UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
NETLIST, INC.
175 Technology Suite 150
Irvine, California 92618
(949) 435-0025
29, 2021
20202021 ANNUAL MEETING OF STOCKHOLDERS7, 202013, 2021
10:00 a.m., Pacific TimeToppan Merrill Corporation
2603 Main Street, Suite 610Conference Center, 1st Floor
Irvine, California, 926142020;To approve an amendment to our Restated Certificate of Incorporation; and4.9, 2020.18, 2021. Only stockholders of record at the close of business on the record date are entitled to receive notice of, and to vote at, the Annual Meeting.By order of the Board of Directors,Gail SasakiVice President, Chief Financial Officer and Corporate SecretaryIrvine, CaliforniaJune , 2020
Vice President, Chief Financial Officer and Corporate Secretary
June 29, 20217, 202013, 2021December 28, 2019January 2, 2021 are available atwww.edocumentview.com/NLST. These proxy materials were first sent or made available to stockholders on June 26, 2020.30, 2021.
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Proposals | | | | | | | |
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Security Ownership of Certain Beneficial Owners and Management | | | | | | | |
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Toppan Merrill Corporation
2.
In order to proactively address the economic effectsdissolution of the recent coronavirus, the Board has evaluated various cost-cutting measures, including review of the Board and committee structure, operations and compensation of the members thereof. As a result of its evaluation and because we are no longer subject to Nasdaq rules, the Board has determined it to be in the best interests of its stockholders to reduce the number of directors serving on the Board to one director and to dissolve all committees of the Board effective immediately after the Annual Meeting. The company will continue to beon August 7, 2020, our Board had an SEC filer and as such, will continue to have its financial results reviewed quarterly and audited annually by outside auditors.
Board Committees
Our Board has established a standing Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, each of which is described below and operatesoperated pursuant to a written charter adopted by our Board and available on our website,www.netlist.com.Board. The table below shows the membership of these committees during Fiscal 2019 and Fiscal 2020 to date, as well as the number of meetings held by each of these committees during Fiscal 2019. As discussed
Name | | | Audit | | | Compensation | | | Nominating and Corporate Governance | |
Jun S. Cho | | | • | | | | | | • | |
Kiho Choi | | | Chair | | | • | | | | |
Blake A. Welcher | | | • | | | Chair | | | Chair | |
Number of Meetings Held in Fiscal 2020 | | | 3 | | | 1 | | | 0* | |
above, effective immediately after the Annual Meeting, we intend to reduce the number of directors serving on the Board to one director and dissolve all committees of the Board.
Name | Audit | Compensation | Nominating and Corporate Governance | |||
---|---|---|---|---|---|---|
Jun S. Cho | · | · | ||||
Kiho Choi | Chair | · | ||||
Blake A. Welcher | · | Chair | Chair | |||
Number of Meetings Held in Fiscal 2019 | 4 | 2 | 0* |
Pursuant to its charter, the Compensation Committee may select, retain and terminate such legal counsel, compensation consultants and other experts or advisors as it deems necessary or appropriate in its sole discretion, and has the authority to approve the fees and retention terms relating to any such consultants or advisors. Pursuant to its charter and in accordance with applicable Nasdaq and SEC rules, the Compensation Committee assessed the independence of any such consultants or advisors, including the existence of any conflicts of interest, before any engagement. In Fiscal 2019, no such consultants or advisors were retained to assist in determining or recommending the amount or form of executive and director compensation.
The Compensation Committee charter permits the Compensation Committee to form and delegate any of its responsibility to subcommittees as it deems necessary or appropriate in its sole discretion, and the terms of the Netlist, Inc. Amended and Restated 2006 Equity Incentive Plan (the "Equity Plan") permit the Compensation Committee, as the administrator of such plan, to delegate to management the authority to grant awards under such plan of up to 25,000 shares of our common stock.
Pursuant to its charter, the Compensation Committee may invite any director, officer or other employee of the Company to be present at meetings of the Compensation Committee, subject to maintenance of the confidentiality of compensation discussions. Our Chief Executive Officer and our Chief Financial Officer have generally participated in meetings of the Compensation Committee at the committee's request in order to, among other things, make presentations regarding the Company and individual performance goals for our executives and other senior employees, which are typically discussed on a semi-annual basis, cash bonus and equity award levels for our executives and other senior employees based on achievement of such performance goals, and changes to base salaries for our executives or other senior employees, as applicable. The Compensation Committee reviews and considers these recommendations, but makes all compensation decisions for our executive officers based on its own judgment and discretion and factors it deems relevant. Our Chief Executive Officer has not historically been involved in discussions about or the determination of any aspect of his own compensation.
Our Nominating and Corporate Governance Committee has been responsible for identifying qualified individuals to become members of our Board of Directors and recommending to the Board proposed nominees for Board membership. In identifying and recommending qualified director candidates, the Nominating and Corporate Governance Committee reviewed and evaluated each proposed individual's skills, expertise, industry and other knowledge and business and other experience that may be useful to the effective oversight of the Company's business. In evaluating continuing directors, the Board also considered an individual's past contributions to the Board and the tenure of the continuing director. Under the Nominating and Corporate Governance Committee charter, the qualifications to be considered in the selection of director candidates, among others as the committee deems relevant, are broad experience in business, finance or administration; familiarity with the Company's industry; and prominence and reputation. Additionally, since prominence and reputation in a particular profession or field of endeavor are what brings most prospective director candidates to the Board's attention, the Nominating and Corporate Governance Committee also considers whether a prospective candidate has the time available to devote to the work of the Board and one or more of its committees. The Committee also reviewed the activities and associations of each prospective director candidate to ensure that there was no legal impediment, conflict of interest, or other consideration that might hinder or prevent service on the Board.
After the dissolution of the committee, these functions will be filled by our sole director.
Identification and Evaluation of Director Nominees
The Nominating and Corporate Governance Committee has had the discretion to consider and evaluate potential director candidates at any point during our fiscal year. In addition, in connection with each annual meeting of our stockholders,August 2020, the Nominating and Corporate Governance Committee has recommended to our Board certain director nominees for election at the annual meeting by our stockholders, and the Board then selects its slate of director nominees based on its determination, using the recommendation and other information provided by the Nominating and Corporate Governance Committee as it deems appropriate, of the suitability of all potential director candidates, individually and in the aggregate, to serve as directors of our Company.
Stockholder Recommendations of Director Candidates
Our Nominating and Corporate Governance Committee has considered director candidates recommended by our stockholders. Effective immediately after the Annual Meeting, the Nominating and Corporate Governance Committee will bewas dissolved and any recommendations for director candidates will be evaluated by our sole director in the same manner as our currentprevious Nominating and Corporate Governance Committee. The sole director does not evaluate director candidates differently based on whether the candidate is recommended by a stockholder or otherwise, and any stockholder-recommended candidate would be included in and evaluated in the same manner as the pool of other prospective director candidates. Any such recommendation should be made in writing to our Corporate Secretary at the address of our principal executive offices and should include the name, address and a current resume and curriculum vitae of the proposed director candidate, a statement describing the candidate'scandidate’s qualifications and consent to serve on our Board if selected as a director nominee, and contact information for personal and professional references. The submission should also include the name and address of the stockholder who is recommending the proposed director candidate, the number of shares of our common stock that are owned of record or beneficially by the recommending stockholder and a description of all arrangements or understandings between the recommending stockholder and the candidate. Any stockholder-recommended candidate that is selected by our sole director would be appointed to a vacant seat on the Board or included in the Board'sBoard’s slate of recommended director nominees for election at our next annual meeting of stockholders.
Our Board of Directors has adopted a set of Corporate Governance Guidelines to assist the Board and its committees in fulfilling their respective responsibilities. Our Board of Directors has also adopted a Code of Business Conduct and Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions, as well as all of our other executive officers and employees and all of our directors, which satisfies applicable requirements of the Sarbanes-Oxley Act of 2002 and SEC rules. Our Corporate Governance Guidelines and Code of Business Conduct and Ethics are available on our website,www.netlist.com. We intend to disclose on our website any amendments to or waivers from our Code of Business Conduct and Ethics, to the extent required by applicable law or SEC rules. We are withdrawingwithdrew our Corporate Governance Guidelines effective as of the 2020 Annual Meeting.
Meeting of Stockholders. We do not have a hedging policy for our employees, officers and directors at this time.
Company.
Name and Principal Position | | | Year | | | Base Salary($) | | | Bonus($) | | | Stock Awards($)(1) | | | All Other Compensation($)(2) | | | Total($) | | ||||||||||||||||||
Chun K. Hong President and Chief Executive Officer | | | | | 2020 | | | | | | 467,308 | | | | | | 180,000 | | | | | | 94,290 | | | | | | 62,092 | | | | | | 803,690 | | |
| | | 2019 | | | | | | 323,000 | | | | | | — | | | | | | 408,004 | | | | | | 51,486 | | | | | | 782,490 | | | ||
Gail Sasaki Vice President, Chief Financial Officer and Secretary | | | | | 2020 | | | | | | 285,577 | | | | | | 103,125 | | | | | | 23,573 | | | | | | 22,254 | | | | | | 434,529 | | |
| | | 2019 | | | | | | 200,000 | | | | | | — | | | | | | 223,992 | | | | | | — | | | | | | 423,992 | | |
Name and Principal Position | Fiscal Year | Salary($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total($) | |||||||||||
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Chun K. Hong | 2019 | 323,000 | 408,004 | 51,486 | 782,490 | |||||||||||
President and Chief Executive Officer | 2018 | 323,000 | 75,780 | 47,328 | 446,108 | |||||||||||
Gail Sasaki | 2019 | 200,000 | 223,992 | — | 423,992 | |||||||||||
Vice President, Chief Financial Officer and | 2018 | 200,000 | 18,945 | 1,385 | 220,330 | |||||||||||
Secretary |
Employment Agreements
We entered into an employment agreement with our President and Chief Executive Officer, Mr. Hong, in September 2006. This agreement provides for an initial base salary of $323,000 plus other specified benefits, including the reimbursement of professional fees and expenses incurred in connection with income and estate tax planning and preparation, income tax audits and the defense of income tax claims; the reimbursement of membership fees and expenses for professional organizations and one country club; the reimbursement of employment-related legal fees; automobile rental payments and other vehicle-related expenses; and the reimbursement of health club membership fees and other similar health-related expenses. Mr. Hong may earn annual cash performance bonuses, at the discretion of our Compensation Committee or our Board, of up to 100% of his base salary based upon the achievement of individual and Company performance objectives.
Mr. Hong's employment agreement automatically renews for additional one-year periods unless we provide or Mr. Hong provides notice of termination six months prior to the renewal date, but at all times Mr. Hong may terminate his employment upon six months' advance written notice to us and we may terminate Mr. Hong's employment upon 30 days' advance written notice to Mr. Hong. If we terminate Mr. Hong's employment without cause or if he resigns from his employment for good reason, which includes a termination or resignation upon a change of control of our Company, Mr. Hong
would be entitled to receive continued payments of his base salary for one year, reimbursement of medical insurance premiums during that period unless he becomes employed elsewhere, a pro-rated portion of his annual performance bonus, and, if any severance payment is deemed to be an "excess parachute payment" within the meaning of Section 280G of the Code, an amount equal to any excise tax imposed under Section 4999 of the Code. In addition, upon any such termination or resignation, any unvested stock options held by Mr. Hong would immediately become fully vested and exercisable as of the effective date of the termination or resignation. If Mr. Hong's employment is terminated due to death or disability, he or his estate would receive a lump-sum payment equal to half of his annual base salary and any stock options held by Mr. Hong would vest to the same extent as they would have vested one year thereafter. Additionally, if Mr. Hong's employment is terminated due to death or disability, 25% of the shares subject to outstanding stock options, or such lesser amount as is then unvested, would immediately vest and become exercisable. If Mr. Hong resigns without good reason or is terminated for cause, we would have no further obligation to him other than to pay his base salary or other amounts earned by him through the date of resignation or termination.
For purposes of Mr. Hong's employment agreement:
our assets, other than a sale or disposition of all or substantially all of our assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by our stockholders in substantially the same proportions as their ownership of our Company immediately prior to such sale.
We have not entered into an employment agreement with Ms. Sasaki, our Vice President, Chief Financial Officer and Secretary. For Fiscal 2019 and Fiscal 2018, Ms. Sasaki received an annualized base salary of $200,000. If Ms. Sasaki's employment is terminated due to death or disability, any stock options held by Ms. Sasaki would vest to the same extent as they would have vested one year thereafter. Additionally, if Ms. Sasaki's employment is terminated due to death or disability, 25% of the shares subject to outstanding stock options, or such lesser amount as is then unvested, would immediately vest and no additional shares would vest thereafter. Ms. Sasaki is eligible for a target cash bonus of 75% of her base salary, which is to be determined by our Board in its discretion based on various factors.
Cash Bonuses
No cash bonuses were paid to either Mr. Hong or Ms. Sasaki for Fiscal 2019 and Fiscal 2018.
Retirement Benefits
We maintain a savings plan that qualifies as a defined contribution plan under Section 401(k) of the Code, to which all of our employees, including our named executive officers, are able to contribute up to the limit prescribed by applicable tax rules on a before-tax basis. All of these employee contributions are fully-vested upon contribution. In addition, we may make matching contributions on the contributions of our employees on a discretionary basis, and during Fiscal 2018, we made matching contributions equal to 50% of the first 6% of pay that was contributed by employees, including our named executive officers, to the plan. Effective for pay periods beginning April 15, 2018, we no longer make these matching contributions.
Outstanding Equity Awards at Fiscal Year End
The following table shows information about the equity awards held by our named executive officers as of the end of Fiscal 2019:
| | Option Awards | Stock Awards | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable(#)(1) | Number of Securities Underlying Unexercised Options Unexercisable(#)(1) | Option Exercise Price($) | Option Expiration Date | Number of Shares That Have Not Vested(#)(2) | Market Value of Shares That Have Not Vested($)(2) | |||||||||||||||
Chun K. Hong | 3/17/2011 | 300,000 | — | 2.21 | 3/17/2021 | — | — | |||||||||||||||
2/27/2012 | 300,000 | — | 3.59 | 2/27/2022 | — | — | ||||||||||||||||
2/11/2013 | 300,000 | — | 0.71 | 2/11/2023 | — | — | ||||||||||||||||
2/21/2014 | 300,000 | — | 2.05 | 2/21/2024 | — | — | ||||||||||||||||
1/6/2015 | 300,000 | — | 0.84 | 1/6/2025 | — | — | ||||||||||||||||
1/8/2016 | 281,250 | 18,750 | 0.70 | 1/18/2026 | — | — | ||||||||||||||||
2/14/2017 | 131,250 | 93,750 | 1.02 | 2/14/2027 | — | — | ||||||||||||||||
4/13/2018 | — | — | — | — | 150,000 | 47,820 | ||||||||||||||||
3/7/2019 | — | — | — | — | 649,687 | 207,120 | ||||||||||||||||
Gail Sasaki | 3/17/2011 | 75,000 | — | 2.21 | 3/17/2021 | — | — | |||||||||||||||
2/27/2012 | 75,000 | — | 3.59 | 2/27/2022 | — | — | ||||||||||||||||
2/11/2013 | 75,000 | — | 0.71 | 2/11/2023 | — | — | ||||||||||||||||
2/21/2014 | 75,000 | — | 2.05 | 2/21/2024 | — | — | ||||||||||||||||
1/6/2015 | 75,000 | — | 0.84 | 1/6/2025 | — | — | ||||||||||||||||
1/18/2016 | 70,312 | 4,688 | 0.70 | 1/18/2026 | — | — | ||||||||||||||||
2/14/2017 | 51,562 | 23,438 | 1.02 | 2/14/2027 | — | — | ||||||||||||||||
4/13/2018 | — | — | — | — | 37,500 | 11,955 | ||||||||||||||||
3/18/2019 | — | — | — | — | 360,281 | 114,858 |
2020 Compensation Adjustments
| | | | | | | | | Option Awards | | | Stock Awards | | ||||||||||||||||||||||||||||||
Name | | | Grant Date | | | Number of Securities Underlying Unexercised Options Exercisable(#)(1) | | | Number of Securities Underlying Unexercised Options Unexercisable(#)(1) | | | Option Exercise Price($) | | | Option Expiration Date | | | Number of Shares That Have Not Vested(#)(2) | | | Market Value of Shares That Have Not Vested($)(2) | | |||||||||||||||||||||
Chun K. Hong | | | | | 3/17/2011 | | | | | | 300,000 | | | | | | — | | | | | | 2.21 | | | | | | 3/17/2021 | | | | | | — | | | | | | — | | |
| | | 2/27/2012 | | | | | | 300,000 | | | | | | — | | | | | | 3.59 | | | | | | 2/27/2022 | | | | | | — | | | | | | — | | | ||
| | | 2/11/2013 | | | | | | 300,000 | | | | | | — | | | | | | 0.71 | | | | | | 2/11/2023 | | | | | | — | | | | | | — | | | ||
| | | 2/21/2014 | | | | | | 300,000 | | | | | | — | | | | | | 2.05 | | | | | | 2/21/2024 | | | | | | — | | | | | | — | | | ||
| | | 1/6/2015 | | | | | | 300,000 | | | | | | — | | | | | | 0.84 | | | | | | 1/6/2025 | | | | | | — | | | | | | — | | | ||
| | | 1/8/2016 | | | | | | 300,000 | | | | | | — | | | | | | 0.70 | | | | | | 1/18/2026 | | | | | | — | | | | | | — | | | ||
| | | 2/14/2017 | | | | | | 281,250 | | | | | | 18,750 | | | | | | 1.02 | | | | | | 2/14/2027 | | | | | | — | | | | | | — | | | ||
| | | 3/7/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 464,062 | | | | | | 279,783 | | | ||
| | | 3/6/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 262,500 | | | | | | 158,261 | | | ||
Gail Sasaki | | | | | 3/17/2011 | | | | | | 75,000 | | | | | | — | | | | | | 2.21 | | | | | | 3/17/2021 | | | | | | — | | | | | | — | | |
| | | 2/27/2012 | | | | | | 75,000 | | | | | | — | | | | | | 3.59 | | | | | | 2/27/2022 | | | | | | — | | | | | | — | | | ||
| | | 2/11/2013 | | | | | | 75,000 | | | | | | — | | | | | | 0.71 | | | | | | 2/11/2023 | | | | | | — | | | | | | — | | | ||
| | | 2/21/2014 | | | | | | 75,000 | | | | | | — | | | | | | 2.05 | | | | | | 2/21/2024 | | | | | | — | | | | | | — | | | ||
| | | 1/6/2015 | | | | | | 75,000 | | | | | | — | | | | | | 0.84 | | | | | | 1/6/2025 | | | | | | — | | | | | | — | | | ||
| | | 1/18/2016 | | | | | | 75,000 | | | | | | — | | | | | | 0.70 | | | | | | 1/18/2026 | | | | | | — | | | | | | — | | | ||
| | | 2/14/2017 | | | | | | 70,312 | | | | | | 4,688 | | | | | | 1.02 | | | | | | 2/14/2027 | | | | | | — | | | | | | — | | | ||
| | | 3/18/2019 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 257,344 | | | | | | 155,153 | | | ||
| | | 3/6/2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 65,625 | | | | | | 39,565 | | |
employee.
Name | | | Fees Earned or Paid in Cash($) | | | Stock Awards($) | | | Total($) | | |||||||||
Jun S. Cho | | | | | 27,078 | | | | | | | | | | | | 27,078 | | |
Kiho Choi | | | | | 27,078 | | | | | | — | | | | | | 27,078 | | |
Blake A. Welcher | | | | | 25,065 | | | | | | | | | | | | 25,065 | | |
Name | Fees Earned or Paid in Cash($) | Stock Awards($)(1) | Total($)(2) | |||||||
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Jun S. Cho | 43,004 | 59,840 | 102,844 | |||||||
Kiho Choi | 45,004 | 54,400 | 99,404 | |||||||
Blake A. Welcher | 40.000 | 70,720 | 110,720 |
Equity Plan typically vest over four years in either 16 equal quarterly installments or one installment of 25% of the shares subject to the award on the one-year anniversary of the grant date and 12 equal quarterly installments thereafter, subject to continued service on each vesting date.
RSUs granted for employees and consultants under the Equity Plan typically vest semi-annually from the grant date over a four-year term, subject to continued service on each vesting date.
is the lesser of (i) the difference between the amount realized on the disposition and the exercise price or (ii) the difference between the fair market value of the stock on the exercise date and the exercise price. Any gain in excess of the amount taxed as ordinary income will be treated as a long or short-term capital gain, depending on whether the stock was held for more than one year. The Company, in the year of the disqualifying disposition, is entitled to a deduction equal to the amount of ordinary income recognized by the option holder, subject to possible limitations imposed by Section 162(m) of the Code and so long as the option holder'sholder’s total compensation is deemed reasonable in amount.
| | | Equity Compensation Plan Information | | |||||||||||||||
Plan Category | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights($)(1) | | | Number of securities remaining available for future equity compensation plans | | |||||||||
Equity compensation plans approved by security holders | | | | | 10,155,893(2) | | | | | | 1.16 | | | | | | 1,852,822(3) | | |
Equity compensation plans not approved by security holders | | | | | 400,000(4) | | | | | | 0.33 | | | | | | — | | |
Total | | | | | 10,555,893 | | | | | | 1.12 | | | | | | 1,852,822 | | |
| Equity Compensation Plan Information | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights($)(1) | Number of securities remaining available for future equity compensation plans | |||||||
Equity compensation plans approved by security holders | 10,422,437 | (2) | 1.17 | 1,101,572 | (3) | |||||
Equity compensation plans not approved by security holders | 800,000 | (4) | 0.22 | — | ||||||
| | | | | | | | | | |
Total | 11,222,437 | 1.10 | 1,101,572 | |||||||
| | | | | | | | | | |
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| | | | | | | | | | |
The Nominating and Corporate Governance Committee of our Board of Directors has recommended, and our
The Audit Committee of our Board of Directors
2021.
| | | Fiscal 2020($) | | | Fiscal 2019($) | | ||||||
Audit Fees(1) | | | | | 118,550 | | | | | | 126,800 | | |
Audit-Related Fees(2) | | | | | — | | | | | | — | | |
Tax Fees(2) | | | | | — | | | | | | — | | |
All Other Fees(2) | | | | | — | | | | | | — | | |
Total Fees | | | | | 118,550 | | | | | | 126,800 | | |
| Fiscal 2019($) | Fiscal 2018($) | |||||
---|---|---|---|---|---|---|---|
Audit Fees(1) | 126,800 | 137,600 | |||||
Audit-Related Fees(2) | — | — | |||||
Tax Fees(2) | — | — | |||||
All Other Fees(2) | — | — | |||||
| | | | | | | |
Total Fees | 126,800 | 137,600 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The
PROPOSAL No. 3—APPROVAL OF AMENDMENT TO OUR RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF OUR COMMON STOCK
Our Restated Certificate currently authorizes the issuance of 300,000,000 shares of our common stock, par value $0.001 per share. Our Board is proposing for approval by our stockholders an amendment to our Restated Certificate to increase the number of shares of our common stock we are authorized to issue by approximately 50%, from 300,000,000 shares to 450,000,000 shares. Our Restated Certificate also authorizes the issuance of 10,000,000 shares of preferred stock, par value $0.001 per share, which would remain unchanged by the amendment to our Restated Certificate contemplated by this Proposal No. 3.
Background: Our Current Capitalization
As of June 9, 2020, with respect to our common stock, there were:
Based on the above capitalization information, only 28,466,935 shares of our currently authorized common stock remained unissued and unreserved and available for future issuance as of June 9, 2020.
Reasons for the Proposed Increase to Our Authorized Shares of Common Stock
The Board has determined, in its business judgment, that an increase to the authorized shares of our common stock by approximately 50%, from 300,000,000 shares to 450,000,000 shares, is in the best interests of the Company and our stockholders, and as a result the Board has unanimously approved such an increase, subject to stockholder approval, and has unanimously recommended that our stockholders approve such an increase by voting in favor of this Proposal No. 3. In making this determination and approval, the Board considered, among other things: our historical share issuance purposes and rates, as described below; our anticipated future share requirements; guidelines and potential voting recommendations of third-party proxy advisory services, including Institutional Shareholder Services ("ISS"); recent practices at other public companies; and a recommendation from our management.
The Board believes the proposed increase to the authorized shares of our common stock is desirable, and is requesting that our stockholders approve the increase, for the following reasons:
We currently have no specific commitments, oral or written, which would require us to issue a material amount of new shares of our common stock, except with respect to the issuance of shares of our common stock (1) upon the exercise or conversion of outstanding securities, and (2) in connection with the Equity Plan and awards granted thereunder.
Possible Adverse Effects if this Proposal No. 3 Is Approved
If this Proposal No. 3 is approved by our stockholders, the Board would generally be able to issue the additional authorized shares in its discretion from time to time without further action by or approval of our stockholders, subject to and as limited by the rules and listing requirements of the OTCQX or any other then applicable securities exchange and the requirements of all applicable law.
Approval of this Proposal No. 3 could have the following adverse effects:
have agreements or other firm commitments for any such issuance, it is impossible to predict at this time the dilutive impact of any future share issuance. The level of any potential dilution would depend on a number of factors, including the price of our common stock at the time of any future issuance and the number of shares of our common stock then outstanding.
Except as described above, we do not presently have any plans, intentions or proposals to adopt other provisions or enter into other arrangements that may have material anti-takeover consequences, and the Board is not presently aware of any attempt, or contemplated attempt, to acquire control of our Company. Further, this Proposal No. 3 is not being presented with the design or intent that it be used to prevent or discourage a change in control or management or an acquisition attempt; however, stockholders should be aware that nothing would prevent the Board from taking any such actions that it deems consistent with its fiduciary duties.
Possible Adverse Effects if this Proposal No. 3 Is Not Approved
If this Proposal No. 3 is not approved by our stockholders, the number of shares of our common stock we would be authorized to issue would remain at its current level of 300,000,000 shares, and we would have only 28,466,935 shares of our common stock available for future issuance (based on our capitalization as of June 9, 2020, as described above, which does not take into account additional issuances of shares of our common stock in our ongoing "at-the-market" common stock offering program or for other reasons after that date).
A failure to obtain the approval of our stockholders of this Proposal No. 3 could have the following adverse effects:
remain on-going. Our capital requirements to support our existing operations, satisfy our commitments and pursue future growth depend on many factors, and we may need to raise additional funding through the issuance of equity or convertible debt securities in the future. If this Proposal No. 3 is not approved by our stockholders, then we may not have sufficient authorized and unreserved shares of our common stock to pursue such capital-raising transactions if and when market conditions and other factors make these funds available, in which case we may not be able to execute our business plans or take advantage of future opportunities, and we may be forced to modify our business model, implement cost-cutting measures, delay, scale back or eliminate some or all of our ongoing and planned investments and initiatives, or reduce or cease our operations entirely. Any of these outcomes could have a material adverse effect on our business, performance and prospects.
Rights of Additional Authorized Shares of Common Stock
The additional authorized shares of our common stock, if and when issued, would be part of our existing class of common stock and would have the same rights, preferences and privileges as the shares of common stock that are currently issued and outstanding.
Text and Effectiveness of the Increase to Our Authorized Shares of Common Stock
We propose to effect the increase to the authorized shares of our common stock by amending the first two sentences of Article IV(A) of our Restated Certificate to read in their entirety as follows:
"The corporation is authorized to issue two classes of stock to be designated, respectively, "Serial Preferred Stock" and "Common Stock." The total number of shares of stock which the corporation is authorized to issue is Four Hundred Sixty Million (460,000,000) shares consisting of Ten Million (10,000,000) shares of Serial Preferred Stock, with a par value of $0.001 per share, and Four Hundred Fifty Million (450,000,000) shares of Common Stock, with a par value of $0.001 per share."
The only change to the language of Article IV(A) being voted on in this Proposal No. 3 is to increase the total number of shares of our common stock we may issue by approximately 50%, from 300,000,000 shares to 450,000,000 shares, and consequently the total number of shares of stock we may issue by the same amount. Other than as set forth above, our Restated Certificate as currently in effect would remain unchanged by the amendment to effect the authorized share increase contemplated by this Proposal No. 3.
If this Proposal No. 3 is approved and adopted by our stockholders at the Annual Meeting, the increase to our authorized shares contemplated hereby would become effective upon our filing of a Certificate of Amendment to our Restated Certificate with the Secretary of State of the State of Delaware reflecting the amendments to Article IV(A) thereof as set forth above, or at such other date and time as may be specified in the Certificate of Amendment. Subject to the discretion of the Board to abandon the authorized share increase contemplated by this Proposal No. 3, as described below, we
expect to file such an amendment with the Secretary of State of the State of Delaware as soon as practicable following stockholder approval.
Board Discretion to Abandon the Increase to Our Authorized Shares of Common Stock
Even if this Proposal No. 3 is approved by our stockholders, the Board retains the discretion to abandon the increase to the authorized shares of our common stock as contemplated hereby, if it determines such an abandonment to be in the best interests of the Company and our stockholders.
No Appraisal Rights
Under applicable Delaware law, our stockholders are not entitled to appraisal rights with respect to the proposed amendment to our Restated Certificate to increase the number of authorized shares of our common stock we are authorized to issue.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF AN AMENDMENT TO OUR RESTATED CERTIFICATE TO INCREASE THE AUTHORIZED SHARES OF OUR COMMON STOCK.
This report has been reviewed and approved by the members of the Audit Committee of the Board of Directors. Each such member is an independent director within the meaning of applicable SEC rules. The Audit Committee has the duties and powers described in its written charter adopted by the Board. A copy of the charter is available on our website,www.netlist.com.
The purpose of the Audit Committee is to assist the Board in overseeing the integrity of Company's financial reporting process and financial statements, the Company's compliance with legal and regulatory requirements, and the performance, qualifications and independence of our independent registered public accounting firm. Management is responsible for the Company's financial reporting process and for designing and monitoring internal control systems. Our independent registered public accounting firm, KMJ, is responsible for performing an independent audit of the Company's consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board ("PCAOB").
In fulfilling its responsibilities, the Audit Committee has reviewed and discussed, with management and KMJ, our annual audited consolidated financial statements for our fiscal year ended December 28, 2019. The Audit Committee has also discussed with KMJ the matters required to be discussed by Auditing Standard No. 1301, "Communications with Audit Committees." In addition, the Audit Committee has received the written disclosures and the letter from KMJ required by applicable requirements of the PCAOB regarding KMJ's communications with the Audit Committee concerning independence and has discussed with KMJ its independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the financial statements referred to above be included in our annual report on Form 10-K for our fiscal year ended December 28, 2019 for filing with the SEC.
Name of Beneficial Owner | | | Shares Beneficially Owned | | | Percent of Class(1) | | ||||||
Chun K. Hong(2) | | | | | 7,537,669 | | | | | | 3.5% | | |
Gail Sasaki(3) | | | | | 674,921 | | | | | | * | | |
All executive officers and directors as a group (2 persons)(4) | | | | | 8,212,590 | | | | | | 3.8% | | |
Name of Beneficial Owner | Shares Beneficially Owned | Percent of Class(1) | |||
---|---|---|---|---|---|
Chun K. Hong(2) | 10,892,932 | 6.1% | |||
Gail Sasaki(3) | 701,670 | * | |||
Jun S. Cho(4) | 410,500 | * | |||
Kiho Choi(5) | 145,000 | * | |||
Blake A. Welcher(6) | 255,000 | * | |||
All executive officers and directors as a group (5 persons)(7) | 12,405,102 | 6.9% |
On May 17, 2018, we entered into a Share Purchase Agreement with a trust controlled by Mr. Hong, our President, Chief Executive Officer and Chairman of the Board, pursuant to which we issued and sold to Mr. Hong's trust 5,405,405 shares of our common stock at a price per share of $0.148 and for aggregate gross proceeds of approximately $800,000. The closing of such purchase and sale occurred on May 21, 2018. See "Security Ownership of Certain Beneficial Owners and Management" for more information about Mr. Hong's beneficial ownership of our securities.
Toppan Merrill Corporation
January 2, 2021
to receive multiple copies. This procedure reduces the environmental impact of our annual meetings and reduces our printing and mailing costs.
Netlist's
to shareholders of record of our common stock, "beneficial“beneficial owners of shares held in street name"name” as of the Record Date can vote using the methods described below.
voting instructions with respect to your shares, all shares represented by your proxy will be voted in accordance with the recommendation of our Board on each proposal to be presented at the Annual Meeting, as described in this Proxy Statement.
No | | | Proposal | | | |||||||||||||||
Vote Required | | | Routine vs. Non- Routine Matter | | | Effect of Abstentions | | | Effect of Broker Non-Votes | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1 | | | Election of Director | | | Plurality of Votes Cast | | | Non-Routine | | | No effect | | | No effect | | ||||
2 | | | Ratification of Auditor | | | Majority of Votes Cast | | Routine | | | No effect | | | None expected | ||||||
executive offices and must contain all of the information required by our Bylaws. We will not entertain any director nominations or other proposal at the Annual Meeting or at our 20212022 Annual Meeting of Stockholders that do not meet the requirements set forth in our Bylaws. Please refer to the full text of our Bylaws for additional information about these requirements. A copy of our Bylaws may be obtained by writing to our Corporate Secretary at the address of our principal executive offices or may be accessed on our website,www.netlist.com or through our SEC filings available atwww.sec.gov. Further, if we comply and the stockholder does not comply with the requirements of Rule 14a-4(c)(2) under the Exchange Act, we may exercise discretionary voting authority under proxies that we solicit to vote in accordance with our best judgment on any such stockholder proposal or nomination.
MMMMMMMMMMMM Netlist, Inc. C123456789 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000004 ENDORSEMENT_LINE______________ SACKPACK_____________ Your vote matters – here’s how to vote! You may vote online or by phone instead of mailing this card. Votes submitted electronically must be MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 received by 1:00am, Pacific Time, on August 7, 2020. Online GIof ntoo welwewct.rinovneicstvoortviontge,.com/NLST delete QR code and control # or scan the QR code — login details are located in the shaded bar below. Phone Call toll free 1-800-652-VOTE (8683) within the USA, US territories and Canada Save paper, time and money! Sign up for electronic delivery at www.investorvote.com/NLST Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. Your vote matters – here’s how to vote!You may vote online or by phone instead of mailing this card.Votes submitted electronically must be received by 1:00am, Pacific Time, on August 13, 2021.OnlineGo to www.investorvote.com/NLSTor scan the QR code — login details are located in the shaded bar below.PhoneCall toll free 1-800-652-VOTE (8683) within the USA, US territories and CanadaSave paper, time and money! Sign up for electronic delivery at www.investorvote.com/NLST 1.Election of Directors: 01 - Chun K. Hong q IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q + 1. Election of Directors: 01 - Chun K. Hong For Withhold For Against Abstain For Against Abstain 2. RatificationqForWithhold+ 2.Ratification of the appointment of KMJ Corbin & Company LLP as Netlist’s independentIndependent registered public accounting firm for fiscal 2020. 3. Approval of the amendment to Restated Certificate of Incorporation to increase the number of shares of common stock authorized to be issued by approximately 50%.2021. ForAgainst Abstain Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. Datetitle.Date (mm/dd/yyyy) — Please print date below. Signaturebelow.Signature 1 — Please keep signature within the box. Signaturebox.Signature 2 — Please keep signature within the box. C 1234567890 J N T MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +03HE2A 1 U P X 4 6 3 0 4 5 03A40A MMMMMMMMM B Authorized Signatures — This section must be completed for your vote to count. Please date and sign below. A Proposals — The Board of Directors recommend a vote FOR all the nominees listed in Proposal 1 and FOR Proposals 2 and 3. Annual Meeting Proxy Card1234 5678 9012 345X+