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Cash Compensation of Non-employee Directors
Consistent for 2023
In 2023, consistent with our compensation policy
in effect for 2023 (the “Prior Compensation Policy”), we
provideprovided the following cash compensation for non-employee directors:
each non-employee director receives an annual cash retainer of $44,000;
$44,000 | | | $25,150 | | | $9,900 | | | $15,500 | | | $6,600 | | | $5,500 | | | $2,200 |
each non-employee director who serves as a member of our auditWe do not pay meeting fees for Board or committee receives an annual cash retainer of $6,600; each non-employee director who serves as a member of our compensation committee receives an annual cash retainer of $5,500; and each non-employee director who serves as a member of our nominating and governance committee receives an annual cash retainer of $2,200; andmeetings.
each non-employee director who serves as a chair of our audit committee receives an annual cash retainer of $18,150; each non-employee director who serves as a chair of our compensation committee receives an annual cash retainer of $9,900; and each non-employee director who serves as a chair of our nominating and governance committees receives an annual cash retainer of $5,500.
Stock Compensation of Non-Employee Directors
for 2023
Consistent with our compensation policy, we provide the followingPrior Compensation Policy, stock compensation for non-employee directors:directors is provided as follows:
Upon the initial election or appointment to the Board of a new non-employee director, such individual will bewould have been granted under our 2013 Equity Incentive Plan, an option to purchase 30,0001,500 shares of our Common Stock with a per-share exercise price equal to the fair market value of that stock on the date of grant and which willwould vest monthly with respect to 1/36th of the total number of shares subject to the option, conditioned upon continued servicestatus as a director;service provider; provided that all vesting shall be accelerated such that the shares underlying such option shall be vested and become exercisable in full on the close of business on the day prior to the Company’s third annual meeting of stockholders to take place after the director’s initial election or appointment to the Board; and provided further that these options automatically become fully vested immediately prior to a “change in control” (as defined in the Plan) of the Company. Because no new directors were added in 2023, no directors were issued options pursuant to this part of our compensation policy.
eachEach existing non-employee director will beis automatically granted under our 2013 Equity Incentive Plan, an option to purchase 12,500625 shares of our Common Stock at the Annual Meetingeach year’s annual meeting of stockholders with a per-share exercise price equal to the fair market value of that stock on the date of grant and which will fully vest upon the earlier of (a) the one-year anniversary of such a grant or (b) the close of business on the day prior to the following year’s annual meeting of stockholders, conditioned upon continued service as a director; provided that these options automatically become fully vested immediately prior to a “change in control” of the Company.
eachEach existing non-employee director will be automatically granted, under our 2013 Equity Incentivethe Plan, an award for 8,333416 restricted stock units (“RSUs”) at the Annual Meeting,each year’s annual meeting of stockholders, which will fully vest upon the earlier of (a) the one-year
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anniversary of such grant or (b) the close of business on the day prior to the following year’s annual meeting of stockholders, conditioned upon continued service as a director; provided that these restricted stock unitsRSUs automatically become fully vested immediately prior to a “change in control” of the Company.
The following table shows the compensation earned by or paid to each of our
independentnon-employee directors for
fiscal 2015:Name (1) | Fees Earned or Paid in Cash | Stock Awards (2) | Option Awards (2) | Total |
Michael F. Angelo | $ | 61,600 | | $ | 53,998 | | $ | 54,250 | | $ | 169,848 | |
Thomas M. O’Brien | $ | 69,850 | | $ | 53,998 | | $ | 54,250 | | $ | 178,098 | |
Gary Feiner | $ | 62,700 | | $ | 53,998 | | $ | 54,250 | | $ | 170,948 | |
2023:Thomas M. O’Brien | | | $76,850 | | | $4,160 | | | $6,250 | | | $87,260 |
Michael F. Angelo | | | $71,600 | | | $4,160 | | | $6,250 | | | $82,010 |
Gary W. Feiner | | | $62,700 | | | $4,160 | | | $6,250 | | | $73,110 |
(1)
| (1) | This table includes the compensation of only non-employee directors. For compensation of Mr. Larsen and Dr. Short, please see “Executive Compensation and Other Matters” of this Proxy Statement. |
| (2)
| The amounts in this column reflect the aggregate grant date fair value of the stock awards and option awards computed in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, or FASB ASC Topic 718. The Company calculates the fair value of RSAs based on the fair market value of the Company’s common stock on the grant date. 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 76 titled “Stock-Based Compensation” in the Notes to the Financial Statements contained in the Company’s Annual Report on Form 10-K for fiscal 2015. The aggregate number of shares subject to outstanding options held by each independent director at the end of fiscal 2015 was as follows: Mr. Angelo (125,000), Mr. O’Brien (125,000) and Mr. Feiner (42,500). The aggregate number of shares subject to outstanding stock awards held by each independent director at the end of fiscal 2015 was as follows: Mr. Angelo (8,333), Mr. O’Brien (8,333) and Mr. Feiner (8,333). The number of outstanding shares held by each independent director at the end of fiscal 2015 was as follows: Mr. Angelo (41,228), Mr. O’Brien (101,663) and Mr. Feiner (0).year ended December 31, 2023. |
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The following table lists all outstanding equity awards held by our non-employee directors as of December 31, 2023:
Thomas M. O’Brien | | | 6,250 | | | 416 |
Michael F. Angelo | | | 6,250 | | | 416 |
Gary W. Feiner | | | 7,125 | | | 416 |
Changes to Compensation of Non-Employee Directors for 2024
In November of 2023, the Board approved an amendment to our Outside Director Compensation Policy (the “Amended Compensation Policy”). Effective January 1, 2024, we began to provide the following cash compensation for our non-employee directors:
$75,000 | | | $25,000 | | | $15,000 | | | $15,000 | | | $5,000 | | | $5,000 | | | $5,000 |
The Amended Compensation Policy provides that:
Upon the initial election or appointment to the Board of a new non-employee director, such individual will be granted an award of such number of shares of restricted stock (an “Initial Award”) equal to the lesser of (a) 22,500 shares of our Common Stock or (b) that number of Shares equal to the quotient obtained by dividing $450,000 by the fair market value per Share on the date the individual first becomes a non-employee director, rounded down, if necessary, to the nearest whole Share. The Initial Award will be scheduled to vest annually with respect to 1/3 of the total number of shares subject to the Initial Award, on each one year anniversary following the grant date, conditioned upon continued status as a service provider; provided that all vesting shall be accelerated such that the shares underlying such award shall be vested and become exercisable in full on the close of business on the day prior to the Company’s third annual meeting of stockholders to take place after the director’s initial election or appointment to the Board; and provided further that these options automatically become fully vested immediately prior to a “change in control” (as defined in the Plan) of the Company.
Each existing non-employee director will be granted, under the Amended Compensation Plan, an award of such number of shares of restricted stock (an “Annual Award”) equal to the lesser of (a) 7,500 shares of common stock, or (b) that number of shares of common stock equal to the quotient obtained by dividing $150,000 by the fair market value per share on the date of the Annual Meeting to which such Award related, rounded down, if necessary, to the nearest whole share. Each Annual Award will be scheduled to vest on the earlier of (a) the one-year anniversary of the date the Annual Award is granted, or (b) the close of business on the day prior to the date of the Annual Meeting next following the date the Annual Award is granted, in each case, condition upon continued service as a director; provided that these Annual Awards become fully vested immediately prior to a “change in control” (as defined in the Plan) of the Company.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our Common Stock as of April 1, 2016March 31, 2024 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;
each director and nominee for director;
each of our named executive officers as listed in the “Summary“Summary Compensation Table”Table” of this Proxy Statement; and
all current directors and executive officers as a group.
This table lists applicable percentage ownership based on 54,889,8553,680,661 shares of Common Stock outstanding as of April 1, 2016.March 31, 2024. Securities that a person has a right to acquire pursuant to SEC rules within 60 days of April 1, 2016March 31, 2024 are deemed to be beneficially owned by the persons holding these securities 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, POP.O. Box 439, Zephyr Cove, NV, 89448.
5% or Greater Stockholders:
| | | | | | | | |
Kendall Larsen | | | 8,387,951 437,611(2)
| | | 14.9
| %11.70%
|
Directors and Named Executive Officers:
| | | | | | |
Kendall Larsen | | | 8,387,951 437,611(2)
| | | 14.9
| %11.70%
|
Robert D. Short III, Ph.D. | | | 1,321,285 79,324(3)
| | | 2.4
| %2.12%
|
Thomas M. O’Brien | | | 234,996 17,541(4)
| | | * |
Michael F. Angelo | | | 174,561 12,543(5)
| | | * |
Gary W. Feiner | | | 40,833 9,833(6)
| | | * |
Richard H. NanceKatherine Allanson
| | | 61,154 5,834(7)
| | | * |
Heidy Chow | | | —(8) | | | * |
All directors and current executive officers as a group (6(7 persons): | | | 10,220,780 (8)573,443(9)
| | | 17.6
| %14.95%
|
| (1)
| Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Securities whichthat are exercisable, convertible or to which a holder has a right to acquire within 60 days of April 1, 2016March 31, 2024 are deemed outstanding for purposes of computing the percentage of the person holding such securities 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 (i) 1,437,12259,467 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 1, 2016,March 31, 2024, of which, 414,36227,140 are held by Mr. Larsen’s wife andKathleen Larsen, (ii) 20,000 shares of common stock issuable upon the vesting of restricted stock units within 60 days of April 1, 2016, of which, 6,667 are held by Mr. Larsen’s wife. Also includes 300,00015,000 shares held of record by K2 Investment Fund, LLC, of which the Mr. Larsen and Mrs. Larsen are the sole member-managers, and 447,786(iii) 40,511 shares of common stock held by Mrs. Larsen. Excludes 613,53030,676 shares obtained prior to fiscal 20152021 and held by the Kathleen Sheehan Revocable Trust dated 2/5/2009 and shares, stock options, and restricted stock unitsRSUs held by Mr. and Mrs. Larsen’s adult children. Mr. Larsen disclaims beneficial ownership of the excluded shares. |
| (3)
| Includes (i) 1,234,23967,140 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 1, 2016,March 31, 2024 and (ii) 6,667 shares of common stock issuable upon the vesting of restricted stock units within 60 days of April 1, 2016, and (iii) 80,37910,777 shares of common stock owned by the Short Revocable Living Trust. |
| (4)
| Includes (i) 125,0005,625 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 1, 2016 and (ii) 8,333 shares of common stock issuable upon vesting of restricted stock units within 60 days of April 1, 2016.March 31, 2024. |
| (5)
| Includes (i) 125,0005,625 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 1, 2016 and (ii) 8,333 shares of common stock issuable upon vesting of restricted stock units within 60 days of April 1, 2016.March 31, 2024. |
| (6)
| Includes (i) 32,5006,500 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 1, 2016 and (ii) 8,333 shares of common stock issuable upon vesting of restricted stock units within 60 days of April 1, 2016.March 31, 2024. |
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| (7)
| Includes (i) 55,7504,427 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April 1, 2016March 31, 2024. |
(8)
| Ms. Chow is a nominee for director who beneficially owns no shares in the Company and (ii) 667 shares of commonholds no rights to acquire stock issuable upon vesting of restricted stock units within 60 days of April 1, 2016.March 31, 2024. |
| (8)(9)
| Includes the following securities beneficially held by our current directors and executive officers as a group: (i) 3,009,611154,388 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of April, 2016 and (ii) 52,333 shares of common stock issuable upon the vesting of restricted stock units within 60 days of April 1, 2016.March 31, 2024. |
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ELECTION OF CLASS
III DIRECTORII DIRECTORS
The Board consists of five members. In accordance with our
certificateAmended and Restated Certificate of
incorporation,Incorporation, the Board is divided into three classes with staggered three-year terms. At the Annual Meeting,
onetwo Class
III directorII directors will be elected for a three-year term to serve until the
20192027 annual meeting and until
his or hertheir respective successor is qualified and elected, or until
his or hertheir earlier death, resignation or removal.
Nominee
Nominees
The nominating and
corporate governance committee of the Board recommended, and the Board approved,
Michael F. AngeloThomas M. O’Brien and Heidy Chow, as
theour Class
IIIII director
nomineenominees for election to the Board at the Annual Meeting. If elected, Mr.
AngeloO’Brien will
continue to serve,
and Ms. Chow will be appointed as a director
of the Company, until our annual meeting in
2019,2027, and until
his successor istheir respective successors are qualified and elected or until
histheir earlier death, resignation or removal.
Mr. Angelo is a current director of the Company. Please see “Nominee for Class III Director” of this Proxy Statement for information concerning Mr. Angelo.Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR Mr.
AngeloO’Brien and Ms. Chow as
athe Class
III director.II directors. If the
nominee isnominees are unable or
declinesdecline to serve as a director at the time of the Annual Meeting, the proxies will be voted for another nominee designated by the Board. We are not aware of any reason that the
nomineenominees would be unable or unwilling to serve as a director.
The two director
is electednominees receiving the highest number of votes cast by
a plurality of the voting power of the shares present
in person(including virtually) or
represented by proxy
at the meeting and entitled to vote
on the election of directors at the Annual
Meeting. AbstentionsMeeting on this matter will be elected to the Board. Votes that are withheld and broker non-votes will
be excluded entirely and will have no effect
onin the
outcomeelection of the
vote.director.
The Board of Directors unanimously recommends that stockholders vote
“FOR”“FOR” the election of Mr. AngeloThomas M. O’Brien and Heidy Chow, as a the Class III Director.II Directors.
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RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC
ACCOUNTINGACCOUNTING FIRMThe audit committee has selected Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year ending December 31,
20162024 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
a new independent registered public accounting firm at any time during the year if the audit committee believes that such a change would be in the best interests of the Company and its stockholders.
Farber Hass Hurley LLP has audited our consolidated financial statements annually since it was first appointed in
fiscal year 2007.2008. We expect that representatives of Farber Hass Hurley LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to
appropriate questions from stockholders.
Vote Required
Principal Accountant Fees & Services
The affirmative votefollowing table sets forth the costs we incurred for services provided by Farber Hass Hurley LLP, our independent registered public accounting firm, which audited our financials for the years ended December 31, 2023 and December 31, 2022.
Audit Fees | | | $189,560 | | | $200,450 |
Audit-Related Fees | | | $30,125 | | | $17,200 |
Tax Fees | | | $— | | | $— |
All Other Fees | | | $— | | | $— |
Total Fees | | | $219,685 | | | $217,650 |
(1)
| Reflects the fees approved by the Company and billed or to be billed by Farber Hass Hurley LLP with respect to services performed for the audit and other services for the applicable fiscal year. |
Audit Fees. Consists of fees billed for professional services rendered in connection with the audit of our consolidated financial statements, including the audit of internal control over financial reporting, review of the holdersinterim consolidated financial statements included in our quarterly reports, and accounting services in connection with securities offerings.
Audit-Related Fees. Consists of a majorityfees billed for assurance and related services that are reasonably related to the performance of the sharesaudit or review of Common Stock presentour consolidated financial statements and are not reported under “Audit Fees.” These services include consultations in personconnection with financial accounting and reporting standards.
Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. We have nothing to report in this line item as we did not engage Farber Hass Hurley LLP to perform tax-related services for the Company.
All Other Fees. We have nothing to report in this line item as we did not engage Farber Hass Hurley LLP to perform services not covered by the preceding three categories.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
Our audit committee’s policy is to pre-approve all services provided by our independent registered public accounting firm. For 2023, our audit committee pre-approved 100% of all services provided by our independent registered public accounting firm. These services include audit services and audit-related services. Our independent registered public accounting firm is required to periodically report to our audit committee regarding the extent of services provided by our independent registered public accounting firm in accordance with this pre-approval policy.
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Our audit committee may also delegate pre-approval authority to one or represented by proxy and entitledmore of its members. Such member(s) must report any such pre-approval to vote onour audit committee at the matter is necessary to ratify the selectionnext scheduled meeting.
Vote Required
Ratification of Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year ending December 31,
2016. Abstentions are treated as2024 will require the affirmative vote of a majority of the shares
of Common Stock present
in person(including virtually) or
represented by proxy and entitled to vote
and therefore,at the Annual Meeting on this matter. Abstentions will have the
same effect
ofas a vote “against” the ratification of Farber Hass Hurley LLP as our independent registered public accounting firm.
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”“FOR” the ratification of the selection of Farber Hass Hurley LLP as the Company’sCompany’s independent registered public accounting firm for the fiscal year ending December 31, 2016.2024.
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ADVISORY VOTE TO APPROVE THE COMPENSATION OF NAMED EXECUTIVE OFFICERS
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) enables our stockholders to approve, on an advisory or non-binding basis, the compensation of our named executive officers as disclosed pursuant to Section 14A of the Exchange Act. This proposal, commonly known as a “Say-on-Pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific named executive officer, but rather the overall compensation of all of our named executive officers and the philosophy, policies and practices described in this proxy statement.
The Say-on-Pay vote is advisory, and therefore is not binding on us, our compensation committee or our Board. The Say-on-Pay vote will, however, provide information to us regarding investor sentiment about our executive compensation philosophy, policies and practices, which our compensation committee will be able to consider when determining executive compensation for the remainder of the current fiscal year and beyond. Our Board and our compensation committee value the opinions of our stockholders. To the extent there is any significant vote against the compensation of our named executive officers as disclosed in this proxy statement, we will endeavor to communicate with stockholders to better understand the concerns that influenced the vote and consider our stockholders’ concerns, and our compensation committee will evaluate whether any actions are necessary to address those concerns.
We believe that the information provided in the section titled “Executive Compensation and Other Matters,” and in particular the information discussed in the section titled “Executive Compensation and Other Matters – Executive Compensation Process,” demonstrates that our executive compensation program was designed appropriately and is working to ensure management’s interests are aligned with our stockholders’ interests to support long-term value creation. Accordingly, we ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed in the proxy statement for the Annual Meeting pursuant to the compensation disclosure rules of the SEC, including the compensation tables and narrative discussion and other related disclosure.”
Vote Required
The approval, on an advisory basis, of the compensation of our named executive officers requires the affirmative vote of a majority of the shares present (including virtually) or by proxy and entitled to vote at the Annual Meeting on this matter. Abstentions will have the effect of a vote “against” this proposal, and broker non-votes will have no effect.
As an advisory vote, the result of this proposal is non-binding. Although the vote is non-binding, our Board and our compensation committee value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions for our named executive officers.
The Board of Directors recommends a vote “FOR” the approval, on an advisory basis, of the compensation of our named executive officers.
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APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED 2013 EQUITY INCENTIVE PLAN
Our stockholders are being asked to approve an amendment to our Amended and Restated 2013 Equity Incentive Plan (the “Plan”), including, among other things, an increase in the number of shares reserved under the Plan by 1,000,000 shares of our common stock (the “Additional Shares”) (as amended, the “Amended Plan”). The Plan is an amendment and restatement of our 2013 Equity Incentive Plan that was amended and restated most recently by our Board and approved by our stockholders in April 2021 (such plan, the “Prior Plan”).
Amended Plan
Our Board has approved the Amended Plan, subject to the approval of our stockholders at the Annual Meeting and recommends that our stockholders approve the Amended Plan.
If our stockholders approve the Amended Plan, the Amended Plan will replace the current version of the Plan and it will become effective as of the date of stockholder approval. The Amended Plan will continue in effect until it is terminated by the Administrator (as defined in the Amended Plan).
If our stockholders do not approve this proposal, the Plan will not be replaced with the Amended Plan. In that case, the existing shares reserved for issuance under the Plan may be insufficient to achieve our personnel incentive, recruiting and retention objectives, making it more difficult to meet these objectives. This ultimately may undermine our success as a company.
Our executive officers and directors have an interest in the approval of the Amended Plan because they are eligible for awards under the Plan, as proposed to be amended by the Amended Plan.
A copy of the Amended Plan is included as Appendix A to this Proxy Statement. Except as noted, all share numbers used in this proposal reflect the 1-for-20 reverse stock split approved by our stockholders on October 24, 2023, that became effective as of October 25, 2023 (the “Reverse Stock Split”) and are shown on a post-Reverse Stock Split basis.
Material Differences between the Plan and the Amended Plan
The Amended Plan reserves an additional 1,000,000 shares of our common stock for issuance under the Amended Plan.
The Amended Plan adjusts the share limits on the number of shares that may be granted to any employee in any fiscal year to 50,000.
The Amended Plan adjusts the share limit on the number of shares that may be granted to a non-employee Board member in any fiscal year to 50,000.
Why We Are Seeking Approval of the Amended Plan
The Plan Will No Longer Have Enough Shares Available for Grant
As of March 31, 2024, a total of 97,031 shares were available for issuance under the Plan. When we asked our stockholders to approve the Plan at the 2023 Annual Meeting, we anticipated that the shares initially reserved for issuance under the Plan at the 2023 Annual Meeting would be sufficient to meet our needs for three years. However, under our current forecasts and taking into account our historical forfeiture rates, we expect that the number of shares still available for grant under the Plan will not provide a sufficient number of shares to meet the needs of our equity compensation program through 2026. The shares that we initially reserved for issuance at the 2023 Annual Meeting are insufficient due to staffing strategies, the addition of a new director and future business developments, and did not anticipate the reverse share split or share price decline experienced in 2023, all of which were unknowable at the time of the 2023 Annual Meeting. As a result, we may not be able to issue equity to our employees, directors and consultants in amounts that we believe are necessary to attract, retain and motivate them unless our stockholders approve the Amended Plan.
This proposal seeks an authorization of an increase of 1,000,000 shares. The number of shares under the Amended Plan for which we are seeking authorization represents approximately 27% of our outstanding shares as
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of March 31, 2024. The proposed increase of 1,000,000 shares is to the number of shares available for issuance under the Amended Plan and such shares may be subject to awards as the Board or our compensation committee determines over the next several years.
In determining the number of shares to be added to the Amended Plan through the Additional Shares, our compensation committee and our Board considered the following:
Historical Grant Practices. In fiscal years 2021 through 2023, the Company granted equity awards representing a total of 154,825 shares and an average of 51,608 shares per year over the same period. The actual number of shares the Company routinely grants to its employees each fiscal year varies based upon factors such as our headcount, the ratio between full value awards (which generally involve less shares) and options, the number of employees hired each year, our stock price performance and benchmarking against market data (which includes the Company’s peer group for executive compensation) to assist in determining individual grant values and our aggregate equity budget. These factors make exact forecasting of share usage speculative, and thus our Board and compensation committee relied primarily upon the Company’s historical share usage as a reasonable predictor of future needs.
Forecasted Grant Practices. The Additional Shares, if approved, are projected to provide enough shares for future equity award grants for the next two years. However, future circumstances and business needs may dictate a different result and our proposed increase in the share reserve under the Amended Plan is designed to give the Company flexibility to address those circumstances or needs as they arise. We have not provided an estimate for forfeitures because we have had nominal forfeited options, RSUs and restricted stock awards (“RSAs”) and believe that all outstanding options, RSUs and RSAs as of December 31, 2023 will vest. In the future, we may change this estimate based on actual and expected future forfeiture rates. Additionally, after the 2023 Annual Meeting, our compensation committee evaluated the benefits and tax impact of a new strategy of compensation and discussed with Compensia the approaches of certain peer companies, and following such considerations, determined to grant RSAs to service providers instead of options and RSUs going forward.
Awards Outstanding Under Existing Grants. The Company has outstanding, as of March 31, 2024, grants of 305,267 stock options, of which 9,822 are unvested, 15,698 unvested RSUs, and 26,454 unvested RSAs. Accordingly, our approximately 347,419 outstanding awards (commonly referred to as the “overhang”) represent approximately 9.4% of our outstanding shares.
Long-Term Equity is a Key Component of our Compensation Philosophy
As described in “Executive Compensation and Other Matters,” we implement and maintain compensation plans that tie a substantial portion of each employee’s overall compensation to key strategic financial and operational goals such as revenue generating activities, product and technical development, corporate public relations and stockholder value creation. Long-term equity awards are critical vehicle for helping us achieve this objective.
Our Board believes that the Company must offer a competitive equity incentive program if it is to continue to successfully attract and retain the best possible candidates for positions within the Company. Our Board expects that the Additional Shares under our Amended Plan will be vital in continuing to attract, retain and reward high caliber employees who are essential to our success and to provide incentives to these individuals to promote the success of the Company thereby aligning their interests with the interests of the Company’s stockholders.
The alternative to using equity for retention and incentive purposes would be to significantly increase cash compensation. We do not believe increasing cash compensation to make up for any shortfall in equity awards would be practical or advisable because, as a high-technology company, we believe that equity awards provide a more effective compensation vehicle than cash for attracting, retaining and motivating our employees and that equity awards align employees and stockholder long-term interests with a reduced impact on cash flow.
Description of the Amended Plan
A description of the Plan, as amended by the Amended Plan, is included below. The summary is qualified in its entirety by reference to the full text of the Amended Plan, annexed as Appendix A to this Proxy Statement, a copy of which is also available at the SEC’s website.
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The full text of the Plan was annexed as Appendix A to our 2023 Proxy Statement, filed on April 28, 2023 with the SEC, which is available at the SEC’s website located at www.sec.gov. If approved by our stockholders, the Amended Plan will be effective on the date of the Annual Meeting, June 13, 2024.
General
The purposes of the Amended Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to employees, directors and consultants of the Company or any parent or subsidiary of the Company, and to promote the success of the Company’s business. These incentives are provided through the grant of an option to purchase our common stock, or stock options, RSAs, RSUs, stock appreciation rights, performance units, and performance shares, as the Administrator may determine.
Authorized Shares
Subject to the adjustment provisions contained in the Amended Plan, stockholders are being asked to approve an increase of 1,000,000 shares of our common stock for issuance under the Amended Plan so that the maximum aggregate number of shares of our common stock that may be issued under the Amended Plan is 1,175,000 In addition, shares may become available for issuance under the Amended Plan pursuant to the next paragraph. The shares may be authorized, but unissued, or reacquired common stock.
If an award granted under the Amended Plan expires or becomes unexercisable without having been exercised in full, or, with respect to RSAs, RSUs, performance units or performance shares, is forfeited to or repurchased by the Company due to failure to vest, the unpurchased, forfeited or repurchased shares subject to such award will become available for future grant or sale under the Amended Plan (unless the Amended Plan has terminated). Upon exercise of a stock appreciation right settled in common stock, the gross number of shares covered by the portion of the exercised award, whether or not actually issued pursuant to such exercise, will cease to be available under the Amended Plan. If unvested shares of RSAs, RSUs, performance shares or performance units are repurchased by or forfeited to the Company, such shares will become available for future grant under the Amended Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award and shares repurchased by the Company using option exercise proceeds will not become available for future grant or sale under the Amended Plan. Payment of cash rather than shares pursuant to an award will not result in reducing the number of shares available for issuance under the Amended Plan. The description in this paragraph of treatment of awards granted under the Amended Plan will apply equally to awards granted under the Prior Plan such that any shares subject to awards granted under the Prior Plan that expire or otherwise terminate without having been exercised or issued in full or are forfeited to or repurchased by the Company due to failure to vest will be added to the Amended Plan, with the maximum number of shares to be added to the Amended Plan pursuant to this sentence equal to 317,840 shares.
Adjustments to Shares Subject to the Amended Plan
In the event that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, reclassification, repurchase, or exchange of shares or other securities of the Company, or other change in the corporate structure affecting our common stock occurs (other than any ordinary dividends or other ordinary distributions), the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Amended Plan, will adjust the number and class of shares of stock that may be delivered under the Amended Plan, and the number, class and/or price of shares of stock covered by each outstanding award or make other reasonable adjustments, and the numerical share limitations in the Amended Plan. The determination of any adjustment will be made by the Administrator in its discretion. The adjustment provisions contained in the Amended Plan will also govern outstanding awards under the Prior Plan.
Limitations
The Amended Plan contains annual grant limits. Specifically, subject to adjustment as provided in the Amended Plan, during any fiscal year of the Company, no employee will be granted:
Options and/or stock appreciation rights covering more than a total of 50,000 shares of our common stock, provided that in connection with his or her initial employment, an employee may be granted options and/or stock appreciation rights covering up to a total of 50,000 additional shares of our common stock in the fiscal year in which his or her service as an employee first commences;
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RSAs and/or RSUs and/or performance shares covering more than 50,000 shares of our common stock, provided that in connection with his or her initial employment, an employee may be granted RSAs, RSUs and/or performance shares covering up to a total of 50,000 additional shares of our common stock in the fiscal year in which his or her service as an employee first commences; and
Performance units having a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) greater than $5,000,000, provided that in connection with his or her initial employment, an employee may be granted additional performance units in the fiscal year in which his or her service as an employee first commences having a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) no greater than $10,000,000.
Separately, the Amended Plan provides that a non-employee Board member may not receive awards under the Amended Plan covering more than 50,000 shares of our common stock in any fiscal year. Awards granted to an individual while he or she was an employee or consultant, but not a non-employee member of our Board, will not count for purposes of this limitation.
The Administrator will adjust the share limitations in this section in the event of any adjustment to the Company’s shares discussed above in the “Adjustment to Shares Subject to the Amended Plan” section.
The Administrator cannot institute an exchange program under which (i) outstanding awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type and/or cash; (ii) participants would have the opportunity to transfer any outstanding awards to a financial institution or other person or entity selected by the Administrator; and/or (iii) the exercise price of an outstanding award is increased or reduced.
Administration
Our Board has delegated administration of the Amended Plan to the Board’s compensation committee. The Board and the compensation committee may further delegate administration of the Amended Plan to any committee of the Board, or a committee of individuals satisfying applicable laws appointed by the Board in accordance with the terms of the Amended Plan. For purposes of this description of the Amended Plan, the term “Administrator” will refer to the Board or any committee designated by the Board to administer the Amended Plan. To make grants to certain officers and key employees of the Company, the members of the committee must qualify as “non-employee directors” under Rule 16b-3 of the Securities Exchange Act of 1934.
Subject to the terms of the Amended Plan, the Administrator has the authority in its discretion, to select the service providers who will receive awards, to determine the terms and conditions of awards, to modify or amend each award (subject to the restrictions of the Amended Plan), including to extend the post-termination exercisability period of awards, and to interpret the provisions of the Amended Plan and outstanding awards. The Administrator may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a participant or other subsequent transfers by the participant of any shares issued as a result of or under an award and may require that the participant’s rights, payments and benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events. The Administrator may allow a participant to defer the receipt of payment of cash or delivery of shares that otherwise would be due to such participant. The Administrator may make rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws and may make all other determinations deemed necessary or advisable for administering the Amended Plan. The Administrator’s decisions, determinations and interpretations will be final and binding on all participants and any other holders of awards.
Notwithstanding the foregoing, the Administrator cannot institute an exchange program as discussed above in the “Limitations” section.
Eligibility
Awards may be granted to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary corporation of the Company. Incentive stock options may be granted only to employees who, as of the time of grant, are employees of the Company or any parent or subsidiary corporation of the Company. As of March 31, 2024, we had approximately 31 service providers, including 22 employees who are not directors, 2 employee directors, 3 non-employee directors and 4 consultants. As of March 28, 2024, the last trading day in March 2024, the closing price of a share of our common stock on the New York Stock Exchange (the “NYSE”) was $6.34.
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Stock Options
Each option granted under the Amended Plan will be evidenced by a written or electronic agreement between the Company and a participant specifying the number of shares subject to the option and the other terms and conditions of the option as the Administrator may determine, consistent with the requirements of the Amended Plan.
The exercise price per share of each option may not be less than the fair market value of a share of our common stock on the date of grant. However, any incentive stock option granted to an employee who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company (a “Ten Percent Stockholder”) must have an exercise price per share equal to at least 110% of the fair market value of a share on the date of grant. The aggregate fair market value of the shares (determined on the grant date) covered by incentive stock options which first become exercisable by any participant during any calendar year also may not exceed $100,000. Generally, the fair market value of our common stock is the closing sales price of our stock quoted on the NYSE on the day of determination or such other established stock exchange or national market system on which the shares are listed.
The Amended Plan provides that the Administrator will determine the acceptable form(s) of consideration for exercising an option, including the method of payment. An option will be deemed exercised when the Company receives the notice of exercise and full payment for the shares to be exercised, together with applicable tax withholdings.
Options will be exercisable at such times or under such conditions as determined by the Administrator and set forth in the award agreement. The maximum term of an option will be specified in the award agreement, provided that incentive stock options will have a maximum term of no more than ten (10) years, and provided further that an incentive stock option granted to a Ten Percent Stockholder must have a term not exceeding five (5) years.
The Administrator will determine and specify in each award agreement, and solely in its discretion, the period of exercise applicable to each option following the participant’s cessation of service with the Company. In the absence of such a determination by the Administrator, the participant generally will be able to exercise his or her vested option for (i) thirty (30) days following his or her cessation of service for reasons other than death, disability or cause, (ii) six (6) months following his or her cessation of service due to disability, and (iii) twelve (12) months following his or her cessation of service due to death; provided, however, that the option immediately will terminate upon a cessation of service for cause.
In addition, if the participant is terminated for cause, the Company has the option to repurchase at cost any shares previously acquired through the exercise of an option granted on any date on which our common stock is not listed on any established stock exchange or national market system under the Amended Plan.
Restricted Stock Awards
RSAs vest in accordance with the terms and conditions established by the Administrator in its sole discretion. Each RSA granted will be evidenced by a written or electronic agreement between the Company and the participant specifying the number of shares subject to the award and the other terms and conditions of the award, consistent with the requirements of the Amended Plan. RSAs may be subject to vesting conditions as the Administrator specifies, and the shares acquired may not be transferred by the participant until vested. The Administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Unless otherwise provided by the Administrator, a participant will forfeit any shares subject to RSAs as to which the restrictions have not lapsed prior to the participant’s termination of service.
Unless the Administrator provides otherwise, participants holding RSAs will have the right to vote the shares and to receive all dividends and other distributions paid, except that dividends or other distributions paid in shares will be subject to the same restrictions on transferability and forfeitability as the shares with respect to which they were paid.
In addition, if the participant is terminated for cause, the Company has the right to repurchase at fair market value any shares for which restrictions have lapsed, the participant paid consideration for such shares and such shares were granted on any date on which our common stock is not listed on any established stock exchange or national market system under the Amended Plan.
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Restricted Stock Units
The Administrator may grant RSUs which represent a right to receive shares at a future date as set forth in the participant’s award agreement. Each RSU granted under the Amended Plan will be evidenced by a written or electronic agreement between the Company and the participant specifying the number of shares subject to the award and other terms and conditions of the award, consistent with the requirements of the Amended Plan.
RSUs will result in a payment to a participant only if the performance goals or other vesting criteria the Administrator may establish are achieved or the awards otherwise vest. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws or any other basis determined by the Administrator in its discretion, which, depending on the extent to which they are met, will determine the number of RSUs to be paid out to participants. After the grant of a RSU award, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout. A participant will forfeit any unearned RSUs as of the date set forth in the award agreement. The Administrator in its sole discretion may pay earned RSUs in cash, shares of our common stock, or a combination of cash and shares.
Stock Appreciation Rights
A stock appreciation right gives a participant the right to receive the appreciation in the fair market value of our common stock between the date of grant of the award and the date of its exercise. Each stock appreciation right granted under the Amended Plan will be evidenced by a written or electronic agreement between the Company and the participant specifying the exercise price and the other terms and conditions of the award, consistent with the requirements of the Amended Plan.
The exercise price per share of each stock appreciation right may not be less than the fair market value of a share on the date of grant. Upon exercise of a stock appreciation right, the holder of the award will be entitled to receive an amount determined by multiplying (i) the difference between the fair market value of a share on the date of exercise over the exercise price by (ii) the number of exercised shares. The Company may pay the appreciation in cash, in shares, or in some combination thereof. The term of a stock appreciation right will be set forth in the award agreement. The terms and conditions relating to the period of exercise and the Company repurchase rights with respect to options described above also will apply to stock appreciation rights.
Performance Units and Performance Shares
Performance units and performance shares may also be granted under the Amended Plan. Performance units and performance shares are awards that will result in a payment to a participant only if the performance goals or other vesting criteria the Administrator may establish are achieved or the awards otherwise vest. Each award of performance units or shares granted under the Amended Plan will be evidenced by a written or electronic agreement between the Company and the participant specifying the performance period and other terms and conditions of the award, consistent with the requirements of the Amended Plan.
Earned performance units and performance shares will be paid, in the sole discretion of the Administrator, in the form of cash, shares (which will have an aggregate fair market value equal to the earned performance units or shares at the close of the applicable performance period), or in a combination thereof. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
After the grant of a performance unit or performance share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units or shares. Performance units will have an initial value established by the Administrator on or before the date of grant. Each performance share will have an initial value equal to the fair market value of a share on the grant date. A participant will forfeit any performance shares or units that are unearned or unvested as of the date set forth in the award agreement.
Transferability of Awards
Unless determined otherwise by the Administrator (and subject to the provisions of the Amended Plan that provides that the Administrator cannot institute an exchange program), awards granted under the Amended Plan may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the
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laws of descent or distribution and may be exercised, during the lifetime of a participant, only by the participant. If the Administrator makes an award transferable, the award will contain such additional terms and conditions as the Administrator deems appropriate.
Dissolution or Liquidation
In the event of the Company’s proposed dissolution or liquidation, the Administrator will notify each participant as soon as practicable prior to the effective date of such proposed transaction. An award will terminate immediately prior to consummation of such proposed action to the extent the award has not been previously exercised.
Change in Control
The Amended Plan provides that, in the event of a merger of the Company with or into another corporation or entity or a “change in control” (as defined in the Amended Plan), each outstanding award will be treated as the Administrator determines, including, without limitation, that each award be assumed or an equivalent award substituted by the successor corporation or its affiliate. The Administrator will not be required to treat all awards similarly in the transaction. Our Board has made the determination that all equity awards issued under the Prior Plan, the Plan and the Amended Plan, if approved, will include the provision that in the event of a “change in control” (as defined in the Prior Plan or the Amended Plan, as applicable), all unvested shares underlying the option and all unvested RSUs and RSAs will vest and become exercisable, as applicable, immediately prior to the consummation of such change in control transaction.
If the successor corporation does not assume or substitute for the award, the participant will fully vest in and have the right to exercise all of his or her outstanding options and stock appreciation rights, all restrictions on RSAs and RSUs will lapse, and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met. In addition, if an option or stock appreciation right is not assumed or substituted for, the Administrator will notify the participant in writing or electronically that the option or stock appreciation right will be exercisable for a period of time determined by the Administrator in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period.
Forfeiture Events
The Administrator may specify in an award agreement that a participant’s rights, payments, and benefits with respect to an award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an award. Such events may include, but are not limited to, fraud, breach of a fiduciary duty, restatement of financial statements as a result of fraud or willful errors or omissions, termination of employment for cause, violation of our material policies, breach of non-competition, confidentiality, or other restrictive covenants that may apply to the participant, or other conduct by the participant that is detrimental to our business or reputation. The Administrator may also require the application of this provisions with respect to any award previously granted to a participant even without any specified terms being included in any applicable award agreement to the extent required under applicable law.
Termination or Amendment
The Plan became effective upon its approval by the Company’s stockholders at the 2023 Annual Meeting. The Amended Plan will become effective upon its approval by the Company’s stockholders at the Annual Meeting and will continue in effect until terminated by the Administrator, but no options that qualify as incentive stock options may be granted after April 10, 2033 (the date that is ten (10) years following the date the Board originally adopted the Plan). The Administrator may amend, alter, suspend or terminate the Amended Plan at any time, provided that the Company will obtain stockholder approval of any amendment to the extent necessary and desirable to comply with applicable laws. No amendment, alteration, suspension or termination of the Amended Plan may impair the rights of any participant unless mutually agreed otherwise between the participant and the Company.
Summary of U.S. Federal Income Tax Consequences
The following summary is intended only as a general guide to the material U.S. federal income tax consequences of participation in the Amended Plan. The summary is based on existing U.S. laws and regulations, and there can be no assurance that those laws and regulations will not change in the future. The summary does not purport to be
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complete and does not discuss the tax consequences upon a participant’s death, or the provisions of the income tax laws of any municipality, state or non-U.S. country in which the participant may reside. As a result, tax consequences for any particular participant may vary based on individual circumstances.
Incentive Stock Options
An optionee recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Optionees who neither dispose of their shares within two (2) years following the date the option was granted nor within one (1) year following the exercise of the option normally will recognize a capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the shares. If an optionee satisfies such holding periods upon a sale of the shares, the Company will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of shares within two (2) years after the date of grant or within one (1) year after the date of exercise (a “disqualifying disposition”), the difference between the fair market value of the shares on the exercise date and the option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the optionee upon the disqualifying disposition of the shares generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.
The difference between the option exercise price and the fair market value of the shares on the exercise date is treated as an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to optionees subject to the alternative minimum tax.
Nonstatutory Stock Options
Options not designated or qualifying as incentive stock options will be nonstatutory stock options having no special U.S. tax status. An optionee generally recognizes no taxable income as the result of the grant of such an option. Upon exercise of a nonstatutory stock option, the optionee normally recognizes ordinary income equal to the amount that the fair market value of the shares on such date exceeds the exercise price. If the optionee is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by the exercise of a nonstatutory stock option, any gain or loss, based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss. No tax deduction is available to the Company with respect to the grant of a nonstatutory stock option or the sale of the stock acquired pursuant to such grant.
Stock Appreciation Rights
In general, no taxable income is reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant generally will recognize ordinary income in an amount equal to the fair market value of any shares of our common stock received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock Awards
A participant acquiring RSAs generally will recognize ordinary income equal to the fair market value of the shares on the vesting date. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The participant may elect, pursuant to Section 83(b) of the Code, to accelerate the ordinary income tax event to the date of acquisition by filing an election with the Internal Revenue Service no later than thirty (30) days after the date the shares are acquired. Upon the sale of shares acquired pursuant to a RSA, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.
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Restricted Stock Unit Awards
There generally are no immediate tax consequences of receiving an award of RSUs. A participant who is awarded RSUs generally will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such participant at the end of the applicable vesting period or, if later, the settlement date elected by the Administrator or a participant. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Any additional gain or loss recognized upon any later disposition of any shares received would be capital gain or loss.
Performance Shares and Performance Unit Awards
A participant generally will recognize no income upon the grant of a performance share or a performance unit award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any cash or nonrestricted shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.
Section 409A
Section 409A of the Code provides certain requirements for nonqualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the Amended Plan with a deferral feature will be subject to the requirements of Section 409A of the Code. If an award is subject to and fails to satisfy the requirements of Section 409A of the Code, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation. Certain states have enacted laws similar to Section 409A which impose additional taxes, interest and penalties on non-qualified deferred compensation arrangements. The Company will also have withholding and reporting requirements with respect to such amounts.
Medicare Surtax
A participant’s annual “net investment income”, as defined in Section 1411 of the Code, may be subject to a 3.8% federal surtax (generally referred to as the “Medicare Surtax”). Net investment income may include capital gain and/or loss arising from the disposition of shares subject to a participant’s awards under the Amended Plan. Whether a participant’s net investment income will be subject to the Medicare Surtax will depend on the participant’s level of annual income and other factors.
Tax Effect for the Company
The Company generally will be entitled to a tax deduction in connection with an award under the Amended Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid to our chief executive officer and other “covered employees” as determined under Section 162(m) and applicable guidance. Under Section 162(m), the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000.
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THE FOREGOING IS ONLY A SUMMARY OF THE EFFECTS OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY WITH RESPECT TO AWARDS UNDER THE AMENDED PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
Number of Awards Granted to Employees, Consultants, and Directors
The number of awards that an employee, director or consultant may receive under the Amended Plan is in the discretion of the Administrator and therefore cannot be determined in advance. Thus, the following table presents amounts that would have been received by the persons listed above during the last fiscal year if the Amended Plan had been in effect based on what each person actually received during the last fiscal year under the Plan.
The following table sets forth for each of our named executive officers for the last fiscal year, current executive officers as a group, current directors who are not executive officers, as a group, and all employees, including all current officers who are not executive officers, as a group during the last fiscal year: (i) the aggregate number of shares of our common stock subject to options granted under the Plan, (ii) the weighted average per share exercise price of such options, (iii) the aggregate number of RSUs granted under the Plan, (iv) the grant date value of RSUs, (v) the aggregate number of RSAs granted under the Plan and (vi) the grant date value of the RSAs.
Kendall Larsen, Chief Executive Officer | | | — | | | $— | | | — | | | $— | | | 2,815 | | | $27,024 |
Robert D. Short III, Ph.D., Chief Scientist | | | — | | | $— | | | — | | | $— | | | 1,407 | | | $13,507 |
Katherine Allanson, Chief Financial Officer | | | — | | | $— | | | — | | | $— | | | 1,407 | | | $13,507 |
All current executive officers, as a group | | | — | | | $— | | | — | | | $— | | | 7,037 | | | $67,555 |
All current directors who are not executive officers, as a group | | | 1,875 | | | $10.00 | | | 1,248 | | | $12,480 | | | — | | | $— |
All employees, including all current officers who are not executive officers, as a group | | | — | | | $— | | | — | | | $— | | | 21,904 | | | $210,278 |
Vote Required
The approval of the Amended Plan will require the affirmative vote of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting on this matter. Abstentions will have the same effect of a vote “against” the Amended Plan and broker non-votes will have no effect.
We strongly believe that the approval of the Amended Plan is essential to our continued success. Our employees are one of our most valuable assets. Stock options and other awards such as those provided under the Amended Plan are vital to our ability to attract and retain outstanding and highly skilled individuals. Such awards also are crucial to our ability to motivate employees to achieve the Company’s goals. For the reasons stated above, the stockholders are being asked to approve the Amended Plan.
The Board of Directors unanimously recommends that you vote “FOR” the approval of the amendment to the Amended and Restated 2013 Equity Incentive Plan.
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The following table sets forth the respective names, ages and positions of our named executive officers as of March 1, 2016.31, 2024.
Kendall Larsen | | | 5967
| | | Chairman of the Board of Directors, President and
Chief Executive Officer |
Richard H. Nance
| 67
| Chief Financial Officer
|
Robert D. Short III, Ph.D. | | | 6472
| | | Chief Technology Officer, Chief Scientist and Director
|
Katherine Allanson | | | 63 | | | Chief Financial Officer |
Darl McBride | | | 64 | | | Chief Operating Officer |
The biographiesbiography of KendallMr. Larsen and Robert D. Short, III, Ph.D. are is set forth under the heading “Board“Board of Directors”Directors” in this Proxy Statement.
Richard H. Nance
Dr. Short has been the Chief Scientist for the Company since May 2006 and was the Chief Technical Officer from June 2010 to September 2021. He has also been a director of the Company since July 9, 2010; his current term will expire at the Annual Meeting, but will continue as Chief Scientist. From February 2000 to April 2007, Dr. Short was Assistant Vice President and Division Manager at Science Applications International Corporation, or SAIC, from which we acquired certain patents in 2006. From 1994 to February 2000, he also held various other positions at SAIC. Prior to SAIC, he worked at ARCO Power Technologies, Inc. (Atlantic Richfield Petroleum), Sperry Corporate Technology Center and Sperry Research Center. He has a Ph.D. in Electrical Engineering from Purdue University along with a M.S. in Mathematics and a B.S. in Electrical Engineering from Virginia Tech.
Ms. Allanson has been our Chief Financial Officer onsince September 2021. Prior to this, Ms. Allanson served as the Company’s Controller from August 2021 to September 2021 and as an independent consultant providing accounting and reporting services to the Company from October 2011 until August 2021. Ms. Allanson has also provided and does continue to provide similar independent consulting services for other public and private companies and certified public accountant firms. Ms. Allanson earned her Bachelor of Science in Accounting from Auburn University in 1987 and is a part-time basisLicensed Certified Public Accountant.
Mr. McBride has been our Chief Operating Officer since April 5, 2012. From 2002January 2024. Since January 2021, Mr. McBride had been serving as the Chief Operating Officer of VirnetX KK, a Japanese subsidiary of the Company. While in such position, Mr. McBride’s responsibilities included expanding the Company’s line of security products into Japan as well as the broader Pacific Rim and transacting with military-affiliated partners within the United States to 2011,facilitate the collaborative development of next-generation cybersecurity and protective artificial intelligence solutions. Prior to joining the Company, Mr. Nance worked for StrasbaughMcBride served as the President and Chief Executive Officer of Shout TV Inc., a designersocial media platform that engages fans and advertisers during live events, from July 2014 to December 2020. In December 2020, Mr. McBride filed for personal bankruptcy under Chapter 13, which filing has been voluntarily withdrawn. Mr. McBride earned a bachelor’s degree in Sociology from Brigham Young University in 1984 and earned a Master of precision surfacing systems and solutions forArts in Labor & Industrial Relations from 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 Vice President and Chief Financial Officer. Mr. Nance has served clientsUniversity of Illinois at Urbana-Champaign in his private practice since 2011 and is a licensed CPA and CGMA.1985.
Each officer serves at the discretion of the Board and holds office until his
or her successor is duly elected and qualified or until his
or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
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EXECUTIVE COMPENSATION AND OTHER MATTERS
Compensation
Discussion and AnalysisOverview
This Compensation Discussion and Analysis describes our compensation program as it relates to our Chief Executive Officer, our Chief Technology Officer and Chief Scientist, and our Chief Financial Officer, our three 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 32 of this Proxy Statement. In this Compensation Discussion and Analysis, we first discuss certain of our business highlights that informed compensation decisions in fiscal 2015, and 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 2015.
Business Highlights
In fiscal 2015, the Company achieved significant milestones in the development of its business. With only 20 employees, the Company depends heavily on its executive officers to drive achievement of its strategic, operational and financial goals. Some of the Company’s notable achievements in fiscal 2015 include:
Ongoing development of our licensing business, including engagement of IPVALUE Management Inc. in a multi-year agreement, to originate and assist the company with negotiating transactions related to patent licensing worldwide with respect to agreed third parties;Program Objectives
General public product launch of Gabriel Secure Communication Platform™ and Gabriel Collaboration Suite™ on all major operating systems: iOS, Android, Windows, Mac OS X and Linux;
Hiring a team of sales executives to advance the adoption of the Gabriel Secure Communications platform and application suite in the enterprise market;
Management of litigation, including preparation for a jury trial in the United States Court for the Eastern District of Texas, Tyler Division, on January 25, 2016, against Apple for determination of ongoing infringement of VirnetX’s intellectual property by Apple’s products and recalculation of royalties and damages owed to VirnetX; and
Significant growth in our patent portfolio, including grant of 12 new US and foreign patents, filing of numerous new U.S. and foreign patent applications, denial or termination of number of Inter Partes Review (IPR) petitions filed by Apple or Microsoft against VirnetX’s patents, as well filing timely responses to the IPR petitions filed by Apple, Mangrove Partners Master Fund Ltd and Black Swamp IP, LLC.
The primary objectives of our 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 officer’s overall compensation to key strategic financial and operational goals, such as revenue-generating activities, product and technical development, corporate public relations and stockholder value creation. The compensation committee’s approach emphasizes the setting of compensation at levels it believes are competitive with executives at other companies of similar size and stage of development who are operating in the information technology industry while taking into account our relative performance, key qualitative factors such as executive performance, criticality and tenure and our own strategic goals.
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Executive Compensation Process
Role of the Compensation Committee
We maintain an executive compensation program comprised of multiple elements. The compensation committee typically reviews the elements of compensation for our named executive officers
annually.semiannually. The compensation committee makes all compensation decisions with regard to our Chief Executive Officer and the Company’s other named executive officers. In addition, the compensation committee is responsible for determining for all executive officers: annual base salary, annual incentive bonus, including
the specific goals,
as applicable, and amount, equity compensation, employment agreements, severance arrangements and change in control agreements/provisions, if any, and any other benefits or compensation arrangement; evaluating and recommending to the Board compensation plans, policies, and programs for our Chief Executive Officer and other executive officers; administering our equity incentive plans; and preparing the compensation committee report that the SEC requires in our annual proxy
statement.Role of the Chief Executive Officer and Management in Compensation Decisions
Our President and Chief Executive Officer generally attends the compensation committee’s meetings and makes recommendations to the compensation committee regarding the amount and form of the compensation of the other named executive officer and key employees. He is not present for any of the executive sessions or for discussion related to his own compensation.
Compensation Consultant
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.
In fiscal 2015, the compensation committee engaged Compensia, Inc. (“Compensia”), an independent third-party compensation consulting firm, to:
review the Company’s current compensation practices;statement, as applicable.
review and compare proposed cash and equity compensation adjustments for named executive officers in fiscal 2015 relative to competitive market data developed by Compensia for the compensation committee in 2015; and
provide the compensation committee with input on the proposed cash and equity compensation adjustments for named executive officers in fiscal 2015 based, in part, on the market data provided by Compensia in 2015.
Compensation Consultant Independence
The compensation committee has reviewed our relationship with Compensia pursuant to NYSE MKT and SEC rules and has found no conflict of interest in Compensia continuing to provide advice to the compensation committee. The compensation committee is also regularly advised by our primary outside corporate and compensation and benefits legal counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation (“WSGR”). The compensation committee has reviewed our relationship with WSGR pursuant to NYSE MKT and SEC rules and has found no conflict of interest in WSGR continuing to provide advice to the compensation committee.
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.
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In fiscal 2015, the compensation committee reviewed the Company’s compensation practices in comparison to the compensation practices of certain peer-group companies identified by Compensia in a report provided to the compensation committee in 2015 (the “Compensation Assessment”). As part of the Compensation Assessment, in 2015 the compensation committee and Compensia worked together to determine a group of 20 publicly-traded companies that generally had similar financial, operational and strategic characteristics as the Company. For the Compensation Assessment, our peer group (“Peer Group”) consisted of:
Acacia Research
| Marathon Patent Group
| Unwired Planet
|
Aware
| PDF Solutions
| Violin Memory
|
Ceva
| Procera Networks
| Wi-LAN
|
Digimarc
| Rambus
| Zix
|
DTS
| RPX
| |
Evolving Systems
| SPS Commerce
| |
Immersion
| Support.com
| |
InterDigital
| Universal Display
| |
At the time of our Compensation Assessment, these peer companies were generally comparable to the Company with respect to annual revenue (all less than $416 million at such time), market capitalization (all between $60 million and $2.2 billion at such time) and industry (primarily IP-licensing and software and other high-technology industries) to the extent practical taking into consideration our unique business model and financial profile. To assess the competitiveness of our executive compensation program for fiscal 2015, the compensation committee reviewed the Compensation Assessment. As part of this process, Compensia analyzed base salaries, target bonuses and target total cash compensation, annual equity compensation and target total direct compensation for each of our named executive officers, as compared against the Compensation Assessment. Compensia then presented this information to the compensation committee for its review and use.
Our success largely depends on the skills, experience and efforts of our key personnel, including Mr. Larsen, Dr. Short, Ms. Allanson and Mr. Nance.McBride. Generally, the compensation committee wantsseeks to ensure thatprovide compensation for itsour executive officers that is competitive in the market placecompetitive and provides incentives for our executive officers to remain with the Company and to work to movedrive development in the Company toCompany’s business. In setting executive compensation, the next stage in its development. The compensation committee also considers various factors such as Company performance and 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). Further,, current executive equity holdings and retention hold and competitive market data for executives in fiscal 2015,similar positions.
Role of the Chief Executive Officer and Management in Compensation Decisions
Our Chief Executive Officer generally attends the compensation committee’s meetings and makes recommendations to the compensation committee
comparedregarding the
compensation of our Chief Executive Officer, Chief Technology Officeramount and
Chief Scientist, and Chief Financial Officer to the Compensation Assessment for similar positions. For purposes of fiscal 2015, the compensation committee approved cash compensation levels (both base salary and target annual incentives) and equity compensation that resulted in total compensation for our Chief Executive Officer, Chief Technology Officer and Chief Scientist, and Chief Financial Officer that fell at the 40th, 50th and 55th percentile, respectively, of our Peer Group from the Compensation Assessment. The compensation committee believes these targets were appropriate for fiscal 2015 given the significant progress the Company made toward its financial and operational milestones in fiscal 2015 and the importance of Mr. Larsen, Dr. Short and Mr. Nance to the Company. When determining compensation for the named executive officers, the compensation committee took into account that Mr. Nance works on a part-time basis.Prior Say-on-Pay Advisory Approval
Based on shareholder vote, the Company holds a say-on-pay vote every three years. 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” an advisory vote to approveform of the compensation of the Company’sother named executive officers. In 2011, the Company’s shareholders voted to hold the Company’s say-on-pay vote every three years. In fiscal 2014, the Company held its second say-on-pay advisory vote. Over 93%officers and employees. He is not present for any of the votes present and entitledexecutive sessions or for discussion related to vote on the proposal (votes “For” and “Against”, as well as abstentions) and 94% of the votes cast on the proposal (votes “For” and “Against”) voted “For” an advisory vote to approve of the compensation of the Company’s named executive officers. his own compensation.
Compensation Consultant
The compensation committee believes these results affirm stockholder support for our executiveretains sole authority to hire a compensation decisionsconsultant, approve its compensation, determine the nature and policies,scope of its services, evaluate its performance, and as such,terminate its engagement.
In 2023, the compensation committee has not materially changedengaged Compensia as its approachcompensation consultant to:
review the Company’s current executive compensation practices;
review and compare proposed cash and equity compensation adjustments for named executive officers in 2023 relative to
fiscal 2015 compensation. We will holdcompetitive market data previously developed by Compensia for the
next vote on the frequency of say-on-pay advisory votes at the 2017 Annual Meeting.compensation committee; and
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provide the compensation committee with input on the proposed cash and equity compensation adjustments for named executive officers in 2023 based, in part, on the competitive market data previously developed by Compensia.
Elements of Executive Compensation
Our executive compensation program consists of the following elements:
Base Salary. Base salaries for our named 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 relevant market data, individual responsibilities, performance, and experience.
Annual Incentive Bonus. Each year, the compensation committee establishes a targetan annual incentive bonus amount for each named executive officer based on a percentage of the executive’s base salary. The targetincentive 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. The chief executive officer and the compensation committee agree on general performance objectives for our named executive officers for the year, but the compensation committee has the sole discretion to determine following the end of the fiscal year whether, and the extent to which, the performance objectives were met and the amount of the annual incentive bonuses to 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 compensation committee generally utilizes the annual incentive bonuses to compensate officers for achieving financial and operational goals and for individual performance. 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 financial factors such as improving our results of operations, and increasing the price per share of our Common Stock.
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-based awards. Our 2013 Equity Incentive 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-based awards offers the best approach to achieving our compensation goals. Our 2013 Equity Incentive Plan allows for stock options, restricted stock, restricted stock units,RSAs, RSUs, stock appreciation rights, performance units, performance shares and performance bonus awards. In fiscal 2015,2023, we granted both stock options and restricted stock unitsRSAs under our 2013 Equity Incentive Plan to our named executive officers.
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Stock-based awards 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-based 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 and RSUs to bestock-based awards 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 and RSUs and percent of company grantedstock-based awards in relation to other elements of the individual executive’s total compensation and relative to comparable companies. We expect to continue to use stock options and RSUsstock-based awards as a long-term incentive vehicle potentially in combination with equity award types, because we believe that stock options and RSUs:stock-based awards:
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;
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are performance-based in that anythe value received by the recipient from a stock option is based on the growth of the stock price from the grant date and value received from RSUsawards is tied directly to our stock price performance over time and declines if our price declines;
performance;
help to provide a balance to the overall executive compensation program as base salary and our annual bonus program focus on short-term compensation, while the vesting of stock options, RSAs and RSUs provide incentives to increase stockholder value over the longer term; and
include vesting restrictions that encourage executive retention and the preservation of stockholder value.
Named Executive Officers’ Compensation Decisions for Fiscal 2015
2023
In fiscal 2015,2023, the compensation committee undertook a full review of the compensation of our named executive officers, and following this review, in May 2015,November 2023, the compensation committee approved made the following decisions (as described in greater detail in the sections below):
increases to the salarybase salaries for fiscal 20152023 for each of our named executive officers; however, the targetsofficers compared to 2022; and
change from grants of a mix of RSUs and option to RSA for
cash incentive opportunities were not increased from fiscal 2014. The number of shares underlying stock option grants and RSU grants2023 compared to
our executive officers in fiscal 2015 remain unchanged from the share amounts made in fiscal 2014; however, due to a decrease in the Company’s stock price in fiscal 2015, the grant date fair value for the fiscal 2015 stock option grants and RSU awards decreased by 65% and 64%, respectively.2022.
The compensation for our named executive officers for
fiscal 20152023 is presented in the table below.
Name | Base Salary Fiscal 2015 | Targeted Cash Incentive Opportunity for Fiscal 2015(1) | Actual Cash Incentive Paid for Fiscal 2015(2) | Annual Incentive Bonus Fiscal 2015 | Targeted Number of Shares Underlying Stock Option Grants for Fiscal 2015(3) | Targeted Number of Shares Underlying Stock Awards for Fiscal 2015(3) |
Kendall Larsen | $ | 550,246 | | | 50 | % | | 37.5 | % | $ | 206,342 | | | 40,000 | | | 26,667 | |
Chief Executive Officer,
| | | | | | | | | | | | | | | | | | |
President & Chairman
| | | | | | | | | | | | | | | | | | |
Robert D. Short III, Ph.D. | $ | 350,160 | | | 50 | % | | 50 | % | $ | 175,080 | | | 20,000 | | | 13,333 | |
Chief Technology Officer,
| | | | | | | | | | | | | | | | | | |
Chief Scientist and Director
| | | | | | | | | | | | | | | | | | |
Richard Nance | $ | 70,787 | | | 50 | % | | 37.5 | % | $ | 26,545 | | | 4,000 | | | 2,667 | |
Chief Financial Officer
| | | | | | | | | | | | | | | | | | |
| (1)
| The target bonus level for cash incentive opportunities iswas calculated as a percentage of base salary. |
| (2)
| The actual bonus level for cash incentive opportunities iswas calculated as a percentage of base salary. |
(3)
| (3)The bonus amounts in this column reflect the annual incentive bonuses paid in 2023. |
(4)
| Stock option grants and stock awards were made under the Company’sAmended and Restated 2013 Equity Incentive Plan. |
(5)
| Reflects (i) an Additional Payment (as defined below) of $826,667 and (ii) $60,759 for accrued, but unused vacation in 2023. |
(6)
| Reflects an Additional Payment of $1,437,337. |
(7)
| Reflects (i) an Additional Payment of $130,000 and (ii) $24,072 for accrued, but unused vacation in 2023. |
Base Salary
Mr. Larsen is our President and Chief Executive Officer, as well as Chairman of the Board. Mr. Larsen, a founder of VirnetX Inc., has driven the organization’s performance, leading it from inception, through the early start-up phase
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and through several rounds of financing. He has also helped drive significant
growth in our revenues, and
market capitalization, 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 light of these considerations and the other factors described above, in
May 2015,December 2022, the compensation committee increased Mr. Larsen’s
base salary from
$519,100$759,487 to
$550,246,$789,867 for 2023, an increase of
$31,100,approximately $30,380 or
6%4%,
over fiscal 2014. With this increase, Mr. Larsen’s base salary exceeded the 75th percentile of our Peer Group from
the Compensation Assessment, which the2022. The compensation committee felt
this salary increase was warranted due to the value Mr. Larsen brings to the Company through his key role in the management of the Company during his long tenure, as well as our successes under his leadership in product development, licensing, and litigation matters.
Dr. Short has significant scientific and technological expertise, and the compensation committee considered his technical, scientific and management skills, his level of responsibility and expected contributions to intellectual property and product development.
Accordingly,In light of these considerations and the other factors described above, in
May, 2015,December 2022, the compensation committee increased Dr. Short’s
base salary from
$330,300$483,224 to
$350,160$502,554 for 2023, an increase of
$19,900,approximately $19,330, or
6%4%,
over fiscal 2014. Withfrom 2022. The compensation committee felt this
salary increase
Dr. Short’s base salary also exceeded the 75th percentile ofwas appropriate given his long tenure with us and contributions to our
Peer Group from the Compensation Assessment on an annualized basis.business.TABLE OF CONTENTS
Mr. NanceMs. Allanson has significant public company experience as well as institutional knowledge of the Company, having provided independent consultant accounting and reporting services to the Company since October 2011, and the compensation committee considered hisher technical and strategic skills, hisher level of responsibility and expected contributions to our further success. Accordingly,In light of these considerations and the other factors described above, in accordance with his appointment as CFO on a part-time basis,December 2022, the compensation committee approved aincreased Ms. Allanson’s base salary from $300,900 to $312,936 an increase of $70,787 for Mr. Nance based on an annualapproximately $12,036 or 4% from 2022. The compensation committee felt this salary of $354,000 adjustedincrease was appropriate given her experience with us and contributions to reflect Mr. Nance’s actual part-time status, which approximates the 75th percentile of our Peer Group from the Compensation Assessment on an annualized basis.
business.
Bonuses
2023 Annual Incentive Bonus
In
fiscal 2015,2023, the compensation committee
maintainedset the
fiscal 20142023 target incentive opportunity
percentages for Mr. Larsen, Dr. Short and
Mr. Nance atMs. Allanson to 50% of
fiscal 20152023 base salary.
In January 2016,November 2023, the compensation committee reviewed the Company’s performance in fiscal 20152023 and the contributions that Mr. Larsen, Dr. Short and Mr. Nanceour named executive officers made to such performance. The compensation committee determined to pay each of Mr. Larsen, Dr. Short and Mr. Nance 37.5%,Ms. Allanson 50%, and 37.5% of their fiscal 2015respective 2023 base salary respectively, in light of the Company’s overall performance for 2023. In making such payments, the yearcompensation committee considered various factors, including advances in product development and their contributions in achieving this performance. The compensation committee took into accountperformance, the achievement of certain licensing, technical, and litigation milestones, technical milestones, and the development of the Company’s patent portfolio, none of which were given any particular weight or assigned a dollar value. The resulting aggregate fiscal 20152023 annual incentive bonus payments paid to Mr. Larsen, Dr. Short and Ms. Allanson were $394,933, $251,277 and $156,468, respectively.
Additional Payment
In March 2023, the Board declared a special cash dividend to stockholders of record as of the close of business on April 10, 2023 of $1.00 per share of common stock on a pre-split basis, payable on April 17, 2023. The Board approved a cash payment of $1.00 per share to each holder of outstanding awards as of April 10, 2023 (the “Additional Payment”). The Additional Payment to each of Mr.
Nance were $206,342, $175,080Larsen, Dr. Short and
$26,545,Ms. Allanson totaled $826,667, $1,437,337, and $130,000, respectively.
Our independent directors, Messrs. Angelo, Feiner and O’Brien, waived any payment.
Equity Incentive Compensation
As part of the compensation review, Compensia and
In 2023, the compensation committee also reviewed our executive officers’ equity incentive compensationapproved grants of RSAs to Mr. Larsen, Dr. Short and Ms. Allanson as shown in terms of both annual grant date fair value granted and percent of the Company granted. Based on this review, the Company determined that the Company’s equity compensation grant date fair value in fiscal 2015 was at the 30th percentile of our Peer Group from the Compensation Assessmenttable below.
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In determining 2023 RSAs for Mr. Larsen, Dr. Short and
Mr. Nance, but was below the 25th percentile on a percent of company granted basis.On May 20, 2015, the compensation committee approved grants of stock options and restricted stock units to Mr. Larsen, Dr. Short and Mr. Nance under our 2013 Equity Incentive Plan, also as described in the table below. All stock options indicated in the table have an exercise price equal to the closing sales price of our common stock traded on the NYSE MKT as of the applicable grant date. In determining fiscal 2015 stock option awards and stock awards for Mr. Larsen, Dr. Short and Mr. Nance,Ms. Allanson, the compensation committee reviewed various factors, including the Company’s performance, each officer’s performance and perceived criticality to future success, peermarket practices with respect to long-term incentives, and total annual equity allocations at the Company for fiscal 2015. In the aggregate, the option grants and stock awards fell below the 50th percentile of our Peer Group from the Compensation Assessment with respect to both value and percent of company granted.
Name | Position | Number of Shares Underlying Option Grant(1) | Option Grant Date Fair Value(2) | Number of Shares Underlying Stock Award(3) | Stock Award Grant Date Fair Value(4) |
Kendall Larsen | Chief Executive Officer, President and Chairman | | 40,000 | | $ | 160,000 | | | 26,667 | | $ | 144,268 | |
Robert D. Short III, Ph.D. | Chief Technology Officer and Chief Scientist | | 20,000 | | $ | 80,000 | | | 13,333 | | $ | 72,132 | |
Richard Nance | Chief Financial Officer | | 4,000 | | $ | 16,000 | | | 2,667 | | $ | 14,428 | |
2023. Kendall Larsen | | | Chief Executive Officer, President and Chairman | | | 7/5/2023 | | | 2,815 | | | $27,024 |
Robert D. Short III, Ph.D. | | | Chief Scientist | | | 7/5/2023 | | | 1,407 | | | $13,507 |
Katherine Allanson | | | Chief Financial Officer | | | 7/5/2023 | | | 1,407 | | | $13,507 |
| (1)
| 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 optionof RSAs shall vest and become exercisable on the one-month anniversary of the grant date, and 1/48 of the total number of shares subject to the optionRSAs shall vest and become exercisable on each monthly anniversary thereafter. |
| (2)
| The number of shares underlying stock option grants to our executive officersamounts in fiscal 2015 remained unchanged fromthis column reflect the share amounts made in fiscal 2014; however, due to a decrease in the Company’s stock price in fiscal 2015, the optionaggregate grant date fair value forof the fiscal 2015stock awards computed in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, or FASB ASC Topic 718. The Company calculates the fair value of RSAs based on the fair market value of the Company’s common stock on the grant date. 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, decreased by approximately 65%, as comparedrefer to Note 6 titled “Stock-Based Compensation” in the Notes to the grant date fair value for the fiscal 2014 stock option awards. |
| (3) | Subject to the continued service of the named executive officer, the shares underlying the option shall vest in four equal annual installments beginning on the grant date. |
| (4) | The number of shares underlying RSU grants to our executive officers in fiscal 2015 remained unchanged from the share amounts made in fiscal 2014; however, due to a decreaseFinancial Statements contained in the Company’s stock price inAnnual Report on Form 10-K for fiscal 2015, the grant date fair value for the fiscal 2015 RSU awards decreased by approximately 65%, as compared to the grant date fair value for the fiscal 2014 RSU awards.year ended December 31, 2023. |
Perquisites
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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.
Severance and Change in Control Arrangements
We do not provide change in control agreements or employment agreements providing formal cash or equity severance rights to any of our named executive officers. Our
2013 Equity Incentive Plan
and the Amended Plan, if approved, allows the Board to determine the terms and condition of awards issued thereunder. The Board has made the determination that all
optionsequity awards issued under our
2013 Equity Incentive Plan
and the Amended Plan, if approved, will include the provision that in the event of a “Change in Control” (as defined in our
2013 Equity Incentive Plan)Plan or the Amended Plan, as applicable), all unvested shares underlying the option,
all unvested RSUs and all unvested RSAs will vest and become exercisable immediately prior to the consummation of such Change in Control transaction.
Stock Ownership Guidelines
We have not adopted stock ownership guidelines, and 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 directors and executive officers are sufficient at this time to provide
ongoing motivation
and to align this group’s interests with those of our stockholders.
The Company has adopted policies that
prohibits employee,prohibit employees, officers, directors, and consultants from engaging in any short sale, “sale against the box”
or any equivalent transaction involving the Company’s stock. Additionally, the Company’s directors and officers are prohibited from engaging in, hedging or derivative transactions, such as “cashless” collars, forward contracts, equity swaps or other similar or related transactions
and all other Company employees and consultants may only engage in such transactions after obtaining approval frominvolving the Company’s
compliance officer.stock.
Tax and Accounting Considerations
The compensation committee considers the possible tax consequences to the Company and to its executives of our compensation programs, the accounting consequences to the Company of different compensation decisions and the impact of such decisions on stockholder dilution. With respect to the tax consequences to the Company, the compensation committee considers the potential future effects of Section 162(m) of the Internal Revenue Code of 1986, as amended, on the compensation paid to our named 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 anythe chief executive officer and certain other highly compensated officers.
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We follow ASC Topic 718 for our options and stock awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and directors, including stock options and other stock awards, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that a named executive officersofficer is required to render service in exchange for the proxy statement, unless compensation is qualified performance based compensation within the meaning of Section 162(m). option or other award.
In approving the amount and form of compensation for our named executive officers, our compensation committee
will continue tomay consider all elements of the cost to us of providing such compensation, including the potential
impact of Section 162(m).tax and accounting consequences. However, to maintain maximum flexibility in designing compensation programs, the compensation committee will not limit compensation to those 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 Company’s compensation program was reviewed by the compensation committee and determined not to create inappropriate or excessive risk that is likely to have a material adverse effect on the Company.
Compensation Committee Report
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis for fiscal 2015 required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the compensation committee has recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s annual report on Form 10-K and this Proxy Statement.
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Respectfully submitted by the members of the compensation committee of the Board of Directors:
Gary Feiner (Chair)
Michael F. Angelo
Thomas M. O’Brien
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Summary Compensation Table
The following table sets forth summary information concerning compensation earned by the Company’s Chief Executive Officer, Chief
Technology OfficerScientist and
the Company’s Chief Financial Officer.
Name and Principal Position | Year | Salary (1) | Bonus | Stock Awards (2) | Option Awards (2) | All Other Compensation
| Total
|
Kendall Larsen | | 2015 | | $ | 630,108 | (3) | $ | 206,342 | | $ | 144,268 | | $ | 160,000 | | $ | — | | $ | 1,140,718 | |
Chief Executive Officer,
| | 2014 | | $ | 556,789 | (4) | $ | 389,320 | | $ | 410,672 | | $ | 458,800 | | $ | — | | $ | 1,815,518 | |
President and Chairman
| | 2013 | | $ | 489,720 | | $ | 244,860 | | $ | 632,541 | | $ | 721,200 | | $ | — | | $ | 2,088,321 | |
Robert D. Short III, Ph.D.(5) | | 2015 | | $ | 370,963 | (6) | $ | 175,080 | | $ | 72,132 | | $ | 80,000 | | $ | — | | $ | 698,175 | |
Chief Technology Officer
| | 2014 | | $ | 330,300 | | $ | 247,760 | | $ | 205,328 | | $ | 229,400 | | $ | — | | $ | 1,012,788 | |
and Chief Scientist
| | 2013 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
Richard H. Nance | | 2015 | | $ | 70,787 | | $ | 26,545 | | $ | 14,428 | | $ | 16,000 | | $ | — | | $ | 127,760 | |
Chief Financial Officer
| | 2014 | | $ | 66,800 | | $ | 33,390 | | $ | 41,072 | | $ | 45,880 | | $ | — | | $ | 187,142 | |
| | 2013 | | $ | 63,000 | | $ | 28,350 | | $ | 63,261 | | $ | 72,120 | | $ | — | | $ | 226,731 | |
Kendall Larsen
Chief Executive Officer, President and Chairman
| | | 2023 | | | $789,867 | | | $394,933 | | | $27,024 | | | $— | | | $887,426(2) | | | $2,099,250 |
| 2022 | | | $759,487 | | | $569,615 | | | $39,735 | | | $99,000 | | | $58,422 | | | $1,526,259 |
| 2021 | | | $730,276 | | | $365,138 | | | $122,402 | | | $327,275 | | | $56,175 | | | $1,601,266 |
Robert D. Short III, Ph.D.
Chief Scientist
| | | 2023 | | | $502,554 | | | $251,277 | | | $13,507 | | | $— | | | $1,437,337(2) | | | $2,204,679 |
| 2022 | | | $483,224 | | | $362,418 | | | $19,870 | | | $49,500 | | | $— | | | $915,012 |
| 2021 | | | $464,639 | | | $232,319 | | | $61,198 | | | $220,480 | | | $— | | | $978,636 |
Katherine Allanson
Chief Financial Officer
| | | 2023 | | | $312,936 | | | $156,468 | | | $13,507 | | | $— | | | $154,072(2) | | | $636,983 |
| 2022 | | | $300,900 | | | $225,675 | | | $— | | | $— | | | $— | | | $526,575 |
| 2021 | | | $98,333(3) | | | $44,250 | | | $— | | | $370,800 | | | $— | | | $513,383 |
(1)
| (1) | Actual salary earned during fiscal years 2013, 2014, and 2015. |
| (2) | AmountsThe amounts in this column reflect the grant date fair value for these awards and do not reflect the actual amounts earned. See the “2015 Grants of Plan-Based Awards” table for information on stock option awards and stock awards granted in fiscal 2015. |
| (3) | Includes payment of $79,862 for accrued, but unused vacation in fiscal 2014 in accordance with Company policy. |
| (4) | Includes payment of $37,689 for accrued, but unused vacation in fiscal 2013 in accordance with Company policy. |
| (5) | Dr. Short became a named executive officer in fiscal 2014. |
| (6) | Includes payment of $20,803 for accrued, but unused vacation in fiscal 2014 in accordance with Company policy. |
2015 Grants of Plan-Based Awards
The following table shows all plan-based awards granted to the named executive officers during fiscal 2015. The equity awards identified in the table below are also reported in the “Outstanding Equity Awards at 2015 Fiscal Year-End” table below.
Name | Grant Date | Name of Plan | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value(1) |
Kendall Larsen | 5/20/2015 | 2013 Equity Incentive Plan | | 26,667 | | | | | $ | — | | $ | 144,268 | |
Kendall Larsen | 5/20/2015 | 2013 Equity Incentive Plan | | | | | 40,000 | | $ | 5.41 | | $ | 160,000 | |
Robert D. Short III, Ph.D. | 5/20/2015 | 2013 Equity Incentive Plan | | 13,333 | | | | | $ | — | | $ | 72,132 | |
Robert D. Short III, Ph.D. | 5/20/2015 | 2013 Equity Incentive Plan | | | | | 20,000 | | $ | 5.41 | | $ | 80,000 | |
Richard H. Nance | 5/20/2015 | 2013 Equity Incentive Plan | | 2,667 | | | | | $ | — | | $ | 14,428 | |
Richard H. Nance | 5/20/2015 | 2013 Equity Incentive Plan | | | | | 4,000 | | $ | 5.41 | | $ | 16,000 | |
| (1) | These amounts reflect theaggregate grant date fair value of such awardthe stock awards and option awards computed in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, or FASB ASC Topic 718 and do not reflect718. The Company calculates the actualfair value of RSAs based on the fair market value of the Company’s common stock on the grant date. There can be no assurance that these amounts earned.will ever be realized. For information on the valuation assumptions used in valuing these stock option awards, refer to Note 76 titled “Stock-Based Compensation” in the Notes to the Financial Statements contained in the Company’s Annual Report on Form 10-K for fiscal 2015.year ended December 31, 2023. |
(2)
| Reflects (i) Additional Payments of $826,667, $1,437,337, and $130,000 for Mr. Larsen, Dr. Short and Ms. Allanson, respectively, and (ii) payments for accrued, but unused vacation in 2023 of $60,759 and $24,072 for Mr. Larsen and Dr. Short, respectively. |
(3)
| Ms. Allanson’s initial base salary was $295,000 in 2021, but because she joined us in September 2021, her compensation was pro-rated to $98,333. |
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Outstanding Equity Awards at 20152023 Fiscal Year End The following table shows all outstanding equity awards held by the named executive officers as of December 31,
2015. | Option Awards | Stock Awards |
Name | # of Securities Underlying Unexercised Options Exercisable | # of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | # of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested |
Kendall Larsen(1) | | 41,516 | (2) | | — | | $ | 0.2408712 | | | 3/22/2016 | | | — | | $ | — | |
| | 213,319 | (2) | | — | | $ | 5.88 | | | 12/30/2017 | | | — | | $ | — | |
| | 585,425 | (2) | | — | | $ | 1.15 | | | 4/3/2019 | | | — | �� | $ | — | |
| | 10,209 | (2) | | — | | $ | 6.028 | | | 2/23/2020 | | | — | | $ | — | |
| | 24,791 | (2) | | — | | $ | 5.48 | | | 2/23/2020 | | | — | | $ | — | |
| | 50,000 | (2) | | — | | $ | 23.62 | | | 5/12/2021 | | | — | | $ | — | |
| | 36,667 | (3) | | 3,333 | | $ | 24.75 | | | 4/13/2022 | | | — | | $ | — | |
| | 25,000 | (3) | | 15,000 | | $ | 23.72 | | | 6/5/2023 | | | — | | $ | — | |
| | 14,167 | (3) | | 25,833 | | $ | 15.40 | | | 7/08/2024 | | | — | | $ | — | |
| | 5,833 | (3) | | 34,167 | | $ | 5.41 | | | 5/20/2025 | | | — | | $ | — | |
| | — | | | — | | $ | — | | | — | | | 6,666 | (4) | $ | 17,132 | |
| | — | | | — | | $ | — | | | — | | | 13,333 | (4) | $ | 34,266 | |
| | — | | | — | | $ | — | | | — | | | 20,000 | (4) | $ | 51,400 | |
| | — | | | — | | $ | — | | | — | | | 26,667 | (4) | $ | 68,543 | |
Robert D. Short III, Ph.D. | | 1,037,899 | (2) | | — | | $ | 4.20 | | | 7/24/2017 | | | — | | $ | — | |
| | 72,590 | (2) | | — | | $ | 1.15 | | | 4/2/2019 | | | — | | $ | — | |
| | 35,000 | (2) | | — | | $ | 5.48 | | | 2/23/2020 | | | — | | $ | — | |
| | 40,000 | (2) | | — | | $ | 23.62 | | | 05/12/2021 | | | — | | $ | — | |
| | 18,333 | (3) | | 1,667 | | $ | 24.75 | | | 04/13/2022 | | | — | | $ | — | |
| | 12,500 | (3) | | 7,500 | | $ | 23.72 | | | 6/06/2023 | | | — | | $ | — | |
| | 7,083 | (3) | | 12,917 | | $ | 15.40 | | | 7/08/2024 | | | — | | $ | — | |
| | 2,917 | (3) | | 17,083 | | $ | 5.41 | | | 5/20/2025 | | | — | | $ | — | |
| | — | | | — | | $ | — | | | — | | | 3,334 | (4) | $ | 8,568 | |
| | — | | | — | | $ | — | | | — | | | 6,667 | (4) | $ | 17,134 | |
| | — | | | — | | $ | — | | | — | | | 10,000 | (4) | $ | 25,700 | |
| | — | | | — | | $ | — | | | — | | | 13,333 | (4) | $ | 34,266 | |
Richard H. Nance | | 45,833 | (3) | | 4,167 | | $ | 23.84 | | | 4/5/2022 | | | — | | $ | — | |
| | 2,500 | (3) | | 1,500 | | $ | 23.72 | | | 6/5/2023 | | | — | | $ | — | |
| | 1,417 | (3) | | 2,583 | | $ | 15.40 | | | 7/08/2024 | | | — | | $ | — | |
| | 583 | (3) | | 3,417 | | $ | 5.41 | | | 5/20/2025 | | | — | | $ | — | |
| | — | | | — | | $ | — | | | — | | | 1,333 | (4) | $ | 3,426 | |
| | — | | | — | | $ | — | | | — | | | 2,000 | (4) | $ | 5,140 | |
| | — | | | — | | $ | — | | | — | | | 2,667 | (4) | $ | 6,854 | |
2023.Kendall Larsen(2) | | | 2,000(3) | | | — | | | $308.00 | | | 7/8/2024 | | | — | | | $— |
| 2,000(3) | | | — | | | $108.20 | | | 5/20/2025 | | | — | | | $— |
| 2,000(3) | | | — | | | $94.80 | | | 5/23/2026 | | | — | | | $— |
| 2,000(3) | | | — | | | $77.00 | | | 6/2/2027 | | | — | | | $— |
| 11,000(3) | | | — | | | $71.00 | | | 2/16/2028 | | | — | | | $— |
| 2,000(3) | | | — | | | $64.00 | | | 5/31/2028 | | | — | | | $— |
| 2,000(3) | | | — | | | $122.20 | | | 5/30/2029 | | | — | | | $— |
| 1,641(4) | | | 109 | | | $112.60 | | | 3/18/2030 | | | — | | | $— |
| 1,750(4) | | | 250 | | | $138.40 | | | 6/2/2030 | | | — | | | $— |
| 1,250(4) | | | 750 | | | $91.80 | | | 6/14/2031 | | | — | | | $— |
| 1,719(4) | | | 1,031 | | | $91.80 | | | 6/14/2031 | | | — | | | $— |
| 1,688(4) | | | 2,812 | | | $29.80 | | | 6/7/2032 | | | — | | | $— |
| — | | | — | | | — | | | — | | | 333(5) | | | $2,333.10 |
| — | | | — | | | — | | | — | | | 667(5) | | | $4,666.55 |
| — | | | — | | | — | | | — | | | 1,000(5) | | | $7,000.35 |
| — | | | — | | | — | | | — | | | 2,522(6) | | | $17,654 |
Robert D. Short III, Ph.D. | | | 1,000(3) | | | — | | | $308.00 | | | 7/8/2024 | | | — | | | $— |
| 1,000(3) | | | — | | | $108.20 | | | 5/20/2025 | | | — | | | $— |
| 1,000(3) | | | — | | | $94.80 | | | 5/23/2026 | | | — | | | $— |
| 1,000(3) | | | — | | | $77.00 | | | 6/2/2027 | | | — | | | $— |
| 49,000(3) | | | — | | | $83.00 | | | 9/14/2027 | | | — | | | $— |
| 6,000(3) | | | — | | | $71.00 | | | 2/16/2028 | | | — | | | $— |
| 1,000(3) | | | — | | | $64.00 | | | 5/31/2028 | | | — | | | $— |
| 1,000(3) | | | — | | | $122.20 | | | 5/30/2029 | | | — | | | $— |
| 1,641(4) | | | 109 | | | $112.60 | | | 3/18/2030 | | | — | | | $— |
| 875(4) | | | 125 | | | $138.40 | | | 6/2/2030 | | | — | | | $— |
| 625(4) | | | 375 | | | $91.80 | | | 6/14/2031 | | | — | | | $— |
| 1,375(4) | | | 825 | | | $91.80 | | | 6/14/2031 | | | — | | | $— |
| 844(4) | | | 1,406 | | | $29.80 | | | 6/7/2032 | | | — | | | $— |
| — | | | — | | | — | | | — | | | 168(5) | | | $1,173.90 |
| — | | | — | | | — | | | — | | | 333(5) | | | $2,333.45 |
| — | | | — | | | — | | | — | | | 500(5) | | | $3,500.70 |
| — | | | — | | | — | | | — | | | 1,260(6) | | | $8,816.50 |
Katherine Allanson | | | 375(7) | | | 125 | | | $103.60 | | | 12/18/2030 | | | — | | | $— |
| 3,375(7) | | | 2,625 | | | $82.40 | | | 9/15/2031 | | | — | | | $— |
| — | | | — | | | — | | | — | | | 1,260(6) | | | 8,816.50 |
(1)
| (1)The market value is computed by multiplying (i) the number of shares of RSU or RSAs that were unvested as of December 31, 2023 that would become vested by (ii) $7.00 (the closing market price of our common stock on NYSE on December 29, 2023, the last trading day in 2023). |
(2)
| This table does not include options, RSUs or restricted stock unitsRSAs granted to Mrs. Larsen, aswhich are discussed in the notes to the Beneficial Ownership Table, included in this Proxy Statement at page 1921. |
| (2)(3)
| The shares subject to this option are fully vested and exercisable as of the vesting commencement date.December 31, 2023. |
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| (3)(4)
| The shares subject to the option vest and become exercisable in 48 equal monthly installments beginning on the dateone month anniversary of the grant date, subject to the optionee’s continued status as a service provider of the Company on each such date. |
| (4)(5)
| The restricted stock unitsRSUs shall vest in four equal annual installments beginning on the one year anniversary of the grant date. |
(6)
| 1/48 of the total number of shares of RSAs shall vest and become exercisable on the one-month anniversary of the grant date, and 1/48 of the total number of RSAs shall vest and become exercisable on each monthly anniversary thereafter, subject to the grantee’s continued service as a service provider of the Company on each date. |
(7)
| 1/4 of the shares subject to this option vest and become exercisable on the one-year anniversary of the grant date, and the remaining vest in 36 equal installments on the one-month anniversary of the grant date, subject to the optionee’s continued status as a service provider of the Company on each date. |
Potential Payments Upon Termination or Change in Control As stated elsewhere in this Proxy Statement, we do not provide change in control agreements or employment agreements providing formal cash or equity severance rights to any of our named executive officers. However, the Board has made the determination that all equity awards issued under our Plan and the Amended Plan, if approved, will include the provision that in the event of a “Change in Control” (as defined in our Plan or the Amended Plan, as applicable), all unvested shares underlying the option, all unvested RSUs and all unvested RSAs will vest and become exercisable immediately prior to the consummation of such Change in Control transaction.
The table below provides an estimate of the value of the equity awards that will vest and become immediately exercisable prior to the consummation of such Change in Control transaction for each of our named executive officers for our fiscal year ended December 31, 2023, assuming that the change in control was effective on December 31, 2023. The amounts reported in the table reflect the aggregate market value of the unvested shares of our common stock underlying outstanding stock options and RSU awards.
Kendall Larsen | | | 4,952 | | | $— | | | 4,522 | | | $31,654 |
Robert D. Short III, Ph.D. | | | 2,840 | | | $— | | | 2,261 | | | $15,825 |
Katherine Allanson | | | 2,750 | | | $— | | | 1,260 | | | $8,817 |
(1)
| The aggregate market value is computed by multiplying (i) the number of shares of our common stock underlying unvested and outstanding stock options on December 31, 2023, that would become vested by (ii) the positive difference, if any, between $7.00 (the closing market price of our common stock on the NYSE on December 29, 2023, the last trading day in 2023) and the exercise price of such option. Because no options had an exercise price below $7.00, there would have been no value associated with their acceleration. |
(2)
| The aggregate market value is computed by multiplying (i) the number of unvested shares of our common stock subject to outstanding RSU awards on December 31, 2023 that would become vested by (ii) $7.00 (the closing market price of our common stock on NYSE on December 29, 2023, the last trading day in 2023). |
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Option ExercisesPAY VERSUS PERFORMANCEIn 2022, the SEC released its final rules requiring that the “pay versus performance” disclosure codified in the Dodd-Frank Act of 2010 be provided by companies filing proxy and
Stock Vestedinformation statements regarding executive compensation. The rules require a disclosure of “compensation actually paid” to the principal executive officer (“PEO”) and named executive officers (“NEOs”) other than the PEO, as well certain other required disclosure. Compensation “actually paid” has a specific formula set forth in
Fiscal Year 2015the rules.
The following table
presents information regarding the vesting of stock awards during fiscal 2015. None of our Named Officers exercised stock options during fiscal 2015. | Stock Awards |
Name | Number of Shares Acquired on Vesting | Value Realized on Vesting (1) |
Kendall Larsen(2) | | 20,001 | | $ | 106,005 | |
Robert D. Short III, Ph.D. | | 9,999 | | $ | 52,995 | |
Richard Nance | | 1,334 | | $ | 5,996 | |
sets forth such pay versus performance information:2023 | | | $2,099,250 | | | $2,022,706 | | | $1,420,834 | | | $1,372,873 | | | $20.30 | | | $(27,871,000) |
2022 | | | $1,526,260 | | | $1,269,156 | | | $720,794 | | | $580,325 | | | $25.70 | | | $(36,260,000) |
2021 | | | $1,601,266 | | | $1,171,563 | | | $834,374 | | | $440,926 | | | $51.59 | | | $(42,921,000) |
(1)
| (1)PEO for 2023, 2022 and 2021: Kendall Larsen. |
Non-PEO NEOs for 2023, 2022 and 2021: Robert D. Short III, Ph.D., Chief Scientist, and Katherine Allanson, Chief Financial Officer.
(2)
| ReflectsTotal Shareholder Return (“TSR”) is cumulative for the market valuemeasurement periods beginning on December 31, 2021 and ending on December 31, 2022 and 2023, calculated in accordance with Item 201(e) of Regulation S-K. |
(3)
| Net Income (Loss) for each year as set forth in our Common StockConsolidated Statements of Operations in our Annual Report on Form 10-K for each applicable year. |
(4)
| The following table sets forth a reconciliation of the vesting date.total compensation reflected in the summary compensation table to the compensation actually paid to the PEO and non-PEO NEOs: |
| (2) | Excludes Mrs. Larsen’s options exercised and stock vested as discussed in the notes to the Beneficial OwnershipTotal Compensation from Summary Compensation Table | | | $2,099,250 | | | $1,420,834 | | | $1,526,260 | | | $720,794 | | | $1,601,266 | | | $834,375 | Less: Current year stock and option award grants in Summary Compensation Table | | | $(27,024) | | | $(13,512) | | | $(138,735) | | | $(34,685) | | | $(449,677) | | | $(358,763) | Add fair value of unvested awards granted in current year | | | $17,654 | | | $8,817 | | | $105,780 | | | $26,444 | | | $202,002 | | | $151,796 | Change in fair value of unvested awards granted in prior years | | | $(37,762) | | | $(25,008) | | | $(147,751) | | | $(93,108) | | | $(260,746) | | | $(104,967) | Change in fair value of awards vesting in current year, granted in prior years | | | $(31,460) | | | $(19,283) | | | $(86,557) | | | $(41,660) | | | $59,765 | | | $(93,884) | Add: fair value of awards granted in and vested in current year | | | $2,048 | | | $1,026 | | | $10,159 | | | $2,540 | | | $18,953 | | | $12,369 | | | | $2,022,706 | | | $1,372,873 | | | $1,269,156 | | | $580,325 | | | $1,171,563 | | | $440,926 |
Analysis of the Information Presented in the Pay Versus Performance Table included in this Proxy Statement at page 19. |
We generally seek to incentivize long-term performance, and therefore do not specifically align our performance measures with “compensation actually paid” (as computed in accordance with Item 402(v) of Regulation S-K) for a particular year. In accordance with Item 402(v) of Regulation S-K, we are providing the following descriptions of the relationships between information presented in the Pay Versus Performance table.
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Compensation Actually Paid versus Net Income (Loss)
The following chart sets forth the relationship between Compensation Actually Paid (“CAP”) to our PEO, the average of CAP to our Non-PEO NEOs, and our Net Income (Loss) during the three most recently completed fiscal years:
Compensation Actually Paid versus Total Shareholder Return
The following chart sets forth the relationship between CAP to our PEO, the average of CAP to our Non-PEO NEOs, and our Total Shareholder Return during the three most recently completed fiscal years:
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
AND DELINQUENT 16(a) REPORTS
Section 16(a) of the Exchange Act requires that our executive officers and directors, and ten percent stockholders topersons who own more than 10% of our common stock, file reports of ownership and changes inof ownership with the SEC. The same personsSuch directors, executive officers and 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
SEC regulations require us to identify in this Proxy Statement anyone who filed a required report late during the most recent fiscal year. Based
solely upon aon our review of
Forms 3, 4, and 5 and amendments thereto furnished toforms filed with the
Company during fiscal 2015 andSEC, or written representations
regarding Forms 5 providedfrom reporting persons stating that they were not required to
the Company,file these forms, we believe that
allduring our fiscal year ended December 31, 2023, there were no untimely filed Section 16(a)
filing requirements have been metreports by the Company’s Section 16(a) reporting persons, with the exception of
the following late Form 4 filings:a late Form 4 wasreport filed by Mr. Nancefor Darl McBride on July 28, 2015April 25, 2024 to report the acquisitionwithholding of 2,667 restricted stock unitsshares on January 31, 2024 to satisfy income tax and an option to purchase 4,000 shareswithholding and remittance obligations in connection with the grant of common stock grantedRSAs on May 20, 2015;January 1, 2024.
a late Form 4 was filed by Mr. Short on July 28, 2015 to report the acquisition of 13,333 restricted stock units and an option to purchase 20,000 shares of common stock granted on May 20, 2015; and
a late Form 4 was filed by Mr. Larsen on July 28, 2015 to report the acquisition of 26,667 restricted stock units and an option to purchase 40,000 shares of common stock granted on May 20, 2015.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than compensation arrangements of non-employee directors and named executive officers, we describe below transactions and series of similar transactions, duringsince the beginning of our last three fiscal years,year and fiscal year preceding that, to which we were a party or will be a party, in which:
the amounts involved exceeded the lesser of $120,000 or will exceed $120,000;1% of the average of our total assets at year-end for the last two completed fiscal years; and
any of our directors, executive officers or holders of more than 5% of our common stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.
Kendall Larsen, the Company’s Chairman of the Board of Directors, President and Chief Executive Officer, is married to the Company’s Chief Administrative Officer, Kathleen Larsen. Kathleen Larsen is not an executive officer of the Company. In addition, Kathleen Larsen’s sons, Dustan Sheehan and Joshua Sheehan, were employed by the Company in 2023 as a (1) Media and Product Engineer and (2) Director of Global Engineering Operations and Customer Relations, respectively. Neither Dustan Sheehan nor Joshua Sheehan are executive officers of the Company. On April 8, 2024, Dustan Sheehan submitted his resignation effective May 31, 2024, at which time he will no longer be an employee of the Company or any of its affiliates.
Mr. Larsen’s son, Parker Larsen, is employed by the Company as a Product Integration Engineer. Parker Larsen is not an executive officer of the Company.
Robert D. Short III, Ph.D., the Company’s Chief Scientist, is the father-in-law of Corby Hoback, who is employed by the Company as a Director of Software Project Engineer. Corby Hoback is not an executive officer of the Company.
Dr. Short’s son, Dunham Short, is employed by the Company as a Senior Software Engineer. Dunham Short is not an executive officer of the Company.
The compensation for all such related persons was approved by the compensation committee, and all such related persons are compensated at a level that the Company believes is comparable to other employees in similar positions of responsibility at comparable companies. Compensation amounts below reflect the aggregate grant date fair value of the stock awards computed in accordance with FASB ASC Topic 718. The values of the option grants and stock awards include the value of unvested shares. 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 2023.
2023
Kathleen Larsen received an aggregate of $502,671 in the form of salary, an annual incentive bonus of $251,336, $38,667 in the form of a payout for unused and accrued vacation time and $13,507 in the form of stock awards.
Dustan Sheehan received an aggregate of $136,591 in the form of salary, an annual incentive bonus of $47,807, and $6,749 in the form of stock awards. On April 8, 2024, Dustan Sheehan submitted his resignation effective May 31, 2024, at which time he will no longer be an employee of the Company or any of its affiliates.
Joshua Sheehan received an aggregate of $136,591 in the form of salary, an annual incentive bonus of $71,710, which was subject to a one-time 50% increase of his target bonus percentage from 35% to 52.5% due to his achievements during 2023, as approved by our compensation committee, and $8,438 in the form of stock awards.
Parker Larsen received an aggregate $93,074 in the form of salary, an annual incentive bonus of $32,576 and $6,749 in the form of stock awards.
Corby Hoback received an aggregate of $218,545 in the form of salary, an annual incentive bonus of $76,491 and $10,128 in the form of stock awards.
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2022
Kathleen Larsen received an aggregate of $483,337 in the form of salary, an annual incentive bonus of $362,503, $49,500 in the form of option grants, $37,171 in the form of a payout for unused and accrued vacation time and $19,870 in the form of stock awards.
Dustan Sheehan received an aggregate of $132,612 in the form of salary, an annual incentive bonus of $58,017, $17,600 in the form of option grants, and $9,935 in the form of stock awards.
Joshua Sheehan received an aggregate of $132,612 in the form of salary, an annual incentive bonus of $46,414, $13,750 shares in the form of option grants and $12,420 in the form of stock awards.
Parker Larsen received an aggregate $90,363 in the form of salary, an annual incentive bonus of $31,627, $11,000 in the form of option grants and $9,935 in the form of stock awards.
Corby Hoback received an aggregate of $212,180 in the form of salary, an annual incentive bonus of $92,828, $82,500 in the form of option grants and $14,900 in the form of stock awards.
During 2023 and 2022, the Company leased the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for employees of the Company. The Company incurred approximately $1,097,000 and $1,123,000 in rental fees and reimbursements to the LLC in 2023 and 2022, respectively. Kendall Larsen and Kathleen Larsen are the sole member-managers of the LLC and control the equity interests of the LLC. On January 31, 2015, the Company entered into a 12-month non-exclusive lease with the LLC for use of the plane at a rate of approximately $8,000 per flight hour, with no minimum usage requirement. The agreement contains other terms and conditions normal in such transactions and can be cancelled by either the Company or the LLC with 30-days’ notice. The agreement renews on an annual basis unless terminated by either party. Neither party has exercised their termination rights. The audit committee has approved the rental fees and lease agreement.
Policies and Procedures for Related Party Transactions
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. The audit committee is also responsible for reviewing the Company’s policies with respect to related person transactions and overseeing compliance with such practices.
The compensation for Kathleen Larsen, Dustan Sheehan, Joshua Sheehan, and Corby Hoback were approved by the compensation committee. Compensation amounts above reflect the aggregate grant date fair value of the stock options computed in accordance with FASB ASC Topic 718. The values of the option grants and stock awards include the value of unvested shares. 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 7 titled “Stock-Based Compensation” in the Note to the Financial Statements contained in the Company’s Annual Report on Form 10-K for fiscal 2015.
Kendall Larsen, the Company’s Chairman of the Board of Directors, President and Chief Executive Officer, is married to the Company’s Chief Administrative Officer, Kathleen Larsen. Kathleen Larsen is not an executive officer of the Company. In addition, Kathleen Larsen’s sons, Dustan Sheehan and Joshua Sheehan, are employed by the Company as webmaster and operations manager, respectively. Neither Dustan Sheehan nor Joshua Sheehan are executive officers of the Company. Kathleen Larsen and each of Dustan and Joshua Sheehan are currently compensated at levels that the Company believes is comparable to other employees in similar positions of responsibility at comparable companies. During fiscal 2015, Kathleen Larsen received an aggregate of $481,471 in the form of salary and bonus, $80,000 in the form of option grants and $72,132 in the form of stock awards. During fiscal year 2015, Dustan Sheehan received an aggregate of $81,864 in the form of salary and bonus, $20,000 in the form of option grants, and $18,032 in the form of stock awards. During fiscal year 2015, Joshua Sheehan received an aggregate of $76,558 in the form of salary and bonus, $20,000 in the form of option grants and $18,032 in the form of stock awards. The foregoing compensation amounts reflect the aggregate grant date fair value of the stock options computed in accordance with FASB ASC Topic 718.
Robert D. Short III, Ph.D., the Company’s Chief Technical Officer and Chief Scientist, is the father-in-law of Corby Hoback, who is employed by the Company as a Senior Software Engineer. Corby Hoback is not an executive
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officer of the Company. Corby Hoback is currently compensated at a level that the Company believes is comparable to other employees in similar positions of responsibility at comparable companies. During fiscal 2015, Corby Hoback received an aggregate of $187,110 in the form of salary and bonus, $50,000 in the form of option grants and $45,082 in the form of stock awards.
During fiscal 2015, the Company leased the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for employees of the Company. The Company incurred approximately $593,000 in rental fees (including fees and other reimbursements) to the LLC during fiscal 2014 for such use. Kendall Larsen and Kathleen Larsen are the sole member-managers of the LLC and control the equity interests of the LLC. On January 31, 2015 the Company entered into a 12-month non-exclusive lease with the LLC for use of the plane at a rate of $8,100 per flight hour, with no minimum usage requirement. The agreement contains other terms and conditions normal in such transactions and can be cancelled by either the Company or the LLC with 30-days notice. The audit committee has approved the rental fees and lease agreement.
The following is the report of the audit committee of the Board of Directors.Board. In connection with the financial statements for fiscal 2015,2023, our audit committee has:
reviewed and discussed our audited financial statements for fiscal 20152023 with our management and our independent registered public accounting firm;
firm, including discussions related to critical accounting policies, financial reporting principles and practices, the reasonableness of significant estimates, and the effectiveness of internal control over financial reporting;
discussed with our independent registered accountants, the matters required to be discussed by standards promulgated by the AICPA andapplicable requirements of the Public Company Accounting Oversight Board (PCAOB), including Auditing Standard No. 16, “Communications with Audit Committees;”(“PCAOB”) and
the Commission; and
received the written disclosures and the letter from our independent registered public accounting firm discussing the matters required by the applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with our independent registered public accounting firm its independence.
Based on the audit committee’s review of the matters noted above and its discussions with our independent accountants and our management, the audit committee recommended to the Board of Directors that the financial statements be included in our annual reportAnnual Report on Form 10-K for fiscal 2015.
Respectfully submitted by:
Thomas M. O’Brien (Chair)
Michael F. Angelo
Gary Feiner
2023.
| | | Respectfully submitted by: |
| | | |
| | | Thomas M. O’Brien (Chair) |
| | | Michael F. Angelo |
| | | Gary W. Feiner |
Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933
or the Securities Exchange Act of 1934 that might incorporate future filings, including this Proxy Statement, in whole or in part, the Audit Committee Report shall not be deemed to be incorporated by reference into any such filings, unless we specifically incorporate these reports by reference in some other filed document.document.
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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.
AVAILABILITY OF FORM 10-K We will provide upon request without charge to each person solicited by this Proxy Statement a copy of our Annual Report on Form 10-K for
fiscal 2015,2023, 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:
Corporate Secretary, VirnetX Holding Corporation,
POP.O. Box 439, Zephyr Cove, NV 89448, telephone (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 at
http://www.virnetx.com under the “SEC Filings” link in the “Investors” tab and at the SEC’s
Internet site, http://www.sec.gov.Sincerely,website, www.sec.gov.
| |
| |
/s/ Katharine A. Martin
| |
Katharine A. Martin
| |
Sincerely, Kathleen Larsen
Corporate Secretary | |
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ANNUAL MEETING INSTRUCTIONS Attendance at the Annual Meeting is limited to stockholders of record as of April 14, 2016.19, 2024. Registration will begin at 8:009:45 a.m. Pacific Time on June 2, 2016,13, 2024.
How you may attend the Annual Meeting depends on whether you are a beneficial owner or whether you are a registered stockholder.
If you are a beneficial owner (that is, if your shares are held at a brokerage): You must email admin@virnetx.com no later than Wednesday, June 12, 2024, at 11:59 p.m. Eastern Time for verification by the Company. Following verification, you will receive a control identification number 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 14, 2016.The use of cell phones, smartphones, pagers, recording and photographic equipment and/or computers is not permitted incompany-issued password.
To attend the meeting,
room atvisit https://agm.issuerdirect.com/vhc, where you will be asked to enter the
Annual Meeting.See below for driving directions.
DRIVING DIRECTIONS TO ANNUAL MEETING
Hard Rock Hotel & Casino – South Lake Tahoe
50 Highway 50
Stateline, Nevada 89449
(844) 588-7625
Driving Directions
From Sacramento (Route #1 Hwy-50):
Take Highway 50 east through Placervillecontrol identification number and over Echo Summitpassword received from us.
Whether you attend the meeting or not, to South Lake Tahoe.
From Sacramento or San Francisco (Route #2 - I-80)
I-80vote, visit https://central.proxyvote.com/pv/web, where you will be asked to Truckee
Take CA-267 South to Kings Beach on Tahoe‘s North Shore
Turn East on CA-28, which becomes NV-28 atenter 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 Hard Rock Hotel & Casino,control identification number located on your rightproxy card, received from Broadridge Financial Solutions, Inc.
If you are a registered stockholder: You must also email admin@virnetx.com no later than Wednesday, June 12, 2024, at 11:59 p.m. Eastern Time for verification by the Company. Following verification, you will receive your meeting credentials.
From Reno
Drive SouthTo attend the meeting, visit https://agm.issuerdirect.com/vhc, where you will be asked to enter the meeting credentials received from us.
To vote, visit www.iproxydirect.com/VHC, where you will be asked to enter the control identification number, request identification number, and password located on US-395, 33 miles to Carson City
On the far South sideyour Notice of Carson City, take the US-50 turnoff West to Lake TahoeInternet Availability (Notice and Access) Card, received from Issuer Direct Corporation.
Take US-50 another 22 miles to the California state line
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APPENDIX A
VIRNETX HOLDING CORPORATION
AMENDED AND RESTATED 2013 EQUITY INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Plan are:
to attract and retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees, Directors and Consultants, and
to promote the success of the Company’s business.
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares. The Plan is an amendment and restatement of the Company’s 2013 Equity Incentive Plan that was amended and restated most recently by the Board in April 2021 (the “Prior Plan”). The Plan was adopted by the Board on April 10, 2023 (the “Restatement Date”). Share numbers shown in the Plan reflect the Company’s 1-for-20 reverse stock split effective October 25, 2023.
2. Definitions. As used herein, the following definitions will apply:
(a) “Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.
(b) “Affiliate” means an entity other than a Subsidiary which, together with the Company, is under common control of a third person or entity.
(c) “Applicable Laws” means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.
(d) “Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares.
(e) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
(f) “Board” means the Board of Directors of the Company.
(g) “Cause” will have the meaning set forth in the applicable Participant’s Award Agreement, employment agreement, or other applicable written agreement. If such agreement does not contain a definition of “Cause”, Cause will mean the following: (i) Participant’s willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Participant’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Participant of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Participant’s willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether a Participant is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. The term “Company” as used in this Section 2(g) will be interpreted to include any Subsidiary, Parent, Affiliate, or any successor thereto, if appropriate.
(h) “Change in Control” means the occurrence of any of the following events:
(i) A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control; provided, however,
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that for purposes of this clause (i), (1) the acquisition of beneficial ownership of additional stock by any one Person who is considered to beneficially own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control; and (2) if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event shall not be considered a Change in Control under this clause (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii) A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this clause (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii) A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the state of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(i) “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(j) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or a duly authorized committee of the Board, in accordance with Section 4 hereof.
(k) “Common Stock” means the common stock of the Company.
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(l) “Company” means VirnetX Holding Corporation, a Delaware corporation, or any successor thereto.
(m) “Consultant” means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary or other Affiliate to render bona fide services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital-raising transaction, and (ii) do not directly promote or maintain a market for the Company’s securities, in each case, within the meaning of Form S-8 promulgated under the Securities Act and provided further that a Consultant will only include those persons to whom the issuance of Shares may be registered under Form S-8 promulgated under the Securities Act.
(n) “Director” means a member of the Board.
(o) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.
(p) “Employee” means any person, including Officers and Directors, employed by the Company or a Parent or Subsidiary or other Affiliate. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.
(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(r) “Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is increased or reduced. The Administrator cannot implement an Exchange Program.
(s) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the New York Stock Exchange, NYSE MKT, LLC, Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market of The Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share will be the mean between the high bid and low asked prices for the Common Stock on the day of determination (or, if no bids and asks were reported on that date, as applicable, on the last trading date such bids and asks were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
Notwithstanding the foregoing, if the determination date for the Fair Market Value occurs on a weekend or holiday, the Fair Market Value will be the price as determined in accordance with subsections (i) through (iii) above (as applicable) on the next business day, unless otherwise determined by the Administrator.
(t) “Fiscal Year” means the fiscal year of the Company.
(u) “Incentive Stock Option” means an Option that by its terms qualifies and is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(v) “Inside Director” means a Director who is an Employee.
(w) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
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(x) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(y) “Option” means a stock option granted pursuant to the Plan.
(z) “Outside Director” means a Director who is not an Employee.
(aa) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(bb) “Participant” means the holder of an outstanding Award.
(cc) “Performance Period” will have the meaning set forth in Section 11 of the Plan.
(dd) “Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to Section 11.
(ee) “Performance Unit” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 11.
(ff) “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.
(gg) “Plan” means this Amended and Restated 2013 Equity Incentive Plan.
(hh) “Restricted Stock” means Shares issued pursuant to a Restricted Stock award under Section 8 of the Plan, or issued pursuant to the early exercise of an Option.
(ii) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 9 of the Plan. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(jj) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.
(kk) “Section 16(b)” means Section 16(b) of the Exchange Act.
(ll) “Service Provider” means an Employee, Director or Consultant.
(mm) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.
(nn) “Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 10 of the Plan is designated as a Stock Appreciation Right.
(oo) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of Shares that may be issued under the Plan is 1,175,000 Shares. In addition, Shares may become available for issuance under the Plan pursuant to Section 3(b). The Shares may be authorized, but unissued, or reacquired Common Stock.
(b) Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full, or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is forfeited to or repurchased by the Company due to failure to vest, the unpurchased Shares (or for Awards other than Options or Stock Appreciation Rights the forfeited or repurchased Shares), which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). Upon exercise of a Stock Appreciation Right settled in Shares, the gross number of Shares covered by the portion of the Award so exercised, whether or not actually issued pursuant to such exercise will cease to be available under the Plan.
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Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if unvested Shares issued pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company, such Shares will become available for future grant under the Plan. Shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will not become available for future grant or sale under the Plan. Shares repurchased by the Company using Option exercise proceeds will not become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 14, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to Section 3(b). For the avoidance of doubt, the provisions of this Section 3(b) will also apply to awards that were granted under the Prior Plan prior to its amendment and restatement such that any Shares subject to awards granted under the Prior Plan that, on or after the Effective Date, expire or otherwise terminate without having been exercised or issued in full or are forfeited to or repurchased by the Company due to failure to vest, will be added to the Plan, with the maximum number of shares to be added to the Amended Plan pursuant to this sentence equal to 317,840 shares.
(c) Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan.
(ii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.
(iii) Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted hereunder;
(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine;
(vi) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws or for qualifying for favorable tax treatment under applicable foreign laws;
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(viii) to modify or amend each Award (subject to Section 6 and Section 19 of the Plan), including but not limited to the discretionary authority to extend the post-termination exercisability period of Awards and to extend the maximum term of an Option (subject to Section 7(b) of the Plan regarding Incentive Stock Options);
(ix) to allow Participants to satisfy tax withholding obligations in such manner as prescribed in Section 15 of the Plan;
(x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
(xi) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award;
(xii) to impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any Shares issued as a result of or under an Award, including without limitation, (A) restrictions under an insider trading policy, and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers;
(xiii) to require that the Participant’s rights, payments and benefits with respect to an Award (including amounts received upon the settlement or exercise of an Award) will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award, as may be specified in an Award Agreement at the time of the Award, or later if (A) Applicable Laws require the Company to adopt a policy requiring such reduction, cancellation, forfeiture or recoupment, or (B) pursuant to an amendment of an outstanding Award; and
(xiv) to make all other determinations deemed necessary or advisable for administering the Plan.
(c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards.
5. Eligibility. Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units may be granted to Service Providers. Incentive Stock Options may be granted only to Employees of the Company or any Parent or Subsidiary.
6. Limitations.
(a) Incentive Stock Option Limitations. Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted.
(b) Share Limitations. Subject to adjustment as provided in Section 14, during any Fiscal Year, no Employee will be granted:
(i) Options and/or SARs covering more than a total of 50,000 Shares; provided, however, that in connection with his or her initial employment, an Employee may be granted Options and/or SARs covering up to a total of 50,000 additional Shares in the Fiscal Year in which his or her service as an Employee first commences;
(ii) Restricted Stock and/or Restricted Stock Units and/or Performance Shares covering more than 50,000 Shares; provided, however, that in connection with his or her initial employment, an Employee may be granted Restricted Stock, Restricted Stock Units and/or Performance Shares covering up to a total of 50,000 additional Shares in the Fiscal Year in which his or her service as an Employee first commences; and
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(iii) Performance Units having a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) greater than $5,000,000; provided, however, that in connection with his or her initial employment, an Employee may be granted additional Performance Units in the Fiscal Year in which his or her service as an Employee first commences having a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) no greater than $10,000,000.
(iv) If an Award is cancelled in the same Fiscal Year in which it was granted (other than in connection with a transaction described in Section 14(c)), the cancelled Award will be excluded from the limits set forth in this subsection (b).
(c) Exchange Program. The Administrator cannot institute an Exchange Program.
(d) Outside Director Limitations. No Outside Director may be granted, in any Fiscal Year, Awards covering more than 50,000 Shares. Awards granted to an individual while he or she was an Employee or Consultant, but not an Outside Director, shall not count for purposes of this limitation.
7. Stock Options.
(a) Grant of Options. Subject to the terms and conditions of the Plan, Options may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion. Subject to Section 6 and the other terms and conditions of the Plan, the Administrator will have complete discretion to determine the number of Shares granted to any Service Provider. Each Option shall be evidenced by an Award Agreement (which may be in electronic form) that shall specify the exercise price, the expiration date of the Option, the number of Shares covered by the Option, any conditions to exercise the Option, and such other terms and conditions as the Administrator, in its discretion, shall determine.
(b) Term of Option. The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock Option, the term will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.
(c) Option Exercise Price and Consideration.
(i) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, subject to the following:
(1) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(2) In the case of a Nonstatutory Stock Option, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(3) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.
(ii) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.
(iii) Form of Consideration. The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the
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Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) other Shares, provided that such Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option will be exercised and provided that accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion; (4) consideration received by the Company under a broker-assisted (or other) cashless exercise program (whether through a broker or otherwise) implemented by the Company in connection with the Plan; (5) by net exercise; (6) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (7) any combination of the foregoing methods of payment.
(d) Exercise of Option.
(i) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (i) a notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.
Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii) Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s termination as the result of the Participant’s death or Disability or termination for Cause, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for thirty (30) days following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iii) Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for six (6) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iv) Death of Participant. If a Participant dies while a Service Provider, or dies within thirty (30) days following the day Participant ceases to be a Service Provider, the Option may be exercised following the
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Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(v) Termination for Cause. In the event a Participant ceases to be a Service Provider as a result of the Participant’s termination for Cause, the Option shall immediately terminate in its entirety upon first notification to the Participant of Participant’s termination for Cause. If a Participant Service Provider status is suspended pending an investigation of whether the Participant shall be terminated for Cause, all of the Participant’s rights under the Option likewise shall be suspended during the investigation period and the Participant shall have no right to exercise the Option. This Section 7(d)(v) shall apply with equal effect to vested Shares acquired upon exercise of the Option granted on any date on which the Common Stock is not listed on any established stock exchange or national market system, in that the Company shall have the right to repurchase such Shares from the Participant upon the following terms: (A) the repurchase is made within ninety (90) days of the date Participant ceases to be a Service Provider, at the Fair Market Value of the Shares as of the date of such termination, (B) consideration for the repurchase consists of cash or cancellation of purchase money indebtedness, and (C) the repurchase right terminates upon the effective date of the Company’s initial public offering of its Common Stock on any established stock exchange or national market system. Notwithstanding the foregoing, with respect to vested Shares issued upon exercise of an Option granted to any Officer, Director or Consultant, the Company’s right to repurchase such Shares upon the date that Participant ceases to be a Service Provider as a result of termination for Cause shall be made at the Participant’s original cost for the Shares and shall be effected pursuant to such terms and conditions, and at such time, as the Administrator shall determine. Nothing in this Section 7(d)(v) shall in any way limit the Company’s right to purchase unvested Shares issued upon exercise of an Option as set forth in the applicable Award Agreement.
8. Restricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.
(b) Restricted Stock Agreement. Subject to the limitations contained in Section 6, each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of Restricted Stock until the restrictions on such Shares have lapsed.
(c) Transferability. Except as provided in this Section 8 or the Award Agreement, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.
(d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.
(e) Removal of Restrictions. Except as otherwise provided in this Section 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction or at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.
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(f) Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(g) Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares, unless the Administrator provides otherwise. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.
(i) Termination for Cause. In the event a Participant ceases to be a Service Provider as a result of the Participant’s termination for Cause, the Participant paid consideration to purchase Shares granted pursuant to a Restricted Stock Award, and the Administrator granted the Award to purchase Restricted Stock on any date on which the Common Stock is not listed on any established stock exchange or national market system, the Company shall have the right to repurchase from the Participant the Shares of Restricted Stock purchased by Participant for which restrictions have lapsed upon the following terms: (A) the repurchase is made within ninety (90) days of the date Participant ceases to be a Service Provider at the Fair Market Value of the Shares as of the date of such termination, (B) consideration for the repurchase consists of cash or cancellation of purchase money indebtedness, and (C) the repurchase right terminates upon the effective date of the Company’s initial public offering of its Common Stock on any established stock exchange or national market system. Notwithstanding the foregoing, with respect to Restricted Stock issued to any Officer, Director or Consultant, the Company’s right to repurchase Shares of Restricted Stock for which restrictions have lapsed upon the date that Participant ceases to be a Service Provider as a result of termination for Cause shall be made at the Participant’s original cost for the Shares and shall be effected pursuant to such terms and conditions, and at such time, as the Administrator shall determine. Nothing in this Section 8(i) shall in any way limit the Company’s right to purchase Shares of Restricted Stock for which restrictions have not lapsed as set forth in the Award Agreement evidencing the applicable Award of Restricted Stock.
9. Restricted Stock Units.
(a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. Subject to the limitations contained in Section 6, after the Administrator determines that it will grant Restricted Stock Units under the Plan, it will advise the Participant in an Award Agreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units.
(b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws or any other basis determined by the Administrator in its discretion.
(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as determined by the Administrator. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.
(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) determined by the Administrator and set forth in the Award Agreement. The Administrator, in its sole discretion, may only settle earned Restricted Stock Units in cash, Shares, or a combination of both.
(e) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company and again will become available for grant under this Plan.
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10. Stock Appreciation Rights.
(a) Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, a Stock Appreciation Right may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.
(b) Number of Shares. Subject to the limitations contained in Section 6, the Administrator will have complete discretion to determine the number of Stock Appreciation Rights granted to any Service Provider.
(c) Exercise Price and Other Terms. The per share exercise price for the Shares to be issued pursuant to exercise of a Stock Appreciation Right will be determined by the Administrator and will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. Otherwise, the Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under the Plan.
(d) Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(e) Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 7(b) relating to the maximum term and Section 7(d) relating to exercise and repurchase also will apply to Stock Appreciation Rights.
(f) Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:
(i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times
(ii) The number of Shares with respect to which the Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent value, or in some combination thereof.
11. Performance Units and Performance Shares.
(a) Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. Subject to the limitations contained in Section 6, the Administrator will have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant.
(b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.
(c) Performance Objectives and Other Terms. The Administrator will set performance objectives or other vesting provisions (including, without limitation, continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives or other vesting provisions must be met will be called the “Performance Period”, and will consist of any Fiscal Year of the Company or such other period as determined by the Administrator in its sole discretion. Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
(d) Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the
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corresponding performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.
(e) Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.
(f) Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.
12. Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of (i) any military leave of absence, sick leave of absence, or other leave of absence approved by the Company, provided that such leave is not for a period of more than ninety (90) days unless reemployment upon expiration of such leave is guaranteed by contract, statute, or Company policy, or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary or other Affiliate. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
13. Transferability of Awards. Unless determined otherwise by the Administrator (and subject to the provisions of Section 6 that provides that the Administrator cannot institute an Exchange Program), an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
14. Adjustments; Dissolution or Liquidation; Merger or Change in Control.
(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, reclassification, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs (other than any ordinary dividends or other ordinary distributions), the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will adjust the number and class of shares of stock that may be delivered under the Plan and the number, class, and/or price of shares of stock covered by each outstanding Award or make other reasonable adjustments, and the numerical Share limits in Section 3 and Section 6 of the Plan. The determination of any adjustment under this Section 14 will be made by the Administrator in its discretion. Notwithstanding the preceding, the number of Shares subject to any Award always will be a whole number.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.
(c) Change in Control. In the event of a merger of the Company with or into another corporation or other entity or a Change in Control, each outstanding Award will be treated as the Administrator determines, including, without limitation, that each Award be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. The Administrator will not be required to treat all Awards similarly in the transaction.
In the event that the successor corporation does not assume or substitute for the Award, the Participant will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights,
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including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the event of a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock Appreciation Right will be exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.
For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, Performance Unit or Performance Share, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.
Notwithstanding anything in this Section 14(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
15. Tax.
(a) Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof) or such earlier time as any tax withholding obligations are due, the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).
(b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (a) paying cash, (b) electing to have the Company withhold otherwise deliverable cash or Shares having a fair market value equal to the minimum statutory amount required to be withheld or such greater amount as the Administrator may determine if such amount would not have adverse accounting consequences, as the Administrator determines in its sole discretion, (c) delivering to the Company already-owned Shares having a fair market value equal to the minimum statutory amount required to be withheld or such greater amount as the Administrator may determine if such amount would not have adverse accounting consequences, as the Administrator determines in its sole discretion, or (d) selling a sufficient number of Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld. The fair market value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.
(c) Compliance With Code Section 409A. Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Code Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Award Agreement under the Plan are intended to meet the requirements of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to
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Code Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Code Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A.
16. No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor will they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.
17. Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.
18. Term of Plan. The Plan became effective upon its approval by the Company’s stockholders at the 2023 Annual Meeting of Stockholders (the “Effective Date”). The Plan will continue in effect until terminated under Section 19 of the Plan, but no Options that qualify as Incentive Stock Options may be granted after ten (10) years from the Restatement Date.
19. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
20. Conditions Upon Issuance of Shares.
(a) Legal Compliance. The granting of Awards and the issuance and delivery of Shares under the Plan shall be subject to all Applicable Laws, rule and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Shares will not be issued pursuant to the exercise or vesting of an Award unless the exercise or vesting of such Award and the issuance and delivery of such Shares will comply with Applicable Laws, rules and regulations and will be further subject to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
21. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the Shares under any state, federal or foreign law or under the rules and regulations of the Securities and Exchange Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental or regulatory body, which authority, registration, qualification or rule compliance is deemed by the Company’s counsel to be necessary or advisable for the issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority, registration, qualification or rule compliance will not have been obtained.
22. Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the Restatement Date. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
23. Forfeiture Events. The Administrator may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance
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conditions of an Award. Such events may include, but shall not be limited to, fraud, breach of a fiduciary duty, restatement of financial statements as a result of fraud or willful errors or omissions, termination of employment for cause, violation of material Company and/or Subsidiary policies, breach of non-competition, confidentiality, or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its Subsidiaries. The Administrator may also require the application of this Section with respect to any Award previously granted to a Participant even without any specified terms being included in any applicable Award Agreement to the extent required under Applicable Laws.