Messrs. Angelo, O’Brien and Taylor, each of whom is a non-employee member of our Board, comprise our compensation committee. Mr. Taylor is the chairman of our compensation committee. Our Board has determined that each member of our compensation committee meets the requirements for independence under the rules of the NYSE Amex, and is a “non-employee director” within the meaning of the Exchange Act, and is an “outside director,” within the meaning of the Code.Internal Revenue Code of 1986, as amended.
Except with respect to determining the chief executive officer’s compensation, the Committee may delegate its authority to a subcommittee of the committee and, to the extent permitted by applicable law, the committee may delegate to officers or appropriate supervisory personnel the authority to grant stock awards to non-executive, non-director employees.
Stock Compensation of Non-Employee Directors
We provide the following stock compensation for non-employee directors, to be granted at the Annual Meeting of Stockholders each year:directors:
• | ● | eachUpon the initial election or appointment to our Board of a new non-employee director, such individual will be granted, under our 2007 Stock Plan, an option to purchase 30,000 shares of common stockour Common Stock with a per-share exercise price equal to the fair market value of that stock on the date of grant and which will vest monthly with respect to 1/36th of the total number of shares subject to the option, conditioned upon continued service as a director; provided that these options automatically become exercisable in fullfully vested immediately prior to a “Change“change of Control” as defined incontrol” of the 2007 Stock Plan;Company; and |
|
• | ● | each existing non-employee director will be granted, under our 2007 Stock Plan, an option to purchase 10,00015,000 shares of common stockour Common Stock at the Annual Meeting with a per-share exercise price equal to the fair market value of that stock on the date of grant and which will be fully vestedvest on the dateone-year anniversary of such a grant. |
The following table shows the compensation earned by or paid to each of our independent directors duringfor the fiscal year 2008:ended December 31, 2011:
| | | | | | | | | | | | | |
| | Fees Earned | | Option | | | | |
| | or Paid in | | Awards | | | | |
Name | | Cash ($) | | ($)(1) | | Total($) | | |
Name(1) | | | Fees Earned or Paid in Cash ($) | | | Option Awards ($)(2) | | | Total ($) | |
Michael F. Angelo | | 38,500 | | 85,240 | | 123,740 | | | $ | 56,000 | | | $ | 321,450 | | | $ | 377,450 | |
Thomas M. O’Brien | | 44,000 | | 85,240 | | 129,240 | | | $ | 63,500 | | | $ | 321,450 | | | $ | 384,950 | |
Scott C. Taylor | | 38,500 | | 85,240 | | 123,740 | | | $ | 57,000 | | | $ | 321,450 | | | $ | 378,450 | |
| | |
(1) | This table includes the compensation of only non-employee directors and director nominees. For compensation of Mr. Short, our Chief Scientist and Chief Technology Officer, please see Certain Relationships and Related Transactions on page 41 of this Proxy Statement. For compensation of Mr. Larsen, please see Executive Compensation and Other Matters on page 31 of this Proxy Statement. |
(2) | The amounts in this column reflect amounts recognized for financial statement reporting purposes forthe aggregate grant date fair value of the stock options granted in the fiscal year ended December 31, 2008 and in prior fiscal years,computed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS 123R”). However, these amounts do not include any reduction for risk of forfeiture related to service-based vesting. The option awards included in this expense amount were granted from December 31, 2007 through December 31, 2008. These amounts reflect our accounting expense for these awards and do not represent the actual value that may be realized by our non-executive directors.Board’s Accounting Standards Codification Topic 718, or FASB ASC Topic 718. There can be no assurance that these amounts will ever be realized. For information on the valuation assumptions used in valuing these stock option awards, refer to Note 6 titled “Stock-Based Compensation” in the Note to the Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. The aggregate number of shares subject to outstanding options held by each independent director at 2008 year end wereDecember 31, 2011 was as follows: Mr. Angelo (40,000)(68,750), Mr. O’Brien (40,000)(75,000) and Mr. Taylor (40,000.) (28,750). The number of outstanding shares held by each independent director at December 31, 2011 was as follows: Mr. Angelo (31,256), Mr. O’Brien (76,664) and Mr. Taylor (0). |
19
The following table sets forth the beneficial ownership of our Common Stock as of April 4, 2012 by:
| ● | all persons known to us, based on statements filed by such persons pursuant to Section 13(d) or 13(g) of the Exchange Act or in statements made to us, to be the beneficial owners of more than 5% of our Common Stock and based on the records of Corporate Stock Transfer, Inc., our transfer agent; |
| ● | each of our named executive officers in the table under “Summary Compensation Table” on page 39 of this Proxy Statement; and |
| ● | all current directors and executive officers as a group. |
This table lists applicable percentage ownership based on 50,771,160 shares of Common Stock outstanding as of April 18, 2011. Securities that a person has a right to acquire pursuant to SEC rules within 60 days of April 4, 2011 are deemed to be beneficially owned by the persons holding these options for the purpose of computing the number of shares owned by, and percentage ownership of, that person, but are not treated as outstanding for the purpose of computing any other person’s number of shares owned or ownership percentage.
Except as indicated by footnote, and subject to applicable community property laws, each person identified in the table possesses, to the best of our knowledge, sole voting and investment power with respect to all capital stock shown to be held by that person. The address of each executive officer and director, unless indicated otherwise, is c/o VirnetX Holding Corporation, PO Box 439, Zephyr Cove, NV, 89448.
Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership (1) | | | Percent Of Class | |
5% or Greater Stockholders: | | | | | | | | |
Kendall Larsen | | | 9,586,359 | (2) | | | 18.88% | |
| | | | | | | | |
Directors and Executive Officers: | | | | | | | | |
Kendall Larsen | | | 9,586,359 | (2) | | | 18.88% | |
Robert D. Short III, Ph.D. | | | 1,190,054 | (3) | | | 2.34% | |
William E. Sliney | | | 145,678 | (4) | | | * | |
Thomas M. O’Brien | | | 151,664 | (5) | | | * | |
Michael F. Angelo | | | 96,256 | (6) | | | * | |
Scott C. Taylor | | | 35,000 | (7) | | | * | |
All directors and current executive officers as a group (6 persons): | | | 11,205,011 | (8) | | | 21.22% | |
(1) | Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options and warrants which are exercisable or convertible at or within 60 days of April 4, 2012 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. The indication herein that shares are beneficially owned is not an admission on the part of the listed stockholder that he, she or it is or will be a direct or indirect beneficial owner of those shares. |
(2) | Includes 1,433,167 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 4, 2012, of which, 682,683 are held by Mr. Larsen’s wife. Also includes 300,000 shares of our Common Stock held of record by K2 Investment Fund LLC. Mr. and Mrs. Larsen are the sole member-managers of K2 Investment Fund LLC. Also includes 7,853,192 shares of our Common Stock pledged to a third party as collateral security for certain obligations. Excludes 611,730 shares held by Mrs. Larsen’s revocable trust and 1,478 shares held by an immediate family member who shares the Larsen family household. Mr. Larsen disclaims beneficial ownership of the excluded shares. |
(3) | Includes (i) 1,155,054 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 4, 2012 and (ii) 35,000 shares of common stock owned by the Short Revocable Living Trust. |
(4) | Includes 140,517 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 4, 2012. Mr. Sliney retired from his position as Chief Financial Officer effective March 31, 2012. |
(5) | Includes 75,000 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 4, 2012. |
(6) | Includes 75,000 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 4, 2012. |
(7) | Includes 35,000 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 4, 2012. |
(8) | Includes 2,913,738 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 4, 2012 beneficially held by our directors and current executive officers as a group. |
ELECTION OF CLASS II DIRECTORS
Our Board of Directors consists of five members. In accordance with our certificate of incorporation, our Board of Directors is divided into three classes with staggered three-year terms. At the 2012 Annual Meeting, two directors will be elected for three year terms.
The nominating and governance committee of the Board of Directors recommended, and the Board of Directors approved, Robert D. Short III, Ph.D. and Thomas M. O’Brien as nominees for re-election to the Board of Directors at the Annual Meeting to the Board of Directors. If elected, each of Robert D. Short III, Ph.D. and Thomas M. O’Brien will serve as directors until our annual meeting in 2015, and until a successor is qualified and elected or until his earlier resignation or removal. Each of the nominees is currently a director of the Company. Please see “Nominees” on page 10 of this Proxy Statement for information concerning our incumbent directors standing for re-election.
Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR each of Robert D. Short III, Ph.D. and Thomas M. O’Brien. If either of the nominees are unable or decline to serve as a director at the time of the Annual Meeting, the proxies will be voted for another nominee designated by the Board of Directors. We are not aware of any reason that a nominee would be unable or unwilling to serve as a director.
Each director is elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors at the Annual Meeting. Abstentions and broker non-votes will have no effect on the outcome of the vote.
The Board of Directors unanimously recommends that stockholders vote “FOR” the election of each of Robert D. Short III, Ph.D. and Thomas M. O’Brien.
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The audit committee has selected Farber Hass Hurley LLP as our independent registered public accountants for the fiscal year ending December 31, 2012 and recommends that stockholders vote for ratification of such selection. Although ratification by stockholders is not required by law, the Company has determined that it is desirable to request ratification by the stockholders of this selection. If the stockholders do not ratify the selection of Farber Hass Hurley LLP, the audit committee may reconsider its selection. Notwithstanding its selection or voting results, the audit committee, in its discretion, may appoint new independent registered public accountants at any time during the year if the audit committee believes that such a change would be in the best interests of VirnetX and its stockholders.
Farber Hass Hurley LLP has audited our consolidated financial statements annually since it was first appointed in fiscal year 2007. We expect that representatives of Farber Hass Hurley LLP will be present at our Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to questions from stockholders.
The affirmative vote of the holders of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote on the matter is necessary to ratify the selection of Farber Hass Hurley LLP as our independent registered public accountants for fiscal year 2012. Abstentions are treated as shares of Common Stock present in person or represented by proxy and entitled to vote and therefore, will have the effect of a vote “against” the ratification of Farber Hass Hurley LLP as our independent registered public accountants. Broker non-votes will have no effect on the outcome of the vote.
The Board of Directors, on behalf of the audit committee, recommends that stockholders vote “FOR” the ratification of the selection of Farber Hass Hurley LLP as VirnetX’s independent registered public accountants for the fiscal year ending December 31, 2012.
Proposal III is a non-binding stockholder proposal. The California State Teachers’ Retirement System Investments, or CalSTRS, notified us of its intention to submit the following proposal for the consideration of the stockholders at the 2012 annual meeting. CalSTRS has informed the Company that its address is 100 Waterfront Place, MS-04, West Sacramento, CA. and, as of December 9, 2011, it held 95,381 shares of our common stock. If the stockholder proponent, or a representative who is qualified under state law, is present at the Annual Meeting and submits the proposal for a vote, then the proposal will be voted upon. The stockholder proposal is included in this Proxy Statement exactly as submitted by the stockholder proponent. The Board’s response to the proposal as well as the Board’s recommendation on the proposal is presented immediately following the proposal.
Approval of the stockholder proposal requires the affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote on such proposals. For the stockholder proposal, abstentions are treated as shares present or represented and entitled to vote, and, therefore, will have the same effect as a vote “against” the proposal. Broker non-votes are not deemed present or represented, and, therefore, will have no effect on the outcome of the vote.
NON-BINDING STOCKHOLDER PROPOSAL REGARDING DELETION OF PLURALITY
VOTING STANDARD
BE IT RESOLVED:
That the shareholders of VirnetX Holding Corporation hereby request that the Board of Directors initiate the appropriate process to amend the Company’s articles of incorporation and/or bylaws to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders, with a plurality vote standard retained for contested director elections, that is, when the number of director nominees exceeds the number of board seats.
SUPPORTING STATEMENT:
In order to provide shareholders a meaningful role in director elections, the Company’s current director election standard should be changed from a plurality vote standard to a majority vote standard. The majority vote standard is the most appropriate voting standard for director elections where only board nominated candidates are on the ballot, will establish a challenging vote standard for board nominees, and will improve the performance of individual directors and the entire board. Under the Company’s current voting system, a nominee for the board can be elected with as little as a single affirmative vote, because “withheld” votes have no legal effect. A majority vote standard would require that a nominee receive a majority of the votes cast in order to be re-elected and continue to serve as a representative for the shareholders.
In response to strong shareholder support a substantial number of the nation’s leading companies have adopted a majority vote standard in company bylaws or articles of incorporation. In fact, more than 77% of the companies in the S&P 500 have adopted majority voting for uncontested elections. We believe the Company needs to join the growing list of companies that have already adopted this standard.
CalSTRS is a long-term shareholder of the Company and we believe that accountability is of utmost importance. We believe the plurality vote standard currently in place at the Company completely disenfranchises shareholders and makes the shareholders’ role in director elections meaningless. Majority voting in director elections will empower shareholders with the ability to remove poorly performing directors and increase the directors’ accountability to the owners of the Company, its shareholders. In addition, those directors who receive the majority support from shareholders will know they have the backing of the very shareholders they represent. We therefore ask you to join us in requesting that the Board of directors promptly adopt the majority vote standard for director elections.
Please vote FOR this proposal.
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION TO PROPOSAL III
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST”
PROPOSAL III FOR THE FOLLOWING REASONS:
The Board of Directors believes that adherence to sound corporate governance policies and practices are important to the long term success of the Company. After a thorough review of this proposal in comparison to our current director election standards and the high levels of support our directors have historically received, the Board of Directors recommends a vote “AGAINST” the director election majority vote standard.
Currently, the stockholders of the Company elect their directors by a plurality of the votes cast, meaning that the nominees who receive the most affirmative votes will be elected to the Board of Directors. Plurality voting is the default voting standard under Delaware law and has long been the accepted voting standard, such that the rules governing plurality voting are well established.
In contrast, the majority voting standard advocated by the proponent is a relatively new practice. There has been an ongoing public debate about the use of a majority voting standard and the Board does not believe that the merits of majority voting have been thoroughly established so as to outweigh the potential unintended or adverse consequences that may follow from its adoption.
Unlike a plurality voting standard which ensures that all open director seats are filled at each election, the majority voting standard could result in an entire slate of nominees being rejected. This would require the Board and the Nominating and Corporate Governance Committee to repeat the process it went through prior to the stockholder meeting in order to select replacement directors, imposing additional costs on the Company without providing a commensurate amount of additional meaningful input of stockholders in the director election process. This is because under the Company’s certificate of incorporation, any such vacancies can be filled by either a majority of the directors then in office or a majority of the outstanding shares of voting stock entitled to vote in the election of directors. As a result, in many cases, it can be expected that the Board would fill any such vacancies without any further stockholder vote. In addition, any vacancies resulting from majority voting may result in disruptions to the Board’s operations and the resulting potential for significant turnover in the Board could have a negative impact on the Company’s long-term strategic plan due to the lack of director continuity.
Further, the proponent’s characterization of the plurality voting standard, particularly the statement that a director could be elected with a single affirmative vote, is an unrealistic hypothetical and improbable in light of the Company’s prior voting results. The Company’s stockholders have an excellent history of electing strong and independent directors by plurality voting. Beginning with our 2008 annual meeting, the first annual meeting following our reverse merger with PASW, Inc, and continuing through our 2011 annual meeting, our directors received on average greater than 97% of the shares voted through the plurality voting process and no director has been elected by less than 93% of the votes cast during this period (percentages exclude, in each case, broker non-votes which are not counted as votes cast). As a result, the adoption of a majority voting standard would not have affected the outcome of the elections of directors in any of the prior four years. The Board expects this high level of support will continue in future elections, obviating the need for the adoption of a majority voting standard.
Not only have our directors received high levels of support, but, we also maintain a strong director nomination and election process which identifies and proposes qualified independent director nominees to serve on the Board of Directors. This nomination and election process has resulted in a Board of Directors that consists of highly-qualified directors from diverse backgrounds and with a majority of our directors meeting the current SEC and NYSE Amex requirements for independence.
We are committed to strong corporate governance and we have consistently and continuously demonstrated our commitment to good governance and we will continue to monitor the voting standard issue and take additional necessary steps in the future consistent with our commitment to act in the best interests of our stockholders. Given our history of having a Board that is highly qualified and that has received a high level of support from our stockholders, and the reasons presented above, we do not believe it is in our stockholders’ best interest to implement the proponent’s majority voting standard at this time.
For these reasons, the Board of Directors unanimously recommends a vote “AGAINST” Proposal III.
The following table sets forth the respective names, ages and positions of our executive officers as of April 24, 2012.
Name | | Age | | Position |
Kendall Larsen | | 55 | | Chairman of the Board of Directors, President and Chief Executive Officer |
Richard H. Nance | | 63 | | Chief Financial Officer |
Kendall Larsen’s biography is set forth under the heading “Board of Directors” in this Proxy Statement.
Richard H. Nance has been our Chief Financial Officer on a part-time basis since April 5, 2012. From 2002 to 2011, Mr. Nance worked for Strasbaugh, a designer of precision surfacing systems and solutions for the global semiconductor and semiconductor equipment, silicon wafer and silicon wafer equipment, data storage, micro-electromechanical system (“MEMS”), light emitting diode (“LED”) and precision optics markets, serving most recently as its Executive CompensationVice President and Chief Financial Officer. Mr. Nance has served clients in his private practice since 2011.
Each officer serves at the discretion of our Board of Directors and holds office until his successor is duly elected and qualified or until his earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
The Company has complied with the requirements of Section 303A.12(a) of the New York Stock Exchange Listed Company Manual by filing, with NYSE Amex, its 2011 Section 12(a) CEO Certification.
Overview
This Compensation Discussion and Analysis describes our compensation program as it relates to our chief executive officer and our chief financial officer, our two executive officers, who we refer to as our named executive officers. This Compensation Discussion and Analysis should be read together with the compensation tables beginning on page 39 of this Proxy Statement. In this Compensation Discussion and Analysis, we first discuss certain of our business highlights that informed compensation decisions in 2011, the objectives and philosophy of our executive compensation program. Next, we review the process our compensation committee follows in deciding how to compensate our named executive officers. We then provide a brief overview of the specific elements of our compensation program. Lastly, we present a detailed discussion and analysis of the compensation committee’s specific decisions about the compensation of our named executive officers for fiscal year 2011.
Business Highlights
In 2011, the Company achieved significant milestones in the development of its business. With only 12 employees, the Company depends heavily on its executive officers to drive its strategic, operational and financial goals. Some of the Company’s notable achievements in 2011 include:
| ● | Development of our licensing business and our contributions to standard setting, including initiating discussions with significant potential new customers; submitting a Statement of Patent Holder identifying a group of the Company’s patents and patent applications that the Company believes are or may become essential to developing specifications in the 3GPP LTE, SAE project; and making available a non-exclusive patent license under FRAND to 3GPP members. |
| ● | Management of litigation, including filing two new lawsuits against Siemens, Mitel and Avaya, and against Apple, as well as a complaint against Apple with the U.S. International Trade Commission; |
| ● | Achievement of technical milestones with respect to our Gabriel Technology; |
| ● | Significant growth in our patent portfolio, including 8 new patents (including foreign patents) and; |
| ● | Increased communication and improved relations with investors and analysts; |
| ● | An increase in our stock price range from $3.01 - $18.65 in 2010 to $11.53 - $39.88 in 2011; |
| ● | An increase in our market capitalization from approximately $732.7 million at the end of 2010 to approximately $1.26 billion as of the end of 2011; and |
| ● | Moving our corporate headquarters from Scotts Valley, California to Zephyr Cove, Nevada. |
Objectives and Philosophy of Executive Compensation
We maintain a peer-based executive compensation program comprised of multiple elements. We typically review the elements of compensation for our Named Executive Officers annually. In connection with our review, we analyze the compensation paid by the following peer companies:
| • | | Early and late stage private companies using a semi-annual survey of private, venture-backed companies that have received at least one round of financing from a professional U.S.-based venture capital firm. Of the companies in this survey, over one-half are in the information technology business and the remainder are divided between healthcare, products and services and other companies. |
|
| • | | A key comparable company, Medivation, Inc., which also completed a reverse merger followed by an underwritten direct primary public offering. This company had similar market capitalization compared to us and was similarly early stage and pre-revenue at the time of their reverse merger, although this company is a medical device company. |
|
| • | | Public company peers using data we gathered from the SEC filings of ten public companies with the same industry code as us and otherwise in a comparable industry, having a market capitalization of between $25 million and $500 million, and in a similar geographic region. |
The primary objectives and philosophy of our peer-based executive compensation program are:
| • | ● | attracting and retaining the most talented and dedicated executives possible; |
|
| • | ● | correlating annual and long-term cash and stock incentives to achievement of measurable performance objectives; and |
|
| • | ● | aligning executives’ incentives with stockholder value creation. |
To achieve these objectives, we implement and maintain compensation plans that tie a substantial portion of each executive’sexecutive officer’s overall compensation to key strategic financial and operational goals such as the establishmentrevenue generating activities, product and maintenance of key strategic relationships, thetechnical development, of our product candidates, the identificationcorporate public relations and advancement of additional product candidates, and the performance of our common stock price. Ourstockholder value creation. The compensation committee’s approach emphasizes the setting of compensation at levels the compensation committee believes are competitive with executives in other companies of similar size and stage of development who are operating in the information technology industry while taking into account our relative performance and our own strategic goals.
20
Executive Compensation Process
Tax Deductibility
Role of Executivethe Compensation Committee
Our
We maintain an executive compensation program comprised of multiple elements. The compensation committee and our Board have consideredtypically reviews the potential future effects of Section 162(m) of the Internal Revenue Code on the compensation paid to our executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for any of the Named Executive Officers in the proxy statement, unless compensation is qualified performance based compensation within the meaning of Section 162(m). In approving the amount and formelements of compensation for our Named Executive Officers, ournamed executive officers annually. The compensation committee will continue to consider all elements of the cost to us of providing such compensation, including the potential impact of Section 162(m).
Role of Executive Officers
Our compensation committee exclusively makes all compensation decisions with regard to our chief executive officer and it approves recommendations regardingthe Company’s other named executive officer. In addition, the compensation committee is responsible for determining for all executive officers: annual base salary, annual incentive bonus, including the specific goals and amount, equity compensation, employment agreements, severance arrangements and change in control agreements/provisions, and any other benefits or compensation arrangement; evaluating and recommending to our Board compensation plans, policies, and programs for our chief executive officer and other employees. executive officers; administering our equity incentive plans; and preparing the compensation committee report that the SEC requires in our annual proxy statement. In 2011, the members of the compensation committee were Michael Angelo, Scott Taylor and Thomas O’Brien.
Role of the Chief Executive Officer and Management in Compensation Decisions
Our president and chief executive officer generally attends the compensation committeecommittee’s meetings and sometimes makes recommendations to ourthe compensation committee regarding the amount and form of the compensation of the other named executive officersofficer and key employees. He is not present for any of the executive sessions or for any discussion of his own compensation.
Compensation Consultant
In early 2011, the compensation committee engaged Compensia (“Compensia”) an independent third-party compensation consulting firm, to:
| ● | identify an updated market framework (including a peer group of companies) for formal compensation benchmarking purposes; |
| ● | gather data on the Company’s executive officer cash and equity compensation relative to competitive market practices; and |
| ● | develop a market-based framework for potential changes to the Company’s compensation program for the compensation committee’s review and input. |
The compensation committee retains sole authority to hire a compensation consultant, approve its compensation, determine the nature and scope of its services, evaluate its performance, and terminate its engagement.
The total amount of fees paid to Compensia for services to the compensation committee in 2011 was $30,896. Compensia received no other fees or compensation from us.
Competitive Data
Our primary business is the development of software and technology solutions for securing real-time communications over the Internet. In addition, we hold a valuable intellectual property portfolio from which we have generated revenue, both from licenses and one time payments in settlement of infringement claims by us. In 2011, the compensation committee and Compensia worked together to determine a group of 18 companies that generally had similar financial, operational and strategic characteristics as the Company. The compensation committee periodically reviews and updates the peer group, as necessary, upon recommendation of the Company’s compensation consultant or based on changes in the Company’s business. For 2011, our peer group consisted of:
Acacia Research | MIPS Technologies | SPS Commerce |
Aware | Mosys | SRS Labs |
Ceva | PDF Solutions | Support.com |
CyberDefender | Procera Networks | Universal Display |
DTS | Research Frontiers | Wave Systems |
Evolving Systems | Sonic Solutions (acquired by Rovi in 2011) | Zix |
These peer companies are generally comparable to the Company with respect to revenue (all less than $130 million), market capitalization (all greater than $50 million) and industry (IP-licensing and software) to the extent practical taking into consideration our unique business model and financial profile. For comparison purposes only, the compensation committee also considered survey data covering a group of “next stage” technology companies with revenues ranging from $50 to $200 million, to illustrate how compensation may change over time if the Company’s target financial and operating model is achieved in the near term.
To assess the competitiveness of our executive compensation program for 2011, the compensation committee analyzed compensation data with respect to our peer group as well as compensation survey data utilized by Compensia covering a broader range of similar-sized technology companies. As part of this process, Compensia analyzed target and actual compensation for each of our executives, both in terms of each element of compensation and in terms of total direct compensation. Compensia then presented this information to the compensation committee for its review and use.
In 2011, the compensation committee compared the compensation of each executive officer to the peer group for similar positions. For purposes of fiscal year 2011, the compensation committee targeted the 50th percentile of current stage companies for executive officers other than our chief executive officer and a blend of the 75th percentile for both current stage and next stage companies for our chief executive officer. The compensation committee believes these targets were appropriate for 2011 given the significant progress the Company made toward its financial and operational milestones in 2010 and the growth rate of the Company. Generally, the compensation committee wants to ensure that compensation for its executive officers is competitive in the market place and incentivizes our executive officers to remain with the Company and to work to move the Company to the next stage in its development. The compensation committee also considered various factors such as individual performance, the importance of the officer’s role and the scope of the officer’s responsibilities (for example, job responsibilities that are broader than the specific position may suggest). When determining compensation for the named executive officers, the compensation committee took into account that Mr. Sliney’s time commitment to the Company was approximately 25% of full-time, as well as considering Mr. Sliney’s individual performance and commitment.
Say-on-Pay
In 2011, the Company held its initial say-on-pay advisory vote. Over 97% of the votes present and entitled to vote on the proposal (votes “For” and “Against”, as well as abstentions) and 99% of the votes cast on the proposal (votes “For” and “Against”) voted “FOR” the approval of the compensation of our executive officers. The compensation committee believes these results affirm stockholder support for our executive compensation decisions and policies, and as such, the compensation committee has not materially changed its approach to 2012 compensation in response to the say-on-pay proposal. The compensation committee will continue to consider the results of future say-on-pay proposals when making executive compensation decisions and policies.
Elements of Executive Compensation
Executive
Our executive compensation program consists of the following elements:
• | | ● | Base Salary. Base salaries for our executivesnamed executive officers are established based on the scope of their responsibilities, taking into account competitive market compensation paid by other companies for similar positions. Generally, the program is designed to deliver executive base salaries within the range of salaries for executives with the requisite skills in similar positions with similar responsibilities at comparable companies, in line with our compensation philosophy. Executives with more experience, critical skills, and/or considered key performers may be compensated above the range as part of our strategy for attracting, motivating and retaining highly experienced and high performing employees. Base salaries are reviewed annually and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance, and experience. This review generally occurs each year in the fourth quarter and adjustments are made from time to time to ensure market competitiveness. |
|
• | ● | Discretionary Annual Incentive Bonus. Each year, ourthe compensation committee establishes a target discretionary annual incentive bonus poolamount for each named executive officer based on a percentage of anthe executive’s base salary. The target bonus, combined with base salary, is intended to provide our executive officers with a competitive cash compensation package that will aid in the retention of the employee, as well as provide an incentive and a reward for strong Company and individual performance. No performance goals are specifically established or communicated to our named executive officers and the achievement of corporate and individual objectives. Our compensation committee may award discretionaryhas the sole discretion to determine following the end of the fiscal year whether and the extent to which the annual incentive bonuses to our chief executive officer or other employees. Ourwill be paid. Given the Company’s rapidly evolving business and business model, this structure provides the compensation committee with flexibility to reward strategic and operational goals that may not be quantifiable and allows the compensation committee to take into account the Company’s overall performance based on a multitude of factors, the importance of which may not be known or identifiable until the end of the year. The compensation committee generally utilizes the annual incentive bonuses to compensate officers for achieving financial and operational goals and for achieving individual annual performance objectives. These objectives vary depending on the individual executive, but relate generally toperformance. Performance factors considered when determining bonuses typically include strategic factors such as establishment and maintenance of key strategic relationships, development and implementation of our licensing strategy, development of our product, identification and advancement of additional products, successful litigation strategies and to financial factors such as raising capital, improving our results of operations, and increasing the price per share of our common stock.Common Stock.
|
21
• | ● | Long-Term Incentive Program. We believe that long-term performance is achieved through an ownership culture that encourages high performance by our named executive officers through the use of stock and stock-based awards. Our 2007 Stock Plan was established to provide our employees, including our named executive officers, with incentives to help align those employees’ interests with the interests of stockholders. Our compensation committee believes that the use of stock and stock-based awards offers the best approach to achieving our compensation goals. We have historically elected to use stock options as the primary long-term equity incentive vehicle. |
|
• | | Stock Option Grants.Stock option grants are made atvehicle although the commencement of employment, may be made annually based upon performance and, occasionally, following a significant change in job responsibilities or to meet other special retention objectives. Our compensation committee periodically reviews and approves stock option awards to executive officers based upon a review of competitive compensation data, its assessment of individual performance, a review of each executive’s existing long-term incentives, and retention considerations. In determining the number of stock options to be granted to executives, we take into account the individual’s position, scope of responsibility, ability to affect profits and stockholder value, the individual’s historic and recent performance, the value of stock options in relation to other elements of the individual executive’s total compensation, and the individual’s potential ownership as a percentage of our total outstanding shares relative to comparable companies. We expect to continue to use stock options as a long-term incentive vehicle because:considers alternate equity award types.
|
Stock option grants are made at the commencement of employment, may be made annually based upon performance and, occasionally, following a significant change in job responsibilities or to meet other special retention objectives. The compensation committee reviews and approves stock option awards to named executive officers based upon a review of competitive compensation data, its assessment of individual performance, a review of each executive’s existing long-term incentives, and retention considerations. In determining the number of stock options to be granted to our named executive officers, we take into account the individual’s position, scope of responsibility, ability to affect profits and stockholder value, the individual’s historic and recent performance, the value of stock options in relation to other elements of the individual executive’s total compensation, and the individual’s potential ownership as a percentage of our total outstanding shares relative to comparable companies. We expect to continue to use stock options as a long-term incentive vehicle, potentially in combination with equity award types, because we believe that stock options:
| •● | | stock options align the interests of executives with those of the stockholders, support a pay-for-performance culture, foster employee stock ownership, and focus the management team on increasing value for the stockholders; |
|
| •● | | stock options are performance based and all thein that any value received by the recipient offrom a stock option is based on the growth of the stock price;price from the grant date; |
|
| •● | | stock options help to provide a balance to the overall executive compensation program as base salary and our discretionary annual bonus program focus on short-term compensation, while the vesting of stock options increasesprovide incentives to increase stockholder value over the longer term; and |
|
| •● | | theinclude vesting period of stock options encouragesrestrictions that encourage executive retention and the preservation of stockholder value. |
Stock Ownership Guidelines
In 2011, the Committee undertook a full review of the compensation of our executive and made certain changes to more closely align the compensation of the named executive officers with our peer group as described above. Following this review, in April 2011, the Committee approved increases to salaries, targets for cash incentive opportunities and stock ownership guidelinesoption grant targets for the 2011 fiscal year for each of the named executive officers who is presented in the table below.
Name | | Base Salary 2010 | | | Base Salary 2011(1) | | | Targeted Cash Incentive Opportunity for Fiscal 2010(2) | | | Targeted Cash Incentive Opportunity for Fiscal 2011(2) | | | Targeted Number of Shares Underlying Stock Option Grants for Fiscal 2010(3) | | | Targeted Number of Shares Underlying Stock Option Grants for Fiscal 2011(3) | |
| | | | | | | | | | | | | | | | | | |
Kendall Larsen | | $ | 302,500 | | | $ | 420,000 | | | | 35 | % | | | 50 | % | | | 35,000 | | | | 50,000 | |
Chief Executive Officer, President & Chairman | | | | | | | | | | | | | | | | | | | | | | | | |
William Sliney | | $ | 48,100 | | | $ | 60,000 | | | | 35 | % | | | 50 | % | | | 8,750 | | | | 10,000 | |
Chief Financial Officer (4) | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | The increase in 2011 base salaries was approved with retroactive effect to January 1, 2011. |
(2) | The target bonus level for cash incentive opportunities is calculated as a percentage of base salary. |
(3) | Stock option grants were made under the Company’s 2007 Stock Plan. |
(4) | Mr. Sliney served as our chief financial officer on a part-time basis from July 5, 2007 until his retirement effective March 31, 2012. |
Base Salary
Mr. Larsen is our president and chief executive officer, as well as a director. Upon review in early 2011, his base salary of $302,500 was below the median of our peer group. Mr. Larsen, a founder of VirnetX Inc., has driven the organization’s performance, leading it from inception, through the early start-up phase and through several rounds of financing. He has also helped drive significant growth in our revenues and market capitalization in 2010, as well as achievement of our operational and strategic milestones. The compensation committee believes that Mr. Larsen is critical to our ability to pursue our licensing strategy going forward. Accordingly, in April 2011, the compensation committee increased Mr. Larsen’s salary to $420,000, an increase of $117,500, or 39%, over 2010. This increase put Mr. Larsen’s base salary above the 75th percentile of the peer group, but between the 50th and 75th percentile for next stage companies.
Mr. Sliney, our chief financial officer, was a part-time employee. Accordingly, his compensation was evaluated and determined based upon his time commitment of approximately 25% of a full-time employee. Upon review in early 2011, his base salary of $48,100 was below the median of our peer group (on an as-adjusted basis). Mr. Sliney has significant public company experience, and the compensation committee considered his transactional and strategic skills, his level of responsibility, past contributions to our performance and expected contributions to our further success. Accordingly, in April 2011, the compensation committee approved an increase in Mr. Sliney’s salary to $60,000, an increase of $11,900, or approximately 25%, which was approximately the 50th percentile of the current stage peer group.
Annual Incentive Bonus
Further to the review of the named executive officers compensation, the compensation committee determined that the target incentive opportunity of 35% of base salary, which applied to all employees of the Company, was competitive for lower-level employees, but below the median of the Company’s peer group for its named executive officers. While the compensation committee noted that actual payouts under the bonus plan in 2010 were above target and therefore, total cash compensation in 2010 was generally more competitive as compared to our peer group than base salary, the compensation committee determined that target compensation should be more closely aligned with the Company’s peer group level in order to continue to incentivize the executives and to provide a more realistic view of projected compensation to the executives. Accordingly, the Company increased bonus targets for Messrs. Larsen and Sliney to 50% of base salary.
In the fourth quarter of 2011, the compensation committee reviewed the Company’s performance in 2011 and the contributions that Messrs. Larsen and Sliney made to such performance. The compensation committee determined to pay Messrs. Larsen and Sliney 100% of their 2011 target bonuses in light of the Company’s overall strong performance for the year and their contributions in achieving this performance. The compensation committee took into account the achievement of certain licensing and litigation milestones, technical milestones, development of the Company’s patent portfolio, increases in the Company’s stock price and market cap as well as reductions in operating expenses and investor relations successes, none of which were given any particular weight or assigned a dollar value. The compensation committee also approved an additional payment equal to the estimated amount of payroll withholding taxes (as calculated by the Company’s payroll processing agent) to be incurred by Mr. Larsen and Mr. Sliney (but that the executives would be responsible for any incremental taxes associated with such additional payment). The resulting aggregate 2011 annual incentive bonus payments, including the additional amounts in respect of payroll taxes, paid to Mr. Larsen and Mr. Sliney were $287,671 and $43,717, respectively.
Equity Incentive Compensation
As part of the compensation review, Compensia and the compensation committee also reviewed our executive officers’ equity incentive compensation in terms of both value granted and percent of company granted, taking into account the $0.50 per share dividend paid on the Company’s common stock in 2010. Based on this review, the Company determined that the Company’s equity compensation grant date fair value in fiscal 2010 was approximately at the 50th percentile of the Company’s peer group for Mr. Sliney and approximately 45th percentile for Mr. Larsen, but was below the 25th percentile on a percent of company granted basis.
In determining fiscal 2011 stock option awards for the named executive officers, the compensation committee reviewed various factors, including the Company’s performance, each individual’s performance and perceived criticality to future success, current and next stage peer practices with respect to long-term incentives, total annual equity allocations at the Company for fiscal 2011 and the size and value of each individual’s existing equity award holdings. Based on this review, the compensation committee increased the annual equity grant for Mr. Larsen from 35,000 shares in 2010 to 50,000 shares in 2011 and from 8,750 shares for Mr. Sliney in 2010 to 10,000 shares in 2011. These option grants exceeded our current peer market 75th percentile in terms of value granted and fell below our current peer market 50th percentile in terms of percent of company granted.
On April 21, 2011, the compensation committee approved the grant of stock options to our named executive officers under our 2007 Stock Plan has provided the principal method for our executive officers to acquire equityas described in the Company. We currently do not requiretable below, effective as of the first trading day that our directors or executive officerstrading window opens following April 21, 2011. All stock options indicated in the table have an exercise price equal to own a particular amountthe closing sales price of our common stock. Our compensation committee is satisfiedstock traded on the NYSE Amex on the first trading day that stock and option holdings among our directors and executive officers are sufficient at this timetrading window opened following April 21, 2011 pursuant to provide motivation and to align this group’s interests with those of our stockholders.Insider Trading Policy.
22
Name | | Position | | Number of Shares | | Vesting Schedule | | Grant Date Fair Value | |
Kendall Larsen | | CEO/President/Chairman/Founder | | | 50,000 | | * | | $ | 1,071,500 | |
William Sliney | | CFO | | | 10,000 | | * | | $ | 214,300 | |
* | Subject to the continued service of the named executive officer, the shares underlying the option shall vest and become exercisable in accordance with the following schedule: 1/48 of the total number of shares subject to the option shall vest and become exercisable at the grant date and 1/48 of the total number of shares subject to the option shall vest and become exercisable on each monthly anniversary thereafter. |
Perquisites
Our named executive officers participate in the same group insurance and employee benefit plans as our other salaried employees. At this time, we do not provide special benefits or other perquisites to our named executive officers.
Change of Control Arrangements
Our
We do not provide change of control agreements or employment agreements providing formal cash or equity severance rights to any of our named executive officers. However, our 2007 Stock Plan allows our Board to determine the terms and condition of awards issued thereunder. Our Board has made the determination that all options issued under our 2007 Stock Plan will include the provision that in the event of a “Change of Control” (as defined in our 2007 Stock Plan), all unvested shares underlying the option will vest and become exercisable immediately prior to the consummation of such Change of Control transaction.
Named Executive Officers’ Compensation
Stock Ownership Guidelines
We have not adopted stock ownership guidelines and our 2007 Stock Plan has provided the principal method for our executive officers to acquire equity in the Company. We currently do not require our directors or executive officers to own a particular amount of our Common Stock. The compensation committee is satisfied that stock and option holdings among our presidentdirectors and chief executive officer, as well as a director. Relativeofficers are sufficient at this time to provide motivation and to align this group’s interests with those of our stockholders.
Tax and Accounting Considerations
The compensation committee considers the possible tax consequences to the benchmarking surveys described above, his base salary is betweenCompany and to its executives of our compensation programs, the medianaccounting consequences to the Company of different compensation decisions and the 75th percentile for early and late stage private companies, below our key comparable company and belowimpact of such decisions on stockholder dilution. With respect to the median andtax consequences to the 75th percentileCompany, the compensation committee considers the potential future effects of our public company peers. Mr. Larsen, a founderSection 162(m) of VirnetX Inc., has driven the organization’s performance, leading it from inception, throughInternal Revenue Code of 1986, as amended, on the early start-up phase and through several rounds of financing. Mr. Larsen will be criticalcompensation paid to our ability to pursuenamed executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for any of the named executive officers in the proxy statement, unless compensation is qualified performance based compensation within the meaning of Section 162(m). In approving the amount and form of compensation for our licensing strategy going forward.
Mr. Sliney is our chief financial officer and his base salary is below the median and the 75th percentile of early stage private companies, below the median for late stage private companies and our public company peers, and below our key comparable company. In establishing Mr. Sliney’s base salary,named executive officers, our compensation committee primarily considered Mr. Sliney’s experiencewill continue to consider all elements of the cost to us of providing such compensation, including the potential impact of Section 162(m). However, to maintain maximum flexibility in public company work, his transactional and strategic skills, his level of responsibility, past contributions to our performance and expected contributions to our further success.
Pursuant to a meeting held on April 3, 2009,designing compensation programs, the compensation committee decidedwill not limit compensation to maintainthose levels or types of compensation that are intended to be deductible or that lead to a particular accounting result or level of stockholder dilution.
Risk Assessment
The compensation committee structures our executive compensation program in a manner that it believes does not promote inappropriate risk taking by our executive officers, but rather encourages management to take a balanced approach, focused on achieving our corporate goals.
The Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s annual base salariesreport on Form 10-K and this Proxy Statement.
Respectfully submitted by the members of our Named Executive Officers for 2009 at their current 2008 levels. At that meeting, the compensation committee did approve a stock option grant to Mr. Larsen to purchase 585,425 shares of the Company. The Company filed a Current Report on Form 8-K with the SEC reporting this grant and other related matters on April 7, 2009.Board of Directors:
Discretionary Annual Incentive Bonus
Pursuant to a meeting held on April 3, 2009, the compensation committee decided not to award any cash bonuses for 2008 to our Named Executive Officers. | Scott C. Taylor (Chair) |
| Michael F. Angelo |
| Thomas M. O’Brien |
23
The following table sets forth summary information concerning compensation earnedpaid or accrued for services rendered to the Company byin all capacities to (i) the chief executive officerCompany’s Chief Executive Officer and (ii) the chief financial officer forCompany’s former Chief Financial Officer (who was serving as Chief Financial Officer at the end of fiscal year ended December 31, 2008. Collectively, these are the “Named Executive Officers.”2011).
| | | | | | | | | | | | | | | | | | | | |
Name & Principal | | | | | | | | | | | | | | Option | | | | |
Position | | Year | | | Salary ($) | | | Bonus ($) | | | Awards ($) (1) | | | Total ($) | |
Kendall Larsen | | | 2008 | | | | 275,000 | | | | — | | | | 253,903 | | | | 528,903 | |
Chief Executive Officer, President and Director | | | 2007 | | | | 245,000 | | | | 244,211 | | | | 21,159 | | | | 510,370 | |
William E. Sliney | | | 2008 | | | | 98,442 | | | | — | | | | 470,536 | | | | 568,978 | |
Chief Financial Officer | | | 2007 | | | | 36,460 | | | | 15,313 | | | | 39,211 | | | | 90,984 | |
Name and Principal Position | | Year | | Salary ($)(1) | | | Bonus ($) | | | Option Awards ($)(2) | | | All Other Compensa- tion ($) | | | Total ($) | |
| | | | | | | | | | | | | | | | | |
Kendall Larsen | | 2011 | | | 420,000 | | | | 287,671 | | | | 1,071,500 | | | | — | | | | 1,779,171 | |
Chief Executive Officer | | 2010 | | | 302,500 | | | | 153,519 | | | | 172,500 | | | | 437,630 | (3) | | | 1,066,149 | |
| | 2009 | | | 275,000 | | | | 100,833 | | | | 690,668 | | | | — | | | | 1,066,501 | |
| | | | | | | | | | | | | | | | | | | | | | |
William Sliney | | 2011 | | | 60,000 | | | | 43,717 | | | | 214,300 | | | | — | | | | 318,017 | |
Chief Financial Officer | | 2010 | | | 43,752 | | | | 19,624 | | | | 41,825 | | | | 195,923 | (3) | | | 301,124 | |
| | 2009 | | | 43,752 | | | | 7,292 | | | | — | | | | — | | | | 51,044 | |
| | |
(1) | Actual salary earned during the 2009, 2010, and 2011 fiscal years. |
(2) | The amounts in this column reflects amounts recognized for financial statement reporting purposes for the stated fiscal years for stock options granted in that fiscal year and in prior fiscal years, in accordance with SFAS 123R. However, these amounts do not include any reduction for risk of forfeiture related to service-based vesting. The option awards included in this expense amount were granted from December 31, 2007 through December 31, 2008. These amounts reflect our accounting expensethe grant date fair value for these awards and do not representreflect the actual amounts earned. See the “2011 Grants of Plan-Based Awards” table for information on stock option awards granted in fiscal year 2011. |
(3) | These reflect amounts related to the Board of Directors’ June 15, 2010 declaration of a one-time special cash dividend of $0.50 per share of our Common Stock payable on or about July 15, 2010 to stockholders of record on July 1, 2010. In connection with the dividend, the Board of Directors also approved a cash payment of $0.50 per share of our Common Stock to holders of stock options under the Company’s 2007 Stock Plan. |
The following table shows all plan-based awards granted to the named executive officers during fiscal year 2011. The equity awards identified in the table below are also reported in the “Outstanding Equity Awards at 2011 Fiscal Year-End” table below.
| Grant Date(1) | | Name of Plan | | All Other Option Awards: Number of Securities Underlying Options | | | Exercise or Base Price of Option Awards ($/sh) | | | Grant Date Fair Value(2) | |
Kendall Larsen | 4/21/2011 | | 2007 Stock Plan | | | 50,000 | | | $ | 23.62 | | | $ | 1,071,500 | |
William Sliney | 4/21/2011 | | 2007 Stock Plan | | | 10,000 | | | $ | 23.62 | | | $ | 214,300 | |
| (1) | On April 21, 2011, the compensation committee approved the grant of stock options to our named executive officers under our 2007 Stock Plan, effective as of the first trading day that our trading window opens following April 21, 2011, which was May 13, 2011. |
| (2) | These amounts reflect the grant date fair value that may be realized byof such award computed in accordance with FASB ASC Topic 718 and do not reflect the Named Executive Officers. There can be no assurance that theseactual amounts will ever be realized.earned. For information on the valuation assumptions used in valuing these stock option awards, refer to Note 6 titled “Stock-Based Compensation” in the Note to the consolidated financial statementsFinancial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year in which the stock option was granted titled “Stock Based Compensation.”ended December 31, 2011. |
24
The following table sets forth, for each of our Named Executive Officers,shows all outstanding equity awards held by the number and exercise price of unexercised options, that have not vested as ofnamed executive officers at the end of fiscal year 2008:2011.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Number of | | | | | | | | | | |
| | | | | | Securities | | | | | | | | | | |
| | | | | | Underlying | | | Number of Securities | | | | | | | |
| | | | | | Unexercised | | | Underlying | | | Option | | | Option | |
| | | | | | Options | | | Unexercised Options | | | Exercise | | | Expiration | |
Name | | Grant Date | | | Exercisable (#) | | | Unexercisable (#) | | | Price ($) | | | Date | |
Kendall Larsen | | | | | | | | | | | | | | | | | | | | |
Chief Executive Officer, | | | 03/23/2006 | | | | 41,516 | | | | -0- | | | | 0.2408712 | | | | 03/22/2016 | |
President and Director | | | 12/31/2007 | | | | 53,330 | | | | 159,989 | (1) | | | 6.468 | | | | 12/30/2012 | |
William E. Sliney Chief Financial Officer | | | 12/31/2007 | | | | 95,774 | | | | 287,321 | (1) | | | 5.88 | | | | 12/30/2017 | |
| | Option Awards |
Name | | Grant Date | | # of Securities Underlying Unexercised Options Exercisable | | | # of Securities Underlying Unexercised Options Unexercisable | | | Option Exercise Price ($) | | Option Expiration Date |
Kendall Larsen(1) | | 3/23/2006 | | | 41,516 | (2) | | | 0 | | | | 0.2408712 | | 3/22/2016 |
| | 12/31/2007 | | | 213,319 | (3) | | | 0 | | | | 6.468 | | 12/30/2012 |
| | 4/3/2009 | | | 101,039 | (3) | | | 50,519 | | | | 1.265 | | 4/2/2014 |
| | 4/3/2009 | | | 289,245 | (3) | | | 144,622 | | | | 1.15 | | 4/2/2019 |
| | 2/24/2010 | | | 4,679 | (4) | | | 5,530 | | | | 6.028 | | 2/23/2015 |
| | 2/24/2010 | | | 11,363 | (4) | | | 13,428 | | | | 5.48 | | 12/30/2017 |
| | 5/12/2011 | | | 7,292 | (4) | | | 42,708 | | | | 23.62 | | 5/12/2021 |
William Sliney | | 12/31/2007 | | | 133,095 | (3) | | | 0 | | | | 5.88 | | 12/31/2017 |
| | 2/24/2010 | | | 4,010 | (4) | | | 4,740 | | | | 5.48 | | 2/23/2020 |
| | 5/12/2011 | | | 1,458 | (4) | | | 8,542 | | | | 23.62 | | 5/12/2021 |
| | |
(1) | This table does not include options granted to Mrs. Larsen, as discussed in the notes to the Beneficial Ownership Table, included in this Proxy Statement at page 24. |
(2) | OnThe shares subject to this option are fully vested and exercisable as of the vesting commencement date. |
(3) | One fourth (1/4) of the shares subject to this option vest and become exercisable on the first anniversary of the date of grant, 1/4thand the remaining shares vest monthly in 36 equal monthly installments, subject to the optionees continued status as a service provider of the Company on each such date. |
(4) | The shares vestedsubject to the option vest and becamebecome exercisable with 1/48thin 48 equal monthly installments beginning on the date of grant, subject to the optionee’s continued status as a service provider of the shares vesting and becoming exercisableCompany on each month thereafter.such date. |
No
The following table shows all stock options were exercised and no stock was acquiredvalue realized upon vestingexercise by our Named Executive Officers in the named executive officers during fiscal year 2008.2011.
Transactions with Related Persons
Our Code | | Option Awards |
Name of Executive Officer | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($) |
Kendall Larsen | | | — | | — |
William Sliney | | | 100,000 | | 1,805,090 |
The charter of our audit committee affirms that one of our audit committee’s responsibilities is to review and approve material related party transactions and related party transactions that are required to be disclosed in our public filings. We annually require each of our directors and executive officers to complete a Questionnaire for Directors, Officers and 5% Stockholders that elicits information about related party transactions as such term is defined by SEC rules and regulations. These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee, or officer.
25
The following is a description of each transaction in the last fiscal year and each currently proposed transaction in which:
• | | we have been or are to be a participant; |
|
• | | the amount involved exceeds $120,000; and |
|
• | | any of our directors, executive officers, holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEStock Option Grants
We have granted stock options to our executive officers and certain of our directors under our 2007 Stock Plan. See “Director Compensation” starting on page 18 and “Executive Compensation” starting on page 20 for a further description of these option awards.
Indemnification Agreements
We entered into Indemnification Agreements with each person who became one of VirnetX Holding Corporation’s directors or officers in connection with the consummation of the merger between VirnetX Holding Corporation and VirnetX Inc., pursuant to which, among other things, we will indemnify such directors and officers to the fullest extent permitted by Delaware law, and provide for advancement of legal expenses under certain circumstances. The Indemnification Agreements are effective as of July 5, 2007 and were filed as exhibits to our Current Report on Form 8-K filed with the SEC on July 12, 2007.
Voting Agreement
On December 12, 2007, we entered into a Voting Agreement with the following stockholders that collectively own 4,766,666 shares of our common stock, representing approximately 12.76% of our 37,369,985 shares outstanding as of April 13, 2009:
• | | San Gabriel Fund, LLC |
|
• | | JMW Fund, LLC |
|
• | | John P. McGrain |
|
• | | The John P. McGrain Grantor Retained Annuity Trust u/t/d/ June 25, 2007 |
|
• | | John P. McGrain, SEP IRA |
|
• | | John P. McGrain, 401K |
|
• | | The Westhampton Special Situations Fund, LLC |
|
• | | The Kirby Enterprise Fund, LLC |
|
• | | Kearney Properties, LLC |
|
• | | Kearney Holdings, LLC |
26
• | | Charles F. Kirby, Roth IRA |
|
• | | Charles F. Kirby |
The Voting Agreement requires each of the above stockholders to vote all of the shares of our voting stock held by them from time to time in favor of the directors nominated by our Board and in a manner proportional to all the other votes cast by shares present and voting with respect to any other matter brought to the stockholders for a vote. This voting arrangement was an initial listing requirement and continues to be a requirement for our common stock to be listed on the NYSE Amex.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers, and directors and persons who own more than 10% of a registered class of our equity securities,ten percent stockholders to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors, and 10% stockholdersThe same persons are also required by SEC rules to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms we received,furnished to us during the most recent fiscal year, except for Mr. Kendall Larsen’s Form 4/A dated February 14, 2012, we believe that during the 2008 fiscal year all Section 16(a) filing requirements applicablewere complied with during fiscal 2011.
Section 16 of the Exchange Act requires our directors, executive officers and any persons who own more than 10% of the Company’s shares, to our officers, directors,file initial reports of ownership and 10% stockholdersreports of changes in ownership with the SEC. Such persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms that they file. We believe that all Section 16(a) filing requirements were satisfied except as indicated herein.
Edmund C. Mungermet in fiscal year 2011, with the exception of a Form 4/A filed by Mr. Larsen February 14, 2012 to amend a late Form 54 filed on FebruaryMay 17, 20092011 to report a recent discoverygrant to his spouse of an omission of his common stock holdings in Table I and a correctionoption to Table II regarding his options on his Form 3 report filed on July 16, 2007.
William E. Sliney filed a Form 5 on February 17, 2009 to report three delinquent Form 4 reports relating to (1) ade minimissalepurchase 40,000 shares of common stock on April 1, 2008 that was made by his broker who had discretionary authority over Mrs. Sliney’s trust brokerage account,May 13, 2011.
Other than compensation arrangements of non-employee directors and named executive officers, we describe below transactions and series of similar transactions, during our last three fiscal years, to cover certain brokerage account fees, (2)which we were a sale of common stock on December 4, 2008, and (3)party or will be a purchase of common stock on December 9, 2008.party, in which:
Voting Securities and Principal Holders
The following table sets forth the beneficial ownership of our common stock as of April 13, 2009 by:
• | ● | the amounts involved exceeded or will exceed $120,000; and |
| all persons known to us, based on statements filed by such persons pursuant to Section 13(d)● | any of our directors, executive officers or 13(g) of the Exchange Act or in statements made to us, to be the beneficial ownersholders of more than 5% of our common stock, and based on the records of Corporate Stock Transfer, Inc., our transfer agent; |
|
• | | each director; |
|
• | | each of our Named Executive Officers in the table under “Executive Compensation — Summary Compensation Table” on page 24 of this proxy statement; and |
|
• | | all current directors and executive officers as a group. |
27
This table lists applicable percentage ownership based on 37,369,985 shares of common stock outstanding as of April 13, 2009. Securities that a person has a right to acquire pursuant to SEC rules within 60 days of April 13, 2009 are deemed to be beneficially owned by the persons holding these options for the purpose of computing the number of shares owned by, and percentage ownership of, that person, but are not treated as outstanding for the purpose of computing any other person’s number of shares owned or ownership percentage.
Except as indicated by footnote, and subject to applicable community property laws, each person identified in the table possesses, to the best of our knowledge, sole voting and investment power with respect to all capital stock shown to be held by that person. The address of each executive officer and director, unless indicated otherwise, is c/o VirnetX Holding Corporation, 5615 Scotts Valley Drive, Suite 110, Scotts Valley, California 95066.
| | | | | | | | |
| | Amount and Nature | | | Percent | |
| | of Beneficial | | | Of | |
Name and Address of Beneficial Owner | | Ownership(1) | | | Class(2) | |
5% or Greater Stockholders: | | | | | | | | |
Gregory H. Bailey c/o 15 Barberry Place, Suite 809 Toronto, Ontario, Canada M2K1G9(3) | | | 2,343,342 | (3) | | | 6.27 | % |
Kendall Larsen 5615 Scotts Valley Dr., #110 Scotts Valley, CA 95066 | | | 9,334,485 | (4) | | | 24.70 | % |
Robert M. Levande 730 Fifth Ave., 9th Floor New York, NY 10019 | | | 2,084,101 | (5) | | | 5.58 | % |
Blue Screen LLC 7663 Fisher Island Drive Miami, FL 33109 | | | 1,895,321 | (6) | | | 5.07 | % |
Directors and Executive Officers: | | | | | | | | |
Kendall Larsen | | | 9,334,485 | (4) | | | 24.70 | % |
Edmund C. Munger | | | 883,402 | (7) | | | 2.32 | % |
William E. Sliney | | | 140,845 | (8) | | | | * |
Thomas M. O’Brien | | | 145,831 | (9) | | | | * |
Michael F. Angelo | | | 70,683 | (10) | | | | * |
Scott C. Taylor | | | 29,167 | (11) | | | | * |
All directors and executive officers as a group (6 persons): | | | 10,604,413 | (4)(7)(8)(9)(10)(11) | | | 27.35 | % |
| | |
(1) | | Beneficial ownership is determined in accordance with the rulesor any member of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options and warrants which are exercisable or convertible at or within 60 days of April 13, 2009 are deemed outstanding for computing the percentageimmediate family of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. The indication herein that shares are beneficially owned is not an admission on the part of the listed stockholder that he, she or it isforegoing persons, had or will behave a direct or indirect beneficial owner of those shares. |
|
(2) | | Based upon 37,369,985 shares of common stock issued and outstanding on April 13, 2009.material interest. |
28
| | |
(3) | | Consists of (i) 2,275,075 shares directly held by Gregory H. Bailey, and (ii) 68,267 shares held by Palantir Group, Inc., of which Mr. Bailey has voting and investment power. |
|
(4) | | Mr. Larsen married Kathleen Sheehan, Chief Administrative Officer of the Company, on March 8, 2009 (collectively the “Larsens”.) This amount consists of (i) 417,191 shares issuable pursuant to options exercisable as follows: 117,065 options held by Mr. Larsen and 300,126 options held by Mrs. Larsen; and (ii) 608,530 shares held by Mrs. Larsen and 5,572 shares held by Mrs. Larsen’s two sons who reside in the Larsens’ family home. Mr. Larsen disclaims beneficial ownership of the 614,102 shares held by Mrs. Larsen and her sons.
|
|
(5) | | Consists of (i) 1,876,521 shares directly held by Robert M. Levande and (ii) 207,580 shares held by the Arthur Brown Trust FBO Carolyn Brown Levande, of which Mr. Levande has voting and investment power. |
|
(6) | | Consists of (i) 130,893 shares held by Benjamin Lewin, (ii) 103,790 shares directly held by Nicholas Lewin, and (iii) 1,660,638 shares held by Blue Screen LLC, of which Mr. Lewin has voting and investment power. |
|
(7) | | Includes (i) 756,801 shares issuable pursuant to vested options and (ii) 35,001 shares issuable pursuant to warrants. |
|
(8) | | Includes (i) 135,679 shares issuable pursuant to vested options and (ii) 3,000 shares issuable pursuant to warrants. |
|
(9) | | Includes (i) 29,167 shares issuable pursuant to vested options and (ii) 69,999 shares issuable pursuant to warrants. |
|
(10) | | Includes 29,167 shares issuable pursuant to vested options. |
|
(11) | | Shares issuable pursuant to vested options. |
|
(*) | | Less than 1%. |
29
PROPOSAL I
ELECTION OF CLASS II DIRECTORS
As of the date of this proxy statement, our Board is composed of five directors. Our Board is divided into three classes, with the term of office of one class expiring each year. We currently have five directors with two directors in each of Class I and Class II and one director in Class III. The terms of office of our Class II directors, Thomas M. O’Brien and Edmund C. Munger, will expire at the Annual Meeting, when they retire, or when their respective successors are duly elected or appointed. The terms of office of our Class I directors, Kendall Larsen and Scott C. Taylor, will expire at the 2011 Annual Meeting of Stockholders, when they retire, or when their respective successors are duly elected or appointed. The term of office of our Class III director, Michael F. Angelo, will expire at the 2010 Annual Meeting of Stockholders, when he retires, or when his successor is duly elected or appointed.
At the Annual Meeting, stockholders will elect two Class II directors, each for a term of three years, or until he retires or until his successor is duly elected or appointed.
Nominees for Class II Directors: Thomas M. O’Brien and Edmund C. Munger
For more information on these nominees, see “Board of Directors” starting on page 6 of this proxy statement.
Your Board Recommends That Stockholders
VoteFORAll of the Nominees Listed Above.
30
PROPOSAL II
RATIFICATION OF APPOINTMENT OF
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee is responsible for reviewing and approving in advance any proposed related person transactions. The audit committee reviews any such proposed related person transactions on a quarterly basis, or more frequently as appropriate. In cases in which a transaction has been identified as a potential related person transaction, management must present information regarding the proposed transaction to the audit committee for consideration and approval or ratification. During fiscal 2011, the audit committee was also responsible for reviewing the Company’s policies with respect to related person transactions and overseeing compliance with such practices.
Compensation arrangements for our non-employee directors and named executive officers are described elsewhere in this prospectus. Robert D. Short III, Ph.D., Chief Scientist, Chief Technology Officer and Director of our Board has appointed, subjectthe Company, received no compensation for his service as a director in fiscal year 2011 and received $509,813.61 in the form of salary and bonus and $857,200 in the form of option grants for his service as Chief Scientist and Chief Technology Officer in fiscal year 2011. Mr. Larsen is married to ratification by our stockholders, Farber Hass Hurley LLPthe Company’s Chief Administrative Officer, Kathleen Larsen. Ms. Larsen is not an executive officer of the Company. In addition, Ms. Larsen’s son, Dustan Sheehan, is employed as our independent registered public accounting firmthe Company’s webmaster. Mr. Sheehan is not an executive officer of the Company. Ms. Larsen and Mr. Sheehan are each currently compensated at levels that the Company believes is comparable to other employees in similar positions of responsibility at comparable companies. During fiscal year 2011, Ms. Larsen received an aggregate of $471,780.81 in the form of salary and bonus and $857,200 in the form of option grants and Mr. Sheehan received an aggregate of $53,171.72 in the form of salary and bonus and $857,200 in the form of option grants.
Compensation amounts above reflect the aggregate grant date fair value of the stock options computed in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, or FASB ASC Topic 718. There can be no assurance that these amounts will ever be realized. For information on the valuation assumptions used in valuing these stock option awards, refer to Note 6 titled “Stock-Based Compensation” in the Note to the Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year endingended December 31, 2009.2011.
Your Board Recommends That Stockholders
VoteFORThe Ratification Of Appointment Of Farber Hass Hurley LLP As Our
Independent Registered Public Accounting Firm.
31
Other Matters-41-
Other Business
The Board is not aware of any other matters to be presented at the Annual Meeting. If, however, any other matter should properly come before the Annual Meeting, the enclosed proxy card confers discretionary authority with respect to such matter.
We are providing without charge to each person solicited by this Proxy Statement a copy of our Annual Report on Form 10-K for the Fiscal Year ended December 31, 2008,2011, including our financial statements but excluding the exhibits to Form 10-K. The Form 10-K includes a list of the exhibits that were filed with it, and we will furnish a copy of any such exhibit to any person who requests it upon the payment of our reasonable expenses in providing the requested exhibit. For further information, please send a request to: Secretary, VirnetX Holding Corporation, 5615 Scotts Valley Drive, Suite 110, Scotts Valley, California 95066,PO Box 439, Zephyr Cove, NV 89448, telephone (831) 438-8200.(775) 548-1785. Our Annual Report on Form 10-K and our other filings with the SEC, including exhibits, are also available for free online athttp://www.virnetx.comunder the “SEC Filings” link in the “Investors” tab and at the SEC’s Internet site,http://www.sec.gov.www.sec.gov.
| | |
By Order of the Board of Directors, |
| |
/s/ Katharine A. Martin | |
Katharine A. Martin |
Secretary |
Attendance at the Annual Meeting is limited to stockholders of record as of April 18, 2012. Registration will begin at 8:00 a.m. Pacific Daylight Time on May 24, 2012, and each stockholder will need proof of identification with valid picture identification such as a driver’s license or passport and verification of stock ownership as of April 18, 2012.
The use of cell phones, smartphones, pagers, recording and photographic equipment and/or computers is not permitted in the meeting room at the Annual Meeting.
See the next page for driving directions.
Harvey’s Resort – South Lake Tahoe
The Emerald Bay Room
18 Highway 50
Lake Tahoe, Nevada 89449
(775) 588-2411
Driving Directions
From Sacramento (Route #1 Hwy-50):
| · | Take Highway 50 east through Placerville and over Echo Summit to South Lake Tahoe. |
From Sacramento or San Francisco (Route #2 - I-80)
| · | Take CA-267 South to Kings Beach on Tahoe's North Shore |
| · | Turn East on CA-28, which becomes NV-28 at the state line |
| · | Continue around the lake through Crystal Bay and Incline Village, past Nevada's Lake Tahoe State Park, to the intersection with US-50 |
| · | Turn right and continue past Glenbrook and Zephyr Cove to Harveys, located on your right |
From Reno
| · | Drive South on US-395, 33 miles to Carson City |
| · | On the far South side of Carson City, take the US-50 turnoff West to Lake Tahoe |
| · | Take US-50 another 22 miles to the California state line |
| VOTE BY INTERNET - www.proxyvote.com |
VIRNETX HOLDING CORPORATION CORPORATE STOCK TRANSFER, INC. 3200 CHERRY CREEK DR. SOUTH, STE. 430 DENVER, CO 80209 ATTN: RHONDA SINGLETON, PROXY DEPT. MGR. | Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. |
|
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS |
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving any future mailings of proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote by Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. |
| |
| VOTE BY PHONE - 1-800-690-6903 |
| Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. |
| |
| VOTE BY MAIL |
| Mark, sign and date your proxy card and return it in the enclosed postage-paid envelope or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
M46705-P25549 KEEP THIS PORTION FOR YOUR RECORDS |
| DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
| VIRNETX HOLDING CORPORATION | | | | | | | | |
| | |
/s/ Lowell D. NessFor All o | Withhold All o | For All Except o | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | | | | |
| The Board of Directors recommends you vote FOR the following: | |
Lowell D. Ness, | | |
Secretary | 1. | Election of Class II Directors. A proposal to elect the persons listed below to serve three-year terms until the Annual Meeting of Stockholders in 2015, or until their resignation or their respective successors are duly elected and qualified. | | | | | |
32
virnetx holding corporation materials election directors proposals |
voting instructions to our clients instructions 1 instructions 2 |
PROXY
VIRNETX HOLDING CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 2009
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of VIRNETX HOLDING CORPORATION hereby nominates, constitutes and appoints Kendall Larsen the true and lawful attorney and proxy, with full power of substitution, for me and in my name, place and stead, to act and vote all of the common stock of VirnetX Holding Corporation standing in my name and on its books on April 13, 2009 at the Annual Meeting of Stockholders to be held at Orrick, Herrington & Sutcliffe LLP’s offices at 1000 Marsh Road, Menlo Park, California 94025 on May 28, 2009 at 10:00 a.m. (Pacific Time) and at any adjournment thereof, with all the powers the undersigned would possess if personally present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS, UNTIL THEIR RESIGNATION, OR UNTIL THEIR SUCCESSORS ARE DULY ELECTED OR APPOINTED. THE BOARD ALSO RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF FARBER HASS HURLEY LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2009. THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” THE DIRECTORS SET FORTH BELOW, AND “FOR” PROPOSAL 2.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on May 28, 2009.
You can view the proxy statement, this proxy card and the annual report to stockholders for the year ended December 31, 2008 at http://phx.corporate-ir.net/phoenix.zhtml?c=67430&p=irol-reportsAnnual.
| | | | | | | | | | | | |
1.Election of Class II Directors.
A proposal to elect as directors the persons listed below to serve until the Annual Meeting of Stockholders in the year 2012, until their resignation, or until their successors are duly elected or appointed.
| | o | | FOR ALL NOMINEES | | o | | WITHHOLD AUTHORITY
FOR ALL NOMINEES | | o | | FOR ALL NOMINEES EXCEPT
(See instructions below) |
| INSTRUCTIONS: To withhold authority to vote for an individual nominee, mark “FOR ALL NOMINEES EXCEPT” and strike a line through the name of each nominee for whom you wish to withhold authority. |
Nominees: | | |
(1) | | Thomas M. O’Brien
|
|
(2) | | Edmund C. Munger
|
| | | | | | |
| | | | | | o MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
|
| | | | | | |
2. Ratification of Appointment of Farber Hass Hurley LLP as the Company’s Independent Registered Public Accounting Firm.
| | |
| | | | | | |
o FOR
| | o AGAINST | | o ABSTAIN | | |
| | | | | | |
This proxy also delegates discretionary authority to vote with respect to any other business which may properly come before the meeting or any adjournment or postponement thereof. | | o I/WE INTEND TO ATTEND THE MEETING IN PERSON.
|
| | | | | | |
NOTE: Signature(s) should agree with name(s) on VirnetX Holding Corporation stock certificate(s). Executors, administrators, trustees and other fiduciaries, and persons signing on behalf of corporations or partnerships should so indicate when signing. All joint owners must sign. | | The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders for the May 28, 2009 Annual Meeting, and the accompanying documents forwarded therewith, and ratifies all lawful action taken by the above-named attorney and proxy. |
| | | | | | |
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY FORM AS SOON AS POSSIBLE USING THE ENCLOSED ENVELOPE.
| | |
| | | | | | |
| | Dated: | | | , 2009 |
| | | | | | |
| | | | | | |
| | | | |
| | 01) Robert D. Short III, Ph.D. | | Signature(s) | | | | | | | |
| | 02) Thomas M. O'Brien | | | | | | | | | |
| | | | | | | | |
| The Board of Directors recommends you vote FOR proposal 2: | | | For | Against | Abstain | |
| | | | | | |
| 2. | Ratification of appointment of Farber Hass Hurley LLP as the Company's Independent Registered Public Accounting Firm for the fiscal year ending December 31, 2012. | | o | o | o | |
| | | | Signature(s) | | | |
| The Board of Directors recommends you vote AGAINST proposal 3: | | | | | | |
| | | | | | | |
| 3. | Consideration of a stockholder proposal, if properly presented at the meeting, regarding the implementation of a majority voting standard for the election of directors. | | o | o | o | |
| | | | | | | |
| The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders for the May 24, 2012 Annual Meeting, and the accompanying documents forwarded therewith, and ratifies all lawful action taken by Kendall Larsen or Jonathan Weaklend, as attorney and proxy. | | | | | |
| | | | | | | |
| PLEASE MARK, DATE, SIGN AND RETURN THE PROXY FORM AS SOON AS POSSIBLE USING THE ENCLOSED POSTAGE-PAID ENVELOPE | | | | | |
| | | | | | |
| For address changes and/or comments, please check this box and write them on the back where indicated. | | | o | |
| | | | | | |
| Please indicte whether you plan to attend this meeting. | o Yes | o No | | |
| | | |
| Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. | | |
| | | |
| | | | | | | |
| | | | | | | |
| Signature [PLEASE SIGN WITHIN BOX] | Date | | | Signature (Joint Owners) | Date | |
Important Notice Regarding the Availability of Proxy Materials for the Stockholder
Meeting of VirnetX Holding Corporation to be Held on May 24, 2012.
You can view the proxy statement, this proxy card and the annual report to stockholders for the year ended
December 31, 2011 at www.proxyvote.com.
| | | | |
| | | | |
| | | | |
| PROXY | VIRNETX HOLDING CORPORATION | | |
| PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 24, 2012 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS | |
| | | |
| The undersigned stockholder of VIRNETX HOLDING CORPORATION, a Delaware corporation, hereby appoints Kendall Larsen and Jonathan Weaklend, and each of them, attorneys-in-fact and proxies, with full power to each of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the Annual Meeting of Stockholders of VirnetX Holding Corporation to be held at 9:00 a.m., Pacific Time, on Thursday, May 24, 2012, at Harvey's Resort-South Lake Tahoe, The Emerald Bay Room, 18 Highway 50, Lake Tahoe, Nevada 89449, and at any adjournments and postponements thereof, which the undersigned would be entitled to vote if then and there personally present, on the matters set forth on the reverse side: | |
| | | | |
| Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on May 24, 2012: You can view the proxy statement, this proxy card and the annual report to stockholders for the year ended December 31, 2011 at www.proxyvote.com. | |
| | | | |
| THIS PROXY WILL BE VOTED AS DIRECTED OR IF NO CONTRARY DIRECTION IS INDICATED WILL BE VOTED FOR EACH OF THE PERSONS LISTED IN PROPOSAL 1, FOR PROPOSAL 2 AND AGAINST PROPOSAL 3 AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS SAID PROXIES DEEM ADVISABLE. | |
| | |
| | | | | |
| | Address Changes/Comments: | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| (If you noted any address changes/comments above, please mark corresponding box on the reverse side.) | |
| | |
| PLEASE SIGN AND DATE ON REVERSE SIDE | |
| | | | | |