieu of a fractional share interest in the post- Reverse Stock Split shares. The aggregate tax basis of the post-Reverse Stock Split shares received will be equal to the aggregate tax basis of the pre-Reverse Stock Split shares exchanged (excluding any portion of the holder’s basis allocated to fractional shares), and the holding period of the post-Reverse Stock Split shares received will include the holding period of the pre-Reverse Stock Split shares exchanged.THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE ADOPTION OF THE CONVERSION LABS, INC. 2020 EQUITY AND INCENTIVE PLAN.

 

A holder of the pre-Reverse Stock Split shares who receives cash will generally recognize gain or loss equal to the difference between the portion of the tax basis of the pre- Reverse Stock Split shares allocated to the fractional share interest and the cash received. Such gain or loss will be a capital gain or loss and will be short term if the pre-Reverse Stock Split shares were held for one year or less and long term if held more than one year. No gain or loss will be recognized by us as a result of the Reverse Stock Split.

PLEASE CONSULT YOUR OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCESPROPOSAL NO. 2: RATIFICATION OF THE REVERSE STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.

Board Discretion to Implement the Reverse Stock Split

Our Board of Directors has reserved the right to abandon the amendment at any time before the effectiveness of the filing of the Certificate of Amendment with the Delaware Secretary of State, even if the adoption of the amendment is approved by the stockholders.


Required Vote

Assuming the presence of a quorum at the Special Meeting:

The affirmative vote of a majority of the votes cast by the shares of Common Stock shares present at the meeting, in person or by proxy, and entitled to vote is required to approve the Reverse Stock Split.

Votes shall be counted by one or more persons who shall serve as the inspectors of election. The inspectors of election will canvas the shareholders present in person at the meeting, count their votes and count the votes represented by proxies presented.  For purposes of determining the votes cast with respect to any matter presented for consideration at the meeting, only those votes cast “FOR” or “AGAINST” are included. However, if a proxy is signed but no specification is given, the shares will be voted “FOR” the proposed name chance and amendment to the Certificate of Incorporation.

Recommendation of the Board of Directors

The Board of Directors unanimously recommends that you vote “FOR” Proposal No. 1.

PROPOSAL NO.2

TO ADOPT ANJANUARY 21, 2020 AMENDMENT TO OURTHE COMPANY’S CERTIFICATE OF INCORPORATION AS AMENDED (THE “CERTIFICATE OF INCORPORATION”), TO AUTHORIZE THE CREATION OF BLANK CHECK PREFERRED STOCK, PAR VALUE $0.0001 PER SHARE, THE SUBSEQUENT FILING OF THE AUGUST 27, 2020 FILING OF THE CERTIFICATE OF DESIGNATIONS OF SERIES B CONVERTIBLE PREFERRED STOCK, AND THE SUBSEQUENT AUGUST 31, 2020 ISSUANCE OF 3,500 SHARES OF SERIES B PREFERRED STOCK

 

TheOur Board has determined that it is in the best interests of Directors has adopted a resolution approvingthe Company and recommendingour stockholders to ratify, pursuant to Section 204 of the DGCL, the filing and effectiveness of an amendment to our Certificate of Incorporation authorizing five million (5,000,000) shares of blank check Preferred Stock (and the subsequent filing of the Certificate of Designations for the Series B Preferred Stock and subsequent issuance of shares of Series B Preferred Stock). That amendment was filed with the Delaware Secretary of State on January 21, 2020. For the reasons set forth in the Proxy Statement for our January 2020 special meeting, and for the reasons set forth herein, our Board has determined that it is advisable and in the best interests of the stockholders to ratify the amendment authorizing blank check Preferred Stock (and the subsequent filing of the Certificate of Designations for their approval,the Series B Preferred Stock and subsequent issuance of shares of Series B Preferred Stock) such that the Board’s authority to issue Preferred Stock will be effective retroactive to January 21, 2020. The filing of the Certificate of Designations for the Series B Preferred Stock and the subsequent issuance of shares of Series B Preferred Stock, will be effective retroactive to, respectively, August 27, 2020 and August 31, 2020.

11

Background

At the January 10, 2020 special meeting of the Company’s stockholders (the “January 2020 Special Meeting”), stockholders approved a proposed certificate ofproposal to adopt an amendment to the Company’s Certificate of Incorporation to create and authorize five million (5,000,000) shares of blank check preferred stockPreferred Stock, par value $0.0001 per share (the “Blank Check Preferred”), in one or more series as solely determined by our Board, and to have the voting powers, preferences and relative participation, optional and special rights and qualifications, limitations and restrictions thereof as solely determined by our Board. Following stockholder approval at the January 2020 Special Meeting, the Company amended the Certificate of Incorporation, filing an Amendment to the Company’s Certificate of Incorporation on January 21, 2020 with the Delaware Secretary of State (the “Blank Check Preferred Stock Authorization”Amendment”). As ofThe Blank Check Preferred Amendment was filed as Exhibit 3.1 to the Record Date,Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 24, 2020.

On August 27, 2020, the Company had no preferred stock authorized for issuance. The Formfiled with the Delaware Secretary of Certificate of Amendment toState the Certificate of IncorporationDesignations of the Series B Convertible Preferred Stock, which established 5,000 shares of the Company’s Series B Preferred Stock, having such designations, rights and preferences as set forth therein (the “Series B Designations”). The Series B Designations was filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2020.

On August 31, 2020, the Company issued 3,500 units (the “Units”) of securities, at a purchase price of $1,000 per Unit, each consisting of (i) one share of Series B Convertible Preferred Stock of the Company, par value $0.0001 per share (the “Series B Preferred Stock”), and (ii) a warrant to purchase 400 shares of common stock, par value $0.01 per share (each a “Warrant” and, collectively, the “Warrants”).

After consultation with respect tooutside counsel, the creationBoard has determined that the Blank Check Preferred Amendment was not adopted by the requisite vote of stockholders at the January 2020 Special Meeting in accordance with Section 242 of the DGCL. As a result, the filing and effectiveness of the Blank Check Preferred Amendment constituted a “defective corporate act” (as defined in Section 204(h) of the DGCL) due to such potential “failure of authorization” (as defined in Section 204(h) of the DGCL) arising out of the adoption of the Blank Check Preferred Amendment by stockholders. We have also determined, after consultation with outside counsel, in light of the ratification needed for the Blank Check Preferred Amendment, there is uncertainty whether the filing of the Series B Designations and the issuance of the 3,500 shares of Series B Preferred Stock constitute defective corporate acts that the approval and ratification of these actions by our Board and stockholders is the most appropriate solution to avoid any uncertainty for the holders of the Series B Preferred Stock, the Company, and our stockholders.

The Board has determined that it is advisable and in the best interests of the Company and its stockholders to ratify the Blank Check Preferred Amendment and its filing and effectiveness, the filing and effectiveness of the Series B Designations, and the issuance of the Series B Preferred Stock (collectively, the “Series B Actions”), and, in connection therewith, to approve the filing of certificates of validation in the form prescribed by Section 204 of the DGCL. Thus, on October 8, 2020, the Board approved resolutions ratifying such acts and the filing and effectiveness of the Blank Check Preferred Amendment and the Series B Designations under Section 204 of the DGCL. A copy of the resolutions of the Board ratifying the Series B Actions and authorizing related matters is attached to this Proxy Statement as Annex B (the “Preferred.

Pursuant to DGCL Section 204, the Board’s ratification of each of the Blank Check Preferred Amendment and its filing and effectiveness, the filing and effectiveness of the Series B Designations, and the issuance of the Series B Preferred Stock Amendment”).is subject to the approval of the stockholders of the Company. The approval of Proposal 2 requires the affirmative vote of the holders of a majority of the total voting power of the issued and outstanding Common Stock, or 10,249,352 shares, entitled to vote at the meeting. Abstentions and broker non-votes will count as votes against Proposal 2.

12

Reasons For, and General Effect on the Rights of Existing Shareholders of the Amendment to the Company’s Certificate of Incorporation to Ratify the Creation of the Blank Check Preferred Stock

 

The effect of the adoptionratification of Proposal 2the Blank Check Preferred Amendment would be to grant the Board of Directors the authority to issue shares of preferred stock in one or more series, with such rights, preferences and designations, as it deems necessary or advisable without any additional action by the Company’s stockholders, unless otherwise required by law or by the rules and policies of NASDAQ or any other quotation system or exchange upon which the shares of Common Stock of the Company are listed and trade. With regard to such proposed Blank Check Preferred, the Board of Directors’ authority to determine the terms of any such shares of preferred stock would include, but not be limited to: (i) the designation of each class or series and the number of shares that will constitute each such class or series; (ii) the dividend rate for each class or series; (iii) the price at which, and the terms and conditions on which, the shares of each class or series may be redeemed, if such shares are redeemable; (iv) the terms and conditions, if any, upon which shares of each class or series may be converted into shares of other classes or series of shares of the Company, or other securities; and (v) the voting rights for each class or series. Shares of preferred stock that are issued by the Company and subsequently redeemed or converted into another security of the Company would be available to be reissued by the Company, and the Board of Directors may set the terms of the reissued shares as they deem appropriate, in the same manner, and subject to the same limitations, as the authorized preferred shares permit.

 

The Board of Directors believes that approvalthe creation of Proposal 2the Blank Check Preferred will provide the flexibility to take advantage of opportunities as they arise and will improve the Company’s ability to attract investment capital as various series of preferred stock may be customized to meet the needs or any particular transactions or market conditions. Specifically,in connection with the Board’s adoption of a resolution approving and recommending our stockholders approve the creation of Blank Check Preferred, our Board unanimously approved, subject to shareholder approval of the Blank Check Preferred Stock Authorization, a series of 13% cumulative perpetual redeemable preferred stock. The Company intends to designate two million (2,000,000) shares of the Blank Check Preferred Stock as 13% Series A Cumulative Perpetual Redeemable Preferred Stock (“Series A Preferred Stock”) and engage in a registered offering thereof. There are, however, no definitive documents for the sale of the Series A Preferred Stock at this time and no assurances can be made that any such registered offering or sale of the Series A Preferred will take place.


The Series A Preferred Stock shall have the voting powers, preferences and relative participation, optional and special rights and qualifications, limitations and restrictions thereof as set forth in the Preferred Stock Amendment, attached to this Proxy Statement as Annex B. The Board believes that the attractive yield and the lack of dilution to the holders of the Company’s Common Stock will make the Series A Preferred Stock an effective financing tool with appeal to persons seeking to invest in the Company’s long-term viability and success.

 

The Board of Directors has adopted a resolution seeking the Blank Check Preferred Stock Authorization. To effect the Blank Check Preferred Stock Authorization as proposed, the Company will file an amendment to our Certificate of Incorporation, as set forth in Annex B, with the Secretary of State of Delaware which will provide that the Board shall have the ability issue five million (5,000,000) shares of preferred stock in one or more series, with such rights, preferences and designations, as it deems necessary or advisable without any additional action by the Company’s stockholders.

Certain Disadvantages of the Blank Check Preferred Stock Authorization

 

If Proposal 2the creation of the Blank Check Preferred is approved,ratified, the availability of undesignated Blank Check Preferred may have certain negative effects on the rights of holders of the Common Stock. The actual effect of the issuance of any shares of preferred stock upon the rights of holders of Common Stock cannot be stated until the Board of Directors determines the specific rights of the holders of such preferred stock. With regard to any proposed new class of Blank Check Preferred, the Board of Directors’ authority to determine the terms of any such shares of preferred stock would include, but not be limited to, (i) the designation of each class or series and the number of shares that will constitute each such class or series; (ii) the dividend rate for each class or series; (iii) the price at which, and the terms and conditions on which, the shares of each class or series may be redeemed, if such shares are redeemable; (iv) the terms and conditions, if any, upon which shares of each class or series may be converted into shares of other classes or series of shares of the Company or other securities; and (v) the voting rights for each class or series. The proposed amendment will permit the Board of Directors, without future stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights, which are superior to and could adversely affect the voting power or other rights of the holders of our Common Stock. Specifically, the Board will be in a position to issue securities which would grant to the holders thereof, preferences or priorities over the holders of Common Stock with respect to, among other things, liquidation, dividends and voting. This could result in holders of Common Stock receiving less in the event of a liquidation, dissolution or other winding up of the Company, reduce the amount of funds, if any, available for dividends on Common Stock, and dilute the voting power of the holders of our Common Stock.

 

Shares of preferred stock that are issued by the Company and subsequently redeemed or converted into another security of the Company would be available to be reissued by the Company and the Board of Directors may set the terms of the reissued shares as they deem appropriate, in the same manner, and subject to the same limitations, as the authorized preferred shares permit.

 

Principal Effects of the Blank Check Preferred Stock Authorization

 

If our stockholders approve this Proposal 2 to effectratify the creation of the Blank Check Preferred, Stock Authorization, the Blank Check Preferred Stock Authorization will enable the Company to utilize such shares for general corporate purposes, including, without limitation, capital raising, merger and acquisition opportunities, the issuance of stock dividends or stock splits, and other general corporate purposes. The ratification of the Blank Check Preferred, Stock Authorization, in and of itself, will not affect any stockholder’s percentage ownership interests in our company. We will continue to be subject to the periodic reporting requirements of the Exchange Act, as amended.

 

13

Procedure for Effecting the Blank Check Preferred Stock Authorization

 

In order to effect the Blank Check Preferred Stock Authorization, we will file an amendment to our Certificate of Incorporation with the Secretary of State of Delaware to amend our existing Certificate of Incorporation. The Blank Check Preferred Stock Authorization will become effective at the time specified in the amendment. The text of the amendment to effect the Blank Check Preferred Stock Authorization will be in substantially the form attached hereto as Annex B; provided , however , that the form of amendment attached hereto is subject to modification to include such changes as may be required by the office of the Secretary of State of Delaware and as the Board of Directors deems necessary and advisable to effect the Blank Check Preferred Stock Authorization. As soon as practicable our stockholders will be notified that the Blank Check Preferred Stock Authorization has been effected.


Anti-Takeover Effects

 

Release No. 34-15230 of the staff of the SEC requires disclosure and discussion of the effects of any proposal that may be used as an anti-takeover device. The Blank Check Preferred could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. For example, the Board of Directors could designate and issue a series of preferred stock in an amount that sufficiently increases the number of outstanding shares to overcome a vote by the holders of the Common Stock or with rights and preferences that include special voting rights to veto a change in control. The effect of such provisions could delay or frustrate a merger, tender offer or proxy contest, the removal of incumbent directors, or the assumption of control by stockholders. Please note that the creation of the Blank Check Preferred has not been proposed by the Board of Director for an anti-takeover related purpose and the Board of Directors has no knowledge of any current efforts to obtain control of the Company or to effect large accumulations of our voting stock.

 

Potential Consequences if Stockholder Approval is Obtained

This Proposal would enable the Company to create and utilize the issuance Blank Check Preferred shares for general corporate purposes, including, without limitation, capital raising, merger and acquisition opportunities, the issuance of stock dividends or stock splits, and other general corporate purposes. The availability of undesignated Blank Check Preferred may have certain negative effects on the rights of the holders of our Common Stock. The actual effect of the issuance of any shares of Blank Check Preferred upon the rights of holders of Common Stock cannot be stated until the Board determines the specific rights of the holders of such Blank Check Preferred.

No Appraisal Rights

 

No appraisal rights are available under the General Corporation Law of the State of Delaware or under our Certificate of Incorporation, as amended, or our Amended and Restated bylaws with respect to the creation of the Blank Check Preferred.

 

Financial InformationThe Series B Convertible Preferred Stock

The shares of Series B Preferred Stock have a stated value of $1,000 per share (the “Series B Stated Value”) and are convertible into Common Stock at the election of the holder of the Series B Preferred Stock, at a price of $3.25 per share, subject to adjustment (the “Conversion Price”). Each holder of Series B Preferred Stock shall be entitled to receive, with respect to each share of Series B Preferred Stock then outstanding and held by such holder, dividends at the rate of thirteen percent (13%) per annum (the “Preferred Dividends”).

 

Our audited consolidated financial statementsThe Preferred Dividends shall accrue and accompanying notes filedbe cumulative from and after the date of issuance of any share of Series B Preferred Stock on a daily basis computed on the basis of a 365-day year and compounded quarterly. The Preferred Dividends are payable only when, as, and if declared by the Board of Directors of the Company (the “Board”) and the Company has no obligation to pay such Preferred Dividends; provided, however, if the Board determines to pay any Preferred Dividends, the Company shall pay such dividends in kind in a number of additional shares of Series B Preferred Stock (the “PIK Shares”) equal to the quotient of (i) the aggregate amount of the Preferred Dividends being paid by the Company in respect of the shares of Series B Preferred Stock held by such holder, divided by (ii) the Series B Issue Price (as defined in the Series B Designations); provided, further, that, at the election of the purchasers holding a majority of the shares of Series B Preferred Stock then outstanding, in their sole discretion, such Preferred Dividends shall be paid in cash or a combination of cash and PIK Shares. Notwithstanding the foregoing, the Preferred Dividends may be paid in cash at the election of the Company if, and only if, (A) the purchasers holding a majority of the shares of Series B Preferred Stock then outstanding consent in writing to the payment of any specific dividend in cash, or (B) at any time following the twenty-four (24) month anniversary of the Closing, (i) the prevailing VWAP of the Common Stock over the trailing ninety (90)-day period is equal to or greater than $15.00 per share (subject to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, reverse stock splits or other similar events), and (ii) the average trading volume of the Common Stock over the trailing ninety (90)-day period is equal to or greater than 200,000 shares of Common Stock per day, or (C) at any time following the thirty-six (36) month anniversary of the Closing.

The holders of Series B Preferred Stock rank senior to the Common Stock with our Annualrespect to payment of dividends and rights upon liquidation and will vote together with the holders of the Common Stock on an as-converted basis, subject to beneficial ownership limitations, on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). In addition, as further described in the Series B Designations, if at least 30% of the number of shares of Series B Preferred Stock sold at the closing are outstanding, the Company will not take certain corporate actions without the affirmative vote at a meeting (or the written consent with or without a meeting) of the purchasers holding a majority of the shares of Series B Preferred Stock then outstanding.

14

If at any time following the twelve (12)-month anniversary of the Closing (A) the prevailing VWAP (as defined in the Series B Designations) of the Common Stock over the trailing ninety (90)-day period is equal to or greater than $15.00 per share (subject to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, reverse stock splits or other similar events), and (B) the average trading volume of the Common Stock over the trailing ninety (90)-day period is equal to or greater than 200,000 shares of Common Stock per day, the Company shall have the right, but not the obligation, in its sole discretion, to elect to convert all, but not less than all, of the then-outstanding shares of Series B Preferred Stock into Common Stock by delivering written notice of such election (the “Forced Conversion Notice”) to the holders of the Series B Preferred Stock within ten (10) Business Days following the satisfaction of the criteria of clauses (A) and (B) above (a “Forced Conversion”). On the Forced Conversion Date (as defined in the Series B Designations), each share of Series B Preferred Stock shall be converted into the number of fully paid and non-assessable shares of Common Stock equal to the quotient of: (x) the sum of (1) the Series B Issue Price, plus (2) any accrued but unpaid dividends on such share of Series B Preferred Stock as of immediately prior to the conversion thereof, including the Preferred Dividends, divided by (y) the Conversion Price of such share of Series B Preferred Stock in effect at the time of conversion. The Forced Conversion Notice shall state (i) the number of shares of Series B Preferred Stock held by such Holder that are proposed to be converted, and (ii) the date on which such Forced Conversion shall occur, which date shall be the thirtieth (30th) day following the date such Forced Conversion Notice is deemed given (a “Forced Conversion Date”).

In the event of a Forced Conversion, a holder may elect, in its sole discretion and in lieu of the Forced Conversion, to have each then-outstanding share of Series B Preferred Stock held by such holder be redeemed by the Company (a “Forced Conversion Redemption”) by delivering written notice to the Company (a “Forced Conversion Redemption Notice” and the date such Holder delivers such notice to the Corporation, a “Forced Conversion Redemption Notice Date”) prior to the Forced Conversion Date, which notice shall state (A) the number of shares of Series B Preferred Stock that are to be redeemed, (B) the date on which such Forced Conversion Redemption shall occur, which date shall be the tenth (10th) Business Day following the applicable Forced Conversion Redemption Notice Date (the “Forced Conversion Redemption Date”) and (C) the wire instructions for the payment of the applicable amount owed to such holder. Each share of Series B Preferred Stock that is the subject of a Forced Conversion Redemption shall be redeemed by the Company in cash at a price per share equal to the sum of (1) the Series B Issue Price, plus (2) any accrued but unpaid dividends on such share of Series B Preferred Stock, including the Preferred Dividends (the “Per Share Forced Conversion Redemption Price”).

At any time (A) after December 31, 2020, if a sufficient number of shares of Common Stock are not available to effect the conversion of the Series B Preferred Stock outstanding into Common Stock and the exercise of the Warrants, or (B) after the three (3) year anniversary of the closing, each holder shall have the right, in its sole and absolute discretion (in addition to and not to the exclusion of any remedy such holder may have at law or in equity), to require that the Company redeem (an “Optional Redemption”), to the fullest extent permitted by law and out of funds lawfully available therefor, all or any portion of such holder’s Series B Preferred Stock then outstanding by delivering written notice thereof; provided, however, that right of the holders to cause an Optional Redemption under clause (B) above shall expire at such time as (i) the Company’s Common Stock is listed for trading on a National Securities Exchange (as defined in the Series B Designations) and (ii) the VWAP of the Common Stock over any ninety (90)-day period is equal to or greater than $10.00 per share, subject to adjustment.

The Issuance of the Units

On August 28, 2020, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with PA001 Holdings, LLC a Delaware limited liability company (the “Investor”), whereby, at the closing, the Investor has agreed to purchase the Units from the Company, at a purchase price of $1,000 per Unit, each consisting of (i) one share of Series B Convertible Preferred Stock, and (ii) a Warrant to purchase 400 shares of common stock. The aggregate purchase price for the Units was $3,500,000, of which (i) $2,892,500 was paid in cash at the closing of the transaction and (ii) $607,500, paid by the conversion of the outstanding principal and interest due and owing to the Investor pursuant to that certain Secured Convertible Promissory Note (the “Note”) issued by the Company in favor of the Investor as previously reported on the Company’s Current Report on Form 10-K8-K on July 28, 2020. The Purchase Agreement provides that the Investor may not sell, transfer or otherwise dispose of the Series B Preferred Stock or Warrants (or the shares of Common Stock issuable thereunder) for a period of one year following the year ended December 31, 2018 (our “Annual Reports”),closing. The Company used the proceeds from the Purchase Agreement for general working capital purposes.

Dilutive Effect of the Issuance of the Units

As a result of the Issuance of the Units, the Investor received 3,500 shares of Series B Preferred Stock which are immediately convertible into, in the aggregate, 1,076,923 votes ($3,500,000 of Series B Preferred divided by the current conversion price of $3.25). Each of the 3,500 Series B Preferred shares equals approximately 307.692 votes on an as-converted basis, subject to adjustment for additional issuances pursuant to the issuance of preferred stock dividends as well stock splits. In addition, the Investor received Warrants to purchase an aggregate of 1,400,000 shares of the Company’s Common Stock.

If this proposal is approved, the percentage ownership of the Company held by current shareholders could decline as a result of the issuance of the Units. This also means that current shareholders would therefore have less ability to influence significant corporate decisions requiring shareholder approval following the issuance of the Units or the Series B Preferred Stock is subsequently converted and the Warrants are subsequently exercised into shares of Common Stock than they would have if the issuance of the Units by virtue of the ratification of the Blank Check Preferred Amendment is not approved. The issuance of the Units or the conversion of the Series B Preferred Stock and the exercise of the Warrants into shares of Common Stock could also have a dilutive effect on book value per share and any other report filed priorfuture earnings per share as well as cause prevailing market prices for our Common Stock to decline.

Because the timing and conversion of Series B Preferred Stock and exercise of the Warrants is uncertain, the exact magnitude of the dilutive effect of the issuance of the Units cannot be conclusively determined. However, the dilutive effect may be material to current shareholders of the Company.

Voting of the Series B Preferred Stock

As a result of the issuance of the Series B Convertible Preferred Stock, each one share of Series B Convertible Preferred Stock will be entitled to approximately 307.692 votes (based on each one share of Series B Convertible Preferred Stock being convertible into approximately 307.692 shares of Common Stock). The holders of the 3,500 shares of Series B Preferred Stock are entitled to an aggregate of 1,076,923 votes (each of the 3,500 Series B Preferred shares equals approximately 307.692 votes on an as-converted basis), subject to adjustment for additional issuances pursuant to the issuance of preferred stock dividends as well stock splits. Additionally, as of December 3, 2020, more than 30% of the shares of Series B Preferred Stock sold at the August 2020 closing remain outstanding, so the Company, without the affirmative vote of the holders of a majority of such stock, will not take certain corporate actions without the affirmative vote at a meeting (or the written consent with or without a meeting) of the Investor holding a majority of the shares of Series B Preferred Stock then outstanding.

15

Filing of Certificates of Validation

If Proposal 2 is approved by our stockholders, we will file certificates of validation with respect to the Blank Check Preferred Amendment and the Series B Designations (the “Certificates of Validation”). The filing date of the Certificates of Validation with the Delaware Secretary of State will be the “validation effective time” (as defined in Section 204(h) of the DGCL) with respect to the ratification of the Blank Check Preferred Amendment and its filing and effectiveness and the filing and effectiveness of the Series B Designations. The “validation effective time” with regard to the issuance of the Series B Preferred Stock will be the date of your consent, are incorporated herein by reference.

Item 7 of Part II of our Annual Report “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

Effectivenessthe Special Meeting. A copy of the Certificateform of Incorporation Amendment

If the proposed CertificateCertificates of Incorporation Amendment, included asAnnex BValidation is attached to this Proxy Statement is adopted, weas Annex C.

Retroactive Ratification of the Series B Actions

Subject to the 120-day period for bringing claims discussed below, when the Certificates of Validation becomes effective in accordance with the DGCL, it should eliminate any possible uncertainty as to whether the Blank Check Preferred Amendment and its filing and effectiveness and the filing and effectiveness of the Series B Designations are void or voidable as a result of the potential failure of authorization described above, and the effect of the ratification will promptly filebe retroactive to the Certificatefiling, respectively, of Incorporationthe Blank Check Preferred Amendment with the Delaware Secretary of State on January 21, 2020 and the Certificatefiling of Incorporation Amendment will become effective upon such filing.the Series B Designations with the Delaware Secretary of State on August 27, 2020.

 

Required Vote

AssumingSubject to the presence of a quorum120-day period for bringing claims discussed below, the stockholders’ approval at the Special Meeting:Meeting should eliminate any possible uncertainty as to whether the issuance of the Series B Preferred Stock is void or voidable as a result of the potential failure of authorization described above, and the effect of the ratification will be retroactive to the August 31, 2020 issuance date.

 

Time Limitations on Legal Challenges to the Ratification of the Series B Actions

If the ratification of the Series B Actions becomes effective, under the DGCL, any claim that (i) the Series B Actions are void or voidable due to a failure of authorization, or (ii) the Delaware Court of Chancery should declare in its discretion that the Series B Actions not be effective or be effective only on certain conditions, must be brought within 120 days from the filing date of the Certificates of Validation with respect to the Blank Check Preferred Amendment and the Series B Designations with the Delaware Secretary of State and within 120 days of the Special Meeting with respect to the issuance of the Series B Preferred Stock. If Proposal 2 is approved, we intend to file the Certificates of Validation promptly after the final adjournment of the Meeting.

The Consequences if Proposal 2 to the Series B Actions is Not Approved by Our Stockholders

If Proposal 2 is not approved by the requisite vote of our stockholders, the Series B Actions will not have been validly authorized. In that case, we intend to file certificates of correction with the Delaware Secretary of State to reflect that the Blank Check Preferred Amendment and the Series B Designations had been erroneously filed and that the Blank Check Preferred Amendment and the Series B Designations are not in full force and effect. In that case, we may be required to issue different securities to the purchasers of the Units or to return the purchase price to those purchasers.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE JANUARY 21, 2020 AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO AUTHORIZE THE CREATION OF BLANK CHECK PREFERRED STOCK, PAR VALUE $0.0001 PER SHARE, THE SUBSEQUENT FILING OF THE AUGUST 27, 2020 FILING OF THE CERTIFICATE OF DESIGNATIONS OF SERIES B CONVERTIBLE PREFERRED STOCK, AND THE SUBSEQUENT AUGUST 31, 2020 ISSUANCE OF 3,500 SHARES OF SERIES B PREFERRED STOCK.

16

PROPOSAL NO. 3: APPROVAL OF THE ADJOURNMENT OF THE SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES

Adjournment of the Special Meeting

In the event that the number of shares of Common Stock present in person or represented by proxy at the Special Meeting and voting “FOR” the adoption of each of the proposals specified in the Notice of Special Meeting is insufficient to adopt every or any proposal, we may move to adjourn the Special Meeting in order to enable the Board to solicit additional proxies in favor of the adoption of the proposals specified in the Notice of Special Meeting. In that event, we will ask stockholders to vote only upon the adjournment proposal and not on any other proposal discussed in this proxy statement. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Vote Required and Board Recommendation

If a quorum is present, approval of the proposal to adjourn the Special Meeting to a later date requires the affirmative vote of the holders of a majority of the votes cast by the shares of Common Stock shares present at the meeting, in person or by proxy at the Special Meeting.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO ADJOURN THE SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES, IF THERE ARE INSUFFICIENT PROXIES AT THE SPECIAL MEETING TO APPROVE EACH OR ANY OF THE PROPOSALS SPECIFIED IN THE NOTICE OF SPECIAL MEETING

EXECUTIVE COMPENSATION

Summary Compensation Table

The following summary compensation table indicates the cash and entitlednon-cash compensation earned from the Company during the years ended December 31, 2019 and 2018 by the current and former executive officers of the Company and each of the other two highest paid executives or directors, if any, whose total compensation exceeded $100,000 during those periods.

Name and

Principal

Position

 Year  

Salary

($)

  

Bonus

($)

  

Stock

Awards

($)

  

Option

Awards

($) (1)

  

Non-Equity

Incentive

Plan

Compensa-

tion

($)

  

Non-qualified

Deferred

Compensation

Earnings

($)

  

All Other

Compensation

($)

  Total ($) 

Mark McLaughlin

Former

  2019   -   -   -   -   -   -   -   - 
President, Former Chief Executive Officer and Former Director (2)  2018   24,267   -   -   -   -   -   -   24,267 

Justin Schreiber

President,

  2019   -   -   824,000(11)  -   -   -   52,000(9)  876,000 
Chief Executive Officer, and Director (3)  2018   -   -   460,000   -   -   -   -   460,000 
Stefan Galluppi Chief Operating Officer,  2019   111,000   -   450,000(11)  -   -   -   -   561,000 
Chief Technology Officer and Director (4)  2018   72,000   -   -   -   -   -   -   72,000 
Juan Manuel  2019   84,000   -   -   73,415   -   -   -   157,415 
Piñeiro Dagnery (5)  2018   -   -   -   -   -   -   -   - 

Robert Kalkstein

Former

  2019   22,500   -   -   37,108   -   -   -   59,608 
Chief Financial Officer (6)  2018   -   -   -   -   -   -   90,000   90,000 

Sean Fitzpatrick

President of LegalSimpli,

  2019   119,265   -   -   571,875   -   -   -   691,140 
Former Chief Acquisition Officer (7)  2018   72,000   -   260,416   -   -   -   29,750   290,166 
Nick Alvarez  2019   84,000   -   -   104,571   -   -   38,196(10)  226,767 
Chief Acquisition Officer (8)  2018   49,125   -   -   -   -   -   -   49,125 

17

 (1)Amounts shown reflect aggregate grant date fair value and, where applicable, incremental fair value as of modification date, of awards and do not reflect whether the recipient actually has realized a financial benefit from such grant, such as by exercising the options or selling the stock. A discussion of the assumptions used in calculating the award values may be found in Note 2 to our financial statements contained herein.
(2)Mr. McLaughlin resigned as President, Chief Executive Officer and as a member of the Board of Directors on February 2, 2018.
(3)Mr. Schreiber was appointed a member of the Board on June 24, 2017. Mr. Schreiber became the Company’s President and Chief Executive Officer on February 2, 2018. The Company entered into a 2-year agreement with Mr. Schreiber to perform services as our Chief Executive Officer and, as compensation for his role as Chief Executive Officer, will receive 2,000,000 shares, valued at $460,000, of restricted stock whereby 1,000,000 shares will vest equally on March 20, 2018 and January 1, 2019. Mr. Schreiber will not receive cash compensation for serving as our Chief Executive Officer. On April 25, 2019, Mr. Schreiber received 2,500,000 shares of the Company’s restricted common stock as consideration for selling his remaining membership interest in CVLB PR to the Company, for $450,000.

(4)Mr. Galluppi was appointed as a member of the Board effective June 24, 2017. Mr. Galluppi was paid $9,250 and $6,000 per month for twelve months in 2019 and 2018, respectively. Mr. Galluppi resigned as a Director of Immudyne, Inc. in February 2018 upon the sale of the legacy beta glucan business, but was reappointed in May 2018. On April 25, 2019, Mr. Galluppi received 2,500,000 shares of the Company’s restricted common stock as consideration for selling his remaining membership interest in CVLB PR to the Company, for $450,000.
(5)Mr. Piñeiro became the Company’s Chief Financial Officer on March 31, 2019, in connection with the resignation of Mr. Kalkstein. As compensation for his role as Chief Financial Officer, Mr. Piñeiro will receive $78,000 per annum. In addition, Mr., Piñeiro received options to purchase 500,000 shares of common stock, valued at $73,415. The options vest at 166,667 on April 1, 2020, April 1, 2021 and April 1, 2021.

18

(6)On October 2, 2017, Robert Kalkstein was appointed as the Chief Financial Officer of the Company. Mr. Kalkstein entered into a consulting agreement with the Company, which provides, among other things, for a fee of $2,750 per month through December 2017, $5,000 per month between January 2018 and March 2018 and $7,500 per month between April 2018 and September 2018. Additionally, Mr. Kalkstein was granted an option to purchase 500,000 shares of the Company’s common stock at $0.40 per share, subject to the approval of the board of directors of the Company and certain vesting requirements set forth in the consulting agreement. On February 9, 2019, Mr. Kalkstein, tendered his resignation to the Board, effective March 31, 2019.
(7)On October 25, 2018, Sean Fitzpatrick was appointed as the Chief Acquisition Officer of the company. Pursuant to the Fitzpatrick Employment Agreement, by and between the Company, Conversion Labs PR and Mr. Fitzpatrick, Mr. Fitzpatrick will receive an annual base salary of Seventy-Two Thousand Dollars ($72,000) (the “Base Salary”). Mr. Fitzpatrick will receive from Conversion Labs PR a preferred equity interest issued by Conversion Labs PR which is equal to the lesser of 100% of the Qualifying Cash (as defined in the Amended Operating Agreement) available for distribution during any month and $6,000.00 subject to the terms of the Amended Operating Agreement (the “Equity Interest”). In addition, Mr. Fitzpatrick received a ten-year option to purchase 5,000,000 shares common stock at a price of $0.30 per share, which vest according to the following terms (1) 2,500,000 option shares shall vest in forty-eight (48) equal monthly installments until all 2,500,000 option shares have vested upon the four-year anniversary of this Agreement, (2) 500,000 option shares shall vest upon the Company achieving at least $20,000,000 in annual revenue, (3) 500,000 option shares shall vest upon the Company achieving at least $30,000,000 in annual revenue, (4) 500,000 option shares shall vest upon the Company achieving at least $40,000,000 in annual revenue, (5) 500,000 option shares shall vest upon the Company achieving at least $50,000,000 in annual revenue, (6) 500,000 option shares shall vest upon the Company achieving at least $75,000,000 in annual revenue. On January 20, 2020, Mr. Fitzpatrick transitioned from the Company’s Chief Acquisition Officer to the role of President of LegalSimpli Software, LLC, a majority owned subsidiary of the Company.
(8)On January 20, 2020, in connection with the transition of Mr. Fitzpatrick, Mr. Alvarez was appointed Chief Acquisition Officer. Mr. Alvarez will continue to operate under his July 26, 2018, employment agreement. As compensation for his role as Chief Acquisition Officer, Mr. Alvarez, under the will receive $120,000 per annum. In addition, Mr. Alvarez received options to purchase 600,000 shares of common stock, valued at $137,250. The options vest at a rate of 200,000 options at each or the seven month anniversary, sixteen month anniversary and twenty-five month anniversary of Mr. Alvarez’s July 26, 2018, employment agreement.
(9)Represents cash payments Mr. Schreiber receives for rent from the Company for the CVLB PR offices paid at a range of $4,000 to $5,000 per month.
(10)Represents payments made by the Company for Mr. Alvarez’s residence paid at $3,183 per month.

Employment Agreements

McLaughlin Employment Agreement

On October 12, 2012, we entered into a five-year employment agreement with Mr. McLaughlin, our former President and Chief Executive Officer, under which he was to vote is required to approvebe compensated at $145,600 per annum.

On February 8, 2018, Mr. McLaughlin resigned from all of his positions with the Actions.Company and his employment agreement was null and void effectively immediately.

 


19

Votes

Fitzpatrick Employment Agreement

On July 23, 2018, we entered into an employment agreement with Sean Fitzpatrick. Pursuant to the employment agreement, Mr. Fitzpatrick will receive an annual base salary of Seventy-Two Thousand Dollars ($72,000) (the “Base Salary”). Mr. Fitzpatrick will receive from Conversion Labs PR a preferred equity interest issued by Conversion Labs PR which is equal to the lesser of 100% of the Qualifying Cash (as defined in the Amended Operating Agreement) available for distribution during any month and $6,000 subject to the terms of the Amended Operating Agreement (the “Equity Interest”). In addition, Mr. Fitzpatrick received a ten-year option to purchase 1,000,000 shares common stock at a price of $1.50 per share, which vest according to the following terms (1) 500,000 option shares shall vest in forty-eight (48) equal monthly installments until all 500,000 option shares have vested upon the four-year anniversary of this Agreement, (2) 100,000 option shares shall vest upon the Company achieving at least $20,000,000 in annual revenue, (3) 100,000 option shares shall vest upon the Company achieving at least $30,000,000 in annual revenue, (4) 100,000 option shares shall vest upon the Company achieving at least $40,000,000 in annual revenue, (5) 100,000 option shares shall vest upon the Company achieving at least $50,000,000 in annual revenue, (6) 100,000 option shares shall vest upon the Company achieving at least $75,000,000 in annual revenue.

On January 20, 2020, our Board of Directors approved the transition of Mr. Sean Fitzpatrick from the role of the Company’s Chief Acquisition Officer, to the role of President of LegalSimpli (the “CAO Transition”). Mr. Fitzpatrick has previously served as President of LegalSimpli prior to his appointment as Chief Acquisition Officer of the Company. Mr. Fitzpatrick’s transition was not a result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. In connection with Mr. Fitzpatrick’s transition, the Company agreed to amend his employment agreement from July 23, 2018 to: (i) reflect that Mr. Fitzpatrick will serve as an employee of LegalSimpli and will no longer serve as Chief Acquisition Officer of the Company; (ii) decrease the number of options to purchase the Company’s common stock previously granted to Mr. Fitzpatrick (the “Fitzpatrick Options”) from 1,000,000 to 500,000, 130,000 of which have vested as of the effective date; (iii) amend the vesting schedule for the remaining 370,000 Fitzpatrick Options to include four performance metrics that, if met, each trigger the vesting of 92,500 Fitzpatrick Options.

Piñeiro Employment Agreement

On March 15, 2019, the Company and Mr. Piñeiro entered into an employment agreement (the “Piñeiro Employment Agreement”) whereby Mr. Piñeiro shall earn a salary of $78,000 per annum (the “Piñeiro Salary”). In addition to the. Piñeiro Salary, he shall be countedeligible for an annual discretionary bonus of up to 100% of the Piñeiro Salary and subject to approval of the Board, the Company shall issue to Mr. Piñeiro options to purchase 100,000 shares of the Company’s common stock at an exercise price of $1.15 (the “Options”). The Piñeiro Employment Agreement may be terminated without notice by oneeither party at any time for any reason.

Yecies Employment Agreement

On November 20, 2020, the Company and Mr. Eric Yecies entered into an Employment Agreement (the “Yecies Employment Agreement”) whereby Mr. Yecies will receive an annual base salary of $270,000.00 and shall be eligible to earn a performance bonus in such amount, if any, as determined in the sole discretion of the Board. In connection with his appointment Mr. Yecies received a Stock Option (the “Yecies Stock Option”) to purchase up to 200,000 shares of the Company’s common stock. Upon termination of Mr. Yecies without cause, the Company shall pay or more persons whoprovide to Mr. Yecies severance pay equal to his then current monthly base salary for four months from the date of termination, during which time Mr. Yecies shall continue to receive all employee benefits and employee benefit plans as described in the Yecies Employment Agreement. As a full-time employee of the Company, Mr. Yecies will be eligible to participate in all of the Company’s benefit programs.

Roberts Employment Agreement

On November 27, 2020, the Company and Mr. Brad Roberts entered into an Employment Agreement (the “Roberts Employment Agreement”) whereby Mr. Roberts will receive an annual base salary of $96,000.00 and shall be eligible to earn a performance bonus in such amount, if any, as determined in the sole discretion of the Board. In connection with his appointment, Mr. Roberts was granted a Stock Option (the “Roberts Stock Option”) to purchase up to 200,000 shares of the Company’s common stock. Upon termination of Mr. Roberts without cause, the Company shall pay or provide to Mr. Roberts severance pay equal to his then current monthly base salary for six months from the date of termination, during which time Mr. Roberts shall continue to receive all employee benefits and employee benefit plans as described in the Roberts Employment Agreement. As a full-time employee of the Company, Mr. Roberts will be eligible to participate in all of the Company’s benefit programs.

Consulting Agreements

On October 2, 2017, we entered into a consulting agreement with our Chief Financial Officer, Robert Kalkstein, which provided, among other things, for a fee of $2,750 per month through December 2017, $5,000 per month between January 2018 and March 2018 and $7,500 per month between April 2018 and September 2018. Additionally, Mr. Kalkstein was granted an option to purchase 100,000 shares of the Company’s common stock at $2.00 per share, subject to the approval of the board of directors of the Company and certain vesting requirements set forth in the consulting agreement.

On February 9, 2019, Robert Kalkstein, Chief Financial Officer of Conversion Labs, Inc. (the “Company”), tendered his resignation to the Company’s Board of Directors (the “Board”), effective March 31, 2019. In connection with Mr. Kalkstein’s resignation, the Company agreed to amend that certain consulting agreement entered into on September 26, 2017 by and between the Company and Mr. Kalkstein (the “Kalkstein Consulting Agreement”), to: (i) forego $32,500 of the $42,500 cash currently owed to Mr. Kalkstein pursuant to the Kalkstein Consulting Agreement; (ii) decrease the exercise price of 100,000 options to purchase the Company’s common stock previously granted to Mr. Kalkstein (the “Kalkstein Options”) from $2.00 per share to $1.40 per share; (iii) accelerate the vesting of 30,000 Kalkstein Options with such options to vest on March 31, 2019; and (iv) cancel 40,000 unvested Kalkstein Options, the vesting of which was not accelerated.

Effective March 1, 2020, the Company entered into a consulting services agreement by and between the Company and JLS Ventures, LLC (the “JLS Consulting Agreement”), pursuant to which Justin Schreiber, as President of JLS Ventures, LLC, would serve as the inspectors of election. The inspectors of election will canvas the shareholders present in person at the meeting, count their votesCompany’s Chief Executive Officer and count the votes represented by proxies presented.  For purposes of determining the votes cast with respect to any matter presented for consideration at the meeting, only those votes cast “FOR” or “AGAINST” are included. However, if a proxy is signed but no specification is given, the shares will be voted “FOR” the proposed name chance and amendment to the Certificate of Incorporation.

RecommendationChairman of the Board of DirectorsDirectors. The JLS Consulting Agreement provides that Mr. Schreiber will receive a monthly cash payment of $15,000. The JLS Consulting Agreement has an initial term of 12 months beginning January 1, 2020 and is renewable for additional twelve-month periods upon the mutual agreement of the Company and JLS Ventures, LLC.

 

The Board of Directors unanimously recommends that you vote “FOR” Proposal No. 2.

20

 

STOCKHOLDERS’ PROPOSALS

Pursuant to our Bylaws, because this is a special meeting of stockholders and we are not electing directors, our stockholders may not propose business to be brought at the Meeting.

 

HOUSEHOLDING OF SPECIAL MEETING MATERIALS

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements. This means that only one (1) copy of our proxy statement may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of our proxy statement to you if you call or write usOutstanding Equity Awards at the following address or phone number: Conversion Labs, Inc., 800 Third Avenue, Suite 2800, New York, NY 10022 (866) 351-5907. If you want to receive separate copies of the proxy statement (and any other documents sent therewith) in the future or if you are receiving multiple copies and would like to receive only one (1) copy for your household, you should contact your bank, broker, or other nominee record holders, or you may contact us at the above address and phone number.

OTHER MATTERS

Our board is not aware of any matter to be presented for action at the Meeting other than the matters referred to above and does not intend to bring any other matters before the Meeting. However, if other matters should come before the Meeting, it is intended that holders of the proxies will vote thereon in their discretion.

GENERALDecember 31, 2019

 

The accompanying proxyfollowing sets forth information concerning the outstanding equity awards held by our Named Executive Officers as of December 31, 2019.

  Option Awards     Stock Awards 
  

Number

of

Securities

Underlying

Unexercised

Options

(#)

  

Number

of

Securities

Underlying

Unexercised

Options

(#)

  

Equity

Incentive

Plan

Awards:

Number

of

Securities

Underlying

Unexercised

Unearned

Options

  

Option

Exercise

Price

  

Option

Expirat-

ion

  

Number

of

Shares

or

Units

of Stock

That

Have

Not

Vested

  

Market

Value

of

Shares

or

Units

of

Stock

That

Have

Not

Vested

  

Equity

Incentive

Plan Awards:

Number

of

Unearned

Shares,

Units

or

Other

Rights

That

Have

Not

Vested

  

Equity

Incentive

Plan

Awards:

Market

or

Payout

Value of

Unearned

Shares,

Units or

Other

Rights

That

Have

Not

Vested

 
Name Exercisable  Unexercisable  (#)  (#)  Date  (#)  ($)  (#)  ($) 
Justin Schreiber  200,000   -   -  $1.00   5/30/2022   -   -   -   - 
Stefan Galluppi  -   -   -   -   -   -   -   -   - 
Juan Manuel Piñeiro Dagnery  -   100,000   100,000(1) $1.00   3/12/2029   -   -   -   - 
Sean Fitzpatrick  -   -   -   -   -   -   -   -   - 

(1)Options vest on the first, second and third anniversary of Mr. Piñeiro’s grant date at 33,333 shares each on April 1, 2020, April 1, 2021 and April 1, 2022.

Directors’ Compensation

The following Director Compensation Table sets forth information concerning compensation for services rendered to our independent directors for the fiscal year ended December 31, 2019:

Name

Fees

Earned

or

Paid in

Cash

($)

Stock

Awards

($)

Option

Awards

($)(1)

Non-equity

Incentive Plan

Compensation

($)

Nonqualified

Deferred

Compensation

Earnings

($)

All Other

Compensation

($)

Total

($)

Anthony G. Bruzzese, M.D.-------
John R. Strawn, Jr.-------
Happy Walters-------
Bertrand Velge-------

(1)Amounts shown reflect aggregate grant date fair value and, where applicable, incremental fair value as of modification date, of awards and do not reflect whether the recipient actually has realized a financial benefit from such grant, such as by exercising the options or selling the stock. A discussion of the assumptions used in calculating the award values may be found in Note 2 to our financial statements contained herein.

21

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables set forth certain information regarding our voting shares beneficially owned as of the Record Date, and is solicited bybased on 20,992,373 shares issued and on behalfoutstanding, for (i) each stockholder known to be the beneficial owner of 5% or more of our Boardoutstanding shares of Directors, whose Notice of Meeting is attached to this proxy statement,common stock, (ii) each named executive officer and the entire cost of such solicitation will be borne by us. Ourdirector, and (iii) all executive officers and selected employees may solicit proxies from stockholders. In additiondirectors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the useright to acquire beneficial ownership at any time within 60 days through an exercise of the mails, proxies may be solicited by personal interview, telephonestock options or warrants. Unless otherwise indicated, voting and telegram by our directors, officers and other employees who will not be specially compensated for these services. We will also request that brokers, nominees, custodians and other fiduciaries forward soliciting materials to the beneficial owners of shares held of record by such brokers, nominees, custodians and other fiduciaries. We will reimburse such persons for their reasonable expenses in connection therewith

Certain information contained in this proxy statementinvestment power relating to the occupations and security holdings ofshares shown in the tables for our directors and executive officers is based upon information received fromexercised solely by the individual directorsbeneficial owner or shared by the owner and officers.the owner’s spouse or children.

 

WE WILL FURNISH, WITHOUT CHARGE, A COPY OF OUR SEC REPORTS TO EACH OF OUR STOCKHOLDERS OF RECORD ON THE RECORD DATE AND TO EACH BENEFICIAL STOCKHOLDER ON THAT DATE UPON WRITTEN REQUEST MADE TO OUR SECRETARY. A REASONABLE FEE WILL BE CHARGED FOR COPIES OF REQUESTED EXHIBITS.


WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION

This Information Statement shouldFor purposes of these tables, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of the Record Date. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days of the Record Date is deemed to be readoutstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise indicated, each of the shareholders named in conjunctionthe table below, or his or her family members, has sole voting and investment power with certain reports that we previously filed withrespect to such shares of our Common Stock. Except as otherwise indicated, the SEC. The Company files reports and other information including annual and quarterly reports on Form 10-K and 10-Q withaddress of each of the SEC. Reports and other information filed by the Company can be inspected and copied at the public reference facilities maintained at the SEC at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can be obtained upon written request addressed to the SEC, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a web site on the Internet (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC through the Electronic Data Gathering, Analysis and Retrieval System (also known as “EDGAR”). Copies of such filings may also be obtained by writing to the Company atshareholders listed below is: 800 Third Avenue, Suite 2800, New York, NY 10022.

 

FORWARD-LOOKING STATEMENTSSecurity Ownership of 5% or greater Beneficial Owners

 

This Information Statement

Name and Address of

Beneficial Owner

 

Amount and Nature of

Beneficial Ownership (1)

  Percent(1) 
Mark McLaughlin(3)  1,216,020   5.8%

Security Ownership of Directors and Executive Officers

Name and Address of

Beneficial Owner

 

Amount and Nature of

Beneficial
Ownership (1)

  Percent(1) 
Justin Schreiber(2)  2,040,783   9.7%
Stefan Galluppi(4)  650,737   3.1%
Roberto Simon  20,000   0.1%
John R. Strawn(5)  483,467   2.3%
Bertrand Velge(6)  999,057   4.8%
Joseph DiTrolio, M.D.(7)  199,900   1.0%
Connie Mariano, M.D.  20,000   0.1%
Juan Manuel Piñeiro Dagnery(8)  70,000   0.3%
Happy Walters(9)  915,413   4.4%
Eric Yecies(10)  200,000   1.0%
Brad Roberts(11)  

252,632

   

1.2

%
Directors & Executive Officers as a Group (11 persons)  5,851,989   27.9%

22

Notes:

(1)Percentage of ownership is based on 20,992,373 shares of our common stock outstanding as of the Record Date.
(2)Consists of (i) 111,164 common shares held (ii) 1,761,271 common shares held by JOJ Holdings, LLC, (iii) warrants to purchase 118,349 ordinary shares issuable upon exercise of outstanding warrants at a price of $2.00 per share held by JOJ Holdings, LLC, and (iv) 50,000 ordinary shares issuable upon exercise of outstanding options at a price of $2.00 per share. Mr. Schreiber has sole voting and dispositive power over all shares and warrants held of record by JOJ Holdings, LLC.
(3)Consists of (i) 758,020 common shares held, (ii) 200,000 ordinary shares issuable upon exercise of outstanding options at a price of $2.00 per share, (iii) 50,000 ordinary shares issuable upon exercise of outstanding options at a price of $1.75 per share, and (iv) 208,000 shares held of record by McLaughlin International, Inc. Mr. McLaughlin has sole voting and dispositive power over all shares and warrants held of record by McLaughlin International, Inc.
(4)Consists of (i) 938 common shares held, (ii) 649,800 shares held by American Nutra Tech, LLC, a company that Mr. Galluppi has sole voting and dispositive power.
(5)Consists of (i) 3,467 common shares held by John Strawn, Jr., (ii) 60,000 common shares held by Strawn Pickens LLP over which Mr. Strawn has shared voting and dispositive power, (iii) 200,000 ordinary shares issuable upon exercise of outstanding options at a price of $1.00 per share, (iv) 200,000 ordinary shares issuable upon exercise of outstanding options at a price of $2.00 per share, and (v) 20,000 ordinary shares issuable upon exercise of outstanding options at a price $1.75.
(6)Consists of (i) 781,666 common shares held and (ii) 217,392 ordinary shares issuable upon exercise of outstanding warrants at a price of $2.00 per share.
(7)Consists of (i) 14,500 common shares, (ii) 140,400 ordinary shares issuable upon exercise of outstanding options at a price of $1.00 per share, (iii) 20,000 ordinary shares issuable upon exercise of outstanding options at a price of $1.75 per share, and (iv) 25,000 ordinary shares issuable upon exercise of outstanding options at a price of $2.00 per share.
(8)Consists of (i) 45,000 common shares held, (ii) 10,000 of ordinary shares issuable upon exercise of outstanding options at a price of $1.00 per share, and (iii) 15,000 ordinary shares issuable upon exercise of outstanding options at a price of $2.00 per share.
(9)Consists of (i) 115,413 common shares held common shares held by Mr. Walters, and (ii) 800,000 common shares held by Blue Horizon Consulting, LLC, of which Mr. Walters is the sole owner.
(10)Consists of a stock option to purchase up to 200,000 shares of the Company’s common stock.
(11)Consists of (i) 52,632 shares held, and (ii) a stock option to purchase up to 200,000 shares of the Company’s common stock.

23

OTHER BUSINESS

We have not received notice of and do not expect any matters to be presented for vote at the documents to which we refer youAnnual Meeting, other than the proposals described in this Information Statement may contain forward-looking statements that involve numerous risks and uncertainties which may be difficultProxy Statement. If you grant a proxy, the person named as proxy holder, Justin Schreiber, or their nominees or substitutes, will have the discretion to predict. The statements contained in this Information Statement thatvote your shares on any additional matters properly presented for a vote at the Annual Meeting. If for any unforeseen reason, any of our nominees are not purely historicalavailable as a candidate for director, the proxy holder will vote your proxy for such other candidate or candidates nominated by our Board.

ADDITIONAL INFORMATION

We are forward-looking statements withinsubject to the meaning of Section 27Ainformation and reporting requirements of the Securities Exchange Act of 1933,1934, as amended, (the “Securities Act”), and Section 21E of the Exchange Act, including, without limitation, the management of the Company and the Company’s expectations, beliefs, strategies, objectives, plans, intentions and similar matters. All forward-looking statements included in this Information Statement are based on information available to the Company on the date hereof. In some cases, you can identify forward-looking statements by terminology such as “may,” “can,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “predicts,” “potential,” “targets,” “goals,” “projects,” “outlook,” “continue,” “preliminary,” “guidance,” or variations of such words, similar expressions, or the negative of these terms or other comparable terminology.

Forward-looking statements involve a number of risks and uncertainties, and actual results or events may differ materially from those projected or implied in those statements.

We caution against placing undue reliance on forward-looking statements, which contemplate our current beliefs and are based on information currently available to us as of the date a particular forward-looking statement is made. Any and all such forward-looking statements are as of the date of this Information Statement. We undertake no obligation to revise such forward-looking statements to accommodate future events, changes in circumstances, or changes in beliefs, except as required by law. In the event thataccordance therewith, we do update any forward-looking statements, no inference should be made that we will make additional updates with respect to that particular forward-looking statement, related matters, or any other forward-looking statements. Any corrections or revisionsfile periodic reports, documents and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements may appear in the Company’s public filingsinformation with the SEC whichrelating to our business, financial statements and other matters. Such reports and other information may be inspected and are available tofor copying at the offices of the SEC, 100 F Street, N.E., Washington, D.C. 20549 or may be accessed at www.sec.gov. Information regarding the operation of the public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. You are encouraged to review our Annual Report on Form 10-K, together with any subsequent information we filed or will file with the SEC’s website at www.sec.gov. For additional information, please see the section titled “Where You Can Obtain Additional Information” above.SEC and other publicly available information.

 

PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE ENCLOSED RETURN ENVELOPE OR VOTE VIA TELEPHONE OR THE INTERNET. A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.*************

It is important that the proxies be returned promptly and that your shares be represented. Stockholders are urged to mark, date, execute and promptly return the accompanying proxy card.

 

December 3, 2020By Order of the Board of Directors,
  
 /s/ Justin Schreiber
 Justin Schreiber
 Chief Executive Officer and Chairman of the Board of Directors

 

24

New York, NY

December 16, 2019


Annex A

 

STATE OF DELAWAREAnnex A

CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION

OF

CONVERSION LABS, INC.

2020 EQUITY AND INCENTIVE PLAN

SECTION 1. GENERAL PURPOSE OF THE PLAN: DEFINITIONS

 

The undersigned corporation organized and existing under and by virtuename of the General Corporation Lawplan is the CONVERSION LABS, INC. 2020 EQUITY AND INCENTIVE PLAN (the “Plan”). The purpose of the StatePlan is to encourage, retain and enable the officers, employees, directors, Consultants and other key persons of CONVERSION LABS, INC., a Delaware does hereby certify:corporation (including any successor entity, the “Company”) and its Subsidiaries, upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company.

 

FIRST: ThatThe following terms shall be defined as set forth below:

“Affiliate” of any Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by unanimousor is under common control with the first mentioned Person. A Person shall be deemed to control another Person if such first Person possesses directly or indirectly the power to direct, or cause the direction of, the management and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise.

“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights (“SAR”), Restricted Stock Awards (including preferred stock), Unrestricted Stock Awards, Restricted Stock Units or any combination of the foregoing.

“Award Agreement” means a written consentor electronic agreement setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Agreement may contain terms and conditions in addition to those set forth in the Plan; provided, however, in the event of any conflict in the terms of the Plan and the Award Agreement, the terms of the Plan shall govern.

“Board” means the Board of Directors of Conversion Labs, Inc.the Company.

“Cause” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Cause,” it shall mean (i) the grantee’s dishonest statements or acts with respect to the Company or any Affiliate of the Company, or any current or prospective customers, suppliers vendors or other third parties with which such entity does business; (ii) the grantee’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (iii) the grantee’s failure to perform his assigned duties and responsibilities to the reasonable satisfaction of the Company which failure continues, in the reasonable judgment of the Company, after written notice given to the grantee by the Company; (iv) the grantee’s gross negligence, willful misconduct or insubordination with respect to the Company or any Affiliate of the Company; or (v) the grantee’s material violation of any provision of any agreement(s) between the grantee and the Company relating to noncompetition, nonsolicitation, nondisclosure and/or assignment of inventions.

“Chief Executive Officer” means the Chief Executive Officer of the Company or, if there is no Chief Executive Officer, then the President of the Company.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.

“Committee” means the Committee of the Board referred to in Section 2.

“Consultant” means any entity or natural person that provides bona fide services to the Company (including a Subsidiary), and such services are not in lieuconnection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.

A-1

“Disability” means such condition which renders a Person (A) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expect to last for a continuous period of not less than 12 months, (B) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company, (C) determined to be totally disabled by the Social Security Administration, or (D) determined to be disabled under a disability insurance program which provides for a definition of disability that meets the requirements of this section.

“Effective Date” means the date on which the Plan is adopted as set forth in this Plan.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Committee based on the reasonable application of a meeting,reasonable valuation method that is consistent with Section 409A of the Code. If the Stock is admitted to trade on a national securities exchange, the determination shall be made by reference to the closing price reported on such exchange. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price. If the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair Market Value shall be the “Price to the Public” (or equivalent).

“Good Reason” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Good Reason,” it shall mean (i) a material diminution in the grantee’s base salary except for across-the-board salary reductions similarly affecting all or substantially all similarly situated employees of the Company or (ii) a change of more than 100 miles in the geographic location at which the grantee provides services to the Company, so long as the grantee provides at least 90 days’ notice to the Company following the initial occurrence of any such event and the Company fails to cure such event within 30 days thereafter.

“Grant Date” means the date that the Committee designates in its approval of an Award in accordance with Section 141applicable law as the date on which the Award is granted, which date may not precede the date of such Committee approval.

“Holder” means, with respect to an Award or any Shares, the Person holding such Award or Shares, including the initial recipient of the General Corporation LawAward or any Permitted Transferee.

“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the StateCode.

“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

“Option” or “Stock Option” means any option to purchase shares of Delaware, a resolution was duly adopted setting forth the proposed amendmentStock granted pursuant to Section 5.

“Permitted Transferees” shall mean any of the Certificatefollowing to whom a Holder may transfer Shares hereunder (as set forth in Section 10(a)(ii)(A)): the Holder’s child, stepchild, grandchild, parent, step-parent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of Incorporation (the “Certificatethe beneficial interest, a foundation in which these persons control the management of Incorporation”)assets, and any other entity in which these persons own more than fifty percent of said corporation, declaring said amendmentthe voting interests; provided, however, that any such trust does not require or permit distribution of any Shares during the term of the Award Agreement unless subject to be advisableits terms. Upon the death of the Holder, the term Permitted Transferees shall also include such deceased Holder’s estate, executors, administrators, personal representatives, heirs, legatees and calling fordistributees, as the stockholders of said corporation to approve said amendment at a duly called Special Meeting of Stockholders. The resolution setting forth the proposed amendment is as follows:case may be.

 

RESOLVED“Person” shall mean any individual, corporation, partnership (limited or general), that Article IVlimited liability company, limited liability partnership, association, trust, joint venture, unincorporated organization or any similar entity.

“Restricted Stock Award” means Awards granted pursuant to Section 7 and “Restricted Stock” means Shares issued pursuant to such Awards.

A-2

“Restricted Stock Unit” means an Award of phantom stock units to a grantee, which may be settled in cash or Shares as determined by the Committee, pursuant to Section 9.

“Sale Event” means the consummation of i) a change in the ownership of the CertificateCompany, ii) a change in effective control of Incorporationthe Company, or iii) a change in the ownership of a substantial portion of the assets of the Company. The occurrence of a Sale Event shall be acknowledged by the plan administrator or board of directors, by strictly applying these provisions without any discretion to deviate from the objective application of the definitions provided herein. ; provided, however, that any capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Sale Event.”

Except as otherwise provided herein, a change in the ownership of the Company occurs on the date that any one person, or more than one person acting as a group acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company. However, if any one person, or more than one person acting as a group, is hereby amendedconsidered to own more than 50 percent of the total fair market value or total voting power of the stock of the Company the acquisition of additional stock by addingthe same person or persons is not considered to cause a change in the ownership of the Company (or to cause a change in the effective control of the Company). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section. This section applies only when there is a transfer of stock of the Company (or issuance of stock) which remains outstanding after the transaction.

A change in the effective control of the Company occurs only on either of the following paragraph to succeeddates: (1) The date any one person, or more than one person acting as a group acquires (or has acquired during the first paragraph of such article and to precede the second paragraph of such article:

“Effective as of the close of business, Eastern Time,12-month period ending on the date of filingthe most recent acquisition by such person or persons) ownership of this Certificate of Amendment with the Secretary of Statestock of the StateCompany possessing 30 percent or more of Delaware (the “Effective Time”)the total voting power of the stock of the Company; (2) The date a majority of members of the Company’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election.

A change in the ownership of a substantial portion of the Company’s assets occurs on the date that any one person, or more than one person acting as a group acquires (or has acquired during the 12- month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

“Service Relationship” means any relationship as a full-time employee, part-time employee, director or other key person (including Consultants) of the Company or any Subsidiary or any successor entity (e.g., each __ (__) outstandinga Service Relationship shall be deemed to continue without interruption in the event an individual’s status changes from full-time employee to part-time employee or Consultant).

“Shares” means shares of Stock.

“Stock” means the Corporation’s Common Stock, par value $0.01 per share, of the Company.

“Stock Appreciation Right” or “SAR” means any right to receive from the Company upon exercise by an optionee or settlement, in cash, Shares, or a combination thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise or settlement over (ii) the exercise price of the right on the date of grant, or if granted in connection with an Option, on the date of grant of the Option.

A-3

“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has more than a 50 percent interest, either directly or indirectly.

“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent of the Company or any Subsidiary.

“Termination Event” means the termination of the Award recipient’s Service Relationship with the Company and its Subsidiaries for any reason whatsoever, regardless of the circumstances thereof, and including, without limitation, upon death, disability, retirement, discharge or resignation for any reason, whether voluntarily or involuntarily. The following shall not constitute a Termination Event: (i) a transfer to the service of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another Subsidiary or (ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Committee, if the individual’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing.

“Unrestricted Stock Award” means any Award granted pursuant to Section 8 and “Unrestricted Stock” means Shares issued pursuant to such Awards.

SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

(a) Administration of Plan. The Plan shall be administered by the Compensation Committee of the Board, comprised of not less than three directors or the Board of Directors in the absence of a Compensation Committee of the Board. All references herein to the “Committee” shall be deemed to refer to the group then responsible for administration of the Plan at the relevant time (i.e., either the Board of Directors or a committee or committees of the Board, as applicable).

(b) Powers of Committee. The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

(i) to select the individuals to whom Awards may from time to time be granted;

(ii) to determine the time or times of grant, and the amount, if any, of Incentive Stock Options, Non-Qualified Stock Options, SARs, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units, or any combination of the foregoing, granted to any one or more grantees;

(iii) to determine the number and types of Shares to be covered by any Award and, subject to the provisions of the Plan, the price, exercise price, conversion ratio or other price relating thereto;

(iv) to determine and, subject to Section 13, to modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of Award Agreements;

(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award;

(vi) to impose any limitations on Awards, including limitations on transfers, repurchase provisions and the like, and to exercise repurchase rights or obligations;

(vii) subject to Section 5(a)(ii) and any restrictions imposed by Section 409A, to extend at any time the period in which Stock Options may be exercised; and

A-4

(viii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including Award Agreements); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

All decisions and interpretations of the Committee shall be binding on all persons, including the Company and all Holders.

(c) Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award.

(d) Indemnification. Neither the Board nor the Committee, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s governing documents, including its certificate of incorporation or bylaws, or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.

(e) Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and any Subsidiary operate or have employees or other individuals eligible for Awards, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries, if any, shall be covered by the Plan; (ii) determine which individuals, if any, outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to the Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitation contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals.

SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS AND OTHER TRANSACTIONS; SUBSTITUTION

(a) Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 1,500,000 Shares (the “Share Reserve”), subject to adjustment as provided in Section 3(b) and the following sentence regarding the annual increase. In addition, the Share Reserve will automatically increase on January 1st of each year, for a period of not more than ten years, commencing on January 1, 2021 and ending on (and including) January 1, 2030, in an amount equal to 150,000 shares. Notwithstanding the foregoing, the Board may act prior to January 1st of a given year to provide that there will be no January 1st increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a lesser number of shares of Stock than would otherwise occur pursuant to the preceding sentence. If a Stock Award or any portion thereof (i) expires or otherwise terminates without all of the shares covered by such Stock Award having been issued or (ii) is settled in cash (i.e., the Participant receives cash rather than stock), the Shares subject to such Stock Award, to the extent of any such expiration, termination or settlement, will again be available for issuance under the Plan. If any shares of Stock issued pursuant to a Stock Award are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the Plan. Any shares reacquired by the Company in satisfaction of tax withholding obligations on a Stock Award or as consideration for the exercise or purchase price of a Stock Award will again become available for issuance under the Plan. For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and no more than 200,000 Shares may be issued pursuant to Incentive Stock Options. The value of any Shares granted to a non-employee director of the Company, solely for services as a director, when added to any annual cash payments or awards, shall not exceed an aggregate value of two hundred thousand dollars ($200,000) in any calendar year.

A-5

(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional Shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such Shares or other securities, in each case, without the receipt of consideration by the Company, or, if, as a result of any merger or consolidation, or sale of all or substantially all of the assets of the Company, the outstanding Shares are converted into or exchanged for other securities of the Company or any successor entity (or a parent or subsidiary thereof), the Committee shall make an appropriate and proportionate adjustment in (i) the maximum number of Shares reserved for issuance under the Plan, (ii) the number and kind of Shares or other securities subject to any then outstanding Awards under the Plan, (iii) the repurchase price, if any, per Share subject to each outstanding Award, and (iv) the exercise price for each Share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options) as to which such Stock Options remain exercisable. The Committee shall in any event make such adjustments as may be required by the laws of Delaware and the rules and regulations promulgated thereunder. The adjustment by the Committee shall be final, binding and conclusive. No fractional Shares shall be issued under the Plan resulting from any such adjustment, but the Committee in its discretion may make a cash payment in lieu of fractional shares.

(c) Sale Events.

(i) Options.

(A) In the case of and subject to the consummation of a Sale Event, the Plan and all outstanding Options and SARs issued hereunder shall become one hundred percent (100%) vested upon the effective time of any such Sale Event. New stock options or other awards of the successor entity or parent thereof shall be substituted therefor, with an equitable or proportionate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement).

(B) In the event of the termination of the Plan and all outstanding Options and SARs issued hereunder pursuant to Section 3(c), each Holder of Options shall be permitted, within a period of time prior to the consummation of the Sale Event as specified by the Committee, to exercise all such Options or SARs which are then exercisable or will become exercisable as of the effective time of the Sale Event; provided, however, that the exercise of Options not exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.

(C) Notwithstanding anything to the contrary in Section 3(c)(i)(A), in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Options, without any consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Committee of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of Shares subject to outstanding Options being cancelled (to the extent then vested and exercisable, including by reason of acceleration in connection with such Sale Event, at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding vested and exercisable Options.

(ii) Restricted Stock and Restricted Stock Unit Awards.

(A) In the case of and subject to the consummation of a Sale Event, all unvested Restricted Stock and unvested Restricted Stock Unit Awards issued hereunder shall become one hundred percent (100%) vested, with an equitable or proportionate adjustment as to the number and kind of shares subject to such awards as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement).

A-6

(B) Such Restricted Stock shall be repurchased from the Holder thereof at the then Fair Market Value of such shares, (subject to adjustment as provided in Section 3(b)) for such Shares.

(C) Notwithstanding anything to the contrary in Section 3(c)(ii)(A), in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Restricted Stock or Restricted Stock Unit Awards, without consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the Sale Price times the number of Shares subject to such Awards, to be paid at the time of such Sale Event or upon the later vesting of such Awards.

SECTION 4. ELIGIBILITY

Grantees under the Plan will be such full or part-time officers and other employees, directors, Consultants and key persons of the Company and any Subsidiary who are selected from time to time by the Committee in its sole discretion; provided, however, that Awards shall be granted only to those individuals described in Rule 701(c) of the Securities Act.

SECTION 5. STOCK OPTIONS

Upon the grant of a Stock Option, the Company and the grantee shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.

Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

(a) Terms of Stock Options. The Committee in its discretion may grant Stock Options to those individuals who meet the eligibility requirements of Section 4. Stock Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.

(i) Exercise Price. The exercise price per share for the Shares covered by a Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100 percent of the Fair Market Value on the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the exercise price per share for the Shares covered by such Incentive Stock Option shall not be less than 110 percent of the Fair Market Value on the Grant Date.

(ii) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten years from the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the Grant Date.

(iii) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable and/or vested at such time or times, whether or not in installments, as shall be determined by the Committee at or after the Grant Date. The Award Agreement may permit a grantee to exercise all or a portion of a Stock Option immediately at grant; provided that the Shares issued upon such exercise shall be subject to restrictions and a vesting schedule identical to the vesting schedule of the related Stock Option, such Shares shall be deemed to be Restricted Stock for purposes of the Plan, and the optionee may be required to enter into an additional or new Award Agreement as a condition to exercise of such Stock Option. An optionee shall have the rights of a stockholder only as to Shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. An optionee shall not be deemed to have acquired any Shares unless and until a Stock Option shall have been exercised pursuant to the terms of the Award Agreement and this Plan and the optionee’s name has been entered on the books of the Company as a stockholder.

A-7

(iv) Method of Exercise. Stock Options may be exercised by an optionee in whole or in part, by the optionee giving written or electronic notice of exercise to the Company, specifying the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the following methods (or any combination thereof) to the extent provided in the Award Agreement:

(A) In cash, by certified or bank check, by wire transfer of immediately available funds, or other instrument acceptable to the Committee;

(B) If permitted by the Committee, by the optionee delivering to the Company a promissory note, if the Board has expressly authorized the loan of funds to the optionee for the purpose of enabling or assisting the optionee to effect the exercise of his or her Stock Option; provided, that at least so much of the exercise price as represents the par value of the Stock shall be paid in cash if required by state law;

(C) If permitted by the Committee, through the delivery (or attestation to the ownership) of Shares that have been purchased by the optionee on the open market or that are beneficially owned by the optionee and are not then subject to restrictions under any Company plan. To the extent required to avoid variable accounting treatment under applicable accounting rules, such surrendered Shares if originally purchased from the Company shall have been owned by the optionee for at least six months. Such surrendered Shares shall be valued at Fair Market Value on the exercise date;

(D) If permitted by the Committee and by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure; or

(E) If permitted by the Committee, and only with respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issuable upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price.

Payment instruments will be received subject to collection. No certificates for Shares so purchased will be issued to the optionee or, with respect to uncertificated Stock, no transfer to the optionee on the records of the Company will take place, until the Company has completed all steps it has deemed necessary to satisfy legal requirements relating to the issuance and sale of the Shares, which steps may include, without limitation, (i) receipt of a representation from the optionee at the time of exercise of the Option that the optionee is purchasing the Shares for the optionee’s own account and not with a view to any sale or distribution of the Shares or other representations relating to compliance with applicable law governing the issuance of securities, (ii) the legending of the certificate (or notation on any book entry) representing the Shares to evidence the foregoing restrictions, and (iii) obtaining from optionee payment or provision for all withholding taxes due as a result of the exercise of the Option. The delivery of certificates representing the shares of Stock (or the transfer to the optionee on the records of the Company with respect to uncertificated Stock) to be purchased pursuant to the exercise of a Stock Option will be contingent upon (A) receipt from the optionee (or a purchaser acting in his or her stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such Shares and the fulfillment of any other requirements contained in the Award Agreement or applicable provisions of laws and (B) if required by the Company, the optionee shall have entered into any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Stock. In the event an optionee chooses to pay the purchase price by previously-owned Shares through the attestation method, the number of Shares transferred to the optionee upon the exercise of the Stock Option shall be net of the number of Shares attested to by the Optionee.

(b) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the Grant Date) of the Shares with respect to which Incentive Stock Options granted under the Plan and any other plan of the Company or its parent and any Subsidiary that become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000 or such other limit as may be in effect from time to time under Section 422 of the Code. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

A-8

(c) Termination. Any portion of a Stock Option that is not vested and exercisable on the date of termination of an optionee’s Service Relationship shall immediately expire and be null and void. Once any portion of the Stock Option becomes vested and exercisable, the optionee’s right to exercise such portion of the Stock Option (or the optionee’s representatives and legatees as applicable) in the event of a termination of the optionee’s Service Relationship shall continue until the earliest of: (i) the date which is: (A) 12 months following the date on which the optionee’s Service Relationship terminates due to death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (B) three months following the date on which the optionee’s Service Relationship terminates if the termination is due to any reason other than death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (ii) the Expiration Date set forth in the Award Agreement; provided that notwithstanding the foregoing, an Award Agreement may provide that if the optionee’s Service Relationship is terminated for Cause, the Stock Option shall terminate immediately and be null and void upon the date of the optionee’s termination and shall not thereafter be exercisable.

SECTION 6. STOCK APPRECIATION RIGHTS

The Committee is authorized to grant SARs to optionees with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine –

(a) SARs may be granted under the Plan to optionees either alone or in addition to other Awards granted under the Plan and may, but need not, relate to specific Option granted under Section 5.

(b) The exercise price per Share under a SAR shall be determined by the Committee, provided, however, that except in the case of a substitute Award, such exercise price shall not be less than the fair market value of a Share on the date of grant of such SAR.

(c) The term of each SAR shall be fixed by the Committee but shall not exceed 10 years from the date of grant of such SAR.

(d) The Committee shall determine the time or times at which a SAR may be exercised or settled in whole or in part. Unless otherwise determined by the Committee or unless otherwise set forth in an Award Agreement, the provisions set forth in Section 5 above with respect to exercise of an Award following termination of service shall apply to any SAR. The Committee may specify in an Award Agreement that an “in-the-money” SAR shall be automatically exercised on its expiration date.

SECTION 7. RESTRICTED STOCK AWARDS

(a) Nature of Restricted Stock Awards. The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible individual under Section 4 hereof a Restricted Stock Award under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Award at the time of grant. Conditions may be based on the type of stock upon which restrictions are placed, continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or such other criteria as the Committee may determine. Upon the grant of a Restricted Stock Award, the Company and the grantee shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.

(b) Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee of Restricted Stock shall be considered the record owner of and shall be entitled to vote the Restricted Stock if, and to the extent, such Shares are entitled to voting rights, subject to such conditions contained in the Award Agreement. The grantee shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution. Unless the Committee shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in subsection (d) below of this Section, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank and such other instruments of transfer as the Committee may prescribe.

A-9

(c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Award Agreement. Except as may otherwise be provided by the Committee either in the Award Agreement or, subject to Section 13 below, in writing after the Award Agreement is issued, if a grantee’s Service Relationship with the Company and any Subsidiary terminates, the Company or its assigns shall have the right, as may be specified in the relevant instrument, to repurchase some or all of the Shares subject to the Award at such purchase price as is set forth in the Award Agreement.

(d) Vesting of Restricted Stock. The Committee at the time of grant shall specify in the Award Agreement the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the substantial risk of forfeiture imposed shall lapse and the Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the Award Agreement.

SECTION 8. UNRESTRICTED STOCK AWARDS

The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible person under Section 4 hereof an Unrestricted Stock Award under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

SECTION 9. RESTRICTED STOCK UNITS

(a) Nature of Restricted Stock Units. The Committee may, in its sole discretion, grant to an eligible person under Section 4 hereof Restricted Stock Units under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant. Vesting conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives which may be based on targets for revenue, revenue growth, EBITDA, net income, earnings per share and/or other such criteria as the Committee may determine. Upon the grant of Restricted Stock Units, the grantee and the Company shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee and may differ among individual Awards and grantees. On or promptly following the vesting date or dates applicable to any Restricted Stock Unit, but in no event later than March 15 of the year following the year in which such vesting occurs, such Restricted Stock Unit(s) shall be settled in the form of cash or shares of Stock, as specified in the Award Agreement. Restricted Stock Units may not be sold, assigned, transferred, pledged, or otherwise encumbered or disposed of.

(b) Rights as a Stockholder. A grantee shall have the rights of a stockholder only as to Shares, if any, acquired upon settlement of Restricted Stock Units. A grantee shall not be deemed to have acquired any such Shares unless and until the Restricted Stock Units shall have been settled in Shares pursuant to the terms of the Plan and the Award Agreement, the Company shall have issued and delivered a certificate representing the Shares to the grantee (or transferred on the records of the Company with respect to uncertificated stock), and the grantee’s name has been entered in the books of the Company as a stockholder.

(c) Termination. Except as may otherwise be provided by the Committee either in the Award Agreement or in writing after the Award Agreement is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s cessation of Service Relationship with the Company and any Subsidiary for any reason.

A-10

SECTION 10. TRANSFER RESTRICTIONS; COMPANY RIGHT OF FIRST REFUSAL; COMPANY REPURCHASE RIGHTS

(a) Restrictions on Transfer.

(i) Non-Transferability of Certain Awards. Restricted Stock awards granted under Section 7, Stock Options, SARs and, prior to exercise, the Shares issuable upon exercise of such Stock Option, shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide in the Award Agreement regarding a given Stock Option or Restricted Stock award that the optionee may transfer by gift, without consideration for the transfer, his or her Non-Qualified Stock Options to his or her family members (as defined in Rule 701 of the Securities Act), to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners (to the extent such trusts or partnerships are considered “family members” for purposes of Rule 701 of the Securities Act), provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award Agreement, including the execution of a stock power upon the issuance of Shares. Stock Options, SARs and the Shares issuable upon exercise of such Stock Options, shall be restricted as to any pledge, hypothecation, or other transfer, including any short position, any “put equivalent position” (as defined in the Exchange Act) or any “call equivalent position” (as defined in the Exchange Act) prior to exercise.

(ii) Shares. No Shares shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of or encumbered, whether voluntarily or by operation of law, unless (i) the transfer is in compliance with the terms of the applicable Award Agreement, all applicable securities laws (including, without limitation, the Securities Act), and with the terms and conditions of this Section 10, (ii) the transfer does not cause the Company to become subject to the reporting requirements of the Exchange Act, and the transferee consents in writing to be bound by the provisions of the Plan and the Award Agreement, including this Section 10. In connection with any proposed transfer, the Committee may require the transferor to provide at the transferor’s own expense an opinion of counsel to the transferor, satisfactory to the Committee, that such transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities Act). Any attempted transfer of Shares not in accordance with the terms and conditions of this Section 10 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Shares as a result of any such transfer, shall otherwise refuse to recognize any such transfer and shall not in any way give effect to any such transfer of Shares. The Company shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity including, without limitation, seeking specific performance or the rescission of any transfer not made in strict compliance with the provisions of this Section 10. Subject to the foregoing general provisions, and unless otherwise provided in the applicable Award Agreement, Shares may be transferred pursuant to the following specific terms and conditions (provided that with respect to any transfer of Restricted Stock, all vesting and forfeiture provisions shall continue to apply with respect to the original recipient):

(A) Transfers to Permitted Transferees. The Holder may transfer any or all of the Shares to one or more Permitted Transferees; provided, however, that following such transfer, such Shares shall continue to be subject to the terms of this Plan (including this Section 10) and such Permitted Transferee(s) shall, as a condition to any such transfer, deliver a written acknowledgment to that effect to the Company and shall deliver a stock power to the Company with respect to the Shares. Notwithstanding the foregoing, the Holder may not transfer any of the Shares to a Person whom the Company reasonably determines is a direct competitor or a potential competitor of the Company or any of its Subsidiaries.

(B) Transfers Upon Death. Upon the death of the Holder, any Shares then held by the Holder at the time of such death and any Shares acquired after the Holder’s death by the Holder’s legal representative shall be subject to the provisions of this Plan, and the Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees shall be obligated to convey such Shares to the Company or its assigns under the terms contemplated by the Plan and the Award Agreement.

A-11

(b) Right of First Refusal. In the event that a Holder desires at any time to sell or otherwise transfer all or any part of his or her Shares (other than shares of Restricted Stock which by their terms are not transferrable), the Holder first shall give written notice to the Company of the Holder’s intention to make such transfer. Such notice shall state the number of Shares that the Holder proposes to sell (the “Offered Shares”), the price and the terms at which the proposed sale is to be made and the name and address of the proposed transferee. At any time within 30 days after the receipt of such notice by the Company, the Company or its assigns may elect to purchase all or any portion of the Offered Shares at the price and on the terms offered by the proposed transferee and specified in the notice. The Company or its assigns shall exercise this right by mailing or delivering written notice to the Holder within the foregoing 30-day period. If the Company or its assigns elect to exercise its purchase rights under this Section 10(b), the closing for such purchase shall, in any event, take place within 45 days after the receipt by the Company of the initial notice from the Holder. In the event that the Company or its assigns do not elect to exercise such purchase right, or in the event that the Company or its assigns do not pay the full purchase price within such 45-day period, the Holder shall be required to pay a transaction processing fee of $10,000 to the Company (unless waived by the Committee) and then may, within 60 days thereafter, sell the Offered Shares to the proposed transferee and at the same price and on the same terms as specified in the Holder’s notice. Any Shares not sold to the proposed transferee shall remain subject to the Plan. If the Holder is a party to any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Shares, (i) the transferring Holder shall comply with the requirements of such stockholders agreements or other agreements relating to any proposed transfer of the Offered Shares, and (ii) any proposed transferee that purchases Offered Shares shall enter into such stockholders agreements or other agreements with the Company and/or certain of the Company’s stockholders relating to the Offered Shares on the same terms and in the same capacity as the transferring Holder.

(c) Company’s Right of Repurchase.

(i) Right of Repurchase for Unvested Shares Issued Upon the Exercise of an Option. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares acquired upon exercise of a Stock Option which is still subject to a risk of forfeiture as of the Termination Event. Such repurchase rights may be exercised by the Company within the later of (A) six months following the date of such Termination Event or (B) seven months after the acquisition of Shares upon exercise of a Stock Option. The repurchase price shall be equal to the lower of the original per share price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan, or the current Fair Market Value of such Shares as of the date the Company elects to exercise its repurchase rights.

(ii) Right of Repurchase With Respect to Restricted Stock. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares received pursuant to a Restricted Stock Award any Shares that are still subject to a risk of forfeiture as of the Termination Event. Such repurchase right may be exercised by the Company within six months following the date of such Termination Event. The repurchase price shall be the lower of the original per share purchase price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan, or the current Fair Market Value of such Shares as of the date the Company elects to exercise its repurchase rights.

(iii) Procedure. Any repurchase right of the Company shall be exercised by the Company or its assigns by giving the Holder written notice on or before the last day of the repurchase period of its intention to exercise such repurchase right. Upon such notification, the Holder shall promptly surrender to the Company, free and clear of any liens or encumbrances, any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company or the Company’s assignee or assignees. Upon the Company’s or its assignee’s receipt of the certificates from the Holder, the Company or its assignee or assignees shall deliver to him, her or them a check for the applicable repurchase price; provided, however, that the Company may pay the repurchase price by offsetting and canceling any indebtedness then owed by the Holder to the Company.

(d) Escrow Arrangement.

(i) Escrow. In order to carry out the provisions of this Section 10 of this Plan more effectively, the Company shall hold any Shares issued pursuant to Awards granted under the Plan in escrow together with separate stock powers executed by the Holder in blank for transfer. The Company shall not dispose of the Shares except as otherwise provided in this Plan. In the event of any repurchase by the Company (or any of its assigns), the Company is hereby authorized by the Holder, as the Holder’s attorney-in-fact, to date and complete the stock powers necessary for the transfer of the Shares being purchased and to transfer such Shares in accordance with the terms hereof. At such time as any Shares are no longer subject to the Company’s repurchase and first refusal rights, the Company shall, at the written request of the Holder, deliver to the Holder a certificate representing such Shares with the balance of the Shares to be held in escrow pursuant to this Section.

A-12

(ii) Remedy. Without limitation of any other provision of this Plan or other rights, in the event that a Holder or any other Person is required to sell a Holder’s Shares pursuant to the provisions of Sections 10(b) or (c) hereof and in the further event that he or she refuses or for any reason fails to deliver to the Company or its designated purchaser of such Shares the certificate or certificates evidencing such Shares together with a related stock power, the Company or such designated purchaser may deposit the applicable purchase price for such Shares with a bank designated by the Company, or with the Company’s independent public accounting firm, as agent or trustee, or in escrow, for such Holder or other Person, to be held by such bank or accounting firm for the benefit of and for delivery to him, her, them or it, and/or, in its discretion, pay such purchase price by offsetting any indebtedness then owed by such Holder as provided above. Upon any such deposit and/or offset by the Company or its designated purchaser of such amount and upon notice to the Person who was required to sell the Shares to be sold pursuant to the provisions of Sections 10(b) or (c), such Shares shall at such time be deemed to have been sold, assigned, transferred and conveyed to such purchaser, such Holder shall have no further rights thereto (other than the right to withdraw the payment thereof held in escrow, if applicable), and the Company shall record such transfer in its stock transfer book or in any appropriate manner.

(e) Lockup Provision. If requested by the Company, a Holder shall not sell or otherwise transfer or dispose of any Shares (including, without limitation, pursuant to Rule 144 under the Securities Act) held by him or her for such period following the effective date of a public offering by the Company of Shares as the Company shall specify reasonably and in good faith. If requested by the underwriter engaged by the Company, each Holder shall execute a separate letter confirming his or her agreement to comply with this Section.

(f) Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Section 10 shall apply with equal force to additional and/or substitute securities, if any, received by Holder in exchange for, or by virtue of his or her ownership of, Shares.

(g) Termination. The terms and provisions of Section 10(b) and Section 10(c) (except for the Company’s right to repurchase Shares still subject to a risk of forfeiture upon a Termination Event) shall terminate upon consummation of any Sale Event, in either case as a result of which Shares are registered under Section 12 of the Exchange Act and publicly-traded on any national security exchange.

SECTION 11. TAX WITHHOLDING

(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Shares or other amounts received thereunder first becomes includable in the gross income of the grantee for income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and any Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver stock certificates (or evidence of book entry) to any grantee is subject to and conditioned on any such tax withholding obligations being satisfied by the grantee.

(b) Payment in Stock. The Company’s minimum required tax withholding obligation may be satisfied, in whole or in part, by the Company withholding from Shares to be issued pursuant to an Award a number of Shares having an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the minimum withholding amount due.

SECTION 12. SECTION 409A AWARDS

To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as may be specified by the Committee from time to time. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. The Company makes no representation or warranty and shall have no liability to any grantee under the Plan or any other Person with respect to any penalties or taxes under Section 409A that are, or may be, imposed with respect to any Award. It is the intent of the Board that payments and benefits under the Plan comply with or be exempt from Section 409A and the regulations and guidance promulgated thereunder and, accordingly, to the maximum extent permitted the Plan shall be interpreted to be in compliance therewith or exempt therefrom. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed upon a Participant by Section 409A or damages to a Participant for failing to comply with Section 409A.

A-13

SECTION 13. AMENDMENTS AND TERMINATION

The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the consent of the holder of the Award. The Committee may exercise its discretion to reduce the exercise price of outstanding Stock Options or effect repricing through cancellation of outstanding Stock Options and by granting such holders new Awards in replacement of the cancelled Stock Options. To the extent determined by the Committee to be required either by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or otherwise, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 13 shall limit the Board’s or Committee’s authority to take any action permitted pursuant to Section 3(c). The Board reserves the right to amend the Plan and/or the terms of any outstanding Stock Options to the extent reasonably necessary to comply with the requirements of the exemption pursuant to Rule 12h-1 of the Exchange Act.

SECTION 14. STATUS OF PLAN

With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly so determine in connection with any Award.

SECTION 15. GENERAL PROVISIONS

(a) No Distribution; Compliance with Legal Requirements. The Committee may require each person acquiring Shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to distribution thereof. No Shares shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Committee may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards, as it deems appropriate.

(b) Delivery of Stock Certificates. Stock certificates to grantees under the Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company; provided that stock certificates to be held in escrow pursuant to Section 10 of the Plan shall be deemed delivered when the Company shall have recorded the issuance in its records. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records).

(c) No Employment Rights. The adoption of the Plan and the grant of Awards do not confer upon any Person any right to continued employment or Service Relationship with the Company or any Subsidiary.

(d) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policy-related restrictions, terms and conditions as may be established by the Committee, or in accordance with policies set by the Committee, from time to time.

(e) Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award on or after the grantee’s death or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.

A-14

(f) Legend. Any certificate(s) representing the Shares shall carry substantially the following legend (and with respect to uncertificated Stock, the book entries evidencing such shares shall contain the following notation):

The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including repurchase and restrictions against transfers contained in the Plan and any agreements entered into thereunder by and between the company and the holder of this certificate (a copy of which is available at the offices of the company for examination).

(g) Information to Holders of Options. In the event the Company is relying on the partexemption from the registration requirements of Section 12(g) of the respectiveExchange Act contained in paragraph (f)(1) of Rule 12h-1 of the Exchange Act, the Company shall provide the information described in Rule 701(e)(3), (4) and (5) of the Securities Act to all holders of Options in accordance with the requirements thereunder. The foregoing notwithstanding, the Company shall not be required to provide such information unless the option holder has agreed in writing, on a form prescribed by the Company, to keep such information confidential.

SECTION 16. EFFECTIVE DATE OF PLAN

The Plan shall become effective upon adoption by the Board and shall be approved by stockholders in accordance with applicable state law and the Company’s articles of incorporation and bylaws within 12 months thereafter. If the stockholders fail to approve the Plan within 12 months after its adoption by the Board of Directors, then any Awards granted or sold under the Plan shall be rescinded and no additional grants or sales shall thereafter be made under the Plan. Subject to such approval by stockholders and to the requirement that no Shares may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of the Plan by the Board. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the date the Plan is adopted by the Board or the date the Plan is approved by the Company’s stockholders, whichever is earlier.

SECTION 17. GOVERNING LAW

This Plan, all Awards and any controversy arising out of or relating to this Plan and all Awards shall be governed by and construed in accordance with the laws of the State of Delaware as to matters within the scope thereof, be exchangedwithout regard to conflict of law principles that would result in the application of any law other than the law of the State of Delaware.

DATE ADOPTED BY THE BOARD OF DIRECTORS:September 19, 2020

DATE ADOPTED BY THE

SHAREHOLDERS: __________________________.

A-15

Annex B

Resolutions of the Board of Directors of

Conversion Labs, Inc.

WHEREAS, on November 11, 2019, the board of directors (the “Board”) of Conversion Labs, Inc. (the “Company”) at a meeting of the Board, approved and combined into one (1)recommended to our stockholders for their approval, a proposed certificate of amendment to the Company’s Certificate of Incorporation to authorize five million (5,000,000) shares of blank check preferred stock, par value $0.0001 per share (the “Blank Check Preferred Stock Authorization”);

WHEREAS, at a special meeting of Common Stock,stockholders held on January 10, 2020 (the “January 2020 Special Meeting”), the affirmative vote of a majority of the votes cast by the shares of the Company’s common stock, par value $0.01 per share. Atshare (the “Common Stock”) present at the Effective Time,special meeting approved the Blank Check Preferred Stock Authorization;

WHEREAS, the Company filed an Amendment to the Company’s Certificate of Incorporation on January 21, 2020 with the Delaware Secretary of State authorizing five million (5,000,000) shares of blank check preferred stock, par value $0.0001 per share (the “Blank Check Preferred Amendment”) with the Blank Check Preferred Amendment having been filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 24, 2020;

WHEREAS, the Company filed a Certificate of Designations of the Series B Convertible Preferred Stock, on August 27, 2020 with the Delaware Secretary of State which established 5,000 shares of the Company’s Series B Preferred Stock, having such designations, rights and preferences as set forth therein (the “Series B Designations”) with the Series B Designations having been filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2020;

WHEREAS, on August 31, 2020, the Company issued 3,500 units (the “Units”) of securities, at a purchase price of $1,000 per Unit, each consisting of (i) one share of Series B Convertible Preferred Stock of the Company, par value $0.0001 per share (the “Series B Preferred Stock”), and (ii) a warrant to purchase 2,000 shares of Common Stock;

WHEREAS, because the Blank Check Preferred Stock Authorization required the affirmative vote of a majority of the shares of Common Stock outstanding as of the record date of the January 2020 Special Meeting, the Blank Check Preferred Stock Amendment was not validly authorized and, therefore, the filing of the Blank Check Preferred Stock Amendment constitutes a defective corporate act within the meaning of Section 204 of the Delaware General Corporation Law (the “DGCL”);

B-1

WHEREAS, because the filing of the Blank Check Preferred Stock Amendment was a defective corporate act there shall be no changeis uncertainty whether the filing of the Series B Designations and the issuance of 3,500 shares of Series B Preferred Stock were not validly authorized and therefore constitute defective corporate acts within the meaning of Section 204 of the DGCL; and

WHEREAS, (i) Section 204 of the DGCL provides a means by which a board of directors of a Delaware corporation can ratify defective corporate acts and (ii) the Board desires to approve the ratification of the defective and potentially defective corporate acts described in the numberabove recitals pursuant to the common law doctrine of authorized sharesratification and Section 204 of the DGCL to the fullest extent permitted by law.

NOW, THEREFORE, BE IT RESOLVED, that the Corporation shallBoard hereby determines that it is advisable and in the best interests of the Company and its stockholders to approve the ratification of the defective and potentially defective corporate acts described in the above recitals pursuant to the common law doctrine of ratification and Section 204 of the DGCL to the fullest extent permitted by law;

FURTHER RESOLVED, that the defective and potentially defective corporate acts to be ratified, the dates of such defective and potentially defective corporate acts, the number and type of shares of putative stock issued and the date upon which such shares were purported to have been issued, and the authoritynature of the failures of authorization in respect of the defective and potentially defective corporate acts are set forth in the foregoing recitals (and are further described in the resolutions set forth below);

FURTHER RESOLVED, that the defective and potentially defective corporate acts to issue. No fractionalbe ratified are (i) the filing of the Blank Check Preferred Amendment with the Delaware Secretary of State on January 21, 2020, (ii) the filing of the Series B Designations with the Delaware Secretary of State on August 27, 2020, and (iii) the issuance of 3,500 shares shallof Series B Preferred Stock on August 31, 2020 (collectively, the “Defective Corporate Acts”);

FURTHER RESOLVED, that the date of the filing of the Blank Check Preferred Amendment defective corporate act to be ratified hereby is January 21, 2020;

FURTHER RESOLVED, that the date of the filing of the Series B Designations defective corporate act to be ratified hereby is August 27, 2020;

B-2

FURTHER RESOLVED, that the date of issuance of the Series B Preferred Stock defective corporate act to be ratified hereby is August 31, 2020;

FURTHER RESOLVED, that the number and type of shares of potentially putative stock issued in connection with the exchange. In lieu thereof, any person who holdsDefective Corporate Acts are 3,500 shares of Series B Preferred Stock and the date on which such shares of potentially putative stock were purportedly issued is August 31, 2020;

FURTHER RESOLVED, that the nature of the failure of authorization in respect of the filing of the Blank Check Preferred Amendment to be ratified is that the filing was not approved by a fractionsufficient percentage of one (1) sharethe shares of Common Stock after the exchange shall be entitled to receive a certificate representingvote at the number of shares they would otherwise be entitled to rounded up to the next whole share.January 2020 Special Meeting;

 

SECOND: That thereafter, pursuantFURTHER RESOLVED, that the nature of the failure of authorization in respect of the filing of the Series B Designations to resolutionbe ratified is that the filing likely required the valid authorization of itsthe Blank Check Preferred Amendment filing;

FURTHER RESOLVED, that the nature of the failure of authorization in respect of the issuance of the 3,500 shares of Series B Preferred Stock to be ratified is that the issuance likely required the valid authorization of the Blank Check Preferred Amendment filing;

FURTHER RESOLVED, that the Board hereby authorizes, approves and declares advisable the ratification of Directors,the Defective Corporate Acts;

FURTHER RESOLVED, that the Defective Corporate Acts be, and hereby are, ratified, confirmed, approved, and adopted in all respects;

FURTHER RESOLVED, that the Board hereby recommends that the stockholders of the Company approve the ratification of the Defective Corporate Acts;

FURTHER RESOLVED, that the Board hereby directs that the ratification of the Defective Corporate Acts be submitted to the Company’s stockholders for approval at a special meeting of such stockholders to be held in accordance with the Bylaws of the Company and the DGCL (the “Special Meeting”);

FURTHER RESOLVED, that the purpose of the Special Meeting shall be to vote on the approval of the Conversion Labs, Inc. 2020 Equity and Incentive Plan (the “2020 Plan”) which was adopted by the Board on September 19, 2020 to vote on the ratification of the Defective Corporate Acts, and to conduct such other business as may subsequently be determined by the Board or as may otherwise properly come before the Special Meeting;

B-3

FURTHER RESOLVED, that if the stockholders ratify the Defective Corporate Acts, the Board hereby authorizes, approves and declares advisable that the Company file, following such ratification, two (2) Certificate of Validation with the Delaware Secretary of State, one with regard to the Blank Check Preferred Amendment, and one with regard to the Series B Designations, each in the form attached hereto as Exhibit A (the “Certificates of Validation”);

FURTHER RESOLVED, that the Board hereby directs the officers of the Company to prepare and give notice of the Special Meeting to the holders of record of valid and putative stock of the Company (whether voting or non-voting) as of the record date that shall be established by the Board for the Special Meeting, in accordance with Sections 204 and 222 of the DGCL, and give such notice to the holders of record of valid and putative stock of the Company (whether voting or non-voting) as of November 18, 2019 (the record date of the January 2020 Special Meeting), other than those holders whose identities or addresses cannot be determined from the records of the Company;

FURTHER RESOLVED, that that the Board hereby directs the officers of the Company to include in the notice provided to the stockholders of the Corporation was duly called and held, upon notice in accordance withCompany a copy of these resolutions (or a summary thereof that contains the information required by Section 222204 of the General Corporation LawDGCL to be contained in such notice) and a statement that any claim that the Defective Corporate Acts ratified pursuant to these resolutions is void or voidable due to the identified failures of authorization, or that the Court of Chancery of the State of Delaware at which meetingshould declare in its discretion that the necessary number of shares as required by applicable law were votedratification set forth in favorthese resolutions pursuant to Section 204 of the amendment.DGCL not be effective or be effective only on certain conditions must be brought within 120 days from the validation effective time (with the validation effective time with respect to the Blank Check Preferred Amendment and the Series B Designations being the date of filing of the Certificates of Validation and the validation effective time with regard to the issuance of the Series B Preferred Stock being the date of the Special Meeting);

 

THIRD: That said amendment was duly adoptedFURTHER RESOLVED, that the Board may abandon these resolutions at any time before the validation effective time in respect of the Defective Corporate Acts;

FURTHER RESOLVED, that in addition to the specific authorizations set forth in the foregoing resolutions, the officers of the Company are, and each of them acting individually hereby is, authorized and empowered, in the name and on behalf of the Company, and with the full power to act, to take or cause to be taken any and all such further actions to carry out, execute, and deliver or cause to be carried out, executed, and delivered, all such other 4 actions, documents, certificates, instruments, amendments, and agreements, as they shall in their judgment determine necessary, desirable, or advisable to consummate, effectuate, carry out, or further the transactions contemplated by and the intent and purposes of the foregoing resolutions; and

FURTHER RESOLVED, that any and all lawful actions heretofore taken by any officer of the Company in connection with the foregoing resolutions be, and hereby are, ratified, confirmed, approved, and adopted.

B-4

CERTIFICATE OF DESIGNATIONS

OF

SERIES B CONVERTIBLE PREFERRED STOCK

OF

CONVERSION LABS, INC.

Conversion Labs, Inc., a Delaware corporation (the “Corporation”), certifies that, pursuant to the authority contained in Article Fourth of its Certificate of Incorporation, as amended prior to the date hereof (the “Certificate of Incorporation”), and in accordance with the provisions of Section 242151 of the Delaware General Corporation Law (the “DGCL”), the board of directors of the State of Delaware.

A-1

IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this __ day of ___, 20__.

Conversion Labs, Inc.Corporation (the “Board”) duly approved and adopted on August 26, 2020 the following resolution, which resolution remains in full force and effect on the date hereof:
By:/s/
Name:
Title:

A-2

Annex B

 

STATE OF DELAWARE

CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION

OF

CONVERSION LABS, INC.

The undersigned corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:

FIRSTWHEREAS: That by unanimous written consent of the Board of Directors of Conversion Labs, Inc., in lieu of a meeting, in accordance with Section 141 of the General Corporation Law of the State of Delaware, a resolution was duly adopted setting forth the proposed amendment of the Certificate of Incorporation (the “Certificateauthorizes the issuance of Incorporation”) of said corporation, declaring said amendmentup to be advisable and calling for the stockholders of said corporation to approve said amendment at a duly called Special Meeting of Stockholders. The resolution setting forth the proposed amendment is as follows:

RESOLVED, that the Certificate of Incorporation of the Corporation be amended by changing Article IV thereof so that, as amended, said Article shall be and read as follows:

ARTICLE IV

CAPITAL STOCK

The Corporation is authorized to issue two classes of stock to be designated, respectively, Common Stock, par value $0.01 per share (“Common Stock”) and Preferred Stock, par value $0.01 per share (“Preferred Stock”). The total number of100,000,000 shares of Common Stock thatand up to 5,000,000 shares of preferred stock, par value $0.0001 per share, of the Corporation shall have authority(“Preferred Stock”) in one or more series, and expressly authorizes the Board, subject to issue is one hundred million (100,000,000). The total number of shares of Preferred Stock that the Corporation shall have authoritylimitations prescribed by law, to issue is five million (5,000,000). The Board of Directors is hereby expressly authorized, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock,establish and fix for series of Preferred Stock and, with respect to each such series to fix the number of shares constituting such series and the designation of such series, the voting powers, (if any) of the shares offull or limited, and such series, and thedesignations, preferences and relative, participating, optional or other special rights if any, and anysuch qualifications, limitations orand restrictions thereof, of the shares of such series,series; and

WHEREAS, the Board desires to theestablish and fix such voting powers, full extent now or hereafter permitted by the lawslimited, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations and restrictions of the StateSeries B Preferred Stock defined below.

NOW, THEREFORE, BE IT RESOLVED, that the Series B Preferred Stock be, and hereby is, created, and that the number of Delawareshares thereof, the voting powers thereof and the DGCL. The powers,designations, preferences and relative, participating, optional and other special rights of each series of Preferred Stock,thereof and the qualifications, limitations orand restrictions thereof if any, may differ from those of anybe, and all other series at any time outstanding. Two Million (2,000,000)hereby are, as follows:

1. General.

(a) The shares of such series are designated the Series B Convertible Preferred Stock (hereinafter referred to as the “Series B Preferred Stock”). The number of authorized shares constituting the Series B Preferred Stock shall be designated as 13% Cumulative Redeemable Perpetualfive thousand (5,000) shares of Series AB Preferred Stock. The number of authorized shares constituting the Series B Preferred Stock (“from time to time may be increased (including to the extent necessary to comply with Section 3) or decreased (but not below the number of shares of Series AB Preferred Stock”)Stock then outstanding) by (i) further resolution duly adopted by the Board, or any duly authorized committee thereof, and (ii) the filing of amendments to the Certificate of Incorporation pursuant to the provisions of the DGCL stating that such increase or decrease, as applicable, has been so authorized.

(b) The Corporation shall not have the authority to issue fractional shares of Series B Preferred Stock.

(c) Each share of Series B Preferred Stock will be identical in all respects to the other shares of Series B Preferred Stock.

(d) Shares of Series B Preferred Stock converted into Common Stock (as defined below) will be retired and will revert to authorized but unissued Preferred Stock, undesignated as to series.

(e) The Series B Preferred Stock, with respect to payment of dividends and rights upon Liquidation (defined below), ranks: (i) senior in all respects to all Junior Stock; (ii) on a parity in all respects with all Parity Stock; and (iii) junior in all respects to all Senior Stock.

2. Certain Defined Terms. Except as otherwise providedAs used in this Certificate of Incorporation or by law, each holder of Common Stock shall be entitled to one vote for each share held. No stockholderDesignations, the following terms have the respective meanings set forth below:

(a) “Affiliate” shall have the rightmeaning ascribed to cumulate his votes forsuch term in Rule 405 under the electionSecurities Act.

(b) “Beneficial Ownership Limitation” has the meaning specified in Section 6.

(c) “Business Day” means any day other than a Saturday, Sunday, any federal legal holiday or day on which banking institutions in the State of directors, but each holderNew York are authorized or required by law or other governmental action to close.

(d) “Bylaws” has the meaning specified in Section 7(a).

(e) “Certificate of Designations” means this Certificate of Designations of the Series B Preferred Stock of the Corporation.

(f) “Certificate of Incorporation” has the meaning specified in the first paragraph of this Certificate of Designations.

B-5

(g) “Change of Control” means the occurrence after the date hereof, directly or indirectly, of any of the following:

(i) any sale, lease, assignment, transfer or other disposition of all or substantially all of the assets of the Corporation and its Subsidiaries, taken as a whole;

(ii) an acquisition by Person or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 50% of the voting securities of the Corporation;

(iii) a replacement at one time or within a one (1)-year period of more than one-half of the members of the Board that is not approved by a majority of those individuals who are members of the Board on the date hereof, or by those individuals who are serving as members of the Board on any date whose nomination to the Board was approved by a majority of the members of the Board who are members on the date hereof; or

(iv) any merger, consolidation, share exchange, recapitalization or reorganization of the Corporation with or into another Person where the Corporation is not the surviving corporation.

(h) “Closing” means the closing under the Securities Purchase Agreement.

(i) “Common Stock” means common stock of the Corporation, par value $.0001 per share.

(j) “Common Stock shall be entitledEquivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to one voteacquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

(k) “Conversion Price” means, with respect to each share of Series B Preferred Stock, $0.65 (sixty-five cents), subject to adjustments in accordance with the provisions of Section 5(g).

(l) “Convertible Securities” has the meaning specified in Section 5(f)(iii).

(m) “Corporation” has the meaning specified in the electionfirst paragraph of each director for each share held. The holdersthis Certificate of Designations.

(n) “DGCL” has the meaning specified in the first paragraph of this Certificate of Designations.

(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(p) “Forced Conversion” has the meaning specified in Section 5(b)(i).

(q) “Forced Conversion Amount” has the meaning specified in Section 5(b)(i).

(r) “Forced Conversion Date” has the meaning specified in Section 5(b)(i).

(s) “Forced Conversion Notice” has the meaning specified in Section 5(b)(i).

B-6

(t) “Forced Conversion Redemption” has the meaning specified in Section 5(b)(ii).

(u) “Forced Conversion Redemption Amount” has the meaning specified in Section 5(b)(ii).

(v) “Forced Conversion Redemption Date” has the meaning specified in Section 5(b)(ii).

(w) “Forced Conversion Redemption Notice” has the meaning specified in Section 5(b)(ii).

(x) “Forced Conversion Redemption Notice Date” has the meaning specified in Section 5(b)(ii).

(y) “Holder” means, with respect to shares of Series B Preferred Stock, the stockholder in whose name such Series B Preferred Stock is registered in the stock books of the Corporation.

(z) “Holder Director” has the meaning specified in Section 7(d).

(aa) “Junior Stock” means the Common Stock shall be entitled to receive, when and as declaredany other class or series of shares of capital stock of the Corporation hereafter authorized or established by the Board over which the Series B Preferred Stock has priority in the payment of Directors, outdividends and in the distribution of funds legally available therefor, dividends payable in cash, stockassets upon any Liquidation.

(bb) “Liquidation” means: (A) any voluntary or otherwise. Upon anyinvoluntary liquidation, dissolution, or winding up of the Corporation; or (B) unless the Purchasers holding a majority of the shares of Series B Preferred Stock then outstanding elect otherwise by written notice sent to the Corporation, whether voluntary or involuntary,a Change of Control; provided, however, that for the net assetspurposes of this definition and Section 4, the following shall not be deemed a Liquidation: (i) a consolidation of the Corporation with a Subsidiary, so long as the ownership of the Corporation remains substantially the same immediately following such consolidation; (ii) a merger effected to change the jurisdiction of incorporation of the Corporation so long as the ownership of the Corporation remains substantially the same immediately after such merger; or (iii) a public or private equity offering by the Corporation that does not result in a Change of Control.

(cc) “Market Price” means the VWAP of such security for the period of ten (10) consecutive Trading Days preceding the date of determination (or for any other period specified for this purpose in the applicable provision of this Certificate of Designation).

(dd) “Minimum Dividend Date” has the meaning specified in Section 5(b)(iv).

(ee) “National Securities Exchange” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American LLC, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

(ff) “Optional Conversion Date” has the meaning specified in Section 5(a)(iii).

(gg) “Optional Conversion Notice” has the meaning specified in Section 5(a)(iii).

(hh) “Optional Conversion Right” has the meaning specified in Section 5(a)(i).

(ii) “Optional Redemption” has the meaning specified in Section 8(a).

(jj) “Optional Redemption Amount” has the meaning specified in Section 8(b).

B-7

(kk) “Optional Redemption Date” has the meaning specified in Section 8(a).

(ll) “Optional Redemption Notice” has the meaning specified in Section 8(a).

(mm) “Optional Redemption Notice Date” has the meaning specified in Section 8(a).

(nn) “Original Issue Date” means the date of this Certificate of Designations.

(oo) “Parity Stock” means any class or series of shares of the Corporation that have pari passu priority with the Series B Preferred Stock in the payment of dividends or in the distribution of assets upon any Liquidation.

(pp) “Per Share Forced Conversion Redemption Price” has the meaning specified in Section 5(b)(ii).

(qq) “Per Share Optional Redemption Price” has the meaning specified in Section 8(b).

(rr) “Person” means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity.

(ss) “PIK Share” has the meaning specified in Section 3(a).

(tt) “Preferred Dividends” has the meaning specified in Section 3(a).

(uu) “Preferred Holders” has the meaning specified in Section 4(a).

(vv) “Preferred Stock” has the meaning specified in the recitals to this Certificate of Designations.

(ww) “Purchasers” means the initial purchasers of Series B Preferred Stock pursuant to the Series B Purchase Agreement and their respective successors and permitted assigns.

(xx) “Purchased Shares” has the meaning specified in Section 5(g)(v).

(yy) “Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

(zz) “Securities Purchase Agreement” means that certain Securities Purchase Agreement, dated as of August 27, 2020, by and among the Corporation and the Purchasers.

(aaa) “Senior Stock” means each class of capital stock or series of preferred stock established after the Original Issue Date by the Board, the terms of which expressly provide that such class or series will rank senior to the Series B Preferred Stock as to payment of dividends or in the distribution of assets upon any Liquidation.

(bbb) “Series B Issue Price” means, with respect to each share of Series B Preferred Stock, including any share of Series B Preferred Stock issued as PIK Shares, $1,000, subject to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, reverse stock splits or other similar events.

B-8

(ccc) “Series B Liquidation Preference” means, with respect to each share of Series B Preferred Stock outstanding as of immediately prior to any Liquidation, an amount equal to the greater of: (i) an amount equal to the sum of (A) the Series B Issue Price, plus (B) any accrued but unpaid dividends on such share of Series B Preferred Stock as of immediately prior to such Liquidation in accordance with Section 3, and (ii) the amount that would be distributable pursuant to such Liquidation in respect of the shares of Common Stock into which such share of Series B Preferred Stock would be converted pursuant to Section 5 (without regard to any of the limitations on convertibility contained therein or in Section 6 and plus any payment in respect of any fractional interest pursuant to Section 5(c)) if all outstanding shares of the Corporation’s Series B Preferred Stock were converted into shares of Common Stock as of immediately prior to such Liquidation; provided, that, in each such case, if a Liquidation occurs prior to the Minimum Dividend Date, in calculating the accrued but unpaid dividends on such share of Series B Preferred Stock held by such holder, the Holder will be deemed entitled to, and such share of Series B Preferred Stock shall be distributed pro ratadeemed to have accrued, all Preferred Dividends that would have accrued between the date of the Closing and the Minimum Dividend Date, less any PIK Shares previously issued to the Holder prior to such Liquidation.

(ddd) “Series B Preferred Stock” has the meaning specified in Section 1(a).

(eee) “Subsidiary” means, with respect to any Person, any other Person of which a majority of the outstanding shares or other equity interests having the power to vote for directors or comparable managers are owned, directly or indirectly, by the first Person.

(fff) “Trading Day” means a day during which trading in securities generally occurs on the National Securities Exchange or other market on which the Common Stock is then traded. If the Common Stock is not so listed or traded, “Trading Day” means a Business Day.

(ggg) “Transfer Agent” means Worldwide Stock Transfer, LLC, acting as the Corporation’s duly appointed transfer agent, registrar, conversion agent, dividend disbursing agent and paying agent for any securities of the Corporation, and its successors and assigns, or any other Person appointed to serve as transfer agent, registrar, conversion agent, dividend disbursing agent or paying agent by the Corporation.

(hhh) “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a National Securities Exchange, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on a National Securities Exchange on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed or quoted on a National Securities Exchange, the volume weighted average price of a share of Common Stock for such date (or the nearest preceding date) on the OTCQB or the OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on the OTCQB or the OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation.

B-9

3. Dividends.

(a) Each holder of Series B Preferred Stock shall be entitled to receive, with respect to each share of Series B Preferred Stock then outstanding and held by such holder, dividends at the rate of thirteen percent (13%) per annum (the “Preferred Dividends”). The Preferred Dividends shall accrue and be cumulative from and after the date of issuance of any share of Series B Preferred Stock on a daily basis computed on the basis of a 365-day year and compounded quarterly (i.e., by increasing the Series B Issue Price of each share of Series B Preferred Stock quarterly in an amount equal to the sum of the Preferred Dividends payable per share of Series B Preferred Stock) whether or not earned or declared and whether or not the Corporation shall have assets legally available therefore. The Preferred Dividends are payable only when, as, and if declared by the Board and the Corporation has no obligation to pay such Preferred Dividends; provided, however, if the Board determines to pay any Preferred Dividends, the Corporation shall pay such dividends in kind in a number of additional shares of Series B Preferred Stock (the “PIK Shares”) equal to the quotient of (i) the aggregate amount of the Preferred Dividends being paid by the Corporation in respect of the shares of Series B Preferred Stock held by such Holder, divided by (ii) the Series B Issue Price; provided, further, that, at the election of the Purchasers holding a majority of the shares of Series B Preferred Stock then outstanding, in in their sole discretion, such Preferred Dividends shall be paid in cash or a combination of cash and PIK Shares. No fractional shares of Series B Preferred Stock shall be issued to any Holder pursuant to this Section 3(a) (after taking into account all shares of Series B Preferred Stock held by such Holder) and in lieu of any such fractional share, the Corporation shall pay to such Holder one additional whole share of Series B Preferred Stock. Each share of Series B Preferred Stock paid as a PIK Share under this Section 3(a) shall have a deemed value equal to the Series B Issue Price.

(b) Notwithstanding the foregoing, the Preferred Dividends may be paid in cash at the election of the Corporation if, and only if, (A) the Purchasers holding a majority of the shares of Series B Preferred Stock then outstanding consent in writing to the payment of any specific dividend in cash, or (B) at any time following the twenty-four (24) month anniversary of the Closing, (i) the prevailing VWAP of the Common Stock over the trailing ninety (90)-day period is equal to or greater than $3.00 per share (subject to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, reverse stock splits or other similar events), and (ii) the average trading volume of the Common Stock over the trailing ninety (90)-day period is equal to or greater than 200,000 shares of Common Stock per day, or (C) at any time following the thirty-six (36) month anniversary of the Closing. Subject to the rights of holders of any Senior Stock, Holders will be entitled to receive any such Preferred Dividends paid in cash pursuant to this Section 3(b) prior to any cash distributions made in respect of any Junior Stock in respect of the same calendar quarter, out of funds legally available for payment.

(c) Dividends (payable in cash, securities or other property) as may be determined by the Board may be declared and paid on any of the Corporation’s securities, including the Common Stock, from time to time out of funds legally available for such payment, provided, that in the event that the Corporation declares or pays any dividends upon the Common Stock, other than non-cash dividends that give rise to an adjustment to the Conversion Price pursuant to Section 5(f), the Corporation shall also declare and pay to the Holders of the Series B Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of the Series B Preferred Stock had all of the outstanding Series B Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined.

4. Liquidation.

(a) In the event of any Liquidation, subject to the rights of holders of any Senior Stock and before any distribution is made to holders of shares of Junior Stock, the Holders of the Series B Preferred Stock and Parity Stock (the “Preferred Holders”) will be entitled to receive in accordance withrespect of each share of Series B Preferred Stock and Parity Stock held by such Preferred Holder as of immediately prior to such Liquidation, from the assets of the Corporation, or proceeds thereof, distributable among the holders of the Corporation’s then-outstanding shares of capital stock, an amount equal to their respective rightsliquidation preference applicable to such share of Series B Preferred Stock or Parity Stock, as the case may be. The liquidation preference applicable to holders of Series B Preferred Stock shall be the amount of the Series B Liquidation Preference. If, upon such Liquidation, the assets of the Corporation, or proceeds thereof, are insufficient to pay the full liquidation preference of each Preferred Holder, then all such assets and interest.proceeds of the Corporation so distributable will be distributed ratably in respect of the then-outstanding shares of Series B Preferred Stock and Parity Stock, in proportion to their respective liquidation preferences.

 


B-10

The

(b) Notice of any Liquidation will be given by mail, postage prepaid, not less than thirty (30) days prior to the distribution or payment date stated therein, to each Preferred Holder appearing on the stock books of the Corporation as of the date of such notice at the address of said Preferred Holder shown therein. Such notice will state a distribution or payment date, the aggregate liquidation preference distributable in respect of all shares of Series AB Preferred Stock and Parity Stock then held by such Preferred Holder and the place where such amount will be distributable or payable.

(c) After the payment to the Preferred Holders of all amounts distributable pursuant to Section 4(a), the Holders of outstanding shares of Series B Preferred Stock will have no right or claim, based on their ownership of shares of Series B Preferred Stock, to any of the remaining assets of the Corporation by reason of their ownership of Series B Preferred Stock.

5. Conversion.

(a) Optional Conversion by the Holder.

(i) Subject to the terms and conditions of Section 6, each Holder of shares of Series B Preferred Stock shall have the right to convert all or any portion of such Holder’s Series B Preferred Stock into fully paid and non-assessable shares of Common Stock at any time or from time to time at such Holder’s sole discretion (the “Optional Conversion Right”). Each share of Series B Preferred Stock as to which the Optional Conversion Right is exercised shall be converted into such number of shares of Common Stock equal to the quotient of: (i) the sum of (A) the Series B Issue Price, plus (B) any accrued but unpaid dividends on such share of Series B Preferred Stock as of immediately prior to the conversion thereof, including the Preferred Dividends, divided by (ii) the Conversion Price of such share of Series B Preferred Stock in effect at the time of conversion (rounded down to the nearest whole share with any fractional shares being paid in cash in accordance with Section 5(c)).

(ii) The Optional Conversion Right of a Holder of Series B Preferred Stock shall be exercised by the Holder by delivering written notice to the Corporation that the Holder elects to convert all or a portion of the shares of Series B Preferred Stock held by such Holder (an “Optional Conversion Notice”), which notice shall state (i) the number of shares of Series B Preferred Stock that are being redeemed by such Holder and (ii) specify the name or names (with address or addresses) in which shares of Common Stock are to be issued.

(iii) The conversion of any share of Series B Preferred Stock shall be deemed to have been made in connection with any exercise of the Optional Conversion Right at the close of business on the date the Optional Conversion Notice is deemed given in accordance with Section 10 (the “Optional Conversion Date”). Until the Optional Conversion Date with respect to any share of Series B Preferred Stock has occurred, such share of Series B Preferred Stock will remain outstanding and will be entitled to all of the powers, designations, preferences and other rights provided herein, including that such share shall (A) accrue and accumulate Preferred Dividends and (B) entitle the Holder thereof to the voting rights provided in Section 7. Effective as of the Optional Conversion Date, the rights of the Holder of such shares of Series B Preferred Stock as a holder thereof will cease and from and after such time the Person entitled to receive the Common Stock issuable upon such conversion will be treated for all purposes as the record holder of such Common Stock.

B-11

(iv) As promptly as practicable on or after the Optional Conversion Date, the Corporation will update or cause to be updated the Corporation’s stock register to reflect the shares of Common Stock held by such Holder as a result of the Optional Conversion and issue and deliver, or cause to be issued and delivered, (A) evidence of such issuance reasonably satisfactory to such Holder, and (B) cash for any fractional interest in respect of a share of Common Stock arising upon such conversion settled as provided in Section 5(c), to the Person or Persons entitled to receive the same. Each Holder agrees to surrender at the office of the Corporation the certificate(s) in respect of the Series B Preferred Stock so converted, duly endorsed or assigned to the Corporation or in blank, as applicable.

(b) Forced Conversion by the Corporation.

(i) Subject to the terms and conditions of Section 6, if at any time following the twelve (12)-month anniversary of the Closing (A) the prevailing VWAP of the Common Stock over the trailing ninety (90)-day period is equal to or greater than $3.00 per share (subject to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, reverse stock splits or other similar events), and (B) the average trading volume of the Common Stock over the trailing ninety (90)-day period is equal to or greater than 200,000 shares of Common Stock per day, the Corporation shall have the right, but not the obligation, in its sole discretion, to elect to convert all, but not less than all, of the then-outstanding shares of Series B Preferred Stock into Common Stock by delivering written notice of such election (the “Forced Conversion Notice”) to the Holders of the Series B Preferred Stock within ten (10) Business Days following the satisfaction of the criteria in clauses (A) and (B) above (a “Forced Conversion”). Subject to Section 5(b)(ii) and Section 5(b)(iv), on the Forced Conversion Date, each share of Series B Preferred Stock shall be converted into the number of fully paid and non-assessable shares of Common Stock equal to the quotient of: (x) the sum of (1) the Series B Issue Price, plus (2) any accrued but unpaid dividends on such share of Series B Preferred Stock as of immediately prior to the conversion thereof, including the Preferred Dividends, divided by (y) the Conversion Price of such share of Series B Preferred Stock in effect at the time of conversion (the “Forced Conversion Amount”) (rounded down to the nearest whole share with any fractional shares being paid in cash in accordance with in Section 5(c)). The Forced Conversion Notice shall state (i) the number of shares of Series B Preferred Stock held by such Holder that are proposed to be converted, and (ii) the date on which such Forced Conversion shall occur, which date shall be the thirtieth (30th) day following the date such Forced Conversion Notice is deemed given pursuant to Section 10 (or, if such date falls on a day other than a Business Day, the next day that is a Business Day) (a “Forced Conversion Date”).

(ii) In the event of a Forced Conversion pursuant to Section 5(b)(i), at any time prior to the Forced Conversion Date, a Holder may elect, in its sole discretion and in lieu of the Forced Conversion, to have each then-outstanding share of Series B Preferred Stock held by such Holder be redeemed by the Corporation (a “Forced Conversion Redemption”) by delivering written notice to the Corporation (a “Forced Conversion Redemption Notice” and the date such Holder delivers such notice to the Corporation, a “Forced Conversion Redemption Notice Date”) prior to the Forced Conversion Date, which notice shall state (A) the number of shares of Series B Preferred Stock that are to be redeemed, (B) the date on which such Forced Conversion Redemption shall occur, which date shall be the tenth (10th) Business Day following the applicable Forced Conversion Redemption Notice Date (or, if such date falls on a day other than a Business Day, the next day that is a Business Day) (the “Forced Conversion Redemption Date”) and (C) the wire instructions for the payment of the applicable Forced Conversion Redemption Amount (as defined below) to such Holder. Each share of Series B Preferred Stock that is the subject of a Forced Conversion Redemption pursuant to this Section 5(b)(ii) shall be redeemed by the Corporation in cash at a price per share equal to the sum of (1) the Series B Issue Price, plus (2) any accrued but unpaid dividends on such share of Series B Preferred Stock, including the Preferred Dividends (the “Per Share Forced Conversion Redemption Price”). On the applicable Forced Conversion Redemption Date, the Corporation shall deliver, or shall cause to be delivered, to each Holder the product of (x) the Per Share Forced Conversion Redemption Price multiplied by (y) the number of shares of Series B Preferred Stock set forth in the Forced Conversion Redemption Notice (the “Forced Conversion Redemption Amount”), in cash by wire transfer of immediately available funds pursuant to the wire instructions provided in the Forced Conversion Redemption Notice.

B-12

(iii) Until the Forced Conversion Date or Forced Conversion Redemption Date, as applicable, with respect to any share of Series B Preferred Stock has occurred, such share of Series B Preferred Stock will remain outstanding and will be entitled to all of the powers, designations, preferences and other rights provided herein, including that such share shall (A) accrue and accumulate Preferred Dividends pursuant to Section 3 and (B) entitle the Holder thereof to the voting rights provided in Section 7. Effective as of the Forced Conversion Date or Forced Conversion Redemption Date, as applicable, the rights of the Holder of such shares of Series B Preferred Stock as a holder thereof will cease and, in the case of a Forced Conversion, from and after such time the Person entitled to receive the Common Stock issuable upon such conversion will be treated for all purposes as the record holder of such Common Stock.

(iv) If a Forced Conversion or Forced Conversion Redemption, as applicable, occurs prior to the twenty-four (24)-month anniversary of the Closing (the “Minimum Dividend Date”), in calculating (a) the number of shares of Common Stock issuable to the Holder in connection with such Forced Conversion or (b) the Per Share Forced Conversion Redemption Price, as applicable, the Holder will be entitled to an amount equal to all Preferred Dividends that would have been deemed to have accrued between the date of the Closing and the Minimum Dividend Date, less any Preferred Dividends previously paid to the Holder prior to such Forced Conversion or Forced Conversion Redemption, as applicable, and (x) the number of shares of common stock issuable to the Holder in connection with such Forced Conversion or (y) the Per Share Forced Conversion Redemption Price, as applicable, shall be increased, accordingly. Until the Forced Conversion Date with respect to any share of Series B Preferred Stock has occurred, such share of Series B Preferred Stock will remain outstanding and will be entitled to all of the powers, designations, preferences and other rights provided herein, including that such share shall (A) accrue and accumulate Preferred Dividends and (B) entitle the Holder thereof to the voting rights provided in Section 7. Effective as of the Forced Conversion Date, the rights of the Holder of such shares of Series B Preferred Stock as a holder thereof, including the accrual of Preferred Dividends, will cease and from and after such time the Person entitled to receive the Common Stock issuable upon such conversion will be treated for all purposes as the record holder of such Common Stock; provided, however, in the event the Holder elects a Forced Conversion Redemption pursuant to Section 5(b)(ii), the rights of such Holder will survive until the Forced Conversion Redemption Date, other than the accrual of the Preferred Dividends, which shall be deemed to have ceased on the Forced Conversion Date.

(v) As promptly as practicable on or after the Forced Conversion Date or any Forced Conversion Redemption Date, as applicable, the Corporation will update or cause to be updated the Corporation’s stock register to reflect the shares of Common Stock held by such Holder as a result of the Forced Conversion and issue and deliver or cause to be issued and delivered (A) evidence of such issuance reasonably satisfactory to such Holder, and (B) cash for any fractional interest in respect of a share of Common Stock arising upon such conversion settled as provided in Section 5(c), to the Person or Persons entitled to receive the same. Each Holder agrees to surrender at the office of the Corporation the certificate(s) in respect of the Series B Preferred Stock so converted, duly endorsed or assigned to the Corporation or in blank.

(c) Fractional Interests. If more than one share of Series B Preferred Stock is presented for conversion at the same time by the same Holder (either pursuant to Section 5(a) or Section 5(b)), the number of full shares of Common Stock which will be issuable upon such conversion thereof will be computed on the basis of the aggregate number of shares of Series B Preferred Stock to be converted by such Holder. The Corporation will not be required upon the conversion of any shares of Series B Preferred Stock to issue any fractional shares of Common Stock, but shall, in lieu of issuing any fractional share of Common Stock that would otherwise be issuable upon such conversion, pay a cash adjustment in respect of such fraction in an amount equal to the product of (i) such fraction, multiplied by (ii) the Market Price of the Common Stock. No Holder of Series B Preferred Stock will be entitled to receive any fraction of a share of Common Stock or a stock certificate representing a fraction of a share of Common Stock.

B-13

(d) Obligations. The Corporation’s obligations to issue and deliver shares of Common Stock upon conversion of shares of Series B Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by any Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by any Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by any Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to any Holder in connection with the issuance of such shares of Common Stock or Preferred Stock (as applicable).

(e) Payment of Taxes. The Corporation will pay any and all taxes (other than income taxes) that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of shares of Series B Preferred Stock pursuant hereto. The Corporation also will not impose any service charge in connection with any conversion of the shares of Series B Preferred Stock to shares of Common Stock. The Corporation will not be required, however, to pay any tax or other charge imposed in respect of any transfer involved in the issue and delivery of any certificates for shares of Common Stock or payment of cash or other property to any recipient other than any such Holder of a share of Series B Preferred Stock converted, and in the case of, any such transfer or payment, the Transfer Agent for the Series B Preferred Stock and the Corporation will not be required to issue or deliver any certificate or pay any cash until (i) such tax or charge has been paid or an amount sufficient for the payment thereof has been delivered to the Transfer Agent for the Series B Preferred Stock or the Corporation, or (ii) it has been established to the Corporation’s satisfaction that any such tax or other charge that is or may become due has been paid.

(f) Conversion Price Adjustments.

(i) Stock Dividends and Stock Splits. If the Corporation, at any time while the Series B Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, the Series B Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 5(f)(i) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

B-14

(ii) Pro Rata Distributions. During such time as the Series B Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of the Series B Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series B Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

(iii) Rights Plans. To the extent that the Corporation has a rights plan in effect with respect to the Common Stock on the date of any conversion pursuant to this Section 5, upon conversion of any shares of the Series B Preferred Stock into Common Stock, the Holders will receive, in addition to the shares of Common Stock, the rights under the rights plan, unless, prior to such conversion, as applicable, the rights have separated from the shares of Common Stock, in which case the Conversion Price will be adjusted at the time of separation as if the Corporation had issued the rights to all holders of the Common Stock in an issuance triggering an adjustment pursuant to Section 5(f)(iii), subject to readjustment in the event of the expiration, termination or redemption of such rights.

(iv) Other Events. If any event occurs of the type contemplated by the provisions of this Section 5(f) but not expressly provided for by such provisions (including, without limitation, pro rata repurchases, the granting of stock appreciation rights, phantom stock rights or other rights with equity features, or issuing Convertible Securities with a variable conversion formula that is more favorable than those of the Series B Preferred Shares), then the Corporation’s Board will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holders of the Series B Preferred Shares; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 5(f).

(v) Other Adjustments. The Corporation may make decreases in the Conversion Price, in addition to any other decreases required by this Section 5(f), if the Board deems it advisable to avoid or diminish any income tax to holders of the Common Stock resulting from any dividend or distribution of shares of Common Stock (or issuance of Options for Common Stock) or from any event treated as such for income tax purposes. If the Corporation takes any action affecting the Common Stock, other than an action described in Section 5(f), which upon a determination by the Board, in its good faith discretion (such determination intended to be a “fact” for purposes of Section 151(a) of the DGCL), would materially adversely affect the conversion rights of the Holders of shares of Series B Preferred Stock, the Conversion Price shall be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board determines in good faith to be equitable in the circumstances.

(vi) Successive Adjustments; Multiple Adjustments. After an adjustment is made to the Conversion Price under this Section 5(f), any subsequent event requiring an adjustment under this Section 5(f) shall cause an adjustment to such Conversion Price, as so adjusted.

B-15

(vii) Rounding of Calculations; Minimum Adjustments. All adjustments to the Conversion Price shall be calculated to the nearest one-tenth (1/10th) of a cent. No adjustment in the Conversion Price shall be required if such adjustment would be less than $0.01; provided, that any adjustments which by reason of this Section 5(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided, further that upon any conversion adjustment pursuant to this Section 5(f), adjustments to the Conversion Price will be made with respect to any such adjustment carried forward and which has not been taken into account before such date.

(viii) Notice of Adjustment. Upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof in accordance with Section 10, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

6. Limitations on Conversion. The Corporation shall not effect the conversion of shares of Series B Preferred Stock, and a holder of Series B Preferred Stock shall not have the right to convert any such shares, to the extent that after giving effect to such conversion, such Person (together with such Person’s Affiliates) would beneficially own in excess of 4.99% (the “Beneficial Ownership Limitation”) of the shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of shares of Series B Preferred Stock held by such Person and its Affiliates with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) conversion of the remaining, unexercised shares of Series B Preferred Stock beneficially owned by such Person and its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. For purposes of this Certificate, in determining the number of outstanding shares of Common Stock, a holder of Series B Preferred Stock may rely on the number of outstanding shares of Common Stock as reflected in the most recent of (1) the Corporation’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Corporation or (3) any other notice by the Corporation or its transfer agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of a holder of Series B Preferred Stock, the Corporation shall within two (2) Business Days confirm to such holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including shares of Series B Preferred Stock, by a holder thereof and its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Corporation, a holder of Series B Preferred Stock may from time to time increase or decrease the Beneficial Ownership Limitation to any other percentage specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Corporation, and (ii) any such increase or decrease will apply only to such holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

B-16

7. Voting.

(a) The Holders of shares of Series B Preferred Stock shall only have such voting rights as provided for in this Section 7 or as otherwise specifically required by law, the Certificate of Incorporation or the Corporation’s Bylaws (the “Bylaws”).

(b) Each Holder of outstanding shares of Series B Preferred Stock shall be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Corporation for their action or consideration (whether at a meeting of stockholders of the Corporation, by written action of stockholders in lieu of a meeting or otherwise), except as provided by law. In any such vote and subject to the Beneficial Ownership Limitation and applicable law, each share of Series B Preferred Stock shall be entitled to a number of votes equal to the largest number of whole shares of Common Stock into which such share of Series B Preferred Stock is convertible at the Conversion Price.

(c) In addition to any other vote or consent of stockholders required by law, the Certificate of Incorporation, or the Bylaws, at all times that at least 30% of the number of shares of Series B Preferred Stock sold at the Closing are outstanding, the Corporation will not, directly or indirectly, without the affirmative vote at a meeting (or the written consent with or without a meeting) of the Purchasers holding a majority of the shares of Series B Preferred Stock then outstanding:

(i) create, or authorize the creation of, establish, designate, or authorize the designation of, or issue or sell, or obligate itself to issue or sell, or approve the issuance of any shares of, Series B Preferred Stock or any other class or series of capital stock constituting Senior Stock or Parity Stock, or increase or decrease the authorized number of shares of Series B Preferred Stock or increase or decrease the authorized number of shares of any other class or series of capital stock constituting Senior Stock or Parity Stock;

(ii) adopt a plan for the liquidation, dissolution or winding up of the affairs of the Corporation or any recapitalization plan, file any petition seeking protection under any federal or state bankruptcy or insolvency law or make a general assignment for the benefit of creditors;

(iii) enter into any Change of Control transaction or consent to any Change of Control transaction;

(iv) enter into any transaction, other than in the ordinary course of business, with any Affiliate or shareholder of the Corporation;

(v) incur, assume or suffer to exist any indebtedness for borrowed money in excess of $500,000 in the aggregate;

(vi) amend, alter or repeal the Certificate of Incorporation or Bylaws of the Corporation and the powers, preferences, andprivileges, relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof, as follows:

1.Designation and Amount. The shares of Series A Preferred Stock shall be designated as “13% Series A Cumulative Redeemable Perpetual Preferred Stock” and the number of shares constituting such series shall be 2,000,000 shares. The Series A Preferred Stock shall have a stated value of $25 per share.

2.No Maturity, Sinking Fund, Mandatory Redemption. The Series A Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Corporation decides to redeem or otherwise repurchase the Series A Preferred Stock. The Corporation is not required to set aside funds to redeem the Series A Preferred Stock.

3.Ranking. The Series A Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up of the Corporation, (i) senior to all classes or series of the Corporation’s Common Stock, par value $0.01 per share (“Common Stock”), and to all other equity securities issued by the Corporation other than equity securities referred to in clauses (ii) and (iii) of this Section 3; (ii) on parity with all equity securities issued by the Corporation with terms specifically providing that those equity securities rank on parity with the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon any liquidation, dissolution or winding up of the Corporation; (iii) junior to all equity securities issued by the Corporation with terms specifically providing that those equity securities rank senior to the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon any liquidation, dissolution or winding up of the Corporation; and (iv) effectively junior to all existing and future indebtedness (including indebtedness convertible into our Common Stock or Preferred Stock) of the Corporation and to any indebtedness and other liabilities of (as well as any preferred equity interest held by others in) existing subsidiaries of the Corporation. The term “equity securities” shall not include convertible debt securities.

4.Dividends.

(a) Holders of shares of the Series A Preferred Stock (“Preferred A Holders”) are entitled to receive, cumulative cash dividends at the rate of 13% on Stated Value per share per annum (equivalent to $3.25 per annum per share). Commencing on the date of the issuance of Series A Preferred Stock (as applicable, the “Issue Date”), dividends shall accrue on the Series A Preferred Stock daily and such accrual shall be cumulative from, and including, the applicable Issue Date, and shall be payable quarterly in arrears on the 15th day of the first month of each quarter (each, a “Dividend Payment Date”) to the Preferred A Holders as they appear on the stock records of the Corporation at the close of business on the last day of the preceding quarter, whether or not a Business Day (each, a “Dividend Record Date”); provided, that if any Dividend Payment Date is not a Business Day (as defined below), then the dividend which would otherwise have been payable on that Dividend Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Dividend Payment Date and no interest, additional dividends or other sums will accumulate on the amount so payable for the period from and after such Dividend Payment Date to such next succeeding Business Day. Dividends payable on the Series A Preferred Stock will be computed on the basis of a 360-day year consisting of twelve 30-day months, provided that for partial dividend periods, dividend payments will be pro-rated, unless otherwise provided in the applicable securities offering and sale documents. The dividends payable on any Dividend Payment Date shall include dividends accumulated to, but not including, such Dividend Payment Date. The Company will deliver into escrow, for release to the Preferred A Holders as required in accordance with the terms and conditions hereof, the amount equal to three years’ worth of dividends payments, or $9.75 per share of Series A Preferred purchased.

(b) No dividends on shares of Series A Preferred Stock shall be authorized by the Board of Directors, or paid or set apart for payment by the Corporation at any time when the terms and provisions of any agreement of the Corporation, including any agreement relating to any indebtedness of the Corporation, prohibit the authorization, payment or setting apart for payment thereof or provide that the authorization, payment or setting apart for payment thereof would constitute a breach of the agreement or a default under the agreement, or if the authorization, payment or setting apart for payment shall be restricted or prohibited by law.

(c) Notwithstanding anything to the contrary contained herein, dividends on the Series A Preferred Stock will accumulate whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of those dividends and whether or not those dividends are declared by the Board of Directors. No interest, or sum in lieu of interest, will be payable in respect of any dividend payment or payments on the Series A Preferred Stock which may be in arrears, and Preferred A Holders will not be entitled to any dividends in excess of full cumulative dividends described in Section 4(a). Any dividend payment made on the Series A Preferred Stock shall first be credited against the earliest accumulated but unpaid dividend due with respect to the Series A Preferred Stock.


(d) Except as provided in Section 4(e), unless full cumulative dividends on the Series A Preferred Stock have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment for all past dividend periods, (i) no dividends (other than in shares of Common Stock or in shares of any series of Preferred Stock that the Corporation may issue ranking junior to the Series A Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution, or winding up) shall be declared or paid or set aside for payment upon shares of Common Stock or Preferred Stock that the Corporation may issue ranking junior to or on a parity with the Series A Preferred Stock as to the payment of dividends, or upon liquidation, dissolution, or winding up, (ii) no other distribution shall be declared or made upon shares of Common Stock or Preferred Stock that the Corporation may issue ranking junior to or on a parity with the Series A Preferred Stock as to the payment of dividends, or the distribution of assets upon liquidation, dissolution, or winding up, and (iii) any shares of Common Stock and Preferred Stock that the Corporation may issue ranking junior to, or on a parity with the Series A Preferred Stock as to the payment of dividends, or the distribution of assets upon liquidation, dissolution, or winding up, shall not be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for other capital stock of the Corporation that it may issue ranking junior to the Series A Preferred Stock as to the payment of dividends, or the distribution of assets upon liquidation, dissolution, or winding up).

(e) When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Stock and upon the shares of any other series of Preferred Stock that the Corporation may issue ranking on a parity as to the payment of dividends with the Series A Preferred Stock, all dividends declared upon the Series A Preferred Stock and any other series of Preferred Stock that the Corporation may issue ranking on parity as to the payment of dividends with the Series A Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series A Preferred Stock and such other series of Preferred Stock that the Corporation may issue shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Preferred Stock and such other series of Preferred Stock that the Corporation may issue (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Stock that may be in arrears.

(f) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close.

5.Liquidation Preference.

(a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the Preferred A Holders will be entitled to be paid out of the assets the Corporation has legally available for distribution to its shareholders, subject to the preferential rights of the holders of any class or series of capital stock of the Corporation it may issue ranking senior to the Series A Preferred Stock with respect to the distribution of assets upon liquidation, dissolution or winding up, a liquidation preference of $25 per share plus an amount equal to any accumulated and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to holders of Common Stock or any other class or series of capital stock of the Corporation that it may issue that ranks junior to the Series A Preferred Stock as to liquidation rights. The liquidation preference shall be proportionately adjusted in the event of a stock split, stock combination or similar event so that the aggregate liquidation preference allocable to all outstanding shares of Series A Preferred Stock immediately prior to such event is the same immediately after giving effect to such event.

(b) In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the available assets of the Corporation are insufficient to pay the amount of the liquidating distributions on all outstanding shares of Series A Preferred Stock and the corresponding amounts payable on all shares of other classes or series of capital stock of the Corporation that it may issue ranking on a parity with the Series A Preferred Stock in the distribution of assets, then the Preferred A Holders and all other such classes or series of capital stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.


(c) Preferred A Holders will be entitled to written notice of any such liquidation, dissolution or winding up no fewer than thirty (30) days and no more than sixty (60) days prior to the payment date. After payment of the full amount of the liquidating distributions to which they are entitled, the Preferred A Holders will have no right or claim to any of the remaining assets of the Corporation. The consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other entity with or into the Corporation, or the sale, lease, transfer or conveyance of all or substantially all of the property or business the Corporation, shall not be deemed a liquidation, dissolution or winding up of the Corporation.

6.Redemption.

(a)Optional Redemption Right. The Corporation may, at its option, upon not less than thirty (30) nor more than sixty (60) days’ written notice, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price in the amount of the Stated Value per share, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. If the Corporation elects to redeem any shares of Series A Preferred Stock as described in this Section 6(a).

(b)Special Optional Redemption Right. Upon the occurrence of a Change of Control, the Corporation may, at its option, upon not less than thirty (30) nor more than sixty (60) days’ written notice, redeem the Series A Preferred Stock, in whole or in part, within one hundred twenty (120) days after notice of such Change of Control, for cash at a redemption price in the amount of the Stated Value per share, plus any accumulated and unpaid dividends thereon to, but not including, the redemption date.

(c) A “Change of Control” is deemed to occur when, after the date of closing of the issuance of the shares of Series A Preferred Stock, the following have occurred and are continuing: (i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of the Corporation entitling that person to exercise more than 50% of the total voting power of all stock of the Corporation entitled to vote generally in the election of directors of the Corporation (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition).

(d) In the event the Corporation elects to redeem Series A Preferred Stock, the notice of redemption will be mailed by the Corporation, postage prepaid, or sent via e-mail, not less than thirty (30) nor more than sixty (60) days prior to the redemption date, to each holder of record of Series A Preferred Stock called for redemption at such holder’s address as it appears on the stock transfer records of the Corporation and shall state: (i) the redemption date; (ii) the number of shares of Series A Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates (if any) for the Series A Preferred Stock are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accumulate on the redemption date; (vi) whether such redemption is being made pursuant to Section 6(b) or Section 6(c); and (vii) if applicable, that such redemption is being made in connection with a Change of Control and, in that case, a brief description of the transaction or transactions constituting such Change of Control. If less than all of the shares of Series A Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series A Preferred Stock held by such holder to be redeemed. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the holder to whom notice was defective or not given.

(e) Preferred A Holders to be redeemed shall surrender the Series A Preferred Stock at the place designated in the notice of redemption and shall be entitled to the redemption price and any accumulated and unpaid dividends payable upon the redemption following the surrender.


(f) If notice of redemption of any shares of Series A Preferred Stock has been given and if the Corporation irrevocably sets aside the funds necessary for redemption in trust for the benefit of the Preferred A Holders so called for redemption, then from and after the redemption date (unless the Corporation shall default in providing for the payment of the redemption price plus accumulated and unpaid dividends, if any), dividends will cease to accumulate on those shares of Series A Preferred Stock, those shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights of the holders of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption.

(g) If any redemption date is not a Business Day, then the redemption price and accumulated and unpaid dividends, if any, payable upon redemption may be paid on the next Business Day and no interest, additional dividends or other sums will accumulate on the amount payable for the period from and after that redemption date to that next Business Day.

(h) If less than all of the outstanding Series A Preferred Stock is to be redeemed, the Series A Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method the Corporation shall determine.

(i) In connection with any redemption of Series A Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends to, but not including, the redemption date, unless a redemption date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series A Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date. Except as provided in this Section 6(j), the Corporation will make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of the Series A Preferred Stock to be redeemed.

(k) Unless full cumulative dividends on all shares of Series A Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment for all past dividend periods, no shares of Series A Preferred Stock shall be redeemed unless all outstanding shares of Series A Preferred Stock are simultaneously redeemed and the Corporation shall not purchase or otherwise acquire directly or indirectly any shares of Series A Preferred Stock (except by exchanging it for its capital stock ranking junior to the Series A Preferred Stock as to the payment of dividends, or the distribution of assets upon liquidation, dissolution, or winding up); provided, however, that the foregoing shall not prevent the purchase or acquisition by the Corporation of shares of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock.

7.No Conversion Rights; Exempt Issuance;

(a) The shares of Series A Preferred Stock are not convertible into or exchangeable for any other property or securities of the Corporation.

(b) “Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, consultants, officers or directors of the Company, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of first issuance of shares of Series A Preferred Stock, provided that such securities have not been amended since the date of such first issuance of shares of Series A Preferred Stock, to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith, and provided that any such issuance shall only be to a person (or to the equity holders of a person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities and (d) with the prior written consent of the Holders of a majority of the then-outstanding shares of Series A Preferred Stock, up to an amount of Common Stock as agreed upon by such majority Holders and the Company.


8.Voting Rights.

(a) Preferred A Holders will not have any voting rights, except as set forth in this Section 8 or as otherwise required by law. On each matter on which Preferred A Holders are entitled to vote as a separate class, each share of Series A Preferred Stock will be entitled to one vote.

(b) So long as any shares of Series A Preferred Stock remain outstanding, the Corporation will not, without the affirmative vote or consent of the holders of at least two-thirds of the shares of the Series A Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting together as a class with all other series of parity Preferred Stock that the Corporation may issue upon which like voting rights have been conferred and are exercisable), (i) authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking senior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassify any of the authorized capital stock of the Corporation into such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares; or (ii) amend, alter, repeal or replace the Certificate of Incorporation, including by way of merger, consolidation or otherwise in which the Corporation may or may not be the surviving entity, so as to materially and adversely affect and deprive Preferred A Holders of any right, preference, privilege or voting power of the Series AB Preferred Stock;

(vii) materially change the nature or scope of the business of the Corporation or enter into any new line of business outside of providing telehealth services and direct to consumer over-the-counter products and prescription medications in the hair loss, immune health, men’s health and disaster preparedness segments, or the Corporation’s existing software as a service business solution related to PDF files;

B-17

(viii) enter into any line of business under which the products or services offered by the Corporation are paid for in whole or in part by government health care programs or commercial insurance companies, including managed care entities; or

(ix) enter into any agreement with respect to any of the foregoing.

The affirmative vote (or written consent) required in this Section 7(c) shall be in addition to any approval of stockholders of the Corporation that may be required by law or pursuant to any provision of the Certificate of Incorporation or the Bylaws.

8. Redemption Rights.

(a) At any time (A) after December 31, 2020, if a sufficient number of shares of Common Stock are not available to effect the conversion of the Series B Preferred Stock (each, an “Event”). An increaseoutstanding into Common Stock and the exercise of the Warrants (as defined in the amountSecurities Purchase Agreement), or (B) after the three (3) year anniversary of the authorizedClosing, each Holder shall have the right, in its sole and absolute discretion (in addition to and not to the exclusion of any remedy such Holder may have at law or in equity), to require that the Corporation redeem (an “Optional Redemption”), to the fullest extent permitted by law and out of funds lawfully available therefor, all or any portion of such Holder’s Series B Preferred Shares then outstanding by delivering written notice thereof (an “Optional Redemption Notice” and the date such notice is deemed given in accordance with Section 10, an “Optional Redemption Notice Date”) to the Corporation, which notice shall state (i) the number of shares of Series B Preferred Stock that are being redeemed by such Holder, (ii) the date on which such Optional Redemption shall occur, which date shall be the thirtieth (30th) day from the applicable Optional Redemption Notice Date (or, if such date falls on a day other than a Business Day, the next day that is a Business Day) (an “Optional Redemption Date”) and (iii) the wire instructions for the payment of the applicable Optional Redemption Price (as defined below) to such Holder; provided, however, that right of the Holders to cause an Optional Redemption under clause (B) above shall expire at such time as (i) the Common Stock is listed for trading on a National Securities Exchange and (ii) the VWAP of the Common Stock over any ninety (90)-day period is equal to or greater than $2.00 per share, subject to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, reverse stock splits or other similar events.

(b) Each share of Series B Preferred Stock subject to redemption pursuant to this Section 8 shall be redeemed by the Corporation in cash at a price equal to the sum of (1) the Series B Issue Price, plus (2) any accrued but unpaid dividends on such share of Series B Preferred Stock, including the Preferred Dividends (the “Per Share Optional Redemption Price”). On the applicable Optional Redemption Date, the Corporation shall deliver, or shall cause to be delivered, to each Holder the product of (x) the Per Share Optional Redemption Price multiplied by (y) the number of shares of Series AB Preferred Stock set forth in the Optional Redemption Notice (the “Optional Redemption Amount”), in cash by wire transfer of immediately available funds pursuant to the wire instructions provided in the Optional Redemption Notice. In the event of a redemption of less than all of the shares of Series B Preferred Stock held by a Holder, the Corporation shall promptly issue and deliver, or cause to be issued and delivered, to the Holder a new Series B Preferred Stock certificate representing the remaining Series B Preferred Shares held by such Holder.

(c) Notwithstanding anything to the contrary in this Section 8, until the applicable Optional Redemption Date, the shares of Series B Preferred Stock that are subject to the applicable Optional Redemption may be (i) converted, in whole or in part, by the Holders into shares of Common Stock pursuant to Section 5. All shares of Series B Preferred Stock converted by a Holder pursuant to Section 5 after the delivery of an Optional Redemption Notice shall reduce the Series B Preferred Shares required to be redeemed on the Optional Redemption Date.

B-18

(d) If upon an Optional Redemption Date, the assets of the Corporation are insufficient to pay the applicable Optional Redemption Price, the Corporation shall redeem on such date, pro rata among the Holders to be redeemed in proportion to the aggregate number of Series B Preferred Shares then held by each such Holder on the applicable Redemption Date. Dividends on the shares Series B Preferred Stock that have not been redeemed, including the Preferred Dividends, shall continue to accrue until such time as the Corporation redeems such shares Series B Preferred Stock. If the Corporation is unable to redeem all of the shares of Series B Preferred Stock submitted for redemption, the Corporation shall in addition to any remedy such Holder may have under this Certificate of Designations, pay to each Holder interest at the rate of one percent (1.0%) per month (prorated for partial months) in respect of each unredeemed share of Series B Preferred Stock until paid in full.

9. Reservation and Authorization of Common Stock and Series B Preferred Stock. The Corporation covenants that, so long as any shares of Series B Preferred Stock remain outstanding:

(i) as soon as practical, but no later than December 31, 2020, the Corporation will cause a sufficient number of shares of Common Stock to be available to effect the conversion of the Series B Preferred Stock into Common Stock, whether through a reverse stock split or an amendment to the Certificate of Incorporation to authorize additional shares of Common Stock. Thereafter, the Corporation will at all times reserve and keep available, from its authorized and unissued Common Stock, solely for issuance and delivery upon the conversion of the shares of Series B Preferred Stock, 110% of such number of shares of Common Stock as from time to time will be issuable upon the conversion in full of all outstanding shares of Series B Preferred Stock;

(ii) the Corporation will, from time to time, take all actions permitted by law, including calling meetings of stockholders of the Corporation and soliciting proxies for any necessary vote of the stockholders of the Corporation, to increase the authorized number of shares of its Common Stock or if at any time the authorized number of shares of Common Stock remaining unissued would otherwise be insufficient to allow delivery of all the shares of Common Stock then deliverable upon the conversion of all outstanding shares of Series B Preferred Stock;

(iii) the Corporation will, from time to time, take all steps necessary to increase the authorized number of shares of its Preferred Stock or Series B Preferred Stock, as applicable, if at any time the creation or issuanceauthorized number of any additional Series Ashares of Preferred Stock or other series ofSeries B Preferred Stock remaining unissued would otherwise be insufficient to allow delivery of PIK Shares in accordance with Section 3(a), assuming that the Preferred Dividends then payable would be paid in their entirety in PIK Shares;

(iv) all shares of Common Stock issuable upon conversion of shares of Series B Preferred Stock will, upon issuance, be duly and validly issued, fully paid and nonassessable, be free of restrictions on transfer (other than restrictions on transfer arising under federal and state securities laws), not be subject to preemptive rights or subscription rights of any other stockholder of the Corporation, and will be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein and liens created by the Holder thereof);

(v) to the extent the Corporation issues PIK Shares, such PIK Shares will, upon issuance, be duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer (other than restrictions on transfer arising under federal and state securities laws) and will be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein and liens created by the Holder thereof); and

B-19

(vi) the Corporation will use its reasonable best efforts to ensure that such Common Stock and Preferred Stock, including Series B Preferred Stock, may issue,be issued without violation of any applicable law or regulation.

10. Manner of Providing Notices. All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given (a) upon personal delivery to the party to be notified, (b) when sent, if sent by electronic mail during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next Business Day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt: (i) if to the Corporation, to its office at 800 Third Avenue, Suite 2800, New York, NY 10022, or (ii) if to any Holder, to such Holder at the address of such Holder as listed in the Corporation’s stock register or (iii) to such other address as the Corporation or any increasesuch Holder, as the case may be, shall have designated by written notice similarly given.

11. Other Notice Obligations. In case at any time:

(a) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the amountholders of authorizedits Common Stock;

(b) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of such series, in each case ranking onstock of any class or other rights;

(c) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a parityconsolidation or merger of the Corporation with, or juniora sale of all or substantially all its assets to, another corporation; or

(d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;

then, in any one or more of said cases, the Corporation shall give, in accordance with Section 10 above, (a) at least ten (10) Business Days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least ten (10 Business Days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be.

12. No Waiver. Except as otherwise modified or provided for herein, the holders of Series AB Preferred Stock with respectshall also be entitled to, payment of dividends or the distribution of assets upon liquidation, dissolution or winding up,and shall not be deemed to materially and adversely affecthave waived, any other applicable rights granted to such rights, preferences, privileges or voting powers.holders under the Delaware General Corporation Law.

 

(c) Notwithstanding Section 8(b)(ii) above, if13. No Impairment. The Corporation will not, through any Event set forthreorganization, transfer of assets, consolidation, merger scheme or arrangement, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all time in Section 8(b)(ii) above materiallygood faith assist in the carrying out of all the provisions herein and adversely affects any right, preference, privilegein the taking of all such action as may be necessary or voting powerappropriate in order to protect the conversion rights and liquidation preferences granted hereunder of the holders of the Series AB Preferred Stock butagainst impairment. Without limiting the generality of the foregoing, the Corporation shall not all seriesincrease the par value of parityany shares of Common Stock receivable upon conversion of the Series B Preferred Stock above the Conversion Price then in effect and shall take all such actions as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock upon which like voting rights have been conferred and are exercisable, the affirmative vote or consentconversion of the holdersSeries B Preferred Stock.

14. No Other Rights. Without limiting the rights and obligations of at least two-thirdsthe Corporation and any Holder of Series B Preferred Stock pursuant to any contract or agreement between the Corporation and any such Holder of Series B Preferred Stock, the shares of the Series A Preferred Stock and all such other similarly affected series, outstanding at the time (voting together as a class), given in person or by proxy, either in writing or at a meeting, shall be required in lieu of the vote or consent that would otherwise be required by Section 8(b)(ii).

(d) The voting rights provided for in this Section 8 will not apply if, at or prior to the time when the act with respect to which voting by Preferred A Holders would otherwise be required pursuant to this Section 8 shall be effected, all outstanding shares of Series A Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption pursuant to Section 6.

(e) Except as expressly stated in this Section 8 or as may be required by applicable law, the Series AB Preferred Stock will not have any powers, designations, preferences or relative, participating, optional or other special voting rights, nor will there be any qualifications, limitations or restrictions or any powers, anddesignations, preferences or rights of such shares, other than as set forth in this Certificate of Designations, the consentCertificate of Incorporation, the holders thereof shall notBylaws or as may be required for the taking of any corporate action.provided by law.

 

9.Information Rights. During any period in which[Signature page follows]

B-20

IN WITNESS WHEREOF, the Corporation is not subjecthas caused this Certificate of Designations to be signed and attested this day of August 27, 2020.

THE CORPORATION:
CONVERSION LABS, INC.
By:/s/Justin Schreiber
Name:Justin Schreiber
Title:Chief Executive Officer

Annex C

CERTIFICATE OF VALIDATION

OF

CONVERSION LABS, INC.

Pursuant to Section 13 or 15(d)204 of the Exchange Act and any shares of Series A Preferred Stock are outstanding, the

General Corporation will use its best efforts to (i) transmit by mail (or other permissible means under the Exchange Act) to all Preferred A Holders, as their names and addresses appear on the record booksLaw of the Corporation and without cost to such holders, copiesState of the annual reports on Form 10-K and quarterly reports on Form 10-Q that the Corporation would have been required to file with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13 or 15(d) of the Exchange Act if it were subject thereto (other than any exhibits that would have been required).Delaware

 

10.No Preemptive Rights. No Preferred A Holders will, as Preferred A Holders, have any preemptive rights to purchase or subscribe for Common Stock or any other securityConversion Labs, Inc., a corporation organized and existing under the laws of the Corporation.State of Delaware (the “Company”), certifies as follows:

 

11.Record Holders.1. The Corporation anddefective corporate acts that are the transfer agent forsubject of this Certificate of Validation are: (i) the Series Aauthorization of the creation of five million (5,000,000) shares of blank check Preferred Stock, may deempar value $0.0001 per share (the “Blank Check Preferred Authorization”); and treat(ii) the record holderfiling and effectiveness of any Series Athe Certificate of Amendment of the Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware (the “Secretary of State”) on January 21, 2020, which effectuated the Blank Check Preferred StockAuthorization.

2. The nature of the failure of authorization in respect of the Blank Check Preferred Authorization as well as the truefiling and lawful owner thereof for all purposes, and neithereffectiveness of the Corporation norCertificate of Amendment was the transfer agent shall be affectedfailure of the amendments set forth in the Certificate of Amendment (and, accordingly, the acts effected thereby) to have been duly authorized by any noticethe stockholders entitled to the contrary.

SECOND: That thereafter, pursuant to resolution of its Board of Directors, stockholders of said corporation holding the necessary number of shares as required by statute approved the said amendment at a special meeting of shareholders.

THIRD: That said amendment was duly adoptedvote thereon in accordance with the provisions of Section 242242(b) of the General Corporation Law of the State of Delaware.Delaware (the “DGCL”).

3. The defective corporate acts that are the subject of this Certificate of Validation were duly ratified in accordance with Section 204 of the DGCL pursuant to resolutions of the Board adopted on October 8, 2020 and the resolutions of the stockholders of the Company adopted on [ ] [ ], 2020 at the Company’s Special Meeting of Stockholders.

4. The Certificate of Amendment was previously filed with the Secretary of State under Section 242 of the DGCL on January 21, 2020. A copy of the Certificate of Amendment is attached hereto as Exhibit A.

[Signature Page Follows]

B-6

C-1

 

 

IN WITNESS WHEREOF,, said corporation the Company has caused this certificateCertificate of Validation to be signedexecuted by its duly authorized officer as of this __[  ] day of ___, 20__.[  ], 2020.

 

 Conversion Labs, Inc.CONVERSION LABS, INC.
  
 By:              /s/
 Name: 
 Title:


 
oFOLD AND DETACH HERE AND READ THE REVERSE SIDEo
PROXY

CONVERSION LABS, INC.

SPECIAL MEETING OF SHAREHOLDERS — January 10, 2020

The undersigned shareholder of Conversion Labs, Inc. (the “Company”) hereby appoints Justin Schreiber as the attorney and proxy of the undersigned, with full power of substitution, to vote, as indicated herein, all the Common Stock of the Company standing in the name of the undersigned at the close of business on November 18, 2019 at the Special Meeting of Shareholders of the Company to be held at 800 Third Avenue, Suite 2800, New York, NY 10022, at 10:00 AM Eastern Time on January 10, 2020, and at any and all adjournments thereof, with all the powers the undersigned would possess if then and there personally present and especially (but without limiting the general authorization and power hereby given) to vote as indicated on the proposals, as more fully described in the Proxy Statement for the meeting on the following matters.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED FOR THE PROPOSALS LISTED BELOW UNLESS OTHERWISE INDICATED. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE, BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL LISTED BELOW.

(Continued, and to be marked, dated and signed, on the other side)

 

 

FOLD AND DETACH HERE AND READ THE REVERSE SIDE
PROXY BY MAIL

Exhibit A

 

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED FOR THE ELECTION OF THE PROPOSED DIRECTORS AND FOR THE ABOVE PROPOSALS UNLESS OTHERWISE INDICATED. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE, BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AND FOR THE PROPOSALS LISTED BELOW.Please mark boxes [*] or [X] in blue or black ink.☒

Certificate of Amendment

 

 

 FOR

 AGAINST

 ABSTAIN

1. Proposal: Authorizing the Company for a period of up to twelve months from the date of the Meeting, to adopt an amendment to the Company’s Certificate of Incorporation in the form of Annex A attached to the Proxy Statement to effect a reverse stock split in a ratio of up to and including 1 for 5, or to determine not to proceed with the reverse stock split

2. Proposal: Authorizing the Company, to adopt an amendment to the Company’s Certificate of Incorporation to authorize the creation of blank check preferred stock, par value $0.01 per share, to consist of five million (5,000,000) shares, in one or more series as solely determined by the Company’s board of directors, with such voting power, preferences and relative participation, optional and special rights and qualifications, limitations and restrictions thereof as the Company’s board of directors may, in its sole discretion, determine.

 

 

 

 

   

PROXY NUMBER:
ACCOUNT NUMBER:   

 

Signature _________________________ Print Name ________________________ Signature ________________________
Print Name ________________________ DATED: _____________________,

SIGNATURE(S) should be exactly as name or names appear on this Proxy. If stock is held jointly, each holder should sign. If signing is by attorney, executor, administrator, trustee or guardian, please give full title.

[Sign, date and return the Proxy Card promptly using the enclosed envelope.]